VALUE ADDED TAX VAT Persons liable Any person

VALUE ADDED TAX (VAT)

Persons liable Any person who in the course of his trade or business, sells, barters, exchanges or leases goods or properties (including transactions deemed sale) or renders services and any person who imports goods In case of importation of taxable goods, the importer whether an individual or corporation and whether or not made in the course of his trade or business shall be liable to VAT

VAT Liable: Goods or properties Refer to all tangible and intangible objects which are capable of pecuniary estimation and shall include : 1. Real properties held primarily for sale to customers or held for lease in the ordinary course of business 2. Right or privilege to use patent, copyright, design or model plan, secret formula or process, goodwill, trademark, trade name, trade brand or other like property or right

VAT Liable: Goods or properties (cont…. ) 3. The right or the privilege to use any industrial commercial or scientific equipment 4. The right or the privilege to use motion picture films, tapes and discs 5. Radio, television, satellite, transmission and cable television time

VAT Liable: Sale or Exchange of Service Refer to the performance of all kinds of services in the Phils. for others for a fee, remuneration or consideration whether in kind or in cash including those performed by the ff. – 1. Construction and service contractor 2. Stock, real estate, commercial, customs and immigration brokers 3. Lessors of property, whether personal or real 4. Persons engaged in warehousing services

VAT Liable: Sale or Exchange of Service (cont…) 5. Lessors, distributors of cinematographic films 6. Persons engaged in milling, processing, manufacturing or repacking goods for others 7. Proprietors, operators, or keepers of hotels, motels, rest houses, pension houses, inns, resorts, theaters, and movie houses 8. Proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers 9. Dealers in securities

VAT Liable: Sale or Exchange of Service (cont…) 10. Lending investors 11. Transportation contractors of goods or cargoes, including persons who transports goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods and cargo 12. Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Phil to another place in the Phil.

VAT Liable: Sale or Exchange of Service (cont…) 13. Sales of electricity by generation, transmission, and/or distribution companies 14. Franchise grantees of electric utilities, telephone and telegraph, radio and/or television broadcasting and all other franchise grantees, (except franchise grantees of radio and/or television broadcasting whose annual gross receipts does not exceed P 10 M and franchise grantees of gas and water utilities)

VAT Liable: Sale or Exchange of Service (cont…) 15. Non-life insurance companies (except crop insurance), including surety, fidelity, indemnity and bonding companies 16. Other similar services 17. Lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand, or other like property right 18. Lease or the use of, or the right to use any industrial, commercial or scientific equipment 19. Supply of scientific, technical industrial or commercial knowledge or information

VAT Liable: Sale or Exchange of Service (cont…) 20. Supply of any assistance that is ancillary and subsidiary as a means of enabling the application and enjoyment of the property, right, or knowledge, information as mentioned in (18) and (19) 21. Supply of services by a non-resident or his employee 22. Supply of technical advice, assistance or services 23. Lease of motion picture films, tapes and discs 24. Lease or the use of, or the right to use, radio, television, satellite, transmission and cable television time

Zero-rated sales: goods It is a taxable transaction for VAT purposes but shall not result in any output tax. Input tax on purchases related to such zero-rated sales shall be available as tax credit 1. A. Export sales 2. B. Foreign currency denominated sales C. Effectively zero-rated sales a.

Zero-rated sales: goods 1. A. EXPORT SALES 2. 1. sale and actual shipment of goods from the Phil. to a foreign 3. country, paid for in acceptable foreign currency and 4. accounted for in accordance with BSP rules and regulations 5. 6. 2. sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local exportoriented 7. enterprise to be used in the manufacturing, processing, 8. packing or repacking in the Phil of the said buyer’s goods, 9. paid for in acceptable foreign currency and accounted for

Zero-rated sales: goods 3. Sale of raw materials or packaging materials to an export-oriented enterprise whose export sales exceed 70% of total annual production 4. Sale of gold to BSP 5. Transactions considered as export sales under EO 226 and other special laws

On constructive export The following shall be considered constructively exported even without actual exportation, pursuant to EO 226 and other special laws: (i) sales to bonded manufacturing warehouses of exportoriented manufacturers (ii) sales to export processing zones pursuant to Republic Act (RA) Nos. 7916, as amended, 7903, 7922 and other similar export processing zones

On constructive export (cont…) (iii) sale to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant to RA 7227 (iv) sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of export products under guidelines to be set by the Board in consultation with the BIR and the BOC (v) sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not.

Zero-rated sales: goods 6. sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations, pertaining to or attributable to the transport of goods and passengers from a port in the Philippines directly to a foreign port, or vice versa, without docking or stopping at any other port in the Philippines unless the docking or stopping at any other Philippine port is for the purpose of unloading passengers and/or cargoes that originated from abroad, or to load passengers and/or cargoes bound for abroad

Zero-rated sales – goods (cont. ) b. Foreign currency denominated sales c. Effectively zero-rated sales Sale of goods or property to persons or entities who are tax-exempt under special laws or international agreements to which the Philippines is a signatory, such as, ADB, IRRI, etc. , shall be effectively subject to VAT at zero-rate. (Note: Sales to enterprises duly registered and accredited by SBMA and with the PEZA –deleted)

Zero-rated sales (services) 1. Processing, manufacturing or repacking goods for others doing business outside the Phil, which goods are subsequently exported, paid for in acceptable foreign currency and accounted for in accordance with BSP rules and regulations 2. Services other than processing, manufacturing or repacking rendered to persons outside the Phil, paid for in acceptable foreign currency and accounted for in accordance with BSP rules

Zero-rated sales (services) 3. Services rendered to persons or entities whose exemption under special laws or int’l agreement to which the Phil. is a signatory effectively subjects the services to 0% rate 4. Services rendered to persons engaged in int’l shipping or air transport operations, including leases of property for use thereof (except services of common carriers by air or sea relative to transport of passengers, goods or cargoes from one place in the Phil. to another place in the Phil. )

Zero-rated sales (services) 5. Services performed by subcontractors/contractors in processing, converting or manufacturing goods for an enterprise whose export sales exceed 70% of total annual production 6. Transport of passenger and cargo by domestic air or sea carriers from Phil. to foreign country

Zero-rated sales (services) 7. Sale of power or fuel generated thru renewable sources of energy such as biomass, solar, wind, hydropower, geothermal and steam, ocean energy and other emerging sources using technologies such as fuel cells and hydrogen fuel (excluding services related to the maintenance or operation of plant generating said power

Effectively zero-rated sales - shall refer to the local sale of goods, properties or services by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or international agreement (Note: Provision for the required prior approval for effectively zero rated sales – deleted pursuant to RR 4 -2007)

Transactions deemed sale Tax Base Ø The Commissioner of Internal Revenue shall determine the appropriate tax base in cases where a transaction is deemed a sale, barter or exchange of goods or properties or where the gross selling price is unreasonably lower (lower by more than 30%) than the actual market value. Ø If one of the parties in the transaction is the government as defined and contemplated under the Administrative Code, the output VAT on the transaction shall be based on the actual selling price

Rules on invoicing and recording of “deemed sale” transactions • Memorandum entry in the subsidiary sales journal to record withdrawal of goods for personal use must be made - For distribution to shareholders and creditors – • invoice shall be prepared at the time of the occurrence of the transaction recorded in the subsidiary journal

Rules on invoicing and recording of “deemed sale” transactions For retirement or cessation of business – • • • inventory shall be prepared and submitted to RDO not later than 30 days from retirement invoice shall be prepared for the entire inventory entry in the subsidiary sales journal Note: If business is to be continued by new owner, the entire amount of output tax shall be allowed as input tax

Change or Cessation of Status as VAT Registered Subject to output tax VAT shall apply to goods or properties originally intended for sale or use in business and capital goods which are existing as of the occurrence of the following: 1. Change of business activity from VAT to exempt status 2. Cancellation of registration due to reversion to exempt status 3. Cancellation of registration, of a person who voluntarily registered despite being exempt, to revert to exempt status after the lapse of 3 years 4. Cancellation of registration of a VAT registered person who failed to exceed P 1. 5 M during the 12 month period.

Change or Cessation of Status as VAT Registered (cont. ) Not subject to VAT shall not apply to goods or properties existing as of the occurrence of the following; 1. Change of control of a corporation (acquisition of controlling interest by another stockholder or group of stockholders. 2. Change in trade of corporate name of business 3. Merger or consolidation of corporations

Change or Cessation of Status as VAT Registered (cont. ) Rules on exchange of real property Exchange of real estate properties held for sale or for lease, for shares of stocks, whether resulting to corporate control or not, is subject to VAT, subject to exceptions provided under Section 4. 106 -3 hereof. Exception: If the transferee of the transferred real property by a real estate dealer is another real estate dealer, in an exchange where the transferor gains control of the transfereecorporation, no output VAT is imposable on the said transfer.

Rules on Non-life Insurance Companies Ø Non-life insurance companies including surety, fidelity, indemnity and bonding companies are subject to VAT. They are not liable to the payment of the premium tax under Sec. 123 of the Tax Code. Ø Non-life insurance premiums are subject to VAT whereas nonlife reinsurance premiums are not subject to VAT, the latter being already subjected to VAT upon receipt of the insurance premiums. Insurance and reinsurance commissions, whether life of non-life, are subject to VAT.

Rules on Gross Receipts refers to the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits applied as payments for services rendered and advance payments actually or constructively received during the taxable period for the services performed or to be performed for another person, excluding the VAT, Exception: amounts earmarked for payment to unrelated third (3 rd ) party or received as reimbursement for advance payment on behalf of another which do not redound to the benefit of the payor.

Rules on Gross Receipts (cont. ) A payment is a payment to a third (3 rd) party if the same is made to settle an obligation of another person, e. g. , customer or client, to the said third party, which obligation is evidenced by the sales invoice/official receipt issued by said third party to the obligor/debtor (e. g. , customer or client of the payor of the obligation) Advance payment is an advance payment on behalf of another if the same is paid to a third (3 rd) party for a present or future obligation of said another party which obligation is evidenced by a sales invoice/official receipt issued by the obligee/creditor to the obligor/debtor (i. e. , the aforementioned “another party”) for the sale of goods or services by the former to the latter Unrelated party shall not include taxpayer’s employees, partners, affiliates (parent, subsidiary and other related companies), relatives by consanguinity or affinity within the fourth (4 th) civil degree, and trust fund where the taxpayer is the trustor, trustee or beneficiary, even if covered by an agreement to the contrary.

Value-Added Tax Rates • February 1, 2006 12% & 0% If any of the following conditions has been satisfied: • VAT collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four fifth percent (2 4/5% or 2. 8%); or • National government deficit as a percentage of GDP of the previous year exceeded one and half percent (1 1/2% or 1. 5%).

New VAT Coverage - 12% VAT • Sale of nonfood agricultural products; marine and forest products in their original state by primary producer or owner of the land • Sale of cotton and cotton seeds in their original state Note: COPRA has been reclassified as food agricultural product and still exempt from VAT under the amendatory Act • Sale or importation of coal and natural gas, in whatever form or state • Sale or importation of petroleum products, including raw materials for their production • Toll road operations • PAGCOR and its licenses and franchises;

New VAT Coverage - 12% VAT • Sale of residential lot exceeding P 1. 5 M, residential house and lot or other residential dwellings exceeding P 2. 5 M • Sale by the artist of his works of art, literary works, musical compositions and similar creations, or his services performed for the production of such works; • Services rendered by doctors of medicine duly registered with the PRC; • Services rendered by lawyers duly registered with IBP; • Common carriers by air and sea relative to their transport of passengers from one place in the Philippines to another place in the Philippines;

New VAT Coverage - 12% VAT • Sale of electricity by generation, transmission and distribution companies (except sale of power fuel generated through renewable sources of energy which is 0%); and • Sale by electric cooperatives as well as importation of machines and equipments including spare parts. REPEALED: • Zero-rating of generation companies • VAT exemption of NPC • VAT exemption of electric cooperatives including their importation of machineries and equipment • 3% franchise tax on electric utilities

New VAT Coverage – Zero-Rated • Sale of goods, supplies, equipment and fuel (including leases of property) and services to persons engaged in international shipping or international air transport operations. (However, services and goods pertaining to transport from one place in the Philippines to another place in the Philippines is subject to 12% VAT) • Transport of passengers and cargo by domestic air or sea vessels from the Philippines to a foreign country.

New VAT Coverage – Zero-Rated • Sale of power or fuel generated through renewable sources of energy such as biomass, solar, wind hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels. • Sale of services paid for in acceptable foreign currency and accounted for in accordance with BSP rules provided that services should be performed for the following: • Persons engaged in business conducted outside the Philippines; • Non-resident persons not engaged in business who is outside the Philippines when the services are performed.

Additional Exemptions • Gross receipts from lending activities by credit or multipurpose cooperatives duly registered with Cooperative Development Authority (Note: Previously covers lending to members only now including lending to non-members); • Private educational institutions accredited by Dep. Ed, CHED, TESDA and government educational institutions; • Sale of vatable goods or lease of goods and properties and performing of services with gross annual sales/receipts not exceeding P 1. 5 M.

Additional Exemptions • Sale, importation or lease of passenger or cargo vessels and aircrafts, including engine, equipment and spare parts for domestic or international transport operations. Provided that the: • Exemption from VAT on the importation and local purchase of passenger and/or cargo vessels shall be limited to those of one hundred fifty (150) tons and above, including engine and spare parts of said vessels; • Vessels to be imported shall comply with the age limit requirement, as follows: 1. passenger and/or cargo vessels - 15 yrs. old 2. tankers - 10 yrs. old 3. high-speed passenger crafts - 5 yrs. old

Additional Exemptions • Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations; Provided that the: • Fuel, goods and supplies shall be used exclusively or shall pertain to the transport of goods and/or passenger from a port in the Philippines directly to a foreign port without stopping at any other port in the Philippines or vice versa without docking or stopping at any other port in the Phil. unless the docking or stopping is for the purpose of unloading passengers and/or cargoes that originated from abroad, or to load passengers and/or cargoes bound for abroad. • Fuel, goods or supplies is used for purposes other than that mentioned in this paragraph, such portion of fuel, goods and supplies shall be subject to 12% VAT.

Additional Exemptions • Importation of life-saving equipment, safety and rescue equipment and communication and navigational safety equipment, steel plates and other metal plates including marine-grade aluminum plates, used for shipping transport operations • Importation of capital equipment, machinery, spare parts, life saving and navigational equipment, steel plates and other metal plates including marine-grade aluminum plates to be used in the construction repair, renovation or alteration of any merchant marine vessel operated or to be operated in the domestic trade.

Exemptions, as amended • Sale of residential lot valued at P 1. 5 million and below, and house and lot and other residential dwellings valued at P 2. 5 million and below; Note: Previously P 1 M per 1997 NIRC/P 1. 5 M per RR 1 -2005 • Lease of residential units with a monthly rental per unit not exceeding P 10, 000; Note: Previously P 8, 000 per RR 1 -2005 • Sale of goods and services with gross annual sales/receipts not exceeding P 1. 5 M Note: Previously P 550, 000 per 1997 NIRC/P 750, 000 per RR 12005

Specific Rules on Exempt Transactions • Agricultural cooperatives (duly registered and in good standing with CDA) Exempt transactions Ø Sale or importation of agricultural food products in their original state Ø Sale to their members Ø Sale of their produce to non-members Ø Importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce Note: Sale by agricultural cooperatives to non-members can only be exempted from VAT if the producer of the agricultural products sold is the cooperative itself If the cooperative is not the producer (e. g. trader) only those sales to its members shall be exempted from VAT

Specific Rules on Exempt Transactions • Sale of real properties Exempt transaction Ø Sale of real properties not primarily held for sale or for lease in the ordinary course of trade or business Exclusion: Real properties not primarily held for sale or for lease but is used in the trade or business of the seller (transactions incidental to the taxpayer’s main business)

Apportionment of input tax on mixed transactions • Input tax directly attributed to VATable transactions may be recognized for input tax credit • Input tax directly attributable to VATable sales to government shall not be credited against output tax from sales to non-government entities • Claims for VAT refund/TCC with the BIR, BOI, One-Stop-Shop and Duty Draw Back Center of DOF should be deducted from the allowable input tax that are attributable to zero-rated sales. • Input tax that cannot be directly attributed to either VATable or exempt transaction shall be pro-rated and only the ratable portion can be allowed as tax credit • Input tax attributable to VAT exempt transaction shall not be allowed as tax credit but should be treated as part of cost or expense • Input tax attributable to the zero-rated sales may be refunded or applied for tax credit certificate

Apportionment of Input Tax on Mixed Transactions Taxable sales to private X Total sales Input Tax = Creditable Taxable sales to govt. Total sales X Input Tax = Creditable Exempt sales Total sales X Input Tax = Expense or cost

VAT on Government Purchases • Sale of goods and services to government is subject to 12% VAT; • The 5% VAT withheld represents the net VAT payable of the seller • The remaining 7% effectively accounts for the standard input tax in lieu of the actual input VAT • If actual input VAT exceeds 7% of gross payments, the excess may form part of the sellers’ cost; and • If actual input VAT is less than 7% of gross payments, the difference must be treated as income of the seller. • The income received from the government while subject to final withholding on VAT shall still be reported in the VAT return

Withholding of VAT from Non-residents Government as well as private entities shall withhold a 12% VAT with respect to the following payments 1. Lease or use of properties or property rights owned by nonresidents 2. Services rendered to local insurance company with respect to reinsurance premiums payable to non-residents 3. Other services rendered in the Philippines by non-residents

Rules for Unutilized Advance VAT Payments (For Sugar and Wheat/Flour) *In general, advance payments shall be allowed as credit against output tax* • Unutilized advance payments at the end of the taxable year where advance payment was made may at the option of the taxpayer be – Ø Allowed as credit against output tax or Ø Available for the issuance of TCC - application to be filed w/in 2 years from the date of filing the 4 th qtr VAT return or - from the last day prescribed by law for filing the return

Rules for Unutilized Advance VAT Payments (For Sugar and Wheat/Flour) • Advance VAT payments which have been the subject of an application for the issuance of TCC shall not be allowed as carryover nor credited against the output tax of the succeeding quarter/year • Issuance of TCC shall be limited to the unutilized advance VAT payment and shall not include excess input tax

Summary VAT Zero-Rated Subject to 12% Subject to 0% VAT (for VAT liable Local sales – 12% transactions) (if VAT liable, otherwise exempt) Allowed to claim input tax of 12% on VAT purchases of goods & services Allowed to claim input tax of 12%. Option to claim TCC on excess input taxes. Effectively Zero-Rated Exempt Sale to Zero. Not subject rated entities is – subject to 0% Local sales – 12% Allowed to claim input tax of 12% on VAT purchases of goods & services Not allowed to claim input taxes. VAT forms part of the asset, cost or expense.

Persons Required to Register as VAT NIRC Every person who in the course of trade or business, sells, barters or exchanges goods or properties, or engages in the sale or exchange of services shall be liable to register for VAT Mandatory -GS/GR for any 12 mo period exceeds P 550 T RA 9337 Mandatory - GS/GR for the past 12 months have exceeded P 1, 500, 000 GS/GR for the next 12 months will exceed P 1, 500, 000 - P 750, 000 per RR 12005 - Optional -VAT exempt person (gross sales/ Optional receipts do not exceed P 1. 5 M) - VAT exempt person (gross sales/receipts -VAT registered person with mixed transaction (for transaction which do not exceed would have been exempt) P 550, 000/P 750, 000 -Franchise grantees of radio/TV broadcasting where gross receipts do not exceed P 10 M) Irrevocable for 3 years irrevocable

Penalty for Failure to Register as VAT Taxpayer He shall be liable to pay the tax as if he was a VAT registered person, but he cannot avail of the benefits of input tax credit for the period he was not properly registered.

Persons Required to Register as Non-VAT Taxpayer • VAT- exempt person under Sec. 109 of the Tax Code who did not opt to register as VAT taxpayer • Individuals engaged in business where the gross sales/receipts do not exceed P 100, 000 during any 12 -month period • Non-stock, non-profit organization sand associations engaged in trade or business whose gross sales/receipts do not exceed P 1. 5 M in any 12 -month period • Cooperatives other than electric cooperatives • Radio and TV broadcasting whose gross annual receipts do not exceed P 10 M and which do not opt to be VAT registered • PEZA and other ecozone registered enterprises enjoying the preferential tax rate of 5% in lieu of all taxes • SBMA and other free pro zone-registered enterprises enjoying the preferential tax rate of 5% in lieu of all taxes

Invoicing Requirements A VAT-registered person shall issue: • For every sale, barter or exchange of goods or properties - VAT invoices • For every sale, barter or exchange of services or lease of goods or properties - VAT official receipts Information needed in the VAT Invoice or VAT Official Receipt: 1. Name and business address of taxpayer who will use the invoice/official receipt; 2. TIN of taxpayer followed by the word “VAT”; 3. The amount of tax shown as a separate item; 4. Date of transaction, quantity, unit cost and description of the goods or properties or the nature of the service; 5. Authority to Print details and serial number of booklets at the lower left corner of receipt.

Invoicing Requirements • The word “VAT EXEMPT SALE” written or printed prominently if sale is VAT-exempt; • The words “ZERO-RATED SALE” written or printed prominently if sale is subject to zero percent • Option to issue combined or separate invoices/receipts of sale in a combination of VAT-liable and VAT-exempt sale. If the sale is combined, the invoice or receipt should indicate the break-down of the sale price between the taxable and the exempt component and the calculation of the VAT • For sale to VAT-registered persons amounting to P 1, 000 or more, indicate the name, business style (if any), address and TIN of the purchaser

Sample Invoice No. 037585 ABAKA CORP. 88 East Avenue, Quezon City VAT Reg. TIN: 115 -688 -025 -000 June 06, 2005 Sold to Address TIN : TAUWAYA Corp. : 75 Fairview St. , Brgy. Pio del Pilar, Makati City : 215 -880 -000 VAT DESCRIPTION Spiral Notebook 100 pcs. /box Poultry products. Eggs (Per Dozen) Native Decors for Export (100 pcs. /box) QTY UNIT COST TOTAL 50 P 3, 200 P 160, 000 Vatable 100 42 4, 200 VAT-Exempt Sale 50 12, 000 600, 000 Zero-rated Sale Vatable Sales VAT-Exempt Sale Zero-rated Sale TOTAL SALES 10% VAT TOTAL ATP AMOUNT PAYABLE P 160, 000 4, 200 600, 000 P 764, 200 16, 000 P 780, 000 TRANSACTION TYPE

Penalties for Erroneous Issuance of VAT Invoice or VAT Official Receipt Infraction Penalty 1. NON-VAT person who issues - payment of percentage tax, if applicable a VAT invoice/official receipt - payment of VAT (w/out input tax) - 50% surcharge on the VAT due - If the invoice/official receipt contains the required information, purchaser shall be allowed to recognize an input tax credit 2. VAT-registered person who issues a VAT invoice/official receipt for a VAT-exempt sale without the words “VATEXEMPT SALE” Subject to 12% VAT

Submission of SLS/SLP Persons required to submit: • Summary List of Sales – all VAT taxpayers with quarterly gross sales/receipts exceeding P 2. 5 M • Summary List of Purchases – all VAT taxpayers with gross purchases in excess of P 1 M.

Thank you!