VAT ENUMERATION  Transactions considered as sales in the course of trade or
business
 VAT is imposed in any person who:
1. Sells, barters or exchanges goods or properties in the course of
trade or business;
2. Sells services in the course of trade or business; or
3. Imports goods, whether or not in the course of trade or business.
 ELEMENTS OF VAT
1. Transaction must be done in the ordinary course of trade or
business;
2. There must be a sale, barter, exchange, lease of goods or
properties, or rendering of service in the PH; and
3. It is not VAT-exempt or VAT zero-rated.
- Absence of one will not make the transaction subj to VAT.
 NORMAL VAT TRANSACTIONS (12%) 3 categories:
1. The sale of goods and properties
2. The sale of services, and
3. Importation.
 The law and regulations allow downward adjustments for:
1. Sales return and allowances;
2. Sales discounts agreed upon at the time of the sale indicated in the
sale invoice, and availed of by the buyer.
 Good or properties include:
1. Real properties held primarily for sale to customers or held for lease
in the ordinary course of trade or business;
2. The right or the privilege to use patent, copyright, design or model,
plan secret formula or process, goodwill, trademark, trade brand or
other like property or right;
3. The right or the privilege to use in the Philippines of any industrial,
commercial or scientific equipment;
4. The right or the privilege to use motion picture films, films, tapes
and discs; and
5. Radio, television, satellite transmission and cable television time.
1. Transfer, use or consumption not in the course of business of
goods or properties originally intended for sale or for use in the
course of business;
2. Distribution or transfer to:
a. Shareholders or investors as share in the profits of the VAT-
registered persons: or
b. Creditors in payment of debt;
3. Consignment of goods if actual sale is not made within sixty (60)
days following the date such goods, were consigned; and
4. Retirement from or cessation of business, with respect to
inventories of taxable goods existing as of such retirement or
cessation.
 To be defined as “sales of services”, the services:
1. Should be rendered in the PH;
2. Can be any and all kinds of services rendered to others (no E-E
relationship); and
3. There is a fee, remuneration or consideration.
 Sales of services in the course of trade or business includes those
performed or rendered by:
1. construction and service contractors;
2. stock, real estate, commercial, customs and immigration brokers;
3. lessors of property, whether personal or real;
4. warehousing services;
5. lessors or 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;
8. proprietors or operators of restaurants, refreshment parlors, cafes
and other eating places, including clubs and caterers;
9. dealers in securities;
10. lending investors;
11. transportation contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for hire and other
domestic common carriers by land relative to their transport of
goods or cargoes;
 12. common carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in the Philippines to
another place in the Philippines;
13. sales of electricity by generation companies, transmission by any
entity, and distribution companies, including electric cooperatives;
14. services of franchise grantees of electric utilities, telephone and
telegraph, radio and television broadcasting and all other franchise
grantees except those under Section 119 of this Code and
15. non-life insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding companies; and
16. Similar services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental
faculties.
 Also included are:
1. The 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 or right;
2. The lease or the use of, or the right to use of any industrial,
commercial or scientific equipment;
3. The supply of scientific, technical, industrial or commercial
knowledge or information;
4. The supply of any assistance that is ancillary and subsidiary to and
is furnished as a means of enabling the application or enjoyment of
any such property, or right as is mentioned in subparagraph (2) or
any such knowledge or information as is mentioned in
subparagraph (3);
5. The supply of services by a non-resident person or his employee in
connection with the use of property or rights belonging to, or the
installation or operation of any brand, machinery or other apparatus
purchased from such nonresident person;
6. The supply of technical advice, assistance or services rendered in
connection with technical management or administration of any
scientific, industrial or commercial undertaking, venture, project or
scheme;
7. The lease of motion picture films, films, tapes and discs; and
8. The lease or the use of or the right to use radio, television, satellite
transmission and cable television time.
 Gross receipts mean cash or its equivalent actually received or
constructively received (not including the VAT) as:
1. Payments on the contract price, compensation, service fee, rental
or royalty;
2. Payments or materials supplied with the services; and
3. Deposits of advanced payments on the contract for services.
 Tax Base of imported goods is:
1. The total value used by the BOC in determining tariff and customs
duty, plus custom duties, excise tax (if any), and other charger prior
to the removal of the goods from custom custody; OR
2. Based in the landed cost, when the customs duties are determined
on the basis of the quantity or volume of the goods,
- By landed cost is meant the:
a. Invoice cost
b. Freight
c. Insurance
d. Customs duties,
e. Excise tax (if any)
f. Other charges prior to the removal of the goods from customs
custody.
 For goods, a rate of 0% of the gross selling price will be applied if:
1. Export sale; or
2. Foreign currency denominated sale; or
3. Sales to persons or entities whose exemption under special laws,
or international agreements to which the PH is a signatory.
(effectively-zero rated sales)
 Export Sales means:
1. The sales and actual shipment or exportations of goods from PH to
a foreign country, irrespective of any shipping arrangement that
may be agreed upon which may influence or determine the transfer
of ownership of the goods so exported, AND
2. Paid for in acceptable foreign currency or its equivalent in goods or
services, and accounted for in accordance with the rules and
regulations of the BSP.
 The following are also considered export sales:
1. Sales of raw materials or packaging material to a non-resident
buyer for delivery to a resident local export-oriented enterprise to be
used in manufacturing, processing, packing or repacking in the PH
of said buyer’s goods and paid for in acceptable foreign currency
 and accounted for in accordance with the BSP rules and 4. Services rendered to persons engaged in international shipping or
regulations; international air transport operations, including leases of property for
2. Sales of raw materials or packaging materials to an export-oriented use thereof: Provided, That these services shall be exclusive for
enterprise whose export sales exceed 70% of total annual international shipping or air transport operations;
production (as long as 70% is exported, then 100% of net input may 5. Services performed by subcontractors and/or contractors in
be refunded); processing, converting, or manufacturing goods for an enterprise
3. Those considered export sales under EO 226 and other special whose export sales exceed seventy percent (70%) of total annual
laws; and production;
4. Sales of goods, supplies, equipment and fuel to persons engaged 6. Transport of passengers and cargo by domestic air or sea vessels
in international shipping or international air transport operations. from the Philippines to a foreign country; and
Provided, That the goods, supplies, equipment and fuel shall be 7. Sale of power or fuel generated through renewable sources of energy.
used for international shipping or air transport operations.
 To enjoy VAT exemption, the cooperative must:
 Foreign currency denominated sales means: 1. Be registered with the CDA;
1. Sales to nonresidents of goods assembled or manufactured in the 2. Sell exclusively to its members, or
PH; 3. If it sells both to member and nonmembers, the sale must be of its
2. For delivery to residents in the PH; produce, whether in its original or processed state.
3. Paid in acceptable foreign currency and accounted for in
accordance with the BSP rules and regulations.  Tax exempt for sale of residential lots shall only apply to the:
4. This does not apply to automobiles and non-essential goods subj to 1. Sale of real properties not primarily held for sale to customers or
excise tax. held for lease in the ordinary course of trade or business;
2. Sale of real properties utilized or low-costing housing;
 For services performed in the PH, a rate of 0% of the gross receipts 3. Sale of real properties utilized for socialized housing;
will be applied in the ff instances: 4. Sale of house and lot and other residential dwellings with selling
1. Processing, manufacturing or repacking goods: price of not more than P2, 000, 000.
a. For other persons doing business outside the Philippines
b. The goods are subsequently exported OUTPUT TAX INPUT TAX
c. The services are paid for in acceptable foreign currency and The value added tax due on the VAY due from or paid by a VAT
accounted for in accordance with the rules and regulations of the sale or lease of taxable registered person on importation of
goods/properties/services by any goods or local purchases of goods,
Bangko Sentral ng Pilipinas (BSP);
person registered or required to properties, or services, including
2. Services other than those mentioned in the preceding paragraph,
register under the VAT system. lease or use of properties, from a
rendered to a VAT registered person, in the
a. person engaged in business conducted outside the Philippines or course of his trade or business.
b. to a non-resident person not engaged in business who is outside the What the taxpayer-seller passes on It also includes:
Philippines when the services are performed, and the purchaser. a. The transitional input tax;
c. the consideration for which is paid for in acceptable foreign currency b. Presumptive input tax
and accounted for in accordance with the rules and regulations of c. Input taxes w/c can be
the Bangko Sentral ng Pilipinas (BSP); directly attributed to
3. Services rendered to persons or entities whose exemption under transactions subject to VAT
special laws or international agreements to which the Philippines is a plus a ratable portion of any
signatory effectively subjects the supply of such services to zero input tax which cannot be
percent (0%) rate; directly attributed to either
 the taxable or exempt
activity.
 Any input tax on the ff transactions evidenced by a VAT invoice or
official receipt by a VAT-registered person in accordance with
Sections 113 and 237 of the Tax Code shall be creditable against
the output tax:
1. Purchase or importation of goods
a. For sale, or
b. For conversion into or intended to form part of a finished
product for sale including packaging materials; or
c. For use as supplies in the course of business; or
d. For use as materials supplied in the sale of service; or
e. For use in trade or business for which deduction for
depreciation or amortization is allowed under this Code.
2. Purchase of services on which a value-added tax has actually been
paid,
3. Purchase of service in which a VAT has actually been paid,
4. Transactions “deemed sale.”
5. Transitional input tax,
6. Presumptive input tax.
 The input tax credit on importation of goods or local purchases of
goods, properties or services by a VAT-registered person shall be
creditable:
1. To the importer upon payment of VAT prior to the release of goods
from customs custody;
2. To the purchaser of the domestic goods or properties upon
consummation of the sale; or
3. To the purchaser of services or the lessee or licensee upon
payment of compensation, rental, royalty or fee.
 Capital Goods or properties refer to goods or properties:
1. w/ estimated useful life of more than 1 year and
2. which are treated as depreciable under the income tac law,
3. used directly or indirectly, in the production or sale of taxable goods
or services.
 In crediting input tax, you have to look at 3 things:
1. Those which can be directly attributed to transactions subject to
VAT,
2. Those which cannot be directly attributed to either a VAT taxable or
VAT-exempt transaction.
- For these cases, the input tax shall be pro-rates to the VAT taxable
and VAT-exempt transactions and only the ratable portion
pertaining to transactions subj to VAT may be recognized for input
tax credit; and
3. Sales to the Government because you cannot credit input tax
arising from sales to the Gov’t since sales to such is subj to final
withholding tax.
 Taxpayer who become VAT registered persons upon exceeding the
P3M in any 12-month period, or who voluntarily register even if
they do not reach the threshold shall be entitled to a transitional
input tax on the inventory on hand as of the effectivity of their VAT
registration, on the ff:
1. Goods purchased for resale in their present condition;
2. Materials purchased for further processing, but which have not yet
undergone processing;
3. Goods which have been manufactured by the taxpayer;
4. Goods in process for sale; or
5. Goods and supplies for use in the course of the taxpayer’s trade or
business as a VAT-registered person.
 Transitional input tax shall be:
1. 2% of the value of the beginning inventory on hand, or
2. Actual VAT paid on such goods, materials and supplies, whichever
is HIGHER.
 Presumptive input tax credits are given to those engaged:
1. In the processing of sardines, mackerel and milk; and
2. In manufacturing refined sugar, cooking oil, and packed noodle-
based instant meals.
 VAT is withheld in 2 instances:
1. In sales of goods and services to the Government (5% withheld by
the gov’t)
2. In payment for lease or use of properties to nonresident owners
(12% withheld by the lessee)
 In transactions with non-residents, 12% will be withheld with
respect to the ff payments:
 1. Lease or use of properties or property rights owned by
nonresidents, and
2. Other services rendered in the PH by nonresidents.
 3 instances where one can avail of a VAT refund
1. Zero-rated and effectively zero rated sales
2. Cessation of business or
3. Cessation of VAT-status.
 Taxpayer can appeal in 2 ways:
1. File the judicial claim w/in 30 days after the CIR denies the claim
w/in 120 day period, or
2. File the judicial claim w/in 30 days from the expiration of the 120
day period if the CIR does not act within the 120-day period.
 Properties originally intended for sale or use in business and
capital goods existing at the time of the following are subject to
output tax:
1. Change of business activity from VAT taxable to VAT exempt status
2. Approval of a request for cancellation of registration due to
reversion to exempt status.
3. Approval of a request for cancellation of registration due to
reversion to exempt status for persons who voluntarily registered to
be VAT taxpayers.
 Not subject to output tax:
1. Change of control of a corporation by the acquisition of the
controlling interest of such corporation by another stockholder or
group of stockholders. The goods or properties will not be
considered sold, bartered, etc.
2. Change in the trade or corporate name of the business.
3. Merger or consolidation of corporations. The unused input tax of the
dissolved compotation shall be absorbed by the new corporation.
 VAT ON REAL PROPERTIES
 The sales of the ff real properties are subject to VAT:
1. Those held for sale to customers in the ordinary course of trade or
business;
2. Those held for lease in the ordinary course of trade or business;
3. Those used in the trade or business of the seller (as it is incidental
to the TP’s main business)
 The sale, transfer, or disposal of 2 or more adjacent lots, house
and lots, or other residential dwellings is also subject to VAT
when:
1. It is within 12 month period;
2. In favor of one buyer from the same seller,
3. For the purpose of utilizing the lots, house and lots, or other
residential dwellings as one residential area,
4. Where the aggregate value of the adjacent properties exceeds:
a. P1,919,500 for residential lots and
b. P3,199,200 for residential house and lots or other dwellings.
 Initial payments are the payments:
1. Which the seller received before and upon the execution of the
instrument of sale, and
2. Payments which he expects or is scheduled to receive in cash or
property during the taxable year of the sale or disposition.
3. It will include more than the down payment in the year of sale.
4. It will not include the amount of mortgage on the real property sold
which was already there at the time of sale and which was
assumed by the buyer, except when such mortgage exceeds the
cost or other basis of the property to the seller, in which case the
excess shall form part of the initial payments.
 The gross selling price is whichever is highest of the:
1. Consideration in the deed of sale;
2. Zonal value, per CIR; and
3. The FMV per real property declaration with the provincial or city
assessor.
 In lease contract, the advance payment by lessee may be:
1. A loan to the lessor from the lessee, or
2. Option money for the property, or
3. Security deposit to insure the faithful performance of certain
obligtions of the lessee to the lessor, or
4. Pre-paid rental
a. If the advanced payments is #1, 2 or 3, not subject to VAT.
b. If the advanced payment is #4, then such payment is taxable to
the lessor in the month when it was received, irrespective of
the accounting method employed by the lessor.
c. If the security deposit #3 is applied to rental, then it shall be
subject to VAT at the time of its application.
  If a person who is NOT a VAT-registered person issues an invoice
 Any person who, in the course of trade or business, sells, barters, or receipt showing his TIN followed by the word “VAT,” the issuer
or exchanges goods or properties, or engages in the sale or shall be:
exchange of services shall be liable to register for VAT if: 1. Liable for the percentage tax due on his transactions
1. His gross sales or receipt for the past 12 months, other than those 2. Liable for the VAT, w/o credit for any input tax, and
exempt under Section 109(A) to (BB), have exceeded P3M. 3. Subject to a 50% surcharge.
2. There are reasonable grounds to believe that his gross sales or
receipts for the next 12 months, other than those exempt will
exceed P3M.

 If a person who is mandated to register does not, he shall:

1. Be liable to pay the tax as if he were a VAT-registered person, and
2. W/o the benefit of input tax credits.

 A VAT-registered person shall issue:

1. VAT invoice for every sale, barter or exchange of goods or
properties; and
2. VAT official receipts, for every lease of goods or properties, and for
every sale, barter or exchange of service.

 THE FF MUST BE CONTAINED IN THE VAT RECEIPT:

1. Statement that the seller is a VAT registered person, followed by
his TIN,
2. Total consideration indicating that such amount includes the VAT,
which tax shall be shown as a separate item
3. If VAT-exempt or zero-rated, must also be indicated as either VAT-
EXEMPT SALE or ZERO RATED SALE.
4. Clear breakdown of VAT, VAT-zero rated or VAT-exempt where
applicable, or separate invoices or receipts for the same
5. Date of the transaction, quantity, unit cost, and description of the
goods or properties or nature of the service,
6. In cases of sales of P1000 or more where the sale or transfer is
made to VAT –Registered person, the name, business style, if any,
address and TIN of the purchaser, customer or client shall be
indicated.

 VAT liable taxpayers must have:

1. Subsidiary sales journal, and
2. Subsidiary purchases journal.