VAT ON SALE OF GOODS GOODS OR PROPERTIES PROPERTIES Requisites of taxability of sale of goods or properties: 1. There is an actual or deemed sale, barter or exchange of goods or personal properties for valuable consideration; 2. The sale is in the course of trade trad e or business or exercise of profession in the Philippines; 3. The goods or properties are located in the Philippines and are for use or consumption therein; and 4. The sale is not exempt from VAT under Section 109 of NIRC, special law, international agreement binding upon the the government of the Philippines. Note: Absence Note: Absence of any of the above requisites EXEMPTS the transaction from VAT. However, percentage taxes may apply (Section 116, NIRC). Requisites for taxability of sale or exchange of real property: 1. The seller executes a deed of sale, including dacion en pago, pago , barter or exchange, assignment, transfer, or conveyance, or merely contract to sell involving real property 2. The real property is located within the Philippines; 3. The seller or transferor is a real estate dealer 4. The real property is an ordinary asset held primarily for sale or for lease in the ordinary course of business 5. The sale is not exempt from VAT under Section 109 of NIRC, special law, or international agreement binding upon the government of the Philippines 6. The threshold amount set by law should be met. Note: Absence Note: Absence of any of the above requisites EXEMPTS the transaction from VAT. However, percentage taxes may apply under Section 116 of NIRC The term goods or properties which are subject to VAT shall mean all tangible and intangible objects which are capable of pecuniary estimation estimation and shall 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 5. Radio, television, satellite transmission and cable television time (Sec. 106[A][1], NIRC) Note: Not Note: Not all intangible properties are subject to VAT, only those capable of pecuniary estimation. ( Sec. ( Sec. 4.106-2, RR 16-2005 ) Sale of real properties primarily for sale to customers or held for lease in the ordinary course of trade or business of the seller shall be subject to VAT. ( 1st par., Sec. 4.16-3, RR 16-2005. As such, capital transactions of individuals are not subject to VAT. Only real estate dealers ar e subject to VAT. Taxable sales sales refers to the sale, barter, exchange and/or lease of goods or properties, including transactions deemed sale and the performance of service for consideration, whether in cash or in kind. Gross selling price means 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 VAT. The excise tax, if any, on such goods or properties shall form part of the gross selling price. price. The following are allowable deductions from the gross selling price: 1. Discounts determined and granted at the time of the sale
2. Sales returns and allowances for which proper credit or refund was made during the month or quarter to the buyer for sales previously recorded as taxable sales. Sale of real property subject to VAT when: 1. Residential lot with gross selling price exceeding P1.5 million; 2. Residential house and lot or other residential dwellings with gross selling price exceeding P2.5 million. Note: Whether the instrument is denominated as a deed of absolute sale, deed of conditional sale or otherwise. Gross selling price (in case of sale or exchange of real property) is the consideration stated in the sales document or the fair market value whichever is higher. If the VAT is not billed separately in the document of sale, the selling price or the consideration stated therein shall be deemed to be inclusive of VAT. Initial Payments are 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 than evidence of indebtedness of the purchaser) during the year when the sale or disposition of real property was made. Installment Plan Initial payments do not exceed 25% of the gross selling price Seller shall be subject to output VAT on the installment payments received, including the interests and penalties for late payment, actually and/or constructively received. The buyer of the property can claim the input tax in the same period as the seller recognized the output tax. Payments that are subsequent to “initial payments” shall be subject to output VAT
Deferred Plan Initial payments exceed 25% of the gross selling price Transaction shall be treated as cash sale which makes the entire selling price taxable in the month of sale.
Output tax shall be recognized by the seller and input tax shall accrue to the buyer at the time of the execution of the instrument of sale. Payments that are subsequent to “initial payments” shall no longer be subject to output VAT
ZERO-RATED SALES OF GOODS OR PROPERTIES, AND EFFECTIVELY ZERO-RATED SALES OF GOODS OR PROPERTIES Zero-rated transaction is the gross selling price of goods or properties is multiplied by 0% VAT rate. Zero-rated sale of goods or properties by a VAT-registered person is a taxable transaction for VAT purposes but the sale does not result in any output tax. However, the input tax on the purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund. The difference between “zero-rated” and “VAT-exempt” transactions lies in the input tax. In VAT-exempt transactions there is no input tax credit allowed. In the case of 0% rated transaction of a VAT registered person, the sale of goods or properties is multiplied by 0% thus his output tax is P 0.00. Since the person is VAT-registered, he can claim input tax for purchases made from VAT-registered entities. E.g.: Output tax -------------------- P 0.00 Less: Input tax ------------------- 5,000.00 VAT Creditable P 5, 000.00 EXEMPT
ZERO-RATED
Nature of transaction Not taxable; removes VAT at Transaction is taxable for the exempt stage VAT purposes although the tax levied is 0% By whom made Need not be a VAT-registered Made by a VATperson registered person Tax Credit/Refund Cannot avail of tax credit or Can claim or enjoy tax refund. Thus, may result in credit/refund increased prices (Total Relief) (Partial Relief)
Zero-rated sales of goods by a VAT-registered person are: 1. Export sales 2. Foreign currency denominated sale 3. 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. The term export sales means: 1. The sale and actual shipment of goods from the Philippines to a foreign country: a. irrespective of any shipping arrangement; b. paid for in acceptable foreign currency or its equivalent in goods or services; c. accounted for in accordance with the rules and regulations of BSP. 2. Sale of raw materials or packaging materials by a VAT-registered entity to a non-resident buyer: a. for delivery to a non resident local export-oriented enterprise; b. used in the manufacturing, processing, packing, repacking in the Philippines of the said bu yer’s goods; c. paid for in acceptable foreign currency; d. accounted in accordance with the rules of BSP. 3.
Sale of raw material or packaging materials to export oriented enterprise whose export sales exceed 70% of total annual production
4. Sale of gold to BSP 5.
Those considered as export sales under the E.O. 226 (Omnibus Investment Code of 1987)
6. The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations. (Sec. 106[A][2][a], NIRC as amended by RA 9337 Note: Under Omnibus Investment Code: i. 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 a registered export producer, or ii. The net selling price of export products sold by a registered export producer to another export producer, or to an export trader that subsequently export the same; iii. Provided, that sales of export products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter, as evidenced by landing certificates or similar commercial documents Export sale is exempt if made by a non-VAT person (Sec. 109, NIRC). On the other hand, it is zero-rated if made by VAT-registered person (Sec. 4.106-5, RR 16-2005).
Is the sale of goods to ecozone, such as PEZA, considered as export sale? Yes. Notably, while an ecozone is geographically within the Philippines, it is deemed a separate customs territory and is regarded in law as foreign soil. Sales by suppliers from outside the borders of the ecozone to this separate customs territory are deemed as exports and treated as export sales. These sales are zerorated or subject to a tax rate of zero percent. (CIR v. Sekisui Jushi Philippines, Inc., G.R. No. 149671, July 21, 2006) An ecozone or a Special Economic Zone has been described as – selected areas with highly developed or which have the potential to be developed into agro-industrial, industrial, tourist, recreational, commercial, banking, investment and financial centers whose metes and bounds are fixed or delimited by Presidential Proclamations. An ecozone may contain any or all of the following: industrial estates (IEs), export processing zones (EPZs), free trade zones and tourist/recreational centers. The national territory of the Philippines outside of the proclaimed borders of the ecozone shall be referred to as the Customs Territory. (CIR v. Toshiba Information Equipment (Phils.), Inc., G.R.. No. 150154, August 9, 2005) Constructive exports are: 1. Sales to bonded manufacturing warehouses of export-oriented manufacturers 2. Sales to export processing zones 3. Sales to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant to RA 7227 4. Sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) 5. Sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not. The rationale for zero-rating exports sale is because the Philippine VAT system adheres to the cross border doctrine, according to which, no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. (Ibid.) Note: For purposes of zero-rating, export sales of registered export traders shall include commission income. Exportation of goods on consignment shall not be deemed export sales until the export products consigned are in facet sold the consignee. Provided, finally, that sales of goods, properties or services made by a VAT-registered supplier to a BOI-registered manufacturer/producer whose products are 100% exported are considered export sales A certification to this effect must be issued by the Board of Investment (BOI) which shall be good for one year unless subsequently re-issued by the BOI. 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). (Sec. 106[A][2][b], NIRC) Note: Section 149 refers to excise tax on automobiles. Section 150 refers to excise tax on non-essential goods. EFFECTIVELY ZERO-RATED TRANSACTION
AUTOMATIC ZERO-RATED TRANSACTION
Nature Refers to the sale of goods, Refers to taxable transaction for properties or services by a VAT VAT purposes, but shall not registered person to a person, or result in any output tax. entity who was granted indirect tax However, the input tax on exemption under special laws or purchases of goods, properties
international agreements.
or services related to such zerorated sale, shall be available as tax credit or refund.
Need to apply for zero-rating An application for zero-rating must Need not file an application form be filed and the BIR approval is and to secure BIR approval necessary before the transaction may before sale. be considered effectively zero-rated. For whose benefit is it intended Primarily intended to be enjoyed by Intended to benefit the the seller who is directly and legally purchaser who, not being liable for the VAT, making such directly and legally liable for the seller internationally competitive by payment of the VAT, will allowing ultimately bear the burden of the tax The refund or credit of input taxes Shifted by the suppliers. that are attributable to export sales. Effect Results in no tax chargeable against the purchaser. The seller can claim a refund or a tax credit certificate for the VAT previously charged by suppliers. Note: For zero-rated transactions, whether automatic or effectively zero- rated, the word “ZERO-RATED” must be prominently stamped on the face of the VAT invoice or receipt issued by the seller (failure to comply will make the transaction VAT taxable). Transactions Deemed Sale and therefore subject to VAT are: 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 (i.e., when a VAT-registered person withdraws goods from his business for his personal use); 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; Requisites: a. The VAT-registered person distributing or paying is a domestic corporation; b. What is being declared or paid is either real property owned by the company or shares of stocks owned in another company; and c. The domestic corporation is either a real estate dealer (in case of real property) or dealer in securities (in case of shares of stock) Note: Only real estate dealers and dealer in securities are liable for payment of VAT in case of sale, barter, or exchange of real property or share of stocks under S ections 106 and 108, respectively. 3.
Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned. XPN: if the consigned goods were physically returned by the consignee within the 60-day period;
4. Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation. (Sec. 106[B], NIRC)
Note: The transactions are “deemed sale” because in real ity there is no sale, but still the law provides that the following transactions are considered as sale and are thus subject to VAT. Transactions considered retirement or cessation of business “deemed sale” subject to VAT are: 1. Change of ownership of the business. There is change in the ownership of the business when a single proprietorship incorporates; or the proprietor of a single proprietorship sells his entire business. 2. Dissolution of a partnership and creation of a new partnership which takes over t he business. (Sec. 4.106-7, RR 16-2005 Before considering whether the transaction is “deemed sale”, it must first be determined whether the sale was in the ordinary course of trade or business. Even if the transaction was “deemed sale” if it was not done in the ordinary course of trade or business still the transaction is not subject to VAT. Tax base of transactions deemed sale: The output tax shall be based on the market value of the goods deemed sold as of the time of the occurrence of the transactions enumerated above in numbers 1, 2 and 3. However, in the case of retirement or cessation of business, the tax base shall be the acquisition cost or the current market price of the goods or properties, whichever is lower. In the case of a sale where the gross selling price is unreasonably lower than the fair market value, the actual market value shall be the tax base. Change or Cessation of Status as VAT-Registered Person subject to VAT; the following are subject to 12% output VAT: 1. Change of business activity from VAT taxable status 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 a desire to revert to exempt status after the lapse of 3 consecutive years from the time of registration by a person who voluntarily registered despite being exempt under Sec 109 (2) of the Tax Code 4. Approval of a request for cancellation of registration of one who commenced business with the expectation of gross sales or receipt exceeding P1,500,000 but who failed to exceed this amount during the first 12 months of operations. Change or Cessation of Status as VAT-Registered Person not subject to VAT; the following are not subject to 12% output VAT: 1. Change of control in the corporation of as corporation by the acquisition of controlling interest of the corporation by another stockholder or group of stockholders . 2. The goods or properties used in the business or those comprising the stock-in-trade of the corporation will not be considered sold, bartered or exchanged despite the change in the ownership interest. However, exchange of property by corporation acquiring control for the shares of stocks of the target corporation is subject to VAT. 3. Change in the trade or corporate name of the business. 4. Merger or consolidation of corporations. The unused input tax of the dissolved corporation, as of the date of merger or consolidation, shall be a bsorbed by the surviving or new corporation. VAT on Importation of Goods; Is importation subject to VAT? Yes. VAT shall be assessed and collected upon goods brought into the Philippines whether for use in business or not. Tax base of importation: General Rule: The tax base shall be based on the total value used by the BOC in determining tariff and customs duties plus customs duties, excise taxes, if any, and other charges to be paid by the importer prior to the release of such goods from customs custody
EXCEPTION: Where the customs duties are determined on the basis of quantity or volume f the goods, the VAT shall be based on the landed cost plus excise taxes , if any. The importer shall pay the tax prior to the release of the imported goods. An importer is a person who brings goods into the Philippines, whether or not made in the course of trade or business. It includes nonexempt persons or entities who acquire tax free imported goods from exempt persons, entities or agencies. Importation begins when a vessel or aircraft enters the Philippine jurisdiction with the intention to unload goods/cargo. Importation ends upon the payment of duties, taxes, and other charges due upon the article, or to be paid at the port of entry and legal permit for withdrawal shall have been granted. Technical importation is a sale of goods by a PEZA registered enterprise to a buyer from the customs territory shall be treated as a technical importation. Such buyer shall be treated as an importer thereof and shall be imposed with the corresponding import taxes. Transfer of Goods by Tax Exempt Persons Consequence if a tax exempt person would transfer imported goods to a non-exempt person: The purchaser or transferee shall be considered as an importer and shall be held liable for VAT and other internal revenue tax due on such importation. (Sec. 107[B]) Note: The tax due on such importation shall constitute a lien on the goods superior to all charges or liens on the goods, irrespective of the possessor thereof.
