Business Taxation: Value Added Tax (VAT) in the Philippines
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What is the characteristic of Value Added Tax (VAT) where the amount of tax is shown as a separate item in the VAT Invoice or receipt?

  • Transparent form of sales tax (correct)
  • Destination principle
  • Tax credit method
  • Indirect tax

    • What is the term for the VAT due or paid on the taxable sale, barter or exchange of goods, properties or services by a seller or transferor?

  • Input Tax
  • Output Tax (correct)
  • Tax Credit Method
  • Destination Principle

    • How is the VAT computed?

  • Total Amount x 12%
  • Total Amount ÷ 1.12 x 12% (correct)
  • Total Amount + 12%
  • Total Amount - 12%

    • What is the rate of VAT on export sales of goods?

    <p>0%</p> Signup and view all the answers

    What is the term for the manner by which the input tax shifted by the seller to the buyer is credited against the buyer's output taxes?

    <p>Tax Credit Method</p> Signup and view all the answers

    What is the rate of VAT on importation of goods into the Philippines?

    <p>12%</p> Signup and view all the answers

    What is the characteristic of Value Added Tax (VAT) where the tax is collected through the tax credit method?

    <p>Tax Credit Method</p> Signup and view all the answers

    What are the three conditions that must be satisfied for a transaction to be considered VATable?

    <p>The transaction must be a sale, barter, exchange, or lease, the goods or properties sold must be taxable, and the seller must be a taxable person in the course of his trade or business.</p> Signup and view all the answers

    What is the threshold for VAT registration?

    <p>Php3,000,000.00</p> Signup and view all the answers

    What does the phrase 'in the course of his trade or business' mean?

    <p>Conducting a commercial or economic activity, including transactions incidental thereto</p> Signup and view all the answers

    Is the sale of a building used in a VAT-registered business subject to VAT?

    <p>Yes, since the building is used in the course of the business</p> Signup and view all the answers

    What is the rate of VAT on the sale of goods or properties?

    <p>12%</p> Signup and view all the answers

    What is the tax base of VAT on sale of properties?

    <p>Gross selling price</p> Signup and view all the answers

    What is the situs of VAT?

    <p>Place where the goods or properties are located</p> Signup and view all the answers

    Who are liable to pay VAT?

    <p>Any person who, in the course of his trade or business, sells, barters, exchanges, leases goods or properties, or renders services</p> Signup and view all the answers

    What is the VAT on the sale of a mansion with a selling price of Php13,000,000.00?

    <p>Php1,120,000.00</p> Signup and view all the answers

    Which of the following transactions is NOT subject to VAT?

    <p>Gift of goods to friends</p> Signup and view all the answers

    What is the VAT rate on the sale or exchange of services, including the use or lease of properties?

    <p>12%</p> Signup and view all the answers

    What is the condition for the taxability of real properties?

    <p>All of the above.</p> Signup and view all the answers

    What is an example of a transaction deemed as a sale subject to VAT?

    <p>All of the above.</p> Signup and view all the answers

    What is the tax base of the VAT on sale of service and use or lease of properties?

    <p>The 12% is based on the gross receipts derived from the sale or exchange of services, including the use or lease of properties.</p> Signup and view all the answers

    What is the condition for the exemption from VAT?

    <p>The sale is exempt from VAT under any law.</p> Signup and view all the answers

    What is subject to VAT in the lease of properties?

    <p>Security deposits that are applied to rental.</p> Signup and view all the answers

    What is the treatment of advance payments made by the lessee for the lease of properties?

    <p>It depends if the advance payment is actually a loan to the lessor or an option money for the property.</p> Signup and view all the answers

    What is an example of a service subject to VAT?

    <p>All of the above.</p> Signup and view all the answers

    What is the requisite for the sale of real properties to be subject to VAT?

    <p>All of the above and the sale is not exempt from VAT under any law.</p> Signup and view all the answers

    What happens when there is a retirement from or cessation of business with respect to inventories on hand?

    <p>The output tax shall be based on the market value of the properties deemed sold as of the time of the occurrence of the transaction.</p> Signup and view all the answers

    What is the characteristic of gross receipts?

    <p>The total amount of money or its equivalent</p> Signup and view all the answers

    What determines the time of payment in a sale?

    <p>The type of sale, whether it's an Installment Sale or a Deferred Payment Sale</p> Signup and view all the answers

    What is the limit set by the law for initial payments?

    <p>25% of the gross selling price</p> Signup and view all the answers

    What is the treatment for a sale if the initial payments exceed 25% of the gross selling price?

    <p>It is treated as a Cash Sale</p> Signup and view all the answers

    What is the computation for Installment Basis?

    <p>Add the downpayment plus all amortization payments</p> Signup and view all the answers

    What is the deadline for filing the monthly VAT return?

    <p>20th day of the month following the close of the taxable period</p> Signup and view all the answers

    What is the deadline for filing the quarterly VAT return?

    <p>25th day of the month following the last month of the quarter</p> Signup and view all the answers

    What is exempt from the payment of VAT?

    <p>Sale of real properties utilized for socialized housing</p> Signup and view all the answers

    What is the VAT threshold for sale of real properties beginning January 01, 2021?

    <p>House and lot/other dwellings valued at more than Php2,000,000.00</p> Signup and view all the answers

    What is the adjustment period for the VAT threshold for sale of real properties?

    <p>Every three years</p> Signup and view all the answers

    What is the VAT exemption threshold for aggregate annual gross receipts from rentals?

    <p>Php3,000,000.00</p> Signup and view all the answers

    What is the tax treatment of gross receipts from rentals not exceeding Php15,000.00 per unit?

    <p>Exempt from VAT and 3% percentage tax</p> Signup and view all the answers

    What is the VAT rate applicable to the sale of the condominium unit by #GameChangers Realty, Inc.? (Assuming the unit is sold at a total contract price of Php16,000,000.00)

    <p>12%</p> Signup and view all the answers

    What is the total VAT payable on the sale of the condominium unit by #GameChangers Realty, Inc.? (Assuming the unit is sold at a total contract price of Php16,000,000.00)

    <p>Php1,920,000.00</p> Signup and view all the answers

    What is the tax treatment of condominium dues and association dues?

    <p>Exempt from VAT and 3% percentage tax</p> Signup and view all the answers

    Study Notes

    Value Added Tax (VAT)

    • A tax on consumption levied on the sale, barter, exchange, or lease of goods or properties and services in the Philippines and on importation of goods into the Philippines.
    • Characteristics:
      • Indirect tax
      • Tax on value added of a taxpayer
      • Transparent form of sales tax (amount of tax shown as a separate item in VAT Invoice or receipt)
      • Collected through the tax credit method

    Tax Credit Method

    • Also known as invoice method
    • Refers to the manner by which the input tax shifted by the seller to the buyer is credited against the buyer's output taxes when he in turn sells the taxable goods, properties, or services

    Key Terms

    • Output Tax: VAT due or paid on the taxable sale, barter, or exchange of goods, properties, or services by a seller or transferor
    • Input Tax: VAT due from or paid by a VAT-registered person on importation of taxable goods, or on local purchase of taxable goods, properties, or services, including lease or use of properties, in the course of his trade or business

    Computation of VAT

    • Total Amount ÷ 1.12 x 12% = VAT

    Destination Principle

    • Also known as cross-border doctrine
    • Means that the destination of the goods determines taxation or exemption from tax
    • Example: Export sales of goods are subject to zero percent (0%) rate, while imports of goods are subject to 12% VAT

    VATable Transactions

    • Elements of a VATable transaction:
      • Sale, barter, exchange, or lease (SBEL) in the Philippines
      • Of taxable goods, properties, or services
      • Made by a taxable person in the course of his trade or business
    • VAT Threshold: Annual gross sales and/or receipts of more than Php3,000,000.00

    VAT on Sale of Properties

    • Tax base of VAT on sale of properties: 12% based on the Gross Selling Price (Gross)
    • Properties subject to VAT:
      • Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business

    VAT on Sale of Services and Use or Lease of Properties

    • Tax base of VAT on sale of services and use or lease of properties: 12% based on the Gross Receipts
    • Services subject to VAT:
      • Performance of all kinds of services in the Philippines for a fee, remuneration, or consideration
      • Includes services performed by real estate brokers, appraisers, consultants, doctors, etc.
    • Lease of properties subject to VAT:
      • Regardless of the place where the contract of lease was executed, if the property leased or used is in the Philippines

    Exemptions from VAT

    • Transactions exempt from VAT:
      • Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business
      • Utilized for socialized housing
      • House and lot/other dwellings valued at less than Php2,000,000.00 (beginning January 01, 2021)
      • Services rendered by individuals pursuant to an employer-employee relationship
      • Lease of residential units with a monthly rent of less than Php15,000.00 (beginning January 01, 2021)
      • Condominium dues and association dues
      • Sale or lease of goods or properties or the performance of services with an annual gross sales and/or receipts of less than Php3,000,000.00

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    Description

    Learn about the characteristics of Value Added Tax (VAT) in the Philippines, including its indirect nature, taxation on value added, and transparency in sales tax.

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