VAT Exempt Notes - BUSINESS TAX PDF

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VAT EXEMPT1. EXEMPT ON IMPORTATIONA. Importation of exempt goodsa. Agricultural or Marine Food products in original stateRequisites: Agricultural/Marine Food Products Original State (means raw form) / undergone simple processing (includes acts of preparation for the market, acts of preservation, act...

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VAT EXEMPT 1. EXEMPT ON IMPORTATION A. Importation of exempt goods a. Agricultural or Marine Food products in original state Requisites: 1. Agricultural/Marine 2. Food Products 3. Original State (means raw form) / undergone simple processing (includes acts of preparation for the market, acts of preservation, acts of packaging) Additional Exemption: - Livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption. - Breeding stock and genetic materials therefore Farm and Fishery Inputs (seeds, seedlings, breeding stocks, and genetic materials, fertilizers and feeds) are EXEMPT Requisites: 1. The ultimate purpose is for HUMAN CONSUMPTION (does NOT includes ingredients for the processing of human food, thus, such importation is vatable.) 2. Maintenance of these products are VATABLE (includes pesticides, herbicides, animal medicines, fishing equipment, fishing boat, tractors, plows, driers, threshers, and harvesters. b. Books, Newspapers and Magazine Requisites: 1. must appear at regular intervals with fixed prices for subscription 2. The sale must NOT be devoted principally to the publication of paid advertisements. 3. It does not include on the importation of school supplies such as chalk, board markers, etc. c. Passenger or Cargo Vessels and Aircrafts Requisites: 1. the exemption is limited only on the importation of PASSENGER, CARGO VESSELS and AIRCRAFTS ©lvlygtmn

- including its engine, equipment, and spare parts 2. The purpose of importation is for domestic or international transport operations 3. Subject to the retirement program of the MARINA - Passenger or Cargo Vessels – 15 years - Tankers – 10 years - High Speed passenger crafts – 5 years B. Importation by exempt persons VAT Exempt under NIRC a. International Shipping or air transport operators - Limited to the importation of FUEL, GOODS, and SUPPLIES Additional Notes: - The importation of fuel, goods, and supplies by persons engaged in international shipping or air transport operations shall be exempt IF such fuel, goods and supplies shall be used exclusively or shall pertain to the transport of goods and/or passengers from a port in the Philippines directly to a foreign port without stopping at any other port in the Philippines. - If any portion of such fuel, goods or supplies is used for purposes other than transporting of goods and/or passengers from a port in the Philippines directly to a foreign country, such portion of fuel, goods, and supplies shall be subject to 12% VAT.

b. Agricultural Cooperatives - Limited to importation of direct farm inputs, machineries and equipment, including their spare parts. Requisites: 1. duly registered and in good standing with Cooperative Development Authority (CDA) 2. the importation of limited goods aforementioned above must be used directly and exclusively in the production or processing of their products. Additional Notes: - Direct Farm inputs includes herbicides and pesticides, thus EXEMPT. - Its subsequent sales are NOT exempt from VAT c. Ecozone-locators - The exemption covers any goods, supplies or machineries brought into the ecozone by locators C. Quasi-Importation

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a. Import of PERSONAL and HOUSEHOLD EFFECTS belong to residents of the Philippines returning from abroad or non-residents citizens coming to resettle in the Philippines. Requisites: 1. Personal and Household effects 2. such must belong to residents or non-residents intending to resettle in the Philippines. 3. The goods are exempt from custom duties Notes: These goods are past consumption, thus previously subject to consumption tax herein. b. PROFFESIONAL instruments and implements, wearing apparel, domestic animals, and personal household effects belonging to persons coming to resettle in the Philippines, for their own use and not for sale, barter or exchange Requisites: 1. The goods must belong to persons who come to settle in the Philippines 2. The goods must accompany the persons upon arrival or within 90 days before or after his/her arrival. 3. There must be evidence to show that the change of residence is bona-fide. 4. The importation is NOT a vehicle, machinery or other equipment used in the manufacture or merchandise of any kind in commercial quantity. Note: Be aware on the nature and quantity of the goods imported, it must be consistent with the concept of personal, household effects and professional importation. D. Importation which are exempt under special laws and international agreement -

Import that are exempted by special laws, treaties or international agreements to which the Philippine governments is a signatory is not subject to the VAT on importation.

E. Vat-Exempt Import of Services a. Purchase of services from non-residents when the service is rendered abroad. b. Purchase of services from non-residents when the individual buyer is not engaged in business c. Purchase of services from non-residents by VAT-exempt persons such as ecozone locators.

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2. EXEMPT SALES (DOMESTIC SALES) A. Exempt Sales of Goods, or Properties (Mnemonic: SECRET Tax-Free Gold) 1. Sales of goods to Senior Citizens and PWD’s -

The exemption is limited to purchase of essential goods by Senior Citizens and PWD’s. Sale of Goods SC PWD a. Drugs, vaccines and foods for special medical purposes Yes Yes b. Vitamins and mineral supplements Yes No c. Accessories and equipment by or for senior citizens, such as eye glasses, hearing aid, dentures, prosthetics, artificial bone replacements, walkers, crutches, wheelchairs, quad Yes No canes, geriatric diapers, and other essential medical supplies, accessories and equipment. d. Casket or urn Yes Yes

2. Sales of Exempt goods a. Sale of Agricultural or Marine Food Products in Original State including its farmers and fishery inputs Requisites: 1. Agricultural/Marine 2. Food Products 3. Original State (means raw form) / undergone simple processing (includes acts of preparation for the market, acts of preservation, acts of packaging) b. Livestock/poultry feeds or ingredients in the manufacture of feeds -

Livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption. Breeding stock and genetic materials therefore

Farm and Fishery Inputs (seeds, seedlings, breeding stocks, and genetic materials, fertilizers and feeds) are EXEMPT Requisites: 1. The ultimate purpose is for HUMAN CONSUMPTION (does NOT includes ingredients for the processing of human food, thus, such importation is vatable.) 2. Maintenance of these products are VATABLE (includes pesticides, herbicides, animal medicines, fishing equipment, fishing boat, tractors, plows, driers, threshers, and harvesters.

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Exemption is QUALIFIED AND LIMITED only: - For plants or fruit cultivation – fertilizers, seeds and seedlings - For animal husbandry – livestock, feeds and ingredients for livestock and poultry feeds - For fishery operations – fingerlings, fish, and prawn c. Book, newspaper or magazines Requisites: 1. must appear at regular intervals with fixed prices for subscription 2. The sale must NOT be devoted principally to the publication of paid advertisements. 3. It does not include on the importation of school supplies such as chalk, board markers, etc. d. Medicines prescribed for diabetes, high cholesterol and hypertension (starting January 1, 2019) -

The sales of such medicines by manufacturers, distributors, wholesalers, and retailers, as determined by DOH, are exempt from VAT and OPT. Examples: 1. Insulins and analogues 2. Blood Glucose lowering drugs, such as biguanides, sulfonylureas, alpha glucosidase, inhibitors, thiazolidinediones, dipeptidyl peptidase 4 inhibitors, glucagon-like peptide1 analogues and sodium-glucose cotransporter 2 inhibitors; and others.

Note: The sales of medicines prescribed for diabetes, high cholesterol and hypertensions is EXEMPT, regardless of the buyer.

e. Passenger or Cargo Vessels and Aircrafts Requisites: 1. the exemption is limited only on the sales of PASSENGER, CARGO VESSELS and AIRCRAFTS - including its engine, equipment, and spare parts 2. The purpose of sales is for domestic or international transport operations 3. Sales of goods by Cooperatives Requisites: *except ELECTRIC cooperatives Transaction with: (only RELATED ACTIVITIES)

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Members

Non-Members Are subject to business tax on their sales to non-members if Exempt their accumulated reserves exceed P10M. Transaction from UNRELATED activities are SUBJECT to BUSINESS TAX regardless of type of cooperatives 4. Sales of Real Properties under Certain Conditions a. Sales by Non-dealers of realty (not engaged in the realty business) The VAT Exemption applies to: 1. Real properties classified as capital assets of VAT taxpayers 2. Any real properties of non-VAT taxpayers 3. Any real properties of persons not engaged in business b. Sales by a realty dealer, developer or lessor which complies with statutory ceilings 1. Sales of REAL Properties utilized for SOCIALIZED housing units: i. House and lot package – P450,000 ii. Residential Lots only – P180,000 2. Sales of REAL properties utilized for LOW-COST housing wherein the price ceiling per unit is P750,000. 3. Sale of RESIDENTIAL lot valued at P1,500,000/unit and below 4. Sale of RESIDENTIAL DWELLINGS valued at P2,500,000/unit and below. Rules on sales of ADJACENT lots - Must be treated as ONE transactions when the following conditions are met: 1. Same seller 2. Same buyer 3. Within the 12-month period 5. Export Sales by NON-VAT taxpayers -

The export sales of NON-VAT taxpayers are exempt from VAT and OPT.

6. Treaty-exempt sales of goods -

The sales to EXEMPT ENTITIES are exempt from VAT and OPT.

Examples of exempt parties under special laws or international agreements

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1. 2. 3. 4. 5. 6.

PEZA Registered entities Asian Development Bank (ADB) International Rice Research Institute (IRRI) Philippine National Red Cross Embassies of foreign governments The Philippine Amusement and Gaming Corporations

Note: For VAT taxpayers, the sales to these exempt entities means ZERO-RATED sales.

7. Tax-Free exchange of property The following exchange transactions are NOT vatable: a. Exchange of properties by a corporation in pursuant to a plan of merger or consolidation. b. Initial Acquisition of Control – Exchange of properties by a person, alone or together with others not exceeding 4, which resulted to the acquisition of control. 8. Sale of Gold to the BSP B. Exempt Sales of Services (Mnemonic: SEARCH² VA TRIPS) 1. Schools Services The education services rendered by: a. Private educational institution duly accredited by: i. Dep-ED ii. CHED iii. TESDA b. Government educational institutions

Note: SCHOOL Fees/Tuition Fees are only EXEMPT from business taxes.

Does cover services rendered by educational institutions that are NOT duly accredited by Dep-ED, CHED or TESDA, such as: a. Seminars b. In-service trainings c. Review Classes d. Other similar services 2. Employment -

Services performed by individuals in pursuant to an employer-employee relationship are exempt from business taxes. NOT employee: Professional practitioners, consultants, talents, TV artists, brokers, and agents

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3. Agricultural contracts growers and millers

Note:

Agricultural contract growers refer to persons producing for others poultry, livestock or other agricultural and marine food products in their original state.

The exemption is limited only for the purpose of HUMAN CONSUMPTION.

4. Residential Leasing -

Lease of residential unit with monthly rental NOT exceeding P15,000/unit is not vatable, regardless of aggregate annual receipts. The term unit shall mean: 1. An apartment unit – in the case of apartment 2. A house – in the case of residential houses 3. Per person – in the case of dormitories, boarding houses and bed spaces 4. Per room – in the case of rooms for rent

5. Cooperative Services -

The gross receipts from sale of services is exempt, the same rules discussed under sales of goods by cooperatives

6. Hospital Services -

Medical, dental, hospital services and veterinary services are not subject to business taxes VATABLE Health Services 1. Health services rendered PROFESSIONALS 2. Sales of Drugs by hospital drugstores

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Note: Sales of drugs by hospital to In-patient are part of the services, thus, EXEMPT

7. Home owner’s association or condominium corporations -

The TRAIN law exempted association dues, membership fees, and other assessments and charges collected by homeowner’s associations and condominium corporations on a purely reimbursement basis from business tax.

8. Lease passenger or Cargo Vessels and Aircrafts, including engine, equipment and spare parts thereof for domestic or international transport operations -

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Similar to import and sales, the leasing of vessels and aircrafts including spare parts and equipment thereof are VAT-exempt.

9. Treaty-exempt services -

Same rule discussed under sales of goods to treaty-exempt entities

10. Regional area headquarters -

Services rendered by regional or area headquarters established in the Philippines by multinational corporations which acts as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia Pacific Region and do not or derive income from the Philippines.

11. Transport of Passengers by International carriers Transport of: Passengers Cargoes

INTERNATIONAL CARRIERS OUTGOING Flights INCOMING Flights (from Phil. To Abroad) (From Abroad to Phil.) Exempt Foreign Consumption OPT Foreign Consumption

DOMESTIC CARRIERS with International Operations OUTGOING Flights (from INCOMING Flights (From DOMESTIC Phil. To Abroad) Abroad to Phil.) Flights Foreign Consumption, 0% VAT 12%VAT EXEMPT 12. Services of Printers or Publishers Requisites: 1. must appear at regular intervals with fixed prices for subscription 2. The sale must NOT be devoted principally to the publication of paid advertisements. 13. Sales of service to Senior Citizens and persons with disability Exempt Essential Services: a. Lodging establishment, such as apartel, dormitories, motorist hotel, tourism inn, pension house excluding long-term residency arrangements. b. Hospital and Clinic Services c. Sports and recreation centers d. Restaurants e. Land, air and sea travel f. Medical, dental, diagnostic and laboratory fees and professional medical fees g. Funeral or burial services for the burial of senior citizens C. Other Exempt Sales of Goods or Services 1. Sales of goods or services taxed by special laws

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Exempt Sales: a. Sales by Ecozone Locators b. Receipts of proprietors of theaters or cinemas 2. Sales by persons NOT engaged in businesses -

The sale of goods, real properties or services by persons not engaged in business is not subject to business taxes.

The following are NOT considered as businesses: a. Government Agencies and Instrumentalities b. Non-Profit Organizations or associations c. Employment d. Directorship in a corporation e. Business for mere subsistence (gross sales/receipts does not exceed P100,000/year) 3. Sake of assets held for use by NON-VAT taxpayers -

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Normally exempt from business taxes...