VAT Exempt Transactions -TRAIN Law

VAT-Exempt Transactions

1. Sale or importation of agricultural and marine food products in their original state,
livestock and poultry of a kind generally used as, or yielding or producing foods for
human consumption; and breeding stock and genetic materials therefor.

Note: Products 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, and ordinary salt shall be considered in their original state.

2. Importation of professional instruments and implements, wearing apparel, domestic

animals, and personal and household effects belonging to persons coming to settle in
the Philippines or Filipinos or their families and their descendants who are now
residents or citizens of other countries, otherwise referred to as OFWs, in quantities and
class suitable to the profession, for their own use and not for sale, barter or exchange,
accompanying such persons.

Note: Vehicles, vessels, aircrafts, machineries and other similar goods shall not fall within
this classification, thus, subject to taxes.

3. Services subject to percentage tax;

4. Services by agricultural contract growers and milling for others of palay into rice, corn
into grits and sugar cane into raw sugar;
5. Medical, dental, hospital and veterinary services except those rendered by
professionals;
6. Educational services rendered by private educational institutions, duly accredited by
the Department of Education (DepEd ), the Commission on Higher Education (CHED), the
Technical education Skill and Development Authority (TESDA) and those rendered by
government educational institutions;
7. Services rendered by individuals pursuant to an employer-employee relationship;
8. 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;
9. Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those under Presidential Decree
No. 529;
10. 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;
11. Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered with the Cooperative Development Authority whose lending operation is
limited to their members;
12. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered
with the Cooperative Development Authority;
13. Export sales by persons who are not VAT-registered;
14. 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:
a. Residential lot valued at P1,500,000 and below;
b. House and lot, and other residential dwelling valued at P2,500,000 and below
15. Lease of a residential unit with a monthly rental not exceeding P15,000; (Sec. 34(Q),
R.A. 10963)
16. 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;
17. Transport of passengers by international carriers;
18. Sale, importation, or lease of passenger or cargo vessels and machine parts for
domestic or international transport operation;
19. Importation of fuels, equipment, goods, supplies (FEGS) by persons engaged in
international transport. Provided, FEGS is used for the international operation;
20. Services of banks and other non-bank financial intermediaries;
21. Sale or lease of goods to senior citizens and persons with disabilities; (Sec. 34(W), R.A.
10963);
22. Transfer of property under exempt mergers or consolidation;
23. Association dues collected by homeowners association and condominium corporations;
24. Sale of gold to BSP; (Sec. 34(Z), R.A. 10963)
25. Sale of drugs prescribed for diabetes, high cholesterol, and hypertension beginning
January 1, 2019; and
26. Annual sale or lease of goods or services not exceeding P3,000,000. (Sec. 34(BB), R.A.
10963)
Notes:

TRAIN repeals 54 out of 61 special laws with non-essential VAT exemptions, thereby making
the system fairer.

Purchases of senior citizens and persons with disabilities, however, will continue to be
exempt from VAT.

Housing that cost below P2 million will be exempt from VAT beginning 2021, while
medicines for diabetes, high cholesterol, and hypertension will be exempt beginning 2019.

Sale of agricultural cooperative are exempt from VAT provided the following elements
concur, viz:
1. The agricultural cooperative must be registered with the CDA; and
2. The cooperative must sell either exclusively to its members, or to members and
non-members, its produce, whether in its original state or processed form.

If the cooperative transacts only with members, all its sales are VAT-exempt.

If it transacts with both members and non-members, the product sold must be the
cooperative’s own produce to be VAT-exempt. (CIR v. United Cadiz Sugar, G.R. 209776
[2016])