VAT in the Philippines: Complete guide for businesses.

This article provides a detailed guide to value-added tax for companies operating in the Philippines.

Value-added tax, or VAT, is a tax imposed on the sale of goods and services. If applicable, VAT may be imposed on transactions at each sales cycle stage, from manufacturer to the final buyer.

Businesses in the Philippines have ongoing VAT obligations since VAT filings are due monthly and quarterly throughout the financial year. As a result, companies, bookkeepers and accountants must stay on top of their VAT filing obligations and requirements to maintain compliance.

What is VAT?

Value-added tax is a tax imposed on the exchange, lease, or sale of goods, services, and properties in the Philippines. VAT is also charged as a tax on the goods imported into the country. 

VAT is considered an indirect tax, as the taxpayer for a transaction – the one responsible for filing and remitting VAT payments to the Bureau of Internal Revenue (BIR) – is the seller. Although, it is the buyer who carries the financial burden (the cost) of the VAT payment on the specific transaction.

VAT tax rates in the Philippines

In the Philippines, the VAT rate is set at 12% and is applied to the taxable gross selling price of properties and goods along with the gross value of service receipts and property leases.

0% VAT-rated transactions

Under the VAT framework in the Philippines, certain sales can be classified as zero-rated or 0% VAT sales. Such sales will be taxable transactions for VAT purposes but will not generate any output VAT. For these types of sales, a seller is not obliged to apply the standard 12% VAT rate. However, the input tax related to the particular sales may be used as a credit against 0% VAT sales. 

Below are just some of the main activities performed by VAT-registered taxpayers that can be subject to 0% VAT: 

• Processing, manufacturing or repacking goods for other individuals doing business outside the Philippines and that are subsequently exported

• Services other than processing, manufacturing, or repackaging, rendered to a person conducting business outside the Philippines
• Exportation of commodities outside the Philippines
• Services that are sold outside the Philippines
• Services delivered in other countries where there is no VAT on the sale of services due to an international agreement or particular laws.

Corporations can refer to the BIR guidance for a complete list of 0% VAT-Rated activities and sales.

Businesses required to register for VAT in the Philippines

The following entities are legally obliged to register for VAT and file and declare their VAT returns:

• VAT-registered companies or individuals involved in selling, leasing, exchanging goods or properties and rendering services if the actual gross sales or receipts total up to 3,000,000 PHP
• Businesses or individuals who voluntarily registered as VAT taxpayers, even if their gross sales or receipts did not meet the VAT aggregate sum of 3,000,000 PHP
• Businesses or individuals that import goods

Eligibility for VAT exemption

Companies in the Philippines with actual gross sales or receipts of less than 3,000,000 PHP are not required to submit and file VAT. These businesses are exempt.

Although, VAT exemptions can also be applied to a company’s specific business activity, such as:

• A sale of goods or transactions is considered VAT exempt if it falls within SEC 109 – exempt transactions
• Agricultural products, tuition fees, lending operations, real estate, books, transportation, and other necessities are typically VAT-exempt transactions

How to register your business for VAT?

Businesses can receive a tax identification number by completing BIR forms 1903 or 1905 and submitting them to their local Revenue District Office (TIN).

Non-resident companies are unable to register for VAT; any VAT owed will be withheld and accounted for by the client. 

How to know if your business is VAT-registered? 

Once you register your business with the BIR, you will get a Certificate of Registration (Form 2303). This Certificate specifies the corporate taxes that the organisation is required to pay. It will also confirm if the organisation is VAT-registered. 

VAT return filings and payments

VAT returns in the Philippines are filed monthly and quarterly. Monthly value-added tax returns utilize BIR Form 2550 M with the due date no later than the 20^th day of the following month proceeding the applicable month. Monthly returns consider the output VAT for the month, and input VAT for the month along with carry-over input VAT from the previous period.

Quarterly value-added tax returns utilize BIR Form 2550Q with the due date no later than the 25^th day of the month after the end of the quarter. Quarterly returns consider the output VAT on sales for the entire quarter, together with the input VAT for the purchases for the entire quarter plus the input VAT carried over from the previous quarter.

Penalty for non-filing or late filing

Failure to file, keep or supply a statement, list, or information required on the due date shall be subject to an administrative penalty of 1,000.00 PHP per failure unless it can be proved that the failure was due to reasonable cause and not willful neglect.

The total sum assessed for such failures shall not exceed 25,000 PHP during a taxable year.

Conclusion

VAT in the Philippines is levied on almost all service and import sales, as well as the exchange, barter, or lease of goods or properties.  The tax is based on the gross selling price of properties and goods sold, or gross receipts from the sale of services, and is equivalent to a uniform rate of 12%.

To get help with the monthly filing of VAT returns and ensure your compliance with statutory requirements, get in touch with Acclime. Our tax will unburden your company from mundane tasks, ensuring compliance with BIR’s regulations on submitting VAT declarations.