Value Added Tax (VAT) in the Philippines

Value-Added Tax (VAT)

• VAT is 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 of VAT

• It is an indirect tax.
• It is a tax on the value added of a taxpayer.
• It is a transparent form of sales tax, with the amount of the tax shown as a separate item in the VAT Invoice or receipt.
• It is collected through the tax credit method.
• It adopts the "tax inclusive method", where prices charged by a VAT-registered person include the VAT.
• It follows the destination principle, where the destination of the goods determines taxation or exemption from tax.

Computation of VAT

• Total Amount ÷ 1.12 x 12% = VAT

VAT Threshold

• The sale or lease of goods or properties or the performance of services is subject to VAT if the annual gross sales and/or receipts exceed Php3,000,000.00.

Persons Liable

• Any person who sells, barters, exchanges, leases goods or properties, renders services, or imports goods shall be subject to VAT.

Elements of a VATable Transaction

• There must be a sale, barter, exchange, or lease (SBEL) in the Philippines.
• The SBEL must be of taxable goods, properties, or services.
• The SBEL must be made by a taxable person in the course of his trade or business or furtherance of his profession.

VAT on Sale of Properties

• The properties subject to VAT include real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business.
• The tax base of VAT on sale of properties is 12% based on the selling price (gross) in the sales contract.
• The situs (place of taxation) of VAT is the place where the principal office of the business is located.

Requisites for Taxability of Real Properties

• The seller executes a deed of sale, including dacion en pago, barter, or exchange, assignment, transfer, or conveyance, or merely a contract to sell involving real property.
• The real property is located within the Philippines.
• The seller or transferor is engaged in the real estate business.
• The real property is held primarily for sale or for lease in the ordinary course of his trade or business.
• The sale is not exempt from VAT under any law.

Transactions Deemed Sale

• 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.
• Retirement from or cessation of business with respect to inventories on hand.

VAT on Sale of Service and Use or Lease of Properties

• The sale or exchange of services means the performance of all kinds of services in the Philippines for a fee, remuneration, or consideration.
• The lease of properties is subject to VAT irrespective of the place where the contract of lease was executed, if the property leased or used is in the Philippines.
• Are advance payments made by the lessee for the lease of properties subject to VAT? It depends on whether the advance payment is actually a loan to the lessor, an option money for the property, or a security deposit for the faithful performance of certain obligations of the lessee.