Transactions which are Exempt From VAT
- 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;
- 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, aquarium fish, zoo animals and other animals generally 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 customs duties;
- 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, barter or 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 Tax Code, as follows:
- Sale or lease of goods or properties or the performance of services of non-VAT-registered persons, those whose annual gross sales and/or receipts of which do not exceed the amount of P 1,919,500;
- Services rendered by franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed P10,000,000, and by franchise grantees of gas and water utilities;
- Services of proprietors, lessees or operators of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games, jai-alai and race tracks;
- Services rendered by any person, company or corporation (except purely cooperative companies or association) doing life insurance business of any sort in the Philippines;
- Services rendered by fire, marine or miscellaneous insurance agents of foreign insurance companies;
- Receipts on sale, barter or exchange of shares of stock listed and traded through the local stock exchange or through initial public offering;
- Services rendered by domestic common carriers by land, for the transport of passengers, and keepers of garages;
- Services rendered by international air or shipping carriers; and
- Services rendered for overseas dispatch, message or conversation originating from the Philippines.
- Services by agricultural contract growers and milling for others of palay into rice, corn into grits, and sugar cane into raw sugar;
- Medical, dental, hospital and veterinary services, except those rendered by professionals;
- Educational services rendered by private educational institutions duly accredited by the DepED, CHED, and TESDA and those rendered by 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, subsidiaries or branches in the Asia Pacific Region and do not earn or derive income from the Philippines;
- Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws except those granted under PD No. 529 – Petroleum Exploration Concessionaires under the Petroleum Act of 1949;
- Sales by agricultural cooperatives duly registered and in good standing with the CDA to their members, as well as sale of their produce, whether in its original state or processed form, to non-members; their importation of direct farm inputs, machineries and equipment, including spare parts 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 the CDA;
- Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with and in good standing with the CDA; provided, that the share capital contribution of each member does not exceed P15,000 and regardless of the aggregate capital and net surplus ratably distributed among the members;
- Export sales by persons who are not VAT-registered;
- Sales of real properties, as follows:
- Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business;
- Sale of real properties utilized for low-cost housing as defined by RA 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, wherein the price ceiling per unit is P750,000;
- Sale of real properties utilized for socialized housing as defined under RA No. 7279, and other related laws, such as RA No. 7835 and RA No. 8763, wherein the price ceilings are P 400,000 for house and lot and 160,000 for lot only; and
- Sale of residential lot valued at P 1,919,500 and below, or house and lot and other residential dwellings valued at P 3,199,200 and below where the instrument of sale/transfer/disposition was executed on or after January 1, 2012.
If two or more adjacent residential lots are sold or disposed of in favor of one buyer, for the purpose of utilizing the lots as one residential lot, the sale shall be exempt from VAT only if the aggregate value of the lots do not exceed P 1,919,500. Adjacent residential lots, although covered by separate titles and/or separate tax declarations, when sold or disposed of to one and the same buyer, whether covered by one or separate Deed of Conveyance, shall be presumed as a sale of one residential lot.
- Lease of residential units with a monthly rental per unit not exceeding P 12,800, regardless of the amount of aggregate rentals received by the lessor during the year;
Lease of residential units where the monthly rental per unit exceeds P 12,800 but the aggregate of such rentals of the lessor during the year do not exceed P 1,919,500 shall likewise be exempt from VAT, however, the same shall be subjected to 3% percentage tax.
In cases where a lessor has several residential units for lease, some are leased out for a monthly rental per unit of not exceeding P 12,800 while others are leased out for more than P12,800 per unit, his tax liability will be as follows:
- The gross receipts from rentals not exceeding P 12,800 per month per unit shall be exempt from VAT regardless of the aggregate annual gross receipts.
- The gross receipts from rentals exceeding P 12,800 per month per unit shall be subject to VAT if the aggregate annual gross receipts from said units only (not including the gross receipts from units leased for not more than P 12,800) exceed P 1,919,500. Otherwise, the gross receipts will be subject to the 3% percentage tax.
The term ‘residential units’ shall refer to apartments and houses and lots used for residential purposes, and buildings or parts or units thereof used solely as dwelling places (e.g., dormitories, rooms and bed spaces) except motels, motel rooms, hotels and hotel rooms.
The term ‘unit’ shall mean an apartment unit in the case of apartments, house in the case of residential houses; per person in the case of dormitories, boarding houses and bed spaces; and per room in case of rooms for rent.
- 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; provided, that the exemption from VAT on the importation and local purchase of passenger and/or cargo vessels shall be limited to those of 150 tons and above, including engine and spare parts of said vessels; provided, further, that the vessels to be imported shall comply with the age limit requirement, at the time of acquisition counted from the date of the vessel’s original commissioning, as follows:
- For passenger and/or cargo vessels, the age limit is 15 years old;
- For tankers, the age limit is 10 years old; and
- For high-speed passenger crafts, the age limit is 5 years old.
- Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations; provided, that the said fuel, goods and supplies shall be used exclusively or shall pertain to the transport of goods and/or passengers from a port in the Philippines directly to a foreign port without stopping at any other port in the Philippines; provided, further, that if any portion of such fuel, goods or supplies is used for other purposes, such portion of fuel, goods and supplies shall be subject to VAT;
- Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries subject to percentage tax, such as money changers and pawnshops; and
- Sale or lease of goods or properties or the performance of services other than the transactions mentioned in (a) to (u), the annual gross sales and/or receipts do not exceed P 1,919,500.
For purposes of the threshold of P 1,919,500.00, the husband and the wife shall be considered separate taxpayers. However, the aggregation 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 business which are otherwise subject to VAT, the same shall be combined for purposes of determining whether the threshold has been exceeded. VAT-exempt sales shall not be included in determining the threshold.
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JONATHAN RUIZ CPA, MIB