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VAT Exemptions

COMMENT:
-can either be VAT exempt goods or transactions So if you notice, this is ACTUAL export from the
or a VAT-exempt entity Philippines into a foreign country. This talks about
any goods, not just limited to raw material or
Question: if you are a VAT exempt entity, pwede packaging material. Anything and everything that
ba ka pasahan og VAT sa supplier nimu? will go out of the country, it can either be zero
Answer: Yes. It’s just that you cannot claim it as rated or VAT exempt. These are VATABLE
INPUT VAT. It will just form part of the cost. transactions in so far as the law is concern,
however it’s just that it is subject to 0%.
VAT Zero Rated Transaction Question: What’s the condition para makaavail
ka sa zero rating?

COMMENT: Answer: You must be VAT REGISTERED. If you


are not VAT REGISTERED then VAT EXEMPT.
Primary requisite para makaavail ka sa Zero
rating is to be registered under the VAT system The sale of raw materials or packaging
because take note this is more of an incentive materials to a nonresident buyer for delivery to
granted under the law because wala kay output a resident local export-oriented enterprise to
VAT but you can claim INPUT VAT refund.
be used in manufacturing, processing, packing
Because following the cross-border doctrine, it’s
very simple. If something goes of the country, you or repacking in the Philippines of the said
will not subject it to VAT. If something comes in buyer's goods, paid for in acceptable foreign
here then it can be subjected to VAT. It is a matter currency, and accounted for in accordance
whether it is VATable of VATexempt. But because with the rules and regulations of the Bangko
our legislatures want to encourage some Sentral ng Pilipinas (BSP);
industries to come in, then they devise this so
called VAT zero rated transaction wherein
mufollow gihapon sa cross border doctrine. COMMENT:
It is considered as constructive export because
Is it advantageous to the taxpayer? Of course there is no actual export of the raw material or
yes. But that’s the idealistic view. The real packaging material. The goods did not actually go
scenario is that it’s not really advantageous out of the country. This is still deemed as
because the processing of the refund itself takes constructive export, once the enhance VAT INPUT
time (katong wala pay enhanced Input VAT VAT refund system(INPUT VAT refund within
refund). 90days) is in place, this is not anymore subject to
zero percent but to 12%.
VAT Zero Rated Sale of
This is zero rated because the raw material or the
Goods packaging material will form part of your finished
output which will be brought out of the
The sale and actual shipment of goods from the c o u n t r y. C o m m o n s c e n a r i o i s t h e
Philippines to a foreign country, irrespective of manufacturing companies located in
any shipping arrangement that may be agreed economic zones. These companies are
upon which may influence or determine the usually subsidiaries of a foreign corporation.
transfer of ownership of the goods so exported If you are a subsidiary you are considered an
and paid for in acceptable foreign currency or its independent entity from the parent. What
equivalent in goods or services, and accounted usually happens is, when the parent will buy
for in accordance with the rules and regulations from the supplier here of the raw material,
of the Bangko Sentral ng Pilipinas (BSP)
then it becomes a non-resident buyer.
Bayaran na in dollar, the raw material will just

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be delivered to the subsidiary in the circumstances because usually BOI only
Philippines. But the one who will pay is the grants income tax holiday. It’s only
parent company.
constructive export because usually BOI
deals with domestic companies operating or
Question:What’s the difference between the selling within the Philippines. Once the
first and the second?
enhance VAT INPUT VAT refund system is in
place(INPUT VAT refund within 90days), this
Answer: First, there is no limit, any type or is not anymore subject to zero percent but
kind of goods. Second, this is only limited to subject to 12%.

raw material or packaging material but the


raw material or packaging material in this The sale of goods, supplies, equipment and
case did not go out from the Philippines. It’s fuel to persons engaged in international
delivered to a resident export oriented
shipping or international air transport
enterprise but your client is a non-resident
buyer meaning somebody based outside the operations: Provided, That the goods,
country and must be paid for in acceptable supplies, equipment, and fuel shall be used
foreign currency.
exclusively for international shipping or air
Question: What do we mean by resident transport operations.
export oriented enterprise?

Answer: Based on the current definition, an


export oriented enterprise is somebody COMMENT: Under the TRAIN law, they
whose export sale exceed 70% of its total strictly provide the conditions that it must be
annual sale. More than majority of your sale USED for international shipping or
happened abroad.
international transport operations. It is zero
rated because the carrier is going out of the
country. This considered also actual export.
Land in the Philippines, then purchase then
The sale of raw materials or packaging go out of the country.
materials to an export-oriented enterprise
whose export sales exceed seventy percent Question: If musulod gawas lang? Kinsa
(70%) of total annual production; man ang magpaVAT zero rating? Supplier or
Airline company?

COMMENT: Answer: Airline company. Because if you are


The difference between 2 and 3 is the buyer an airline, before you can have landing rights
and the mode of payment. This is the here in the Philippines, you must have
scenario that instead the parent will deal with license to do business here in the
the supplier here in the Philippines, it will be Philippines. Sometimes, it is the supplier,
the subsidiary. This is still deemed as ang seller sa goods, supplies, equipment
constructive export, once the enhance VAT and fuel (SHELL AND PHOENIX).

INPUT VAT refund system(INPUT VAT refund


within 90days) is in place, this is not anymore
subject to zero percent but to 12%.
Zero Rated Transactions for
Transactions considered export sales under
Sale of Services:
Executive Order NO. 226, otherwise known as
Processing, manufacturing or repacking goods
the "Omnibus Investment Code of 1987", and
for other persons doing business outside the
other special laws;
Philippines which goods are subsequently
exported, where the services are paid for in
COMMENT:

acceptable foreign currency and accounted for


This is the BOI, it can also grant VAT Zero
rating although under very rare in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP)|

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Comment: This provision is the service/labor
Transport of passengers and cargo by
aspect of the previous provision on sale of
raw, packaging, manufacturing materials.
domestic air or sea vessels from the
Philippines to a foreign country;
“Conditional VAT” because when the
Enhance VAT Refund System is in place, the Comment: What is subjected to 0% VAT is
acts covered under this provision will not be the transport of passengers from the
subject to 12% VAT.
Philippines to a foreign land.

Services performed by subcontractors and/or The provision does not include by land as
the same is impossible.

contractors in processing, converting, or


manufacturing goods for an enterprise whose
export sales exceed seventy percent (70%) of Services rendered to persons engaged in
total annual production; international shipping or international air
transport operations, including leases of
property for use thereof:  Provided, That these
Comment: Subject to Conditional VAT
services shall be exclusively for international
shipping or air transport operations;
Services other than those mentioned in the
preceding paragraph, rendered to a person Comment: Service aspect of the provision
engaged in business conducted outside the on the sale of fuel to international carriers.

Philippines or to a nonresident person not


engaged in business who is outside the Services rendered to persons or entities whose
Philippines when the services are performed, exemption under special laws or international
the consideration for which is paid for in agreements to which the Philippines is a
acceptable foreign currency and accounted for signatory effectively subjects the supply of
in accordance with the rules and regulations of such services to zero percent (0%) rate;
the Bangko Sentral ng Pilipinas (BSP);

Comment: Usually provided for in cases of


Comment: The provision is more akin to treaties or international agreements.

actual export as your client here is based


abroad but doing business in the Philippines.

Sale of power or fuel generated through


Example: BPO Companies, lawyers who renewable sources of energy such as, but not
cater to clients based abroad.
limited to, biomass, solar, wind, hydropower,
If the local export oriented enterprise is not geothermal, ocean energy, and other emerging
registered, it will be subject of 12% VAT.
energy sources using technologies such as fuel
cells and hydrogen fuels.|||
If you import the raw material through a
PEZA Registered Entity, it will initially be
subject to 0% VAT. The subsequent sale of Comment: Subject to 0% VAT so long the
raw material to another PEZA registered seller is a VAT Registered entity. It only
entity will be subject to 12% VAT under the covers sale, and does not include
Enhance VAT Refund System. To remedy this importations.

situation, PEZA registered entity may opt to


import the raw products directly to exempt Of these VAT Zero-Rated Services, once the
the purchase from VAT.
Enhance VAT Refund System is in place,
there will only be around five left subject to

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0% tax as those transactions. The pertinent Before the TRAIN Law, within 2 years after
provision:
the close of the taxable quarter when you
paid the sales transaction, you may claim for
“Provided, That subparagraphs (B)(1) and (B) VAT refund as the law provides within 120
(5) hereof shall be subject to the twelve days. The 120 day period in the law is merely
percent (12%) value-added tax and no directory because there is no consequence if
longer be subject to zero percent (0%) VAT the BIR official will not act on your
rate”
application.

Although the law in providing that after the


Difference between Zero-Rated lapse of 120 days you may appeal the matter
to the CTA, the procedure is proven to be
and Effectively Zero-Rated costly.

Transaction. Thus, under the Enhance VAT System the


law reduces the 120 days period to 90 days
either approval or denial of the BIR official.
Comment: Zero Rated Transaction pertains
Otherwise in cases inaction, the examiner
to automatic zero-rating for actual export.
may be held administratively liable and the
There is no need for certification or BIR
claimant, after the lapse of the 90 day
Ruling as the goods is exported out of the
period, may appeal with the CTA.

Philippines. The BIR only ask for the report


from the Bureau of Customs of the actual
The refund may be claim with the refund
export.

center in every RDOs of the BIR.

Effectively Zero-Rated Transactions pertains


to constructive exports. Deemed effective
because had there been no provision, the Difference between VAT Input
transaction should have been subject to
12%. An example would been the sale of Refund from Erroneous Tax
raw material and packaging material or the
sale of repacking services to a non-resident
buyers for an export oriented enterprise. The Comment: If it is VAT Input Refund, the
exemption may be revoked.
one who can claim is the buyer or
H o w e v e r, u n d e r b o t h d e fi n i t i o n t h e purchaser who does not have output or
corporation needs to be registered with BIR the input is greater than output. On the
to avail of zero-rating.
other hand, in cases of erroneous tax
collection there is wrongful payment of
VAT by an exempt entity who has been
The Enhance VAT Refund “shifted” with the VAT. In short gipasa
ang burden to pay the tax from a VAT
System seller to the VAT exempt purchaser.

Comment: The provision under the TRAIN


Law which provides that the government
through the BIR will grant a refund of your
creditable input tax or input VAT within 90
days from the filing of the VAT Refund
Application with the BIR.

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