Consolidated VAT

7/30/2019 Consolidated VAT

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TITLE IV VALUE-ADDED TAX

CHAPTER I IMPOSITION OF TAX

105 Persons Liable

106 Value-added Tax on Sale of Goods or Properties

(A) Rate and Base of Tax

(B) Transactions Deemed Sale

(C) Changes in or Cessation of Status of a VAT-registered Person(D) Determination of the Tax

107 Value-added Tax on Importation of Goods

(A) In General

(B) Transfer of Goods by Tax-exempt Persons

108 Value-added Tax on Sale of Services and Use or Lease of Properties(A) Rate and Base of Tax

(B) Transactions Subject to Zero Percent (0%) Rate(C) Determination of the Tax

109 Exempt Transactions

110 Tax Credits

(A) Creditable Input Tax

(B) Excess Output or Input Tax

(C) Determination of Creditable Input Tax

111 Transitional/Presumptive Input Tax Credits

(A) Transitional Input Tax Credits

(B) Presumptive Input Tax Credits

112 Refunds or Tax Credits of Input Tax

(A) Zero-rated or Effectively Zero-rated Sales

(B) Capital Goods

(C) Cancellation of VAT Registration(D) Period within which Refund or Tax Credit of Input Taxes shall be Made

(E) Manner of Giving Refund

CHAPTER II COMPLIANCE REQUIREMENTS

113 Invoicing and Accounting Requirements for VAT-Registered Persons

(A) Invoicing Requirements(B) Accounting Requirements

114 Return and Payment of Value-added Tax

(A) In General(B) Where to File the Return and Pay the Tax

(C) Withholding of Creditable Value-added Tax

115 Power of the Commissioner to Suspend the Business Operations of a

Taxpayer


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1997 National Internal Revenue Code Consolidated Revenue Regulations 07-95


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Section 105 Persons liable


CHAPTER I IMPOSITION OF TAXCOVERAGE, NATURE, BASIS AND

RATE OF VALUE-ADDED TAX (VAT)

SECTION 105 PERSONS LIABLE

Any person who, in the course of trade or business,

sells, barters, exchanges, leases goods or properties,renders services, and any person who imports goods

shall be subject to the value-added tax (VAT)imposed in Sections 106 to 108 of this Code.

SECTION [4.99-1] 4.105-1PERSONS LIABLE

Any person who, in the course of his trade or

business, sells, barters, exchanges or leases goods orproperties, or renders services, and any person who

imports goods shall be liable to VAT imposed inSections 100 to 102 of the Code.

However, in the case of importation of taxable

goods, the importer, whether an individual or

corporation and whether or not in the course of his

trade of business, shall be liable to VAT imposed in

Section 101 of the Code.

Person refers to any individual, trust, estate,

partnership, corporation, joint venture, cooperative

or association.

Taxable personrefers to any person liable for the

payment of value-added tax, whether or not

registered in accordance with Section 107.

SECTION [4.99-2] 4.105-2 VALUE-ADDED

TAX: NATURE AND CHARACTERISTICS (re-

ordered)

The value-added tax is an indirect tax and theamount of tax may be shifted or passed on to the

buyer, transferee or lessee of the goods, properties

or services. This rule shall likewise apply to existing

contracts of sale or lease of goods, properties or

services at the time of the effectivity of Republic

Act No. 7716.

VAT is an indirect tax and the amount of the taxmay be shifted or passed on to the buyer, transferee

or lessee of the goods, properties or services.

These rules shall likewise apply to existing contracts

of sale or lease of goods, properties or services atthe time of the effectivity of the R.A. 7716.

SECTION [4.99-1] 4.105-1-1PERSONS LIABLE

( cont)

The phrase in the course of trade or business

means the regular conduct or pursuit of a

commercial or an economic activity, including

transactions incidental thereto, by any person

regardless of whether or not the person engaged

therein is a nonstock, nonprofit private organization(irrespective of the disposition of its net income and

whether or not it sells exclusively to members or

their guests), or government entity.

In the course of trade or business means the

regular conduct or pursuit of a commercial or

economic activity, including transactions incidental

thereto, by any person regardless of whether or not

the person engaged therein is a non-stock, non-profit

private organization (irrespective of the dispositionof its net income and whether or not it sells

exclusively to members or their guests), or

government entity.

However, any business or businesses pursued by an

individual where the aggregate gross sales or

receipts do not exceed P100,000.00 during any 12-month period shall be considered principally for

subsistence or livelihood and not in the course of

trade or business.1


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Section 105 Persons liable


The rule of regularity, to the contrary

notwithstanding, services as defined in this Code

rendered in the Philippines by nonresident foreignpersons shall be considered as being rendered in the

course of trade or business.

The rule of regularity to the contrary

notwithstanding, services rendered in the

Philippines by non-resident foreign persons shall beconsidered as being rendered in the course of trade

or business.

SECTION 4.99-2 VALUE-ADDED

TAX: NATURE AND

CHARACTERISTICS shifted from

here.

1SECTION 4.112-2 TRANSACTIONS EXEMPT FROM VAT AND FROM PERCENTAGE

TAX: Any individual engaged in business or businesses where the aggregate gross sales or receipts do

not exceed P100,000.00 during any 12-month period shall be exempt from the payment of VAT and

from any percentage tax imposed under the NIRC.


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Section 106 Value-added tax on sale of goods or properties


SECTION 106 VALUE-ADDED TAX ON

SALE OF GOODS OR PROPERTIES


These shall be levied, assessed and collected onevery sale, barter or exchange of goods or

properties, a value-added tax equivalent to tenpercent (10%) of the gross selling price or gross

value in money of the goods or properties sold,

bartered or exchanged, such tax to be paid by the

seller or transferor.

SECTION [4.100 1] 4.106-1VALUE-ADDED

TAX ON SALE OF GOODS OR PROPERTIES

VAT is imposed and collected on every sale, barter

or exchange or transactions deemed sale of

taxable goods or properties at the rate of 10% of the

gross selling price.

Re-ordered text follows:

(1) The term goods or propertiesshall mean all

tangible and intangible objects which are

capable of pecuniary estimation and shallinclude:

(a) Real properties held primarily for saleto customers or held for lease in the

ordinary course of trade or business;

(b) 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;

(c) The right or the privilege to use in the

Philippines of any industrial,

commercial or scientific equipment;

(d) The right or the privilege to use

motion picture films, films, tapes and

discs; and

(e) Radio, television, satellite

transmission and cable television

time.

Goods or properties refer to all tangible and

intangible object which are capable of pecuniary

estimation and shall include:

1. Real properties held primarily for sale to

customers or held for lease in the ordinarycourse 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 any industrial commercial or

scientific equipment;

4. The right or the privilege to use motion

picture films, film tapes and discs; and

5. Radio, television, satellite transmission andcable television time.

Sale of real properties held primarily for sale to

customers or held for lease in the ordinarily courseof trade or business of the seller shall be subject to

VAT.

In the case of sale of real properties on the

installment plan, the real estate dealer shall be

subject to VAT on the installment payments,

including interest and penalties, actually and/orconstructively received on or after January 1, 1996.

Sale of real property on the installment plan

means sale of real property by a real estate dealer,the initial payments of which in the year of sale do

not exceed twenty-five percent (25%) of the gross

price.

However, in the case of sale of real properties on the

deferred-payment basis, not on the installment plan

before January 1, 1996, the subsequent payments of

the balance of the gross selling price on or after


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January 1, 1996 shall no longer be subject to VAT

considering that the transactions is treated as cash.

Sale of real property by a real estate dealer on a

deferred payment basis, not on the installment

plan means sale of real property, the initial

payments of which in the year of sale exceed

twenty-five percent (25%) of the gross selling price.

Initial payments means payment or payments

which the seller receives before or upon execution

of the instrument of sale and payments which he

expects or is scheduled to receive in cash or

property (other evidence of indebtedness of the

purchaser) during the year when the sale or

disposition of the real property was made. It covers

any downpayment made and includes all payments

actually or constructively received during the year

of sale, the aggregate of which determines the limitset by law.

Initial payments do not include the amount ofmortgage on the real property sold except when

such mortgage exceeds the cost or other basis of the

property to the seller, in which case, the excess shall

be considered part of the initial payments.

Also excluded from initial payments are notes or

other evidences of indebtedness issued by the

purchaser to the seller at the time of the sale.

Pre-selling of real estate properties by real estate

dealers shall be subject to VAT in accordance with

rules prescribed above.

Real estate dealerincludes any person engaged in

the business of buying, developing, selling,

exchanging real properties as principal and holding

himself out as a full or part-time dealer in real

estate.

Transmission of property to a trustee shall not be

subject to VAT if the property is to be merely held

in trust for the trustor and/or beneficiary.

The term gross selling price means the total

amount of money or its equivalent which the

purchaser pays or is obligated to pay to the seller in

consideration of the sale, barter or exchange of the

goods or properties, excluding the value-added tax.The excise tax, if any, on such goods or properties

shall form part of the gross selling price.

Gross selling price means the total amount of

money or its equivalent which the purchaser pays or

is obligated to pay to the seller in consideration of

the sale, barter or exchange of the goods or

properties, excluding the value-added tax. Theexcise tax, if any, on such goods or properties shall

form part of the gross selling price. In the case of

sale, barter or exchange of real property subject to

VAT, gross selling price shall mean the

consideration stated in the sales document or the

zonal value whichever is higher. Provided however,

in the absence of zonal value, gross selling pricerefers to the market value shown in the latest

declaration or the consideration whichever is higher.


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Taxable sale refers to the sale, barter, exchange

and/or lease of goods or properties, including

transactions deemed sale and the performance ofservice for a consideration, all of which are subject

to tax under Sections [100 and 102] 106 and 108 of

the Code.

Any person otherwise required to register for VAT

purposes who fails register shall be liable to VAT on

his sale of taxable goods or properties as defined in

the preceding paragraph. The sale and importation

of goods subject to excise taxes imposed under TitleVI of the Code are also subject to VAT, except coal

and natural gas in whatever form or state, and

manufactured petroleum products (other than

lubricating oil, processed gas, grease, wax and

petroleum).

Definition of goods or properties

shifted from here.

(2) The following sales by VAT-registered

persons shall be subject to zero percent (0%)

rate:

SECTION [4.100-2] 4.106-2 ZERO-RATED

SALES

A zero-rated sales by a VAT-registered person,which is a taxable transaction for VAT purposes,

shall not result in any output tax. However, the input

tax on his purchases of goods, properties or services

related to such zero-rated sale shall be available as

tax credit or refund in accordance with these

regulations.2

The following sales by VAT-registered persons

shall be subject to 0%:

(a) Export Sales

The term export salesmeans:

(1) The sale and actual shipment

of goods from the Philippinesto 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 paid for

in acceptable foreign currencyor its equivalent in goods or

services, and accounted for in

(a) Export sales

Export Salesshall mean:

(1) The sale and actual shipment of goods

from the Philippines to a foreigncountry, irrespective of any shipping

arrangement that may be agreed upon

which may influence or determine the

transfer of ownership of the goods so

exported paid for in acceptable

foreign currency or its equivalent in

goods or services, and accounted for

in accordance with the rules andregulations of the Bangko ng Pilipinas

(BSP);

2Note section 4.107-1(d) Application for effective zero-rating:

Except for actual export sale, other cases of zero-rated sales in Sec. 4.100-3 and Sec. 4.102-2 (c)

shall require prior application with the Revenue District Office for effective zero-rating. Without an

approved application for effective zero-rating, the transaction otherwise entitled to zero-rating shall be

considered exempt.


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accordance with the rules and

regulations of the Bangko

Sentral ng Pilipinas (BSP);

(2) Sale of raw materials or

packaging materials to a

nonresident buyer for delivery

to a resident local export-oriented enterprise to be used

in manufacturing, processing,

packing or repacking in the

Philippines of the said buyers

goods and paid for in

acceptable foreign currencyand accounted for in

accordance with the rules and

regulations of the Bangko


(3) Sale of raw materials or

packaging materials to export-oriented enterprise whose

export sales exceed seventy

percent (70%) of total annual

production;

(4) Sale of gold to the Bangko

Sentral ng Pilipinas (BSP); and

(5) Those considered export sales

under Executive Order No.

226, otherwise known as the

Omnibus Investment Code of

1987, and other special laws.

(2) The sale of raw materials or

packaging materials to a non-residentbuyer for delivery to a resident local

export oriented enterprise to be used

in manufacturing, processing, packing

or repacking in the Philippines of thesaid buyers goods and paid for in

acceptable foreign currency and

accounted for in accordance with the

rules and regulations of the Bangko


(3) The sale of raw materials or

packaging material to an export-

oriented enterprise whose export sales

exceed seventy percent (70%) of total

annual production;

Any enterprise whose export sale

exceed 70% of the total annualproduction of the preceding taxable

year shall be considered an export-

oriented enterprise upon accreditation

as such under the provisions of the

Export Development Act (R.A. 7844)

and its implementing rules andregulations.

(4) Sale of gold to the Bangko Sentral ng

Pilipinas (BSP); and

(5) Those considered export sales under

Articles 23 and 77 of Executive Order

No. 226, otherwise known as theOmnibus Investments Code of 1987,

and other special laws, e.g. Republic

Act No. 7227, otherwise known as the

Bases Conversion and Development

Act of 1992.

Considered export sales under

Executive Order No. 226shall mean

the Philippine port F.O.B. value

determined from invoices, bills of

lading, inward letters of credit,

landing certificates, and other

commercial documents, of export

products exported directly by aregistered export producer or the net

selling price of export products sold

by a registered export producer toanother export producer, or to an

export trader that subsequently

exports the same; Provided, That sales

of export products to another producer

or to an export trader shall only be


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deemed export sales when actually

exported by the latter, as evidenced by

landing certificates or similar

commercial documents: Provided,

further, That without actualexportation the following shall be

considered constructively exported forpurposes of these provisions: (1) sales

to bonded manufacturing warehouses

of export-oriented manufacturers; (2)

sales to export processing zones; (3)

sales to registered export traders

operating bonded trading warehouses

supplying raw materials in the

manufacture of export products underguidelines to be set by the Board in

consultation with the Bureau of

Internal Revenue and the Bureau of

Customs; (4) sales of foreign military

cases, diplomatic missions and other

agencies and/or instrumentalities

granted tax immunities, or locally

manufactured, assembled or repackedproducts whether paid for in foreign

currency or not: Provided, further, that

export sales of registered export

traders may include commission

income: and Provided, finally, that

exportation of goods on consignment

shall not be deemed export sales until

the export products consigned are infact sold by the consignee.

(b) Foreign Currency Denominated Sale

The phrase foreign currency

denominated sale means sale to a

nonresident of goods, except those

mentioned in Sections 149 and 150,assembled or manufactured in the

Philippines for delivery to a resident

in the Philippines, paid for in

acceptable foreign currency and

accounted for in accordance with the

rules and regulations of the Bangko

Sentral ng Pilipinas (BSP).

(b) Foreign currency denominated sale, those

mentioned in Sections 149 and 150 of the

Code.

Foreign currency denominated sale

means the sale to a non-resident of goods,except those mentioned in Section 149 and

150 of the Code, assembled or manufactured

in the Philippines for delivery to a resident in

the Philippines, paid for in acceptable foreign

currency and accounted for in accordance

with the rules and regulations of the Bangko

Sentral ng Pilipinas (BSP).

Sales of locally manufactured or assembledgoods for household and personal use to

Filipinos abroad and other non-residents of

the Philippines as well as returning Overseas

Filipinos under the Internal Export Program

of the government paid for in convertible

foreign currency and accounted for in

accordance with the rules and regulations of

the Bangko Sentral ng Pilipinas (BSP) shall


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also be considered export sales.

(c) Sales to persons or entities whose

exemption under special laws or

international agreements to which the

Philippines is a signatory effectively

subjects such sales to zero rate.

(c) Sales to persons or entities whose exemption

under special laws, e.g. R.A. No. 7227 duly

registered and accredited enterprises with

Subic Bay Metropolitan Authority (SBMA)

and Clark Development (CDA), RA. No.7916, Philippine Economic Zone Authority

(PEZA), or international agreements, e.g.

Asian Development Bank (ADB),

International Rice Research Institute (IRRI),

etc. to which the Philippines is signatory

effectively subject such sales to zero-rate.

SECTION 4.106-2 EFFECTIVELY ZERO-

RATED SALE OF GOODS AND PROPERTIES

Effectively zero-rated sales of goods and properties

shall refer to the sale by a VAT-registered person to

a person or entity who was granted indirect tax

exemption under special laws, e.g. RA 7227 orinternational agreements, e.g. ADB, IRRI. Underthese Regulations, effectively zero-rated

transactions shall cover local sale of goods and

properties to persons or entities who enjoy

exemptions from indirect taxes under par. (a) no (3),

pars, (b) and (c) of the preceding section.

(B) Transactions Deemed Sale

The following transactions shall be deemed sale:

(1) Transfer, use or consumption not in the

course of trade or business of goods or

properties originally intended for sale or foruse 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.

SECTION [4.100-4] 4.106-4 TRANSACTIONS

DEEMED SALE

(a) The following transactions shall be deemed

sale pursuant to Section [100] 106 (b) of

the Code:(A) Transfer, use or consumption not in

the course of business of goods orproperties originally intended for sale

or for use in the course of business.

Transfer of goods or properties not in

the course of business can take place

when the VAT-registered person

withdraws goods from his business

for his personal use;

(B) Distribution or transfer to:

(1) Shareholders or investors are

share in the profits of theVAT-registered person;

Property dividends whichconstitute stocks in trade or

properties primarily held for

sale or lease declared out of

retained earnings on or after

January 1, 1996 and distributed

by the company to its


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shareholders shall be subject to

VAT based on the zonal value

or fair market value at the time

of distribution, whichever is

applicable.

(2) Creditors in payment of debt or

obligation.

(C) Consignment of goods if actual sale is

not made within 60 days following the

date such goods were consigned.

Consigned goods returned by theconsignee within the 60-day period is

not deemed sold;

(D) Retirement from or cessation of

business with respect to all goods on

hand, whether capital goods, stock-in-

trade, supplies or materials as of thedate of such retirement or cessation,

whether or not the business iscontinued by the new owner or

successor. The following

circumstances shall, among others,

give rise to transactions deemed

sale for purposes of this Section;

(i) Change of ownership of thebusiness; and

(ii) Dissolution of a partnership

other than a general

professional partnership and

creation of a new partnership

which takes over the business.

SECTION [4.100-5] 4.106-5 CHANGES IN OR

CESSATION OF STATUS AS A VAT-

REGISTERED PERSON(re-ordered)

(C) Changes in or Cessation of Status of a

VAT-registered Person

The tax imposed in Subsection (A) of this Section

shall also apply to goods disposed of or existing as

of a certain date if under circumstances to be

prescribed in rules and regulations to be

promulgated by the Secretary of Finance, upon

recommendation of the Commissioner, the status ofa person as a VAT-registered person changes or is

terminated.

(a) Subject to tax

The value-added tax provided for in Sections [100]

106 and [102] 108 of the Code shall apply to

services, goods, or properties originally intended for

sale or for use in business and capital goods which

are existing as of the occurrence of the following:

(1) Change of business activity from value-added status to exempt status. An example is

a VAT-registered person engaged in a

taxable activity like wholesaler or retailer

who decides to discontinue such activity and

engages instead in life insurance business or

in any other business not subject to VAT;

(2) Approval of a request for cancellation of

registration due to reversion to exempt status.


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registration due to a desire to revert to

exempt status after the lapse of two (2)consecutive years from the time of

registration by a person who voluntarily

registered inspite of being exempt under

Section [103] 109 (a), (b), (c) and (d) of theCode with respect to his export sales only,

and Section [103(t)] 109 (u) of the Code.


registration of one who commenced business

with the expectation of gross sales or receipts

exceeding P500,000.00 but who failed to

exceed this amount during the first twelve

months of operation.

(b) Not subject to output tax

The VAT shall not apply to goods or properties

existing as of the occurrences of the following:

(1) Change of control of a corporation by the

acquisition of the controlling interest of such

corporation by another stockholder or groupof stockholder, Example: transfer of property

to a corporation in exchange for its shares of

stock under Section [34] 40 (c)(2)and(6)(c)

of the Code.

(2) Change in the trade or corporate name of the

business;

(3) Merger or consolidation of corporations. The

unused input tax of the dissolved corporation

as of the date of merger or consolidated shall

be absorbed by the surviving or new

corporation.

SECTION [4.100-6] 4.106-6 COMPUTATION

OF OUTPUT TAX (re-ordered)

(D) Determination of the Tax

(1) The tax shall be computed by multiplying the

total amount indicated in the invoice by one-eleventh (1/11).

(2) Sales Returns, Allowances and Sales

Discounts

The output tax on the sale of goods or properties

during the month or quarter shall be computed by

multiplying the total amount indicated in the invoice

by 1/11. In taxable sales of real property where the

zonal value/market value applies, output tax shall becomputed by multiplying the zonal value or market


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The value of goods or properties sold and

subsequently returned or for which allowances were

granted by a VAT-registered person may bededucted from the gross sales or receipts for the

quarter in which a refund is made or a credit

memorandum or refund is issued. Sales discount

granted and indicated in the invoice at the time ofsale and the grant of which does not depend upon

the happening of a future event may be excluded

from the gross sales within the same quarter it was

given.

value, as the case may be, by 1/11.3

Output taxmeans the value-added tax due on the

sale or lease of taxable goods or properties or

services by any person registered or required to

register under Section [107] 236.

Where the gross selling stated in the invoice isunreasonably lower than the actual market value, the

Commissioner shall be regulations determine the

appropriate tax base.

In computing the taxable base during the month or

quarter, the following shall be allowed as deduction

from gross selling price:

(A) Discounts determined and granted at the time

of sale which are expressly indicated in the

invoice, and the amount thereof forming part

of the gross sales duly recorded in the books

of accounts.

Sales discount indicated in the invoice at the

time to sale and the grant of which does not

depend upon the happening of a future event

may be excluded from the gross sales within

the same month/quarter it was given.

(B) Sales returns and allowances for which a

proper credit or refund was made during the

month or quarter to the buyer for salespreviously recorded as taxable sales.

(b) On transactions deemed sale

The output tax equivalent to 10% based on the

market value of the goods deemed sold shall beimposed as of the occurrence of the transactions

enumerated in Section 4.[100]106-4 (A), (B) and

(C) of these Regulations. However, in the case of

retirement from or cessation of business under

Section 4.[100]106-4(D) of these Regulations, the

tax base shall be the acquisition cost or the current

market price of the goods, whichever is lower.

(c) Basis of tax arising from changes in or

3 Note Regulation 8-99 (26 April 1999):

SECTION 1. Scope. All VAT-registered taxpayers who are required under Section 237 of

the 1997 Tax Code to issue receipts or sales or commercial invoices are no longer allowed to separately

bill the value-added tax corresponding thereto. The amount appearing in the sales invoices/receipts isthus deemed inclusive of the value-added tax due thereon.

SECTION 2. Penalty. Failure or refusal to comply with the requirement in Section 1 hereofshall, upon conviction, for each act or mission, be punished by a fine of not less than One thousand

pesos (P1,000) but not more than Fifty thousand pesos (P50,000) and suffer imprisonment of not less

than two (2) years but not more than four (4) years.

SECTION 3. Repealing Clause. All existing rules and regulations or parts thereof which

are inconsistent with the provisions of this regulation are hereby revoked.

SECTION 4. Effectivity This Regulation shall take effect fifteen (15) days after

publication in any newspaper of general circulation.


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cessation of status of a taxpayer as a VAT-

registered person

The output tax on goods or properties originally

intended for sale or for use in business, including

capital goods, existing as of the time of the changes

in or cessation of the status of a taxpayer as a VAT-

registered person, shall be based on the acquisitioncost or the current market price of the goods,

whichever is lower.

Any unused input taxes as of the retirement, change

or cessation of status as VAT-registered person shall

be allowed as credit against any output tax resulting

therefrom. The balance, if any, shall, subject to the

filing of an application within two years from date

of retirement, cessation or change of status, beissued a tax credit certificate which can be used a

payment of any internal revenue tax due from him

or a tax refund, if he has no pending internal

revenue tax liability.

SECTION [4.100-4] 4.106-4 TRANSACTIONS

DEEMED SALE ( cont)

(3) Authority of the Commissioner to Determine

the Appropriate Tax Base

The Commissioner shall, by rules and

regulations prescribed by the Secretary ofFinance, determine the appropriate tax base

in cases where a transaction is deemed a sale,

barter or exchange of goods or properties

under Subsection (B) hereof, or where the

gross selling price is unreasonably lower

than the actual market value.

(b) The Commissioner shall, by regulations,

determine the appropriate tax base in cases

where a transaction is deemed a sale, barter

or exchange of goods or properties under

paragraph (B) hereof, or where the gross

selling price is unreasonably lower than theactual market value.

SECTION 4.110-5CHANGES INOR CESSATION OF STATUS AS

A VAT-REGISTERED PERSON

shifted from here.

SECTION 4.110-6

COMPUTATION OF OUTPUT

TAX shifted from here.


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Section 107 Value-added tax on importation of goods



IMPORTATION OF GOODS

(A) In General

There shall be levied, assessed and collected on

every importation of goods a value-added tax

equivalent to ten percent (10%) based on the totalvalue used by the Bureau of Customs in determining

tariff and customs duties, plus customs duties,

excise taxes, if any, and other charges, such tax tobe paid by the importer prior to the release of such

goods from customs custody:

Provided, That where the customs duties are

determined on the basis of the quantity or volume of

the goods, the value-added tax shall be based on the

landed cost plus excise taxes, if any.


TAX ON IMPORTATION OF GOODS

(a) In general

The VAT is imposed on goods and properties

brought into the Philippines, whether for use in

business or not. The tax shall be based on the totalvalue, used by the Bureau of Customs in

determining tariff and customs duties, plus customs

duties, excise tax, if any, and other charges prior tothe release of the goods or properties from customs

custody such as postage, commissions, and similar

charges.

In case the valuation used by the Bureau of Customs

in computing customs duties is by volume or

quantity, the landed cost shall be the basis forcomputing the value added tax. Landed cost consists

of the invoice amount, customs duties, freight,

insurance and other charges. If the goods importedare subject to excise tax, the excise tax shall form

part of the tax base.

Importation of petroleum products and the raw

materials to be used by the importer himself in the

manufacturer thereof, subject to excise tax underTitle VI of the Code, shall be exempt from VAT.

However, VAT shall be collected from the importer

of lubricating oil, processed gas, grease, wax and

petrolatum and the raw materials to be used in the

manufacture thereof.

(B) Transfer of Goods by Tax-exempt Persons

In the case of tax-free importation of goods into the

Philippines by persons, entities or agencies exempt

from tax where such goods are subsequently sold,

transferred or exchanged in the Philippines to non-

exempt persons or entities, the purchasers,

transferees or recipients shall be considered the

importers thereof, who shall be liable for any

internal revenue tax on such importation. The taxdue on such importation shall constitute a lien on

the goods superior to all charges or liens on the

goods, irrespective of the possessor thereof.

(b) Applicability and Payment

The rates prescribed under Section [101] 107 (a)

shall be applicable to all importations withdrawn

from custom custody.

The value-added tax or importation shall be paid by

the importer prior to the release of such goods from

customs custody.

Importerrefers to any person who brings goods

into the Philippines, whether or not made in the

course of his trade or business. It includes non-

exempt persons or entities who acquire tax-free

imported goods from exempt persons, entities or

agencies.

(c) Sale, transfer or exchange of imported

goods by tax-exempt persons

In the case of goods imported into the Philippines by

VAT-exempt persons, entities or agencies which are

subsequently sold, transferred or exchanged in the

Philippines to non-exempt persons or entities, thelatter shall be considered the importers thereof who

shall be liable for VAT on such importation.


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Section 109 Exempt transactions



SALE OF SERVICES AND USE OR LEASE OF

PROPERTIES


There shall be levied, assessed and collected, a

value-added tax equivalent to ten percent (10%) ofgross receipts derived from the sale or exchange of

services, including the use or lease of properties.

The phrase sale or exchange of services means

the performance of all kinds of services in the

Philippines for others for a fee, remuneration or

consideration, including those performed or

rendered by construction and service contractors;stock, real estate, commercial, customs and

immigration brokers; lessors of property, whether

personal or real; warehousing services; lessors or

distributors of cinematographic films; persons

engaged in milling, processing, manufacturing orrepacking goods for others; proprietors, operators or

keepers of hotels, motels, resthouses, pension

houses, inns, resorts; proprietors or operators of

restaurants, refreshment parlors, cafes and other

eating places, including clubs and caterers; dealersin securities; lending investors; 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, air and water relative to their transport of

goods or cargoes; services of franchise grantees of

telephone and telegraph, radio and television

broadcasting and all other franchise grantees exceptthose under Section 119 of this Code; services of

banks, non-bank financial intermediaries and

finance companies; and non-life insurance

companies (except their crop insurances), including

surety, fidelity, indemnity and bonding companies;

and similar services regardless of whether or not the

performance thereof calls for the exercise or use of

the physical or mental faculties.


TAX ON THE SALE OF SERVICES AND USE

OR LEASE OF PROPERTIES

(a) Sale or exchange of services, as well as the

use or lease of properties, as defined in

Section [102] 108 (a) of the Code shall besubject to VAT.

Sale or exchange or services means the

performance of all kind of services in thePhilippines for others for a fee, remuneration

or consideration, including those performed

or rendered by the following:

(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;4

(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, resthouses, pension

houses, inns, resorts;

(8) proprietors or operators of restaurants,

refreshment parlors, cafes and othereating places, including clubs andcaterers;

(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;

(12) other domestic common carriers by

land, air and water relative to their

transport of goods or cargoes;

(13) franchise grantees of 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 of thepreceding year does not exceed Ten

4 Defined at end of section.


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Million Pesos (P10,000,000.00), and

franchise grantees of electric gas and

water utilities;

(14) banks, non-bank financial

intermediaries and finance companies

and other financial intermediaries not

performing quasi-banking functions;

(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.

The phrase sale or exchange of services shall

likewise include:

(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 meansof 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 nonresident

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 orservices 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

The phrase sale or exchange of services

shall likewise include:

(1) The lease or the use of or the right

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 any industrial, commercial or

scientific equipment.

(3) The supply of scientific, technical

industrial or commercial knowledgeor information;

(4) The supply of any assistance that isancillary 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) hereof or any such

knowledge or information as ismentioned in subparagraph (3) hereof;

or

(5) The supply of services by a non-

resident person or his/its employee in

connection with the use of property or

rights belongings to, or the installation

or operation of any brand, machineryor 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 commercialundertaking, venture, project or


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cable television time.

Lease of properties shall be subject to the tax herein

imposed irrespective of the place where the contractof lease or licensing agreement was executed if the

property is leased or used in the Philippines.

The term gross receiptsmeans the total amount ofmoney 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 and advanced

payments actually or constructively received duringthe taxable quarter for the services performed or to

be performed for another person, excluding value-

added tax.

scheme;

(7) The lease of motion picture films

tapes and discs;

(8) The lease or the use of or the right to

use, television, satellite transmission

and cable television time.Real estate lessor includes any person

engaged in the business of leasing or

subleasing real property.

Lease of property shall be subject to VAT

regardless of the place where the contract of

lease or licensing agreement was executed if

the property leased or used is in the

Philippines.

(b) The VAT on rental and/or royalties payable

to non-resident foreign corporations or

owners for the sale of services and use or

lease of properties in the Philippines shall bebased on the contract price agreed upon by

the licensor and the licensee. The licensee

shall be responsible for the payment of VAT

on such rentals and/or royalties in behalf of

the non-resident foreign corporation or ownerby filing a separate VAT declaration/return

for this purpose. They duly validated VAT

declaration/return is sufficient evidence in

claiming input tax credit by the licensee.

Non-resident lessor/owner refers to any

person, natural or juridical, an alien, or acitizen who establishes to the satisfaction of

the Commissioner the fact of his physical

presence abroad with a definite intention to

reside therein, and who owns/leases

properties, real or personal, whether tangible

or intangible, located in the Philippines.

(c) In a lease contract, the advance payment by

the lessee may be:

(i) a loan to the lessor from the lessee, or

(ii) an option money for the property, or

(iii) a security deposit to insure the faithful

performance of certain obligations of

the lessee to the lessor, or

(iv) pre-paid rental.

If the advance payment is actually a loan to

the lessor, or an option money for the

property, or a security deposit for the faithful

performance of certain obligations of the

lessee, such advance payment is not subject

to VAT.


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However, a security deposit that is applied to

rental shall be subject to VAT.

If the advance payment is, in fact, a pre-paidrental, then such payment is taxable to the

lessor in the month or quarter when received

regardless of the accounting methods used.

(d) Non-life insurance companies including

surety, fidelity, indemnity and bonding

companies are now subject to VAT. They are

no longer liable to the payment of the

premium tax under Section [121] 123 of theCode.

Non-life insurance companies including

surety, fidelity, indemnity and bonding

companies shall include all individuals,

partnerships, associations, or corporations,

including professional reinsurers defined inSection 280 of PD 612, otherwise known as

The Insurance Code of the Philippines,mutual benefit associations and government-

owned or controlled corporations, engaging

in the business of property insurance, as

distinguished from insurance on human lives,

health, accident and insurance appertaining

thereto or connected therewith.

Reinsurance premiums are subject to VAT.

The VAT due from the foreign reinsurance

company is to be withheld by the local

insurance company and to be remitted to the

BIR by filing a separate VAT

declaration/return.

Commissions of insurance agent and/or

brokers are subject to VAT.

The gross receipts on non-life insurance

companies shall mean total premiumscollected, whether paid in money, notes,

credits or any substitute for money.

Gross receiptsrefer 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 and advance paymentsactually or constructively received during

taxable quarter for the services performed or

to be performed for another person,

excluding VAT. It shall likewise refer to

gross income as defined under Section [28]

32 (A) of the Code, whenever applicable.

Constructive receipt occurs when the

money consideration or its equivalent is


20/55



placed at the control of the person who

rendered the service without restrictions by

the payor. The following are examples of

constructive receipts.

(1) deposit in banks which are made

available to the seller of services

without restrictions.

(2) issuance by the debtor of a notice to

offset any debt or obligation and

acceptance thereof by the seller as

payment for services rendered; and

(3) transfer of the amounts retained by the

contractee to the account of the

contractor.

(e) Dealers in securities and lending investorsshall be subject to VAT on the basis of the

gross income they derive, respectively, from

their sale or exchange of securities or theirlending activities.

Dealer in securities means a merchant of

stock or securities, whether an individual

partnership or corporation, with an

established place of business, regularlyengaged in the purchase of securities and

their resale to customers, that is, one who as

a merchant buys securities and sells them to

customers with a view to the gains and

profits that may be derived therefrom.

Lending investorinclude all persons otherthan banks, non-bank financial

intermediaries, finance companies and other

financial intermediaries not performing

quasi-banking functions who make a practice

of lending money for themselves or others at

interest.

In the case of pre-need companies, they shall

be considered as dealers in securities and

their gross receipts shall mean actual receipts

on contract price minus contributions to the

trust funds to be set up independently as

mandated by the Securities and Exchange

Commission.

(f) Services of franchise grantees of telephoneand telegraph, radio and/or television

broadcasting and all other franchise grantees,

except electric, gas and water utilities, shall

be subject to VAT. However, franchise

grantees of radio and/or television

broadcasting whose annual gross receipts of

the preceding year does not exceed Ten

Million Pesos (P10,000,000.00) shall not be


21/55



subject to VAT, but to the three percent (3%)

franchise tax imposed under Sec. [117] 119

of the Code, subject to the optional

registration provisions under Sec. [4.107]

9.236-1(c) of Rev. Regs. No. 7-95, asamended by these Regulations.

Likewise, franchise grantees of electric, gasand water utilities shall be subject to two

percent (2%) franchise tax on their, gross

receipts derived from the business covered

by me law granting me franchise pursuant to

Sec. [117] 119 of the Code.

Provided, further, That all franchise grantees

not falling under Section [117] 119 of the

Code are also no longer subject to me

franchise tax on their gross receipts derived

from their franchised operations under their

respective charters.

Franchise grantees of telephone andtelegraph shall be subject to VAT on their

gross receipts derived from their telephone,

telegraph, telewriter exchange, wireless and

other communication equipment services.

However, amounts received for overseas

dispatch, message, or conversationoriginating from the Philippines are still

subject to the percentage tax under Section .118 [120] of the Code.

(g) A person engaged in milling for other (except

palay into rice, corn into corn grits, and

sugarcane into raw sugar) is subject to VAT

on sale of services. If the miller is paid in

cash for his services, the VAT shall be basedon his gross receipts during the month or

quarter. If he received a share of the milled

products, instead of cash, the VAT shall be

based on the actual market value of his share

in the milled products. Sale by the owner or

the miller of his share of the milled product

(except rice, corn grits and raw sugar) shall

be subject to VAT on sale of goods.

(h) All receipts from service, hire, or operating

lease of transportation equipment not subject

to the percentage tax on domestic commoncarriers and keepers of garages imposed

under Section [115] 117 of the Code shall be

subject to VAT.

Common carrier refer to persons,

corporations, firms or associations engaged

in the business of carrying or transporting

passengers or goods or both, by land, water,

or air, for compensation, offering their


22/55



services to the public and shall include

transportation contractors.

Operators of taxicabs, utility cars for rent orhire driven by the lessees (rent-a-car

companies), and tourist buses used for the

transport of passengers are subject to the

percentage tax imposed under Section [115]117 of the Code, and not to VAT.

Warehousing service means rendering

personal services of a warehouseman such

as:

1. engaging in the business of receiving

and storing goods of others for

compensation or profit;

2. receiving good and merchandise to bestored in his warehouse for hire;

3. keeping and storing goods for other,

as a business and for use.

(B) TRANSACTIONS SUBJECT TO ZERO

PERCENT (0%) RATE

The following services performed in the Philippines

by VAT-registered persons shall be subject to zero

percent (0%) rate:

(1) Processing, manufacturing or repacking

goods for other persons doing business

outside the Philippines which goods are

subsequently exported, where the servicesare paid for in acceptable foreign currency

and accounted for in accordance with therules and regulations of the Bangko Sentral

ng Pilipinas (BSP);

(2) Services other than those mentioned in the

preceding paragraph, the consideration forwhich is paid for in acceptable foreign

currency and accounted for in accordance

with the rules and regulations of the Bangko


(3) Services rendered to persons or entities

whose exemption under special laws orinternational agreements to which the

Philippines is a signatory effectively subjectsthe supply of such services to zero percent

(0%) rate;

SECTION [4.102-2] 4.108-2 ZERO-RATING

(a) In general

A zero-rated sale by a VAT registered person, which

is a taxable transaction for VAT purposes, shall not

result in any output tax. However, the input tax on

his purchases of goods, properties or services related

to such zero-rated sale shall be available as tax

credit or refund in accordance with these

regulations. 5

(b) Transactions Subject to Zero Percent

(0%) Rate

The following services performed in the Philippines

by VAT-registered persons shall be subject to zeropercent (0%) rate:

(1) Processing, manufacturing or repacking

goods for other persons doing business

outside the Philippines, which goods are

subsequently exported, where the services

are paid for in acceptable foreign currencyand accounted for in accordance with the

rules and regulations of the Bangko Sentral

ng Pilipinas (BSP);

(2) Services other than processing,

manufacturing or repacking for other persons

doing business outside the Philippines of

5Note section 4.107-1(d) Application for effective zero-rating:

Except for actual export sale, other cases of zero-rated sales in Sec. 4.100-3 and Sec. 4.102-2 (c)

shall require prior application with the Revenue District Office for effective zero-rating. Without an

approved application for effective zero-rating, the transaction otherwise entitled to zero-rating shall be

considered exempt.


23/55



(4) Services rendered to vessels engaged

exclusively in international shipping; and

(5) Services performed by subcontractors and/orcontractors in processing, converting, or

manufacturing goods for an enterprise whose

export sales exceed seventy percent (70%) of

total annual production.

goods which are subsequently exported, as

well as services by a resident to a non-

resident foreign client, such as project

studies, information services, engineering

and architectural designs and other similarservices, the consideration for which is paid

for in acceptable foreign currency andaccounted for in accordance with the rules

and regulations of the BSP.

(3) Service rendered to persons or entities whose

exemption under special laws or international

agreements to which the Philippines is a

signatory effectively subjects the supply ofsuch services to zero percent (0%) rate;

(4) Services rendered to vessels engaged

exclusively in international shipping;

(5) Services performed by subcontractors and/orcontractors duly accredited by either the

Board of Investments or the ExportDevelopment Council in processing,

converting, or manufacturing goods for an

enterprise whose export sales exceed seventy

percent (70%) of the total annual production.

(c) Effectively zero-rated sale of services

Effectively zero-rated sales of services shall refer to

the sale by a VAT-registered person to a person or

entity who was granted indirect tax exemption under

special laws, or international agreements. Under

these Regulations, effectively zero-rated

transactions shall be limited to the local sale of

services to persons or entities who enjoy exemptionsform indirect taxes under subparagraph (b) Nos. (3)

(4) and (5) of this section.

(C) Determination of the Tax

The tax shall be computed by multiplying the total

amount indicated in the official receipt by one-

eleventh (1/11).

SECTION 109 EXEMPT TRANSACTIONS

The following shall be exempt from the value-added

tax:

SECTION [4.103-1] 4.109-1 EXEMPTIONS -

(A) In general

An exemptions means that the sale of goods or

properties and/or services and the use or lease ofproperties is not subject to VAT (output tax) and the

seller is not allowed any tax credit on VAT (input

tax) previously paid.

The person making the exempt sale of good,

properties or services shall not bill any output tax to

his customers because the said transaction is notsubject to VAT. On the other hand, a VAT-

registered purchaser of VAT-exempt


24/55



goods/properties or services which are exempt from

VAT is not entitled to any input tax on such

purchase despite the issuance of a VAT invoice or

receipt.

(B) Exempt transactions

The following shall be exempt from the VAT:

(a) Sale of nonfood agricultural products; marine

and forest products in their original state by

the primary producer or the owner of theland where the same are produced;

(b) Sale of cotton and cotton seeds in their

original state; and copra;

(a) Sale of nonfood agricultural, marine and

forest products in their original state by the

primary producer or the owner of the landwhere the same are produced. In the hands of

a subsequent seller, the sale shall be subject

to VAT.

(b) Sale of cotton and cotton seeds in their

original state; and copra;

(c) Sale or importation of agricultural andmarine food products in their original state,

livestock and poultry of a kind generallyused as, or yielding or producing foods for

human consumption; and breeding stock and

genetic materials therefor.

Products classified under this paragraph andparagraph (a) shall be considered in their

original state even if they have undergone thesimple 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:

(c) Sale or importation of agricultural andmarine food products in their original state,

livestock and poultry of a kind generally usedas, or yielding or producing foods for human

consumption; and breeding stock and genetic

materials therefor.

Livestock shall include cows, bulls andcalves, pigs, sheep, goats and rabbits. Poultry

shall include fowls, ducks, geese and turkey.(It does not include fighting cocks, race

horses, zoo animals and other animals

generally considered as pets.)

Marine food products shall include fish and

crustaceans, such as, but not limited to, eels,

trout, lobster, shrimps, prawns, oysters,mussels and clams.

Meat, fruit, fish, vegetable and other

agricultural and marine food products shall

be considered in their original date 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, including

those using advanced technological means of

packaging, such as shrink wrapping in

plastics, vacuum packing, tetra-pack, and

other similar packaging methods.

Polished and/or husked rice, corn grits, raw

cane sugar and molasses and ordinary saltshall be considered as agricultural food

products in their original state.

Raw cane sugar refers to crystallized or

solidified juice of sugarcane, distinctly

brown in color resulting from the simple and

primary milling process such as treating the


25/55



juice with lime to remove impurities, boiling

and spinning the syrup to force out the

molasses. It does not include cane sugar

commonly known as washed sugar,

plantation washed sugar and blancodirecto sugar, which are, for purposes of

this exemption, considered as refined sugar.Bagasse are not also covered by the

exemption.

(d) Sale or importation of fertilizers; seeds,

seedlings and fingerlings; fish, prawn,

livestock and poultry feeds, including

ingredients, whether locally produced orimported, 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);

(d) Sale or importation of fertilizers, seeds,

seedlings and fingerlings, fish, prawn,

livestock and poultry feeds, including

ingredients, whether locally produced orimported, 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);

Specialty feeds refer to non-agriculturalfeeds or food for race horses, fighting cocks,

aquarium fish, zoo animals and other animalsgenerally considered as pets.

(e) Sale or importation of coal and natural gas,

in whatever form or state, and petroleum

products (except lubricating oil, processed

gas, grease, wax and petrolatum) subject to

excise tax imposed under Title VI;

(f) Sale or importation of raw materials to be

used by the buyer or importer himself in the

manufacture of petroleum products subject to

excise tax, except lubricating oil, processed

gas, grease, wax and petrolatum;

(g) Importation of passenger and/or cargovessels of more than five thousand tons

(5,000), whether coastwise or ocean-going,

including engine and spare parts of said

vessel to be used by the importer himself as

operator thereof;

(h) Importation of personal and householdeffects belonging to the residents of the

Philippines returning from abroad and

nonresident citizens coming to resettle in the

Philippines: Provided, That such goods areexempt from customs duties under the Tariff

and Customs Code of the Philippines;

(i) Importation of professional instruments and

implements, wearing apparel, domesticanimals, and personal household effects

(except any vehicle, vessel, aircraft,

machinery, other goods for use in the

manufacture and merchandise of any kind in

(e) Sale or importation of coal and natural gas, in

whatever form or state, and petroleum

products (except lubricating oil, processed

gas, grease, wax and petrolatum) subject to

the excise taxes imposed under Title VI ofthe Code;

(f) Sale or Importation of raw materials to be

used by the buyer or importer himself in the

manufacture of petroleum products subject to

excise tax, except lubricating oil, processed

gas, grease, wax and petrolatum;

(g) Importation of passenger and/or cargo vessel

of more than five thousand tons, whether

coastwise or ocean going, including engine

and spare parts of said vessel to be used by

the importer himself as operator thereof;

(h) Importation of personal and householdeffects belonging to residents of the

Philippines returning from abroad and non-

resident citizens coming to resettle in the

Philippines: Provided, that such goods areexempt from customs duties under the Tariff

and Customs Code of the Philippines;

(i) Importation of professional instruments and

implements, wearing apparel, domesticanimals, and personal household effects

(except any vehicle, vessel, aircraft,

machinery and other goods for use in the

manufacture and merchandise of any kind in


26/55



commercial quantity) 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 ninety (90) days before or after theirarrival, upon the production of evidence

satisfactory to the Commissioner, that suchpersons are actually coming to settle in the

Philippines and that the change of residence

is bona fide;

commercial quantity) 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 ninety (90) days before or after theirarrival, upon the production of evidence

satisfactory to the Commissioner of InternalRevenue, that such persons are actually

coming to settle in the Philippines and that

the change of residence is bonafide;

(j) Services subject to percentage tax under Title

V;

(j) Services subject to percentage tax under Title

V of the Code, such as:

(1) Sale or lease of goods or properties or

the performance of services of non-

VAT-registered persons, other than

the transactions mentioned in

paragraphs (a) to (y) of Section [103]

109 of the Code, the gross annual

sales and/or receipts of which doesnot exceed the amount of FIVE

HUNDRED FIFTY THOUSANDPESOS (P550,000.00): Provided, That

not later than January 31, 1988 and

each calendar year thereafter, the

amount of P550,000.00 shall be

adjusted to its present value using the

Consumer Price Index, as published

by the National Statistics Office (NO)

(Section [112] 116 of the Code);

(2) Services rendered by domestic

common carriers by land, air or water

for the transport of passengers and

keepers of garages (Section [115] 118

of the Code);

(3) Services rendered by international air

and shipping carriers doing business

in the Philippines (Section [115-A]

118 of the Code);

(4) Services rendered by franchise

grantees of radio and/or television

broadcasting whose annual grossreceipts of me preceding year does not

exceed Ten Million Pesos

(P10,000,000.00), and by franchisegrantees of electric, gas and water

utilities (Section [117] 119 of the

Code);

(5) Overseas dispatch, messages or

communications originating from the

Philippines (Section [118] 120,

NIRC).


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(6) Services rendered by any person,

company or corporation (except

purely cooperative companies or

associations) doing life insurance

business of any sort in the Philippines(Section [121] 123 of the Code);

(7) Services rendered by fire, marine ormiscellaneous insurance agents of

foreign insurance companies (Section

[122] 124 of the Code);

(8) Services of proprietors, lessees oroperators of cockpits, cabarets, night

or day clubs, boxing exhibitions,

professional basketball games, Jai-

Alai and race tracks (Section [123]

125 of the Code); and

(9) Receipts on sale, barter or exchangeof shares of stock listed and traded

through the local stock exchange orthrough initial public offering.

(Section [124-A] 127 of the Code).

(k) Services by agricultural contract growers and

milling for others of palay into rice, corn into

grits and sugar cane into raw sugar;

(k) Services by agricultural contract growers and

milling for others of palay into rice, corn into

grits, and sugar cane into raw sugar;

Agricultural contract growers refer to

those persons producing for others poultry,

livestock or other agricultural and marine

food products in their original state. The term

agricultural contract growers shall also

include reforestation contractors pursuant to

the Government Reforestation Program.

(l) Medical, dental, hospital and veterinary

services subject to the provisions of Section

17 of Republic Act No. 7716, as amended;

(l) Medical, dental, hospital and veterinary

services, subject to the provisions of Section

15 of these Regulations.i

Laboratory services are also exempted. If the

hospital or clinic operates a pharmacy or

drug store, the sale of drugs and medicine issubject to VAT.

(m) Educational services rendered by private

educational institutions, duly accredited by

the Department of Education, Culture andSports (DECS) and the Commission on

Higher Education (CHED), and those

rendered by government educational

institutions;

(m) Educational services rendered by private

educational institutions duly accredited by

me Department of Education, Culture andSports (DECS) and/or the Commission on

Higher Education (CHED) and those

rendered by government educational

institutions;

Educational services shall refer to

academic, technical or vocational education

provided by private educational institutions

duly accredited by the DECS and/or the


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CHED and those rendered by government

educational institutions and it does not

include seminars, in-service training, review

classes and other similar services rendered by

persons who are not accredited by the DECSand/or the CHED;

(n) Sale by the artist himself of his works of art,

literary works, musical compositions and

similar creations, or his services performed

for the production of such works;

(n) Sale of works of art, literary works, musical

compositions and similar creations, or

services performed for the production of such

works, if sold by the artist himself, are

exempt from VAT. If sold by other persons

in the course of business, they shall be

subject to VAT;

(o) Services rendered by individuals pursuant to

an employer-employee relationship;

(p) Services rendered by regional or area

headquarters established in the Philippines

by multinational corporations which act assupervisory, communications andcoordinating centers for their affiliates,

subsidiaries or branches in the Asia-Pacific

Region and do not earn or derive income

from the Philippines;

(o) Services rendered by individual pursuant to

an employer-employee relationship;

(p) Services rendered by regional or area

headquarters established in the Philippines by

multinational corporations which act assupervisory, communications andcoordinating centers for their affiliates,

subsidiaries or branches in the Asia Pacific

Region and do not earn or derive from the

Philippines;

(q) Transactions which are exempt under


Philippines is a signatory or under special

laws, except those under Presidential DecreeNos. 66, 529 and 1590;

(q) Transactions which are exempt under


Philippines is a signatory or under special

laws except those granted under thefollowing laws:

(1) PD No. 66 Export Processing ZoneAuthority (EPZA)-registered firms;

(2) PD No. 529 Petroleum ExplorationConcessionaires under the Petroleum

Act of 1949; and

(3) PD 1590 Philippine Air Lines

(PAL) relative to domestic transport

of goods or cargoes;

(r) Sales by agricultural cooperatives duly

registered with the Cooperative Development

Authority to their members as well as sale oftheir produce, whether in its original state or

processed form, to non-members; theirimportation 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;

(s) Sales by electric cooperatives duly registeredwith the Cooperative Development Authority

or National Electrification Administration,

(r) Sales by agricultural cooperatives duly

registered with the Cooperative Development

Authority (CDA) to their members, as wellas 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;

(s) Sales by electric cooperatives duly registeredwith the CDA or National Electrification

Administration (NEA), relative to the


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relative to the generation and distribution of

electricity as well as their importation of

machineries and equipment, including spare

parts which shall be directly used in the

generation and distribution of electricity;

(t) Gross receipts from lending activities by

credit or multi-purpose cooperatives dulyregistered with the Cooperative Development

Authority whose lending operation is limited

to their members;

generation and distribution of electricity, as

well as their importation of machineries and

equipment, including spare parts, which shall

be directly used in the generation and

distribution of electricity.

(t) Gross receipts from lending activities by

credit or multi-purpose cooperatives dulyregistered with the CDA, whose lending

operation is submitted to their members;

(u) Sales by non-agricultural, non-electric andnon-credit cooperatives duly registered with

the Cooperative Development Authority:

Provided, That the share capital contribution

of each member does not exceed Fifteen

thousand pesos (P15,000) and regardless of

the aggregate capital and net surplus ratably

distributed among the members;

(u) Sales by non-agricultural, non-electric andnon-credit cooperatives duly registered with

the CDA; Provided, That the share capital

contribution of each member does not exceed

Fifteen Thousand Pesos (P15,000.00) and

regardless of the aggregated capital and net

surplus ratably distributed among the

members:

Importation by non-agricultural, non-electricand non-credit, cooperatives of machineries

and equipment, including spare parts thereof,

to be used by them are subject to VAT.

(v) Export sales by persons who are not VAT-

registered;

(v) Export sales by persons who are not VAT-

registered;

(w) Sale of real properties not primarily held forsale 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 by Republic Act No.7279, otherwise known as the Urban

Development and Housing Act of 1992, and

other related laws, house and lot and other

residential dwellings valued at One millionpesos (P1,000,000) and below: Provided,

That not later than January 31st of the

calendar year subsequent to the effectivity of

this Act and each calendar year thereafter,

the amount of One million pesos

(P1,000,000) shall be adjusted to its present

value using the Consumer Price Index, as

published by the National Statistics Office

(NSO);

(w) The following sales of real properties areexempt from VAT, namely:

(1) Sale of real properties not primarily

held for sale to customers or held for

lease in the ordinary course of trade orbusiness:

(2) Sale of real properties utilized for

low-cost housing under BP Blg. 220,

PD No. 957 or RA No. 7279,

otherwise known as the Urban and

Development Housing Act of 1992

and other related laws, wherein the

price ceiling per unit is P375,000.00,

or as may from time to time be

determined by the House and LandUse Regulatory Board (HLURB) and

other related laws;

Low-cost housingrefers to housing

projects intended for home-less low-

income family beneficiaries,

undertaken by the Government orprivate developers, which may either

be a subdivision or a condominium

registered and licensed by the

Housing and Land Use Regulatory

Board/Housing and Urban


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Development Coordinating Council

(HLURB/HUDCC) under BP Blg.

220, PD No. 957 or any other similar

law, wherein the unit selling price is

within the selling price ceiling perunit under RA No. 7279, otherwise

known as the Urban Developmentand Housing Act of 1992 or as

determined from time to time by the

HLURB/HUDCC.

(3) Sale of real properties utilized for

socialized housing as defined under

RA No. 7279, wherein the priceceiling per unit is P150,000 or as may

from time to time be determined by

the HLURB and other related laws.

Socialized housing refers to

housing programs and projects

covering houses and lots or homelotsonly undertaken by the Government

or the private sector for the

underprivileged and homeless citizens

which shall include sites and services

development, long-term financing,

liberated terms on interest payments,

and such other benefits in accordance

with the provisions of RA No. 7279,otherwise known as the Urban

Development and Housing Act of

1992. Socialized housing shall also

refer to projects intended for the

underprivileged and homeless wherein

the housing package selling price iswithin the lowest interest rates under

the Unified Home Lending Program

(UHLP) or any equivalent housing

program of the Government, theprivate sector or non-government

organizations.

(4) Sale by real dealers and/or lessors of

house and lot and other residentialdwellings valued at One Million

Pesos (P1,000,000.00) and below:

Provided, That not later than January

31, 1998 and each calendar yearthereafter, the amount of One Million

Pesos (P1,000,000.00) shall be

adjusted to its present value using the

Consumer Price Index, as published

by the National Statistics Office

(NSO);

(x) Lease of a residential unit with a monthly (x) Lease of residential units with a monthly


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rental not exceeding Eight thousand pesos

(P8,000): Provided, That not later than

January 31st of the calendar year subsequentto the effectivity of Republic Act No. 8241

and each calendar year thereafter, the amount

of Eight thousand pesos (P8,000) shall be

adjusted to its present value using theConsumer Price Index as published by the

National Statistics Office (NSO);

rental per unit not exceeding Eight Thousand

Pesos (P8,000.00, regardless of the amount

of aggregate rentals received by the lessorduring the year, Provided, That the

exemption likewise applies to lease of

residential units where the monthly rental per

unit exceeds Eight Thousand Pesos but theaggregate rentals of the lessor during the year

do not exceed P550,000. Provided finally

that not later than January 31, 1998 and each

calendar year thereafter, the amount of

P8,000.00 shall be adjusted to its present

value using the Consumer Price Index, aspublished by the NSO;

The term residential units shall refer to

apartments, houses and/or lands on which

anothers dwelling is located, used for

residential purposes and shall include not

only buildings, parts or units thereof usedsolely as dwelling places (e.g., dormitories,

rooms and bed spaces) except motels, motel

rooms, hotels and hotel rooms. Residential

units shall also include apartments, houses,

building, parts or units thereof used for home

industries, retail stores or other business

purposes, if the tenant thereof and his family

actually live therein and use them principallyfor dwelling purposes.

The term unitshall mean

Documents

Consolidated VAT