Law Summary
Value-Added Tax on Sale of Services and Use or Lease of Properties
- Sale or exchange of services and lease/use of properties in the Philippines are subject to VAT.
- Services include those by transportation contractors, domestic common carriers, franchise grantees of communication and utilities, financial intermediaries, and non-life insurance companies.
- Franchise grantees of certain utilities (electric, gas, water) pay a 2% franchise tax instead of VAT.
- Franchise grantees of radio/TV broadcasting with annual gross receipts below P10 million pay 3% franchise tax instead of VAT, but may opt for VAT registration.
- Operators of taxicabs, utility cars for rent or hire, and tourist buses pay percentage tax, not VAT.
Zero-rating
- Certain services performed for foreign clients or for exported goods are subject to 0% VAT rate.
- Zero-rating applies to services paid in acceptable foreign currency and comply with BSP rules.
- Services exempted by special laws or international agreements may be zero-rated.
Exemptions
- Sale/import of agricultural and marine food products in original or simply processed state are VAT-exempt.
- Exemptions include certain sales of coal, natural gas, petroleum products, various services subject to percentage tax, and residential leases below specified rental thresholds.
- Includes exemptions for medical, educational services, agricultural contract growers, cooperative sales, sales by electric cooperatives, and socialized housing sales within price ceilings.
- Sales of real properties under specific thresholds and low-cost housing projects exempted.
- Sales that are otherwise exempt but improperly invoiced as VAT taxable will be taxed with no input credit.
Transitional and Presumptive Input Tax Credits
- VAT-registered persons can claim an 8% transitional input tax credit on beginning inventories.
- Persons processing certain agricultural products or public works contractors are entitled to presumptive input tax credits.
- These credits apply only to VAT-registered persons.
Registration of VAT Taxpayers
- Persons whose gross sales exceed P550,000 are required to register for VAT and pay a registration fee.
- New businesses expected to exceed this threshold must register before starting.
- Franchise grantees of radio/TV broadcasting with receipts below P10 million may opt for VAT registration; once opted, registration is irrevocable.
Non-VAT Registration
- Persons not required to register as VAT taxpayers must register as non-VAT and pay an annual registration fee of P500.
- Categories include VAT-exempt persons who do not opt for VAT, businesses with sales not exceeding P100,000, and certain cooperatives.
Cancellation of Registration
- Registrants may apply for cancellation of VAT registration in cases such as failure to start business, transactions becoming exempt, or gross sales falling below thresholds.
- Optional VAT registration by franchise grantees of radio/TV broadcasting is irrevocable.
Withholding of Creditable VAT
- Government entities and GOCCs are required to withhold VAT on purchases of goods (3%) and services (6% or 8.5% for contractors) subject to VAT.
- Withheld VAT must be remitted within 10 days after the month of withholding.
Tax on Persons Exempt from VAT
- Persons exempt from VAT under specific provisions who are not VAT-registered pay a 3% tax on gross quarterly sales or receipts.
- Cooperatives are exempt from this tax.
Percentage Tax on Domestic Common Carriers and Garage Keepers
- Certain transportation providers and garage keepers pay a 3% tax on quarterly gross receipts.
- Minimum quarterly gross receipts thresholds are set for various vehicle types.
- Income from freight by carriers is exempt from local taxes.
Percentage Tax on International Carriers
- International air and shipping carriers doing business in the Philippines pay a 3% quarterly tax on gross receipts.
Tax on Franchises
- Radio/TV broadcasting franchises with annual gross receipts below P10 million pay 3% franchise tax.
- Electric, gas, and water utilities pay 2% franchise tax.
- Radio/TV broadcasters may opt for VAT registration; this option is irreversible.
- Returns and payments are subject to BIR audit.
Registration of Name or Style
- Persons engaged in business must register their business name/style with the RDO within 10 days of business start or transfer.
- An annual registration fee of P500 per business establishment applies, except to cooperatives.
- Commissioner may require tax payment guarantees considering financial capacity.
Effectivity of VAT Imposition on Certain Services
- VAT on services by professionals, banks, non-bank financial intermediaries, and certain sports facilities leasing begins Jan 1, 1998.
- Congress may exclude any such services if public interest requires.
Repealing Clause
- The Cooperative Code’s exemption of cooperatives from VAT is repealed.
- Other inconsistent laws and regulations are amended or repealed accordingly.
Effectivity
- These regulations take effect January 1, 1997.
The above provisions comprehensively implement amendments to the VAT law and relevant National Internal Revenue Code sections, detailing scope, registration, taxation, exemptions, input tax credits, and administrative procedures affecting VAT and related taxes in the Philippines.