chapter 18 22 taxation 2

7/28/2019 Chapter 18 22 taxation 2

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VAT ON SALE OF SERVICES

AND

USE OR LEASE OF

PROPERTY



A) Rate and Base of Tax.

There shall be levied, assessed and

collected, a value-added tax equivalent

to twelve percent (12%) of gross receiptsexcluding the value-added tax, derived

from the sale or exchange of services,

including the use or lease of properties.



The phrase 'sale or exchange ofservices' means the performance of

all kinds or services in the Philippinesfor others for a fee, remuneration or

consideration, including thoseperformed or rendered by:

SALE OR EXCHANGE OF SERVICES



• Construction and service contractors;

• Stock, real estate, commercial, customs and immigration

brokers;

• Lessors of property, whether personal or real;

• Real estate lessor includes any person engaged in business of leasing orsubleasing real property

• Non-residential lessor refers to person , natural and juridical an alien or

a citizen who establishes to the satisfaction of the Commissioner of Internal

Revenue the facts of his physical presence abroad with a definite intention

to reside there in



• Persons engaged in warehousing services;

• Engage in business of receiving and storing goods of others for

compensation or profit

• Receiving goods and merchandise to be stroed in his warehouse

for hire;

•Keeping and storing goods for others, as a business and for use

• Proprietors, operators or keepers of hotels, motels, rest houses

pension houses, inns, resorts, theatres, and movie houses;

• Under Revenue Memorandum Order 16-10, Issued Feb. 5,2010,

determines that hotels,resort and other establishment that do not allow

short time (less than 24) stay in shall not be covered by this RMO.



• Persons engaged in milling, processing, manufacturing or

repacking goods for others;

• miler is a person who is engaged in milling for others (except rice,

corn into corn grits and sugarcane into raw sugar) must be subject to

12% VAT on sale of service

•Proprietors or operators of restaurants, refreshment

parlors, cafes, and other eating places, including clubs and

caterers;



• Dealers in securities;

•Dealer in securities refers to a merchant of stock or securities,whether individual, partnership or corporation, one who as a

merchant buys securities and sell them to customer

• Dealers in securities and lending invesotrs shall be subject to

VAT on the basis of gross receipts

• Lending investors;

• Lending investors includes all person other than banks, nonbank

financial intermediaries, financial companies and other financial

intermediaries not performing quasi-function.



• Transportation contractors on their transport of goods or

cargoes, including persons who transport goods or cargoesfor hire and other domestic common carriers by land relative

to their transport of goods or cargoes;

• Common carrier refers to persons, corporation, firms or

associate engaged in the business of carrying or transportingpassengers or goods or both in land or water or air for a

compensation.

• Common carriers by air and sea relative to their transport of

passengers, goods or cargoes from one place in the

Philippines to another place in the Philippines;



• Sales of electricity by generation, transmission, and/or

distribution companies; shall be subject to 12% VAT;

• Generation companies refers to person or entities authorized by

the Energy Regulatory Commission to operate facilities used in

the generation of the electricity.

• Transmission companies refers to any person or entity that

owns and conveys electricity through a high voltage backbone

system and sub-transmission asset.

• Distribution companies refers to a person or entity which

operate distribution system in accordance with the provision of the

EIRPA, it could be s government-owned utility or existing

government unit



• Franchise grantees of electric utilities, telephone and

telegraph, radio and/or television broadcasting and allother franchise grantees, except franchise grantees of

radio and/or television broadcasting whose annual gross

receipts of the preceding year do not exceed Ten Million

Pesos (P10,000,000.00), and franchise grantees of

gas and water utilities;



•Non-life insurance companies (except their cropinsurances), including surety, fidelity, indemnity and

bonding companies; and

• Similar services regardless of whether or not the

performance thereof calls for the exercise of 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 of the use of, or the right to use of

any industrial, commercial or scientific equipment;

• (3) The supply of scientific, technical, industrial or

commercial knowledge or information;



•(4) The supply of any assistance that is ancillary and

subsidiary to and is furnished as a means of enabling

the application or enjoyment of any such property, or

right as is mentioned in subparagraph (2) or any such

knowledge or information as is mentioned in

subparagraph (3);



• (5) The supply of services by a 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 or

services rendered in connection with technical

management or administration of any scientific,

industrial or commercial undertaking, venture, project

or scheme;



•(7) The lease of motion picture films, films, tapesand discs; and

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

radio, television, satellite transmission and cable

television time.



The term 'gross receipts' means the total amountof money or its equivalent representing thecontract price, compensation, service fee, rental or

royalty, including the amount charged for materials supplied with the services and depositsand advanced payments actually or constructivelyreceived during the taxable quarter for the services

performed or to be performed for another person,excluding value-added tax.

GROSS RECEIPTS



Transactions Subject toZero Percent (0%) Rate -The following services

performed in the Philippinesby VAT- registered persons

shall be subject to zeropercent (0%) rate.



• Processing, manufacturing or repacking goods for other

persons doing business outside the Philippines which

goods are subsequently exported, where the services arepaid for in acceptable foreign currency and accounted

for in accordance with the rules and regulations of the

Bangko Sentral ng Pilipinas (BSP);



• Services other than those mentioned in the preceding

paragraph, the consideration for which is paid for in

acceptable foreign currency and accounted for in

accordance with the rules and regulations of the Bangko

Sentral ng Pilipinas (BSP);• Services rendered to persons or entities whose

exemption under special laws or international agreements

to which the Philippines is a signatory effectively subjects

the supply of such services to zero percent (0%) rate;



•Services rendered to persons engaged in international

shipping or air transport operations, including leases of

property for use thereof; Provided, however, that the services

referred to herein shall not pertain to those made to common

carriers by air and sea relative to their transport of passengers,

goods or cargoes from one place in the Philippines to another

place in the Philippines, the same being subject to twelve

percent (12%) VAT under Sec. 108 of the Tax Code startingFeb. 1, 2006;



•Services performed by subcontractors and/or contractors inprocessing, converting, or manufacturing goods for an

enterprise whose export sales exceeds seventy percent

(70%) of total annual production;

• Services performed by subcontractors and/or contractors in

processing, converting, or manufacturing goods for an

enterprise whose export sales exceeds seventy percent

(70%) of total annual production;



• Transport of passengers and cargo by domestic air

or sea carriers from the Philippines to a foreign

country. Gross receipts of international air carriers

doing business in the Philippines and international

sea carriers doing business in the Philippines are

still liable to a percentage tax of three percent (3%)

based on their gross receipts as provided for in

Sec. 118 of the Tax Code but shall not be liable to

VAT; and



• Sale of power or fuel generated through renewable

sources of energy such as, but not limited to, biomass,

solar, wind, hydropower, geothermal and steam, ocean

energy, and other shipping sources using technologies

such as fuel cells and hydrogen fuels; Provided, howeverthat zero-rating shall apply strictly to the sale of power

or fuel generated through renewable sources of energy,

and shall not extend to the sale of services related to the

maintenance or operation of plants generating said

power .



Effectively Zero-Rated Sale of ServicesShall refer to the localservices by a VAT registeredperson to a person or entity whowas granted indirect taxexemption under the special lawsor international agreement



Vat on

Importation

of Goods



• Subject to 12% VAT based on the total value used

by the Bureau of Custom in determining tariff andcustoms duties, plus custom duties, excise taxes if any, and other changes.

• „Subject to VAT, whether for use in business ornot

• „Same rule applies to technical importation of goods sold by a person located in ecozone to acustomer located in a customs territory.



• VAT on imported goods by VAT exempt

persons which are subsequently sold to non-

exempt persons shall be paid by the non-

exempt buyer who is considered as the

importer thereof.



OUTPUT and

INPUT TAXES



Output tax means the value-added due on

the sale or lease of taxable goods or property orservices by a VAT-registered person.

Input tax means the value-added tax due from

or paid by a Vat registered person in the course ofhis trade or business on importation of goods or

service, including lease or use of the property from aVAT-registered person.



(1) Any input tax evidenced by a VAT invoice orofficial receipt issued in accordance with

Section 113 hereof on the followingtransactions shall be creditable against theoutput tax:

(a) Purchase or importation of goods:(i) For sale; or

(ii) For conversion into or intended to form part

of a finished product for sale including packaging

materials; or(iii) For use as supplies in the course of business;



(iv) For use as materials supplied in the sale of

service; or

(v) For use in trade or business for which deduction

for depreciation or amortization is allowed underthis Code, except automobiles, aircraft and yachts.

(b) Purchase of services on which a value-added tax has been actually paid.



(2) Purchase of real properties for which a value

added tax has actually been paid.

(3)Transaction “deemed sale”

(4) Transaction input tax allowed

(5) Presumptive tax allowed

(6) Transitional input tax credit allowed underthe transitory and other position



(2) The input tax on domestic purchase of goods or properties shall be creditable:

(a) To the purchaser upon consummation of sale

and on importation of goods or properties; and

(b) To the importer upon payment of the value-added tax prior to the release of the goods from

the custody of the Bureau of Customs.

However, in the case of purchase of services, lease

or use of properties, the input tax shall becreditable to the purchaser, lessee or licensee upon

payment of the compensation, rental, royalty or

fee.



Transitional/

PresumptiveInput Tax Credits.



Transitional

Input TAX



SEC. 111. Transitional/Presumptive Input Tax Credits. -

•A person who becomes liable to value-added tax when the

minimum turnover of P1,919,500(effective Jan 1,2012) in any 12

month period has been exceeded or any person who elects to be a

Vat-registered person shall be subject to filling of inventory

according to the rules and regulation prescribed by the Secretary

of Finance

•

Input tax on his beginning inventory of goods, materials andsupplies equivalent to two percent (2%) of value of such inventory

•Amount allowable shall be creditable to Output tax

•In real estate developers subject to VAT for the first time are

entitled to transitional input tax credit on the value of theirbeginning inventory of real properties



Presumptive

Input TAX



SEC. 111. Transitional/Presumptive Input Tax Credits. -

• Persons or firms engaged in the processing of sardines,

mackerel and milk, and in manufacturing refined sugar andcooking oil, shall be allowed a presumptive input tax,

creditable against the output tax.

•the term 'processing' shall mean pasteurization, canning and

activities which through physical or chemical process alter the

exterior texture or form or inner substance of a product in such

manner as to prepare it for special use to which it could not have

been put in its original form or condition.

• equivalent to four percent (4%) of the gross value in

money of their purchases of primary agricultural productswhich are used as inputs to their production.



Input Tax on Depreciable Goods

Capital Goods or properties refers to goods or

properties with estimated useful life greater than

one (1) year and which is treated assets under thetax code used directly or indirectly in the production

or sale of taxable goods and services



If the aggregate acquisition cost of capital goodsand properties exceeds one million pesos (1,000,000)

shall be claimed as credit against output tax in thefollowing manner:

•If the estimated life of the capital goods is five or more- the input taxshall be spread evenly over the period of sixty(60) months and claim for the input tax credit will commence in the calendar month when the

capital good is acquired.

•If the estimated life of the capital good is less than five(5) years- theinput tax shall be spread evenly on a monthly basis by dividing theinput tax by the actual number of months comprising the estimateduseful life of the capital good



• If the aggregate acquisition cost of any capital goods duringany calendar month does not exceed one million pesos

(1,000,000), the total input taxes will be allowable as creditagainst output tax in the month of acquisition.

•If the aggregate acquisition cost of depreciable goods refers tothe total price agreed upon for one ore more asset acquired

and not on the payments actually made during calendar month, the asset acquired through instalment will be subject toamortization of input tax despite the fact that the monthlypayments/ instalments may not exceed P1,000,000.

•

If the goods are sold within the period of five (5) years, theentire unamortized input tax on the capital goods can beclaimed as input tax credit during the month/ quarter of sale.



Apportionment of Input Tax on Mixed Transaction

A VAT–

registered person who is also engaged in transactionnot subject to the value-added tax shall be allowed to recognize

input tax credit on transaction subject to the VAT as follows:

1. All the input tax which can be directly attributed totransaction subject to VAT (except sale of goods andservices to government or government-owned or controlledcorporation)

2. A rateable portion of any input tax which cannot be directly

attributed to either VAT taxable or VAT exempt acivity. Theinput tax shall be prorated on the basis of sales



Creditable Input Tax

Input Tax, current period xxxAdd: Excess Input Tax, previous period xxx

Less: Claim for refund/ Tax Credit Certificate xxx

Purchase Return and Allowances xxx

Input Tax-Exempt Sales xxx

Input Tax-Sale Government* xxx xxx

Creditable Input Tax xxx

*Subject to final VAT with holding of 5%



If at the end of any taxable quarter the output tax exceeds the

input tax, the excess shall be paid by the Vat-registered person.

If the input tax exceeds the output tax, the excess shall be carriedover to the succeeding quarter or quarters. any input taxattributable to the purchase of capital goods or to zero-rated salesby a VAT-registered person may at his option be refunded or

credited against other internal revenue taxes.

Output Taxes xxless: Input Taxes xxVAT Payable xx

Value-Added Tax Payable



EXEMPT

TRANSACTION



• Chap 21

It is a sale of goods, properties or service and the

use or lease of properties which is not subject to outputtax and whereby the buyer is not allowed any tax creditor input tax related to such exempt sale.

What is VAT-exempt sale?



• Chap 21

•Sale or importation of agricultural and marine food products in their

original state, livestock and poultry of a kind generally used as, or

yielding or producing foods for human consumption; and breeding

stock and genetic materials therefore;

•Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish,

prawn, livestock and poultry feeds, including ingredients, whether

locally produced or imported, used in the manufacture of finished

feeds (except specialty feeds for race horses, fighting cocks, aquariumfish, zoo animals and other animals considered as pets);

•Importation of personal and household effects belonging to residents

of the Philippines returning from abroad and non-resident citizens

coming to resettle in the Philippines; Provided, that such goods are

exempt from custom duties under the Tariff and Customs Code of the

Philippines;

I t ti f f i l i t t d i l t i l



• Chap 21

•Importation of professional instruments and implements, wearing apparel,

domestic animals, and personal household effects (except any vehicle,

vessel, aircraft, machinery and other goods for use in the manufacture and

merchandise of any kind in commercial quantity) belonging to persons

coming to settle in the Philippines, for their own use and not for sale, barteror exchange, accompanying such persons, or arriving within ninety (90) days

before or after their arrival, upon the production of evidence satisfactory to

the Commissioner of Internal Revenue, that such persons are actually

coming to settle in the Philippines and that the change of residence is

bonafide;

•Services subject to percentage tax under Title V of the Code, as amended;

•Services by agricultural contract growers and milling for others of palay into

rice, corn into grits, and sugar cane into raw sugar;



• Chap 21

•Medical, dental, hospital and veterinary services except those rendered

by professionals;

•

Educational services rendered by private educational institutions dulyaccredited by the Department of Education (DepED), the Commission on

Higher Education (CHED) and the Technical Education and Skills

Development Authority (TESDA) and those rendered by the government

educational institutions;

•Services rendered by individuals pursuant to an employer-employee

relationship;

•Services rendered by regional or area headquarters established in the

Philippines by multinational corporations which act as supervisory,

communications and coordinating centers for their affiliates, subsidiariesor branches in the Asia-Pacific Region and do not earn or derive income

from the Philippines;



• Chap 21

•Transactions which are exempt under international agreements

to which the Philippines is a signatory or under special laws except

those granted under P.D. No. 529 - Petroleum Exploration

Concessionaires under the Petroleum Act of 1949;

•Sales by agricultural cooperatives duly registered and in good

standing with the Cooperative Development Authority (CDA) to

their members, as well as of their produce, whether in its original

state or processed form, to non-members, their importation of

direct farm inputs, machineries and equipment, including spareparts thereof, to be used directly and exclusively in the production

and/or processing of their produce;

•Gross receipts from lending activities by credit or multi-purpose

cooperatives duly registered and in good standing with theCooperative Development Authority;



• Chap 21•Gross receipts from lending activities by credit or multi-purpose

cooperatives duly registered and in good standing with the Cooperative

Development Authority;

•Sales by non-agricultural, non-electric and non-credit cooperatives duly

registered with and in good standing with CDA; Provided, that the share

capital contribution of each member does not exceed Fifteen ThousandPesos (P15,000.00) and regardless of the aggregate capital and net surplus

rateably distributed among the members;

Export sales by persons who are not VAT-registered;



• Chap 21

The following sales of real properties are exempt 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 or business;

2. Sale of real properties utilized for low-cost housing as defined byRA No. 7279, otherwise known as the "Urban Development and

Housing Act of 1992" and other related laws, such as RA No. 7835

and RA No. 8763;

3. Sale of real properties utilized for specialized housing as defined

under RA No. 7279, and other related laws, such as RA No. 7835and RA No. 8763, wherein price ceiling per unit is P225,000.00 or

as may from time to time be determined by the HUDCC and the

NEDA and other related laws;



• Chap 21

4. Sale of residential lot valued at One Million Nine Hundred Nineteen

Thousand Five Hundred Pesos (P1,919,500.00) and below, or house and

lot and other residential dwellings valued at Three Million One HundredNinety-nine Thousand Two hundred Pesos (3,199,200)and below where

the instrument of sale/ transfer/ disposition was executed on or after

July 1, 2005

•Lease of residential units with a monthly rental per unit not

exceeding Twelve Thousand Eight Hundred (12,800), regardless of

the amount of aggregate rentals received by the lessor during the

year



• Chap 21•Sale, importation, printing or publication of books and any newspaper,

magazine, review or bulletin which appears at regular intervals with fixed

prices for subscription and sale and which is not devoted principally to the

publication of paid advertisements;

•Sale, importation or lease of passenger or cargo vessels and aircraft,

including engine equipment and spare parts thereof for domestic or

international transport operations;



• Chap 21Importation of life-saving equipment, safety and rescue equipment andcommunication and navigational safety equipment, steel plates and other

metal plates including marine-grade aluminum plates, used for shipping

transport operations; Provided, that the exemption shall be subject to the

provisions of Section 4 of Republic Act No. 9295, otherwise known as "The

Domestic Shipping Development Act of 2004".

Importation of capital equipment, machinery, spare parts, life-saving and

navigational equipment, steel plates and other metal plates including marine-

grade aluminum plates to be used in the construction, repair, renovation or

alteration of any merchant marine vessel operated or to be operated in the

domestic trade. Provided, that the exemption shall be subject to theprovisions of Section 19 of Republic Act No. 9295, otherwise known as the

"The Domestic Shipping Development Act of 2004".



• Chap 21

•Importation of fuel, goods and supplies engaged in international shipping

or air transport operations; Provided, that the said fuel, goods and suppliesshall be used exclusively or shall pertain to the transport of goods and/or

passenger from a port in the Philippines directly to a foreign port, or vice-

versa, without docking or stopping at any other port in the Philippines

unless the docking or stopping at any other Philippine port is for the

purpose of unloading passengers and/or cargoes that originated form

abroad, or to load passengers and/or cargoes bound for abroad; Provided,

further, that if any portion of such fuel, goods or supplies is used for

purposes other that the mentioned in the paragraph, such portion of fuel,

goods and supplies shall be subject to 12% VAT;

•Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries, such as

money changers and pawnshops, subject to percentage tax under Sections

121 and 122, respectively of the Tax Code; and



• Chap 21•Sale or lease of goods or properties or the performance of services

other than the transactions mentioned in the preceding paragraphs,

the gross annual sales and/or receipts do not exceed the amount of

One Million Nine Hundred Nineteen Thousand Five Hundred Pesos

(P1,919,500.00).

For the purpose of the (1,919,500.00) the husband and the wife shall

be considered separate taxpayers. However the aggregate rule for

each taxpayer shall apply, for instance, if a professional, aside from the

practice of his profession, also derives revenue from other lines of

businesss which are otherwise subject to vat, the same shall becombined for the purpose of determining whether the threshold has

been exceeded.



TheExpanded

Senior

Citizen Actof 2010

"E d d S i Ci i A f 2010"



On February 15, 2010, Republic Act No. 9994, or the "Expanded

Senior Citizens Act of 2010", took effect.

It introduced various amendments to Republic Act No. 7432, as

amended by Republic Act No. 9257, otherwise known as the

"Expanded Senior Citizens Act of 2003".

The new senior citizens law of the Philippines aims to give flesh to

the "social justice clause" of the 1987 Philippine Constitution. (See

Secs. 10-11, Art. III [state policies]; Sec. 11, Art. XIII [healthcare, social

services]; Sec. 4, Art. XV [family, social security])

A senior citizen or elderly refers to any resident citizen of the

Philippines at least sixty (60) years old or above; may apply to senior

citizen with “ dual citizenship” provided they prove their Filipino

citizenship and have at least 6 months residency in the Philippines

"Expanded Senior Citizens Act of 2010"

What are the previously exempt transactions



• Chap 21


that are now subject to VAT?

Medical services such as dental & veterinary

services rendered by professionals;

Legal services;

Non-food agricultural products;Marine and forest products;

Cotton and cotton seeds;

Coal and natural gas;Petroleum products;




• Chap 21


that are now subject to VAT?

Passenger cargo vessels of more than 5,000 tons;Work of art, literary works, musical composition;

Generation, transmission and distribution of electricity

including that of electric cooperatives;

Sale of residential lot valued at more than P1,500,000.00;Sale of residential house & lot/dwellings valued at more

than P2,500,000.00;

Lease of residential unit with a monthly rental of more than

P10,000;



Compliance

Requirements



Who are liable to register as VATtaxpayers?

Any person who, in the course of trade or business, sells, barters orexchanges goods or properties or engages in the sale or exchange of services shall be liable to register if:

•His gross sales or receipts for the past twelve (12) months, other thanthose that are exempt under Section 109 (A) to (U), have exceeded OneMillion Nine Hundred Nineteen Thousand Five Hundred Pesos(P1,919,500.00): or

•There are reasonable grounds to believe that his gross sales or receipts

for the next twelve (12) months, other than those that are exemptunder Section 109 (A) to (U), will exceeded One Million Nine HundredNineteen Thousand Five Hundred Pesos (P1,919,500.00)

chapter 18 22 taxation 2

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