Value-Added Tax on Services and Properties

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Questions and Answers

What is the rate of Value-Added Tax (VAT) levied on the sale or exchange of services and use or lease of properties in the Philippines?

15%

12% (correct)

20%

10%

What does the phrase 'sale or exchange of services' include?

Only services performed by doctors and lawyers

Only services performed by consultants

All kinds of services performed in the Philippines for a fee, remuneration or consideration (correct)

Only services performed by real estate brokers

Is the lease of properties subject to VAT?

Only if the lessor is a Philippine citizen

Only if the contract of lease was executed in the Philippines

Irrespective of the place where the contract of lease was executed, if the property leased or used is in the Philippines (correct)

Only if the property leased is a personal property

Is an advance payment made by the lessee for lease of properties subject to VAT?

It depends on the nature of the advance payment Signup and view all the answers

Is a security deposit for the faithful performance of certain obligations of the lessee subject to VAT?

Only when it is applied to rental Signup and view all the answers

What is the tax treatment of an advance payment that constitutes a prepaid rental?

Taxable when received, regardless of the accounting method employed Signup and view all the answers

Who are subject to VAT on the sale or exchange of services?

All persons who perform services in the Philippines for a fee, remuneration or consideration Signup and view all the answers

What is the basis of the Value-Added Tax (VAT) on the sale or exchange of services and use or lease of properties?

Gross receipts derived from the sale or exchange of services Signup and view all the answers

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

The total amount of money or its equivalent representing the contract price, excluding value added tax Signup and view all the answers

What is the term 'gross receipts' equivalent to?

The total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter Signup and view all the answers

What determines the time of payment in a sale?

The type of sale, whether it is an Installment Sale or a Deferred Payment Sale Signup and view all the answers

What is an Installment Sale?

A sale where the initial payments in the year of sale do not exceed 25% of the gross selling price Signup and view all the answers

What is a Deferred Payment Sale?

A sale where the initial payments in the year of sale exceed 25% of the gross selling price Signup and view all the answers

What is included in the initial payments?

Downpayment made and all payments actually or constructively received during the year of sale Signup and view all the answers

What is the treatment of a sale in a Deferred Payment Sale?

The entire selling price is subject to VAT in the month of sale Signup and view all the answers

What is the treatment of a sale in an Installment Sale?

Each installment payment actually and/or constructively received by the seller is subject to VAT Signup and view all the answers

Study Notes

VAT on Sale of Services and Use or Lease of Properties

A value-added tax (VAT) of 12% is levied on gross receipts derived from the sale or exchange of services, including the use or lease of properties.

Sale or Exchange of Services

Means the performance of all kinds of services in the Philippines for a fee, remuneration, or consideration, including services performed or rendered by real estate brokers, lessors of property, and others.
Examples: services of real estate brokers, appraisers, consultants, doctors, etc.

Lease of Properties

Subject to VAT, regardless of where the contract of lease was executed, if the property leased or used is in the Philippines.
Deposits are subject to VAT if applied to rental, but not if they are loan, option money, or security deposit for faithful performance of obligations.

Tax Base of VAT

The 12% VAT is based on the gross receipts derived from the sale or exchange of services, including the use or lease of properties.
Gross receipts include the total amount of money or equivalent representing the contract price, compensation, service fee, rental, or royalty, including amounts charged for materials supplied with the services and deposits and advance payments received.

Time of Payment

Depends on whether the sale is an installment sale or a deferred payment sale.
Installment sale: initial payments in the year of sale do not exceed 25% of the gross selling price.
Deferred payment sale: initial payments in the year of sale exceed 25% of the gross selling price.

Computing VAT

Deferred payment/cash basis: add the down payment plus all amortization payments (principal portion only) during the year and compute if the total exceeds 25% of the gross selling price.
Installment basis: each installment payment actually and/or constructively received by the seller is subject to VAT.

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Description

This quiz covers Section 33 of the NIRC, amended to include Value-Added Tax on the sale of services and use or lease of properties. It discusses the rate and base of tax, and more.