a.

EFFECTIVELYZERORATEDSALES:localsaleofgoodsandproperties
byaVATregisteredpersontoapersonorentitywhowasgranteddirectand
indirecttaxexemptionunderspeciallawsorinternationalagreement.
i. Itisnotthepersonenjoyingtaxexemptionprivilegeunderspecial
law or international agreement which is given the privilege of
enjoyingzeroratingunderVAT butthesalesbysupplierstosuch
persons.
ii. Sales to entities exemption of which under a special law or
international agreement effectively zero rate such sales are
effectivelyzerorated.Salesofgoodsorpropertytogoodspersonsor
entitieswhoareexemptfromdirectandindirecttaxesunderspecial
laws(egSUBIC BayMetropolitanAuthority) salestoenterprises
with PEZA or international agreements (ex ADB IRRI) shall be
subjecttoVATatzeropercent.

iii. CoconutOilRefinersAssociationvs.TORRESallgoodsneededin
ecozone or Freeport zone which are used and consumed within
ecozoneorFreeportzoneshouldenjoytaxanddutyexemption.
1. Aslongasgoodsremainintheareaconsumedthereorre
exportedordestroyedinthatplacetheycannotbesubjectto
dutiesandtaxes.

iv. Exceptforexportsaleandforeigncurrencydenominatedsaleother
cases of zerorated sales shall require prior application with
appropriate BIR office. Without approved application transaction
otherwiseentitledtozeroratingshallbeconsideredexempt.

Question:ShouldtaxpayerstillapplyforVATzeroratingonsalesitmadepriortoRA
9337?
A:ContractofsalesofindustrialgasestoPEZAregisteredenterprisespriortoRA9337are
subjectto0%VATandrequirenopriorapprovalforzeroratingbyBIRbasedonRMC74
99.RMC7499expressedthatsalestoPEZAregisteredenterprisesrequirepriorapplication.
HoweversincetaxpayerscontractsofsaleswereenteredintopriorRA9337andRR1605
theirprovisionsrequiringpriorapplicationdonotapply.

b. SALEOFGOLDTOBSP
i. Itissubjectto0%VATtoencouragesaleofgoldtoBSP.
ii. BeforeamendmentofVATlawsaleofgoldtoBSPwaszerorated
saleofgoldtoBSPwasconsideredasexportsale
iii. VATRuling00892andVATRuling5992saleofgoldissubject
to10%VATasadomesticsale.
iv. SC ruled that prejudice to petitioner by retroactive application of
VATRuling00892ispatentlyevidence.Bydenialofitsclaimfor
refund petitionerhasbeenprecludedfromrecoveringitsinputtax
costsattributabletoitssalesofgoldduringsaidperiod becauseit
couldnotpassonBSPthe10%VAT.

c. Foreigncurrencydenominatedsaleofgoods
i. Sale of goods assembled or manufactured in the Philippines for
deliverytoaresidentofPhilippines paidforinacceptableforeign
currencyandaccountedforunderBSPrulesarezerorated.
 1. EXCEPTIONS:
a. Automobiles(SEC149)
b. Nonessentialgoods(SEC150)
i. Jewelry
ii. Perfumes
iii. Toiletwaters
iv. Yacht and other vessels intended for
pleasureorsports

d. Sale of goods supplies equipment and fuel to persons engaged in

internationalshippingorinternationalairtransportoperations.
i. Sameislimitedtogoodssuppliesequipmentandfuelpertainingto
orattributabletotransportofgoodsandpassengersfromaportinthe
Philippinesdirectlytoaforeignportorviceversa withoutdocking
orstoppingatanyotherportinthePhilippines unlessitisforthe
purposeofunloadingpassengersandcargoesthatoriginatedaboard
orboundforabroad.
ii. Ifportionofsuchfuelgoodsorsuppliesisusedforpurposesother
thanthatsuchportionoffuelgoodsandsuppliesshallbesubjectto
1012%VAT.
iii. WITHOUTDOCKINGORSTOPPINGATANYOTHERPORT:
international airline that makes a stopover in a Philippine port to
unloadpassengersand/orcargoesfromforeigndestinationortopick
uppassengersand/orcargoesforforeigndestinationisdeemednotto
havedockedorstoppedatanyotherportinthePhilippines.

Servicechargestoforeignvesselsengagedininternationalshippingiszerorated
Docking charges computed based on US dollars and converted to Philippine pesos for
docking(luggageentrance)andundockingservices(luggagedeparture)renderedtoforeign
vessels(foreignprincipals)iszerorated evenifcompanydidnotbilldirectlytheforeign
principalbutbilledonlyitslocalhusbandingagentandthatthepaymentswerenotreceived
inforeigncurrencybutinpesos.

EffectivelyzeroratedsalestoPEZAandBOIregisteredfirms
NotwithstandingabsenceofactualexportationsalestoPASARPHILPHOSbeingBOIand
PEZAregisteredandexportorientedenterprisesarezeroratedpursuanttoART23and77
OMNIBUSINVESTMENTSCODE.Lawdoesnotrequirethat100%ofitssalesbeactually
exported.Foraslongasenterpriseexportsover70%ofitssales100%ofitsnetinputtaxes
paidmayberefunded.

ZEROPERCENT(0%)VATonsaleofservices
FollowingservicesperformedbyVATregisteredpersonsshallbesubjecttozeropercent
(0%)rate:
1. Processing manufacturing or repacking (PMR) goods for other persons doing
businessoutsidePhilippineswhichgoodsaresubsequentlyexportedwhereservices
arepaidforinacceptableforeigncurrency.
2. ServicesotherthanPMRrenderedtoapersonengagedinbusinessconductedoutside
Philippinesortoanonresidentpersonnotengagedinbusinesswhoisoutsidethe
Philippines when services are performed consideration for which is paid for in
acceptableforeigncurrency.
 3. Services rendered to persons or entities whose exemption under special laws or
international agreements to which Philippines is a signatory effectively subjects
supplyofsuchservicesto0%rate.
a. EFFECTIVELYZERORATEDSALES:transactionsfallingintothissection
b. PURPOSEOFPROVISION: recognizeandmaintainsuchcompleterelief
fromburdenofindirecttaxasintendedtobeenjoyedbycertainentitiesunder
speciallawsorinternationalagreementsbypermittingsalestosuchentitiesto
bezerorated.

4. Servicesrenderedtopersonsengagedininternationalshippingorinternationalair
transportoperationsincludingleasesofpropertyforuseofit.
a. Servicesshallnotpertaintothosemadetocommoncarriersbyairandseal
relativetotheirtransportofpassengersgoodsorcargoesfromoneplacein
PhilippinestoanotherplaceinPhilippinesthisissubjecttoregularVAT
rate(SEC108).

5. Servicesperformedbysubcontractorsand/orcontractorsinprocessingconvertingor
manufacturinggoodsforanenterprisewhoseexportsalesexceed70%oftotalannual
production.
6. TransportofpassengersandcargobydomesticairorseacarriedfromPhilippinesto
foreigncountry.Grossreceiptsarestillliableto3%percentagetax(SEC118)butnot
VAT.

7. Saleofpower or fuel generatedthroughrenewable sources(biomass solarwind

hydropowergeothermalsteamoceanenergyfuelcells).
a. Zeroratingshallnotapplystrictlytothesale of powerorfuelgenerated
throughrenewablesourcesandshallnotextendtosaleofservicesrelatedto
maintenanceandoperationofitsplants.

Allothertaxablesalesofservicesnotentitledtozeroratingaresubjectto10%or12%.
PURPOSE OF APPLYING ZERORATE: exempt transaction completely from VAT
previously collected on purchases. This arises because sales of VATregistered seller are
subjectto0%ratewhileinputtaxesonhispurchasespassedontohimbyVATregistered
suppliersmayberecoveredbackfromBIRinformoftaxrefundsorcredits.

Serviceotherthanprocessing manufacturingorrepackingofgoodsmustbe
performedforpersonsdoingbusinessoutsidethePhilippines

CIRvs.BURMEISTER&WAINSCANDINAVIANCONTRACTORMINDANAOINC:
FACTS:
1. Foreign consortium entered into a contract with NAPOCOR for operation and
maintenanceoflatterspowerbarges.
2. BURMEISTER:subcontractedactualoperationandmaintenanceofbargesandother
acts whichhavetobedoneinthePhilippines whichwas paidbyconsortium in
foreigncurrencyinwardlyremittedtoPhilippinesthroughbankingsystem.
a. BIRRULING02395:ifBURMEISTERregistersasaVATpersonandthe
considerationforitsservicesispaidforinacceptableforeigncurrencyand
accountedforinaccordancewithrulesandregulationsofBSPservicesshall
besubjecttoVATatzerorate.Hence BURMEISTERregisteredasVAT
taxpayer.
 b. In1997BURMEISTERavailedofBIRsVoluntaryAssessmentProgramfor
1996interpretingRR596tomeanthatitssalesofservicestoconsortiumis
subjectto10%VAT.Itfiledanamended1996VATreturnandpaid56.9M
asoutputtax.
c. ItthensecuredVATRuling00399whichreconfirmedBIRRULING023
95whichheldthatBURMEISTERsservicesarezerorated.
d. On this basis BURMEISTER filed a claim for issuance of tax credit
certificateon1996outputVAT.

3. BIR:
a. BURMEISTERsservicesarenotdestinedforconsumptionabroadandare
notinsamenatureasprojectstudies informationservices engineeringand
architectural designs and other similar services subject to 0% VAT (SEC
4.1022RR596).Thereforetheyaresubjecttoregular10%VAT.

4. CTA:BURMEISTERissubjectto0%VAT
a. Paymentofservicefeesisacceptableforeigncurrency
b. ForeigncurrencywasinwardlyremittedintoPhilippines
c. InwardremittanceisaccountedforinaccordancewithBSPrules
5. CA:affirmedCTA

HELD:reversedCTAandCA;butfavoredrespondent.
1. TaxCodenotonlyrequiresservicesbeotherthanPMRofgoodsandthatpayment
forsuchbeinacceptableforeigncurrency.
2. Another requirement is recipient of such business is doing business outside
Philippines.
a. WhilethisrequirementisnotstatedinSEC102(b)thisisclearlyprovidedin
PAR1 SEC102(b)wherelistedservicesmustbeforotherpersonsdoing
businessoutsidethePhilippines.
3. SEC 102(b)when it stipulated payment in acceptable foreign currency it
envisioned the payerrecipient of services to be doing business outside the
PhilippinessinceonlythosenotdoingbusinessinPhilippinescanberequiredtopay
in acceptable foreign currency for their purchase of goods and services from
Philippines.
4. Expresslyincludedamongtransactionssubjectto0%VATareservicesotherthan
thosementionedinPAR1 SEC108(b)renderedtoapersonengagedinbusiness
conductedoutsidePhilippinesortoanonresidentpersonnotengagedinbusiness
who is outside the Philippines when services where performed consideration for
whichitispaidforinacceptableforeigncurrency.
5. SCstillfavoredrespondentbecauserevocationofBIRRULING02395andVAT
RULING00399cannotapplyretroactivelyasrulingswerewhatrespondentinvoked
inapplyingforrefundofoutputtax.

ACCENTUREvs.CIRifprovidedandrecipientofotherservicesarebothdoingbusiness
inPhilippinespaymentofforeigncurrencyisirrelevant.ItissubjecttoregularVAT.

Zeroratingdoesnotrequirethatservicesbedestinedforconsumptionabroad
orbeexported
WhileSEC108(b)onlyrequirespaymentofservicesinacceptableforeigncurrency VAT
RULING04098requiresthatservicesbedestinedforconsumptionabroadandnotrendered
withinthePhilippines.
 Sourceofforeigncurrencyisnotrequiredbylawtobezerorated
Inavailingzeroratingincentiveforforeigncurrencyremittanceinourcountryitissufficient
thatforeigncurrencyinwardlyremittedinoureconomy.

SaleofservicetoNPCiseffectivelyzerorated
NPCisanentitywithaspecialcharterwhichmakesitexemptfrompaymentofalltaxes
includingVAT.HencebyvirtueofthischarterservicesrenderedbyaVATregisteredentity
toNPCareeffectivelyzerorated.

HoweverRA9337saletogovernmentshallbesubjectto5%finalVATsuchamounttobe
withheldbygovernmentagencyinstrumentalityorGOCCandremittedtoBIR.

Distinctionsbetweenautomaticallyzerorelatedandeffectivelyzeroratedtransactions

Automaticzerorating
1. There is no need to file an
applicationformandtosecureBIR
approval
2. Zerorated is not required to be
stampedonfaceofVATinvoiceor
receipt to be issued by seller of
goods or services. Reason for this
requirementisthatbuyerasshown
byhisaddressinsalesinvoiceand
shipping documents is located
outsidePhilippines.
Effectivelyzeroratedtransactions
1) Application for zerorating must be
filedandBIRapprovalnecessary
2) Zeroratedisrequiredtobestamped
onfaceofVATinvoiceorreceiptto
be issued by seller of goods or
services. Reason for this requirement
is that buyer of goods or services
located within Philippines or he is
located outside Philippines only be
fictionoflaw

ForeignembassiesinthePhilippines
TransactionsofVATregisteredpersonwithembassyofforeignstateanditspersonnelwill
be zerorated provided that they can submit to CIR a copy of special legislation or
internationalagreementshowingthatsaidforeigngovernmentallowssimilartaxexemption
privilegetoPhilippineembassyanditspersonnelonpurchaseofgoodsorservicesZero
ratedisnotrequiredtobestampedonfaceofVATinvoiceorreceipttobeissuedbyseller
ofgoodsorservices.

Effective zerorating is allowed on basis of reciprocity. It does not apply to individual

purchasesmadebymembersoftheirdiplomaticstaff.

CHAPTER21:EXEMPTTRANSACTIONS
A.
Sale or importation of agricultural and marine food products
in their original state, livestock and poultry of or king
generally used as, or yielding or producing foods for human
consumption; and breeding stock and genetic materials
therefor.
a. Products classified under this paragraph shall be considered
in their original state even if they have undergone the simple
 processes of preparation or preservation for the market, such
as freezing, drying, salting, broiling, roasting, smoking or
stripping. Polished and/or husked rice, corn grits, raw cane
sugar and molasses, ordinary salt and copra shall be
considered in their original state.

ORIGINAL STATE: simple processes of preparation or preservation for the

market. Process is no longer simple if it involves physical or chemical
process that alters exterior texture or form or inner substance of product
as to prepare it for special use.

Rice corn grits raw sugar molasses ordinary salt and copra are products
in original state by express provision of law.

B.
Sale or importation of fertilizers; seeds, seedlings and
fingerlings; fish, prawn, livestock and poultry feeds,
including ingredients, whether locally produced or imported,
used in the manufacture of finished feeds (except specialty
feeds for race horses, fighting cocks, aquarium fish, zoo
animals and other animals generally considered as pets
C.
Importation of personal and household effects belonging to
the residents of the Philippines returning from abroad and
nonresident citizens coming to resettle in the Philippines:
Provided, That such goods are exempt from customs duties
under the Tariff and Customs Code

D.
Importation of professional instruments and implements,
wearing apparel, domestic animals, and personal household
effects belonging to persons coming to settle in the
Philippines, for their own use and not for sale, barter or
exchange, accompanying such persons, or arriving within 90
days before or after their arrival
a. Upon the production of evidence satisfactory to the
Commissioner, that such persons are actually coming
to settle in the Philippines
b. Change of residence is bona fide
c. EXCEPTION: any vehicle, vessel, aircraft, machinery
other goods for use in the manufacture and
merchandise of any kind in commercial quantity)

E.
Services subject to percentage tax under Title V
F.
Services by agricultural contract growers and milling for
others of palay into rice, corn into grits and sugar cane into
raw sugar

CONTRACT GROWING: includes poultry livestock and agricultural and

marine food products.
 G.
Medical, dental, hospital and veterinary services except
those rendered by professionals.
Sale of medicines by hospital pharmacy to in-patients is exempt from VAT
but sale to out-patients is subject to 12% VAT.

H.
Educational services rendered by private educational
institutions, duly accredited by DEPED, the Commission on
Higher Education (CHED), TESDA and those rendered by
government educational institutions
Educational services rendered by private educational institutions
accredited by DEPED CHED TESDA and those rendered by government
educational institution.

I.
Services rendered by individuals pursuant to an employer-
employee relationship
J.
Services rendered by regional or area headquarters
established in the Philippines by multinational corporations
which act as supervisory, communications and coordinating
centers for their affiliates, subsidiaries or branches in the
Asia-Pacific Region and do not earn or derive income from
the Philippines
K.
Transactions which are exempt under international
agreements to which the Philippines is a signatory or under
special laws, except those under PD 529
L.
Sales by agricultural cooperatives duly registered with the
Cooperative Development Authority to their members as
well as sale of their produce, whether in its original state or
processed form, to non-members; their 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

M.
Gross receipts from lending activities by credit or multi-
purpose cooperatives duly registered with the Cooperative
Development Authority
N.
Sales by non-agricultural, non- electric and non-credit
cooperatives duly registered with the Cooperative
Development Authority: Provided, That the share capital
contribution of each member does not exceed P15, 000 and
regardless of the aggregate capital and net surplus ratably
distributed among the members
O.
Export sales by persons who are not VAT-registered
P.
Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade
or business or real property utilized for low-cost and
socialized housing as defined RA 7279 (Urban Development
and Housing Act) and other related laws, residential lot
valued at P1,500,000 and below, house and lot, and other
 residential dwellings valued at P2,500,000 and below:
a. Provided, That not later than JAN 31 2009 and every 3
years thereafter, the amount herein stated shall be
adjusted to their present values using the Consumer
Price Index, as published by the National Statistics
Office (NSO)
Increased threshold effective JAN 2012sale of real property not primarily
held for sale to customers or for lease in ordinary course of trade or
business or real property for low-cost and socialized housing residential
lot valued at 1.5M (increased to 1919500 beginning 2012) or below
house and lot and other residential dwellings valied at 2.5M (increased to
3199200 beginning 2012) or below.

This threshold is on a per transaction basisprovided the selling price per

sale document does not threshold transaction remains exempt from VAT.

Sale of adjacent lots or units within a 12-month period and

parking slots to same buyer for purposes of utilizing as one
residential area.

Sale of adjacent lots Sale of parking lots

Sale within 12-month period of 2 or
more adjacent residential lots
house and lots for other residential
dwellings (condominium unit) in
favor of one buyer from same seller
for purpose of utilizing as one
residential area wherein aggregate
value of adjacent properties exceed
1919500 for residential lots and
3199299 for residential house and
lots or other dwellings although
covered by separate titles or tax
declarations shall be presumed as a
sale of one residential lot house and
lot or dwelling.
Sale of parking lot which may or
may not be included in sale of
condominium units is a separate
and distinct transaction not covered
by rules on threshold amount not
being a residential lot house and lot
or dwelling.
Thus it is subject to VAT regardless
of amount of selling price.

Sale shall exempt VAT only if sale

did not exceed threshold amounts.

Q.
Lease of a residential unit with a monthly rental not
exceeding P10, 000
a. Provided, That not later than JAN 31 2009 and every 3
years thereafter, the amount herein stated shall be
adjusted to their present values using the Consumer
Price Index, as published by the National Statistics
 Office (NSO)

This threshold is on a per residential unit per month basis. This means that
the lease of residential unit with a monthly rental not exceeding P10000
(increased to 12800 beginning 2012) is exempt from VAT.

Lease of commercial buildings are subject to VAT regardless of rental per

month or unit provided threshold of 1.5M (1919500 beginning 2012) is
exceeding or lessor registered as VAT person.

R.
Sale, importation, printing or publication of books and any
newspaper, magazine review or bulletin which appears at
regular intervals with fixed prices for subscription and sale
and which is not devoted principally to the publication of
paid advertisements
S.
Transport of passengers by international carriers
T.
Sale, importation or lease of passenger or cargo vessels and
aircraft, including engine, equipment and spare parts
thereof for domestic or international transport operations
U.
Importation of fuel, goods and supplies by persons engaged
in international shipping or air transport operations
V.
Services of bank, non-bank financial intermediaries
performing quasi-banking functions, and other non-bank
financial intermediaries

W.
Sale or lease of goods or properties or the performance of
services other than the transactions mentioned in the
preceding paragraphs, the gross annual sales and/or
receipts do not exceed the amount of P1,500,000
a. Provided, That not later than JAN 31 2009 and every 3
years thereafter, the amount herein stated shall be
adjusted to their present values using the Consumer
Price Index, as published by the National Statistics
Office (NSO)

Sale or lease of goods or property or the performance of services other

than transactions mentioned above gross sales or receipts do not exceed
1.5M (increased to 1919500 beginning 2012).

If sale of goods pertains to agricultural or marine food products in their

original state or sale of books or sale of service relates to rental of
residential unit not exceeding 10000 transaction is exempt even if gross
sales or receipts exceed 1.5M (1919500).

Q:TaxdueontransactionVATorOPT?
 1. Professional classified as selfemployedindividual or a group practicing his or
theirprofessionorcallingwithorwithoutlicenseunderregulatoryboardorbody.
a. ApartfromincometaxesandwithholdingtaxestheyaresubjecttoVAT.
b. Professionalissubjectto12%VATifhisgrossreceipts/professionalfeesfor
past12monthsismorethan1919500.

2. Saleorleaseofgoodsorpropertyorperformanceofservicesotherthantransactions
inSEC109 wheregrossalesorreceiptsforpreceding12monthsdonotexceed
1919500isexemptfromVAT.
a. SellingmustberegisteredasnonVATpersonandreasonforhisexemption
isthat hisgrosssalesor receiptsfor preceding12monthsdonot exceed
1919500.Howeverhewillbesubjectto3%percentagetax.
b. If sale of goods pertains to agricultural or marine food products in their
original state or sale of books or sale of services relates to rental of
residentialunitnotexceeding12800transactionisexemptfromVATeven
if gross sales or receipts exceed 1919500 and he is also exempt from
paymentof3%percentagetax.
c. Iflessorhascommercialstallsforleaseandamountofgrossrentalforyearis
1919500orlessheis:
i. ExemptfromVATifhedidnotregisterasVATperson
ii. SubjecttoVATifheregisteredasVATpersonorheissuedaVAT
receiptforrentincome
Q: Emiliano Paupahan is engaged in business of leasing out several residential
apartmentunitsheowns.Monthlyrentalforeachunitrangesfrom800010000.His
grossrentalincomefor1yearis1650000.Heconsultsyouonwhetheritisnecessary
forhimtoregisterasaVATtaxpayer.Whatlegaladvicewillyougivehimandwhy?
A:SincerentalincomeperunitpermonthdoesnotexceedthresholdprovidedforinVATlaw
intheamountof10000hisrentalincomeisexemptfromVATunderSEC109.Itdoesnot
matterwhetherornothehasexceededthegeneralthresholdforpreceding12monthsof
1500000prescribedinSEC109. THus myadvice for himisnottoregister as aVAT
person.HewillbeexemptfromVATunderSEC109andfrom3%percentagetaxunderSEC
116.

TheateroperatorsareexemptfromVAT
Grossreceiptsoftheaterowneroroperatorfromsalesofticketstomoviegoersareexempt
fromVAT.Theatersandmoviehousesarenotincludedinenumerationoftaxableservicesin
VATlaw.

Servicessubjecttopercentagetaxes
Kindoftax Taxbase Section
3%peopleexemptfromVAT Grossreceipts 116

3% common carriers tax on Grossreceipts 117

domesticcarriersbyland
Grossreceipts 118
3% common carriers tax on
internationalcarriers Grossreceipts 119

Franchisetax
2%gasandwater
3%radioandTV Grossreceipts 120

10% overseas communications Grossreceipts 121

tax Grossreceipts 122

Grossreceiptstaxonbanks Premiumscollected 123

Gross receipts on finance
companies Premiumscollected 124

2% premium tax on life Grossreceipts 125

insurancecompanies
Winningsordividends 126
Tax on agents of insurance
companies Grosssellingpriceorgross 127
valueinmoney
Amusementtaxes

Taxonwinnings

Stock transaction tax and IPO

tax

SEC 118 was amended by RA 10378: grants income tax exemptions to international air
carriersbasedonreciprocity.
1. International air carriers doing business in the Philippines on their gross receipts
derivedfromtransportofcargofromPhilippinestoanothercountryshallpay3%of
theirquarterlygrossreceipts
2. InternationalshippingcarriersdoingbusinessinPhilippinesontheirgrossreceipts
derivedfromtransportofcargofromPhilippinestoanothercountryshallpay3%of
theirquarterlygrossreceipts.

CHAPTER22:INPUTTAXES
5categoriesofinputtaxesthatmaybecreditedagainstoutputtax:
1. Input tax credit on importation of goods and current local purchases of goods
propertiesandservices(SEC110)
2. Transitionalinputtaxcredit(SEC111A)
3. Presumptiveinputtaxcredit(SEC111B)
4. Finalwithholdingtaxcredit(SEC114C)
5. Excessinputtaxcredit

INPUTTAX:arisesfrompurchaseofgoodspropertiesandservices.
TRANSITIONALINPUTTAXCREDIT:maybeclaimedbypersonswhobecomeliableto
VATforthefirsttime
Theyrepresentinputtaxoninventoriesgoodsmaterialsandsuppliesexistingondate
ofcommencementofpersonsstatusastaxableperson

PRESUMPTIVEINPUTTAX:maybeclaimedby:
Persons engaged in business of processing sardines mackerel and milk
manufacturingrefinedsugarandcookingoilnoodlebasedinstantmealswhichare
substantially produced from primary agricultural and marine food products the
supplyofwhichisexemptfromVAT.
FINAL WITHHOLDING TAX CREDIT: based on amount paid to supplier of goods or
servicesbygovernmentandisrequiredtobewithholdbygovernmentandremittedtoBIR.

Sourcesofinputtaxcredits
1. AnyinputtaxevidencedbyVATinvoiceorORissuedinaccordancewithSEC113;
thefollowingtransactionsshallbecreditableagainstoutputtax:
a. Purchaseorimportationofgoods
i. Forsale
ii. Forconversionintoorintendedtoformpartoffinishedproductfor
saleincludingpackingmaterials
iii. Foruseassuppliesincourseofbusiness
iv. Foruseasmaterialssuppliedinsaleofservice
v. Foruseintradeorbusinessforwhichdeductionfordepreciationor
amortizationisallowed

b. PurchaseofservicesonwhichVAThasbeenactuallypaid

2. Inputtaxondomesticpurchaseofgoodsorpropertiesshallbecreditable:
a. Tothepurchaseruponconsummationofsaleandonimportationofgoodsor
properties
b. ToimporteruponpaymentofVATpriortoreleaseofgoodsfromcustodyof
BureauofCustoms
i. Providedthatinputtaxongoodspurchasedorimportedinacalendar
month for use in trade or business for which deduction for
depreciation is allowed shall be spread evenly over the month of
acquisitioncostforsuchgoodsexcludingVATcomponentexceeds
1000000
1. Ifestimatedusefullifeofcapitalgoodislessthan5yearsas
usedfordepreciationpurposes
ii. Incaseofpurchaseofservicesleaseoruseofpropertiesinputtax
shallbecreditabletopurchaser lesseeorlicenseuponpaymentof
compensationrentalroyaltyorfee.

3. VATregisteredpersonwhoisalsoengagedintransactionsnotsubjecttoVATshall
beallowedtaxcredit:
a. Total input tax which canbe directlyattributedtotransactions subject to
VAT
b. Ratableportionofanyinputtaxwhichcannotbedirectlyattributedtoeither
activity.

CreditsofinputtaxesmustbesupportedbyVAT invoicesorreceiptsissuedinnameof
buyer.Inputtaxiscreditableuponconsummationofsale(orissueofsalesinvoicebyVAT
registeredselleralthoughnopaymentwasmadebybuyer)andonimportationuponpayment
ofVATpriortoreleaseofgoodsfromcustomscustody.Inputtaxonpurchaseofservicesis
creditableonlywhenpaidbybuyertosellerandevidencedbysellersOR.

Refund or tax credit of excess input tax

CIR shall grant tax credit certificate or refund of input taxes within 120
days from date of submission of complete documents in support of
application.
In case of partial or full denial of claim taxpayer may APPEAL to CTA within
30 days from receipt of denial.

If no action on claim has been taken by CIR after 120-day period from date
of application with complete documents taxpayer may appeal to CTA
within 30 days from lapse of 120-day period.

When based on tax-exempting statute claim for tax refund partakes

nature of exemption; hence rule of strict interpretation against taxpayer-
claimant applies to the claim.

Categories of refunds or tax credits

Refund or tax credit of excess input taxes is allowed under original VAT law
on the following instances:

1. Zero-rated or effectively zero-rated sales of goods

2. Local purchase or importation of capital goods
3. Cessation of business or dissolution of corporation

Regulation also allows refund or tax credit on unused input tax on

purchase of real property

RA 9337-- #2 was removed

Zero-rated or effectively zero-rated sales

Seller is the one entitled to refund or credit under this instance.

In purchase of capital goods it is the purchaser that is entitled to refund.

In order to by entitled to refund of unutilized input tax payments directly

attributable to zero-rated or effectively zero-rated sales petitioner must
prove that:

1. He is a VAT-registered person
a. This is not an application for effective zero-rating
indispensable to VAT refund/credit
2. Application is filed with BIR within 2 years after close of taxable
quarter when sales were made and with CTA within 30 days in case
of denial or inaction by CIR from lapse of 120 days from date of
filing
3. Input tax payments were not applied against any output tax during
period (quarter or year) covered by the claim and in the succeeding
periods unless a separate claim covering succeeding such period is
filed
4. Claimant must deduct from its VAT quarter return the input tax
being claimed
5. Claimed input VAT payments are directly attributable to zero-rated
or effectively zero-rated sales
6. For zero-rated sales acceptable foreign currency exchange
proceedings had been duly accounted for
7. Claimed input VAT payments are duly supported by VAT invoices or
 OR
8. VAT return for succeeding quarters covered by claim for tax refund
must be submitted with CTA

Person entitled to VAT refund/credit when:

1. Claimed input tax payments are duly supported by VAT invoices or

receipts
2. Claimed input tax payments are directly attributable to zero-rated
sales
3. Claimed input tax payments were not applied against any output
tax nor carried over succeeding months/quarters
4. Both administrative and judicial claims for refund or tax credit were
filed within 2-year prescriptive period

Excess input tax on purchase of real property

Purchase of real property is not a zero-rated or effectively zero-rated sale.

REQUISITES FOR CLAIM FOR REFUND:

1. Applicant must be a VAT-registered person

2. Purchase of land
3. Purchase of land is substantiated by evidence
4. Input taxes have not been applied against output taxes
5. Application for refund of unutilized or excess creditable input tax
arising from purchase of land has been made within 2 years after
close of taxable quarter when purchase was made
6. Land subject to purchase was used by applicant in his VAT taxable
business

Requisites for refund on excess input tax

1. Must be a VAT registered person

2. Purchase of land
3. Substantiated by evidence
4. Input taxes were not applied against the input tax
5. Application for the refund of has been made within two years after
the close of the taxable quarter
6. The land was used for his VAT taxable business

Requirements for claims for refund or tax credit arising from zero-
rated or effectively zero rated sales

1. Claimant must be a VAT-registered person

2. The tax credit certificate application is filed with the BIR or the DOF
within 2 years after the close of the quarter when the sales were
made
3. Must also be filed with the CTA within 30 days from the date of
receipt of denial from the CIR or in case of inaction, from the lapse
of 120 days from the date of filing
 4. The claimed input tax payments were not applied against any
output tax during the period covered by the claim and succeeding
periods
5. Claimant must deduct from its VAT quarterly return the input tax
being claimed as refund or tax credit
6. The claimed input VAT payments are directly attributable to zero
rated or effectively zero rated sales
7. For zero rated sales under Sec 106(A)(2)(a)(1), (2) and (b) and Sec
108(B)(1) and (2), the acceptable foreign currency exchange
proceeds thereof had been duly accounted for
8. The claimed input VAT payments are duly supported by VAT invoices
or official receipts in accordance with Sec 4.104-5 of Revenue
Regulations No. 7-95 in relation to Sec 113 and 237 of the Tax Code.
9. The VAT return for the succeeding quarters covered by the claim for
tax refund or credit must be submitted with the CTA.

Requirements for a VAT refund or tax credit

1. The claimed input tax payments are duly supported by VAT invoices
or receipts
2. The claimed input tax payments are directly attributable to zero
rated sales
3. The claimed input tax payments were not applied against any
output nor carried over the succeeding months/quarters
4. Both the administrative and judicial claims for refund or tax credit
were filed within the 2-year prescriptive period
5. Imprinting of the word zero-rated on the invoices or receipts is
required

Three instances where the transitional input tax on goods,

materials and supplies can be claimed

1. When he becomes liable to value added tax for the first time under
a new legislation or when his taxable transactions exceed the VAT
registration threshold
2. When he elects to register as a VAT-registered person, provided he
is eligible
3. If he is already a VAT-registered person and also deals in goods or
properties, the sale of which is exempt, but it becomes a taxable
transaction under a new law

Transitional input tax is entitled to claim input VAT based on the

value not only on land improvements but also on the value of the
land itself, regardless of actual payment of input tax
Prior payment of input taxes is not required for a taxpayer to avail
of the 8% transitional input tax credit
Unutilized creditable input taxes attributable to zero-rated sales
can only be recovered through the application for refund or tax
credit

Input taxes that may be refunded or credited

 1. Input tax attributable to goods exported
2. Sale of raw materials to BOI-registered enterprises whose export
sales exceed 70% of total annual production
3. Excess input tax arising from purchase of capital goods

a. Goods are classified as capital goods if:

i. They have estimated useful life greater than one year
ii. Treated as depreciable assets
iii. Used directly or indirectly in the production sale of
taxable goods or services

b. On the other hand, property is considered depreciable only if

it is
i. Used in a trade or business or held for production of
income
ii. Subject to exhaustion within a determinable period of
time

4. Excess input tax of dissolving unincorporated joint venture

Allocation of input tax

A VAT registered person may enter into

1. Transactions which are exempt from VAT
2. Transactions which are subject to VAT at 12% or 0%
Input taxes on purchases directly and entirely attributable to
transactions subject to VAT at 12% or 0% are creditable against the
taxpayers output taxes.
If the asset cannot be directly and entirely attributed to transactions
subject to or exempt from VAT, the taxpayer has to allocate the
input taxes on these assets based on the gross selling price or gross
receipts for the preceding taxable quarter

Claim for refund or tax credit

Filling of applications for tax credit or refund is within the two-year

period considering that the administrative claim for refund is
reckoned, in case of input tax attributable to export sales, after the
close of the taxable quarter when such sales were made,
and in case of capital goods, within two years after the close of the
taxable quarter when the importation or purchase was made.
The prescriptive period in claiming for the refund of input tax in the
judicial level is reckoned from the date of filing of the quarterly VAT
return.

Deadline for submission of claim

1. Premature or late filing of the claim for refund or credit

o Failure to comply with the 120-day waiting period violates a
mandatory provision of law. It violates the doctrine of
exhaustion of administrative remedies and renders the
petition premature and thus without a cause of action, with
 the effect that the CTA does not acquire jurisdiction over the
taxpayers petition.

2. Prescriptive period under Sec 112(A) and (C)

o There are 3 reasons why the 30-day period need not
necessarily fall within the 2 year prescriptive period, as long
as the administrative claim is filed within the two year
prescriptive period.
The 2 year prescriptive period is a grace period in favor
of the taxpayer and he can avail of the full period
before his right to apply for a tax refund or credit is
barred by prescription
The 2 year prescriptive period does not refer to the
filing of the judicial claim with the CTA but to the filing
of the administrative claim with the Commissioner
Section 112(A) and (C) must be interpreted according
to its clear language. The taxpayer can file his
administrative claim for refund or credit at anytime
within the 2 year period. If he files his claim on the last
day of the 2 year prescriptive period, his claim is still
field on time. The Commissioner will have 120 days
from such filing to decide the claim. If the
Commissioner decides the claim on the 120 th day, or
does not decide it on that day, the taxpayer still has 30
days to file his judicial claim with the CTA.