Business Taxation: Value Added Tax (VAT) in the Philippines
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Questions and Answers

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% (A)</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 (D)</p> Signup and view all the answers

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

<p>12% (B)</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 (C)</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. (B)</p> Signup and view all the answers

What is the threshold for VAT registration?

<p>Php3,000,000.00 (D)</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 (B)</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 (A)</p> Signup and view all the answers

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

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

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

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

What is the situs of VAT?

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

Which of the following transactions is NOT subject to VAT?

<p>Gift of goods to friends (B)</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% (C)</p> Signup and view all the answers

What is the condition for the taxability of real properties?

<p>All of the above. (D)</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. (D)</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. (C)</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. (A)</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. (B)</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. (B)</p> Signup and view all the answers

What is an example of a service subject to VAT?

<p>All of the above. (D)</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. (D)</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. (B)</p> Signup and view all the answers

What is the characteristic of gross receipts?

<p>The total amount of money or its equivalent (D)</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 (D)</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 (A)</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 (C)</p> Signup and view all the answers

What is the computation for Installment Basis?

<p>Add the downpayment plus all amortization payments (A)</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 (B)</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 (D)</p> Signup and view all the answers

What is exempt from the payment of VAT?

<p>Sale of real properties utilized for socialized housing (C)</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 (D)</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 (A)</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 (D)</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 (D)</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% (C)</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 (B), Php1,920,000.00 (D)</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 (D)</p> Signup and view all the answers

Flashcards

Value Added Tax (VAT)

Tax on consumption levied on sale, barter, exchange, or lease of goods/services in the Philippines and on importations.

VAT Characteristic: Indirect Tax

An indirect tax.

VAT Characteristic: Value Added

Tax on the value the taxpayer adds to a product or service.

VAT Characteristic: Transparent

The tax amount is clearly shown in VAT invoices or receipts.

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VAT Collection: Tax Credit Method

Input tax is credited against output tax.

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Output Tax

VAT due on taxable sales.

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Input Tax

VAT paid on purchases.

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VAT Calculation Formula

Total Amount ÷ 1.12 x 12%

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Destination Principle

Taxation is determined by where the goods end up.

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Destination Principle and Exports

Export sales have a 0% VAT rate.

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Destination Principle and Imports

Imports are subject to 12% VAT in the Philippines.

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Element 1 of VATable Transactions

Sale, Barter, Exchange, or Lease in the Philippines

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Element 2 of VATable Transactions

Of taxable goods, properties or services.

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Element 3 of VATable Transactions

Must be made by a taxable person in the course of trade or business.

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VAT Threshold

Annual gross sales above this amount make you VAT-registered.

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VAT on Sale of Properties: Tax Base

12% based on the Gross Selling Price.

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Properties Subject to VAT

Real properties held primarily for sale or lease.

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VAT on Sale of Services: Tax Base

12% based on the Gross Receipts

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Services Subject to VAT

Performance of services in the Philippines for a fee.

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Lease subjected to VAT

Lease of property in the Philippines.

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Exempt - Not for Sale

Not primarily held for sale or lease.

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Exempt - Socialized Housing

Real property utilized for socialized housing.

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Exempt - Low-Value Housing

House/dwelling valued at less than Php2,000,000.00.

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Exempt - Employment Services

Services under an employer-employee relationship.

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Exempt - Low rent

Residential rent less than Php15,000.00 monthly.

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Exempt - Association Fees

Membership fees for housing.

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Exempt - Small Business

Annual gross sales/receipts less than Php3,000,000.00.

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Tax Credit Method

Collection Method which allows the buyer to credit input taxes against output taxes.

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Destination principle of VAT

The principle of taxation based on goods destination, exports are 0% VAT, imports are 12% VAT..

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VAT Threshold

A VAT-registered person’s gross sales and/or receipts exceeding Php3,000,000.00 per year.

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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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