NATURE OF BUSINESS TAX

(On Onerous Transfer in the conduct of business)

BUSINESS TAX, an Internal Revenue tax imposed on persons or entities who sell goods or services in
the course of business.

Situs of Taxation of Business Taxes, General principles

All taxpayers are taxable only with business tax for goods and services to be consumed within .
Sales of goods/services
Summary: W/I OUTSIDE
VAT Registered Taxable Zero Rated
Non VAT Registered Taxable Exempt

According to the Cross-Border Doctrine (also known as Destination Principle) the

onus of taxation under the Philippine VAT system is in the country where the
goods, property are destined, used or consumed. Thus, as a general rule export
related sales of goods and services with a recipient that is not a tax resident of the
Philippines are generally zero rated or VAT exempt. Concerning the performance of
cross-border services it is an essential condition that the recipient of the services
must be a person “doing business outside the Philippines”.
Section 107(NIRC) Value-Added Tax on Importation of Goods. -
(A) In General. - There shall be levied, assessed and collected on every importation of goods a
value-added tax, Exemptions; Section 109 and other special Laws.
 Philippine Business Tax Rates
Business tax is a tax imposed on the gross sales of goods/services of a VAT or NON-VAT taxpayer.

BUSINESS TAXES on TRANSFERS in the conduct of Business

VAT:
12% on Sales of goods/services and importations

NATURE of VAT and

According to the BIR, Value-Added Tax is a form of sales tax.
A VAT is a tax on consumption imposed on the sale, barter, exchange, or lease of goods, properties,
and services in the Philippines. This indirect tax may be passed on to the buyer, transferee or lessee of
the goods, properties, or services.

Non-VAT (OPT):

3%, on Sales of goods/services (Not Listed in OPT) of not more than P3,000,000 per year.

OPT, Specific % regardless if the Sale, Gross Receipts is exceeding P3,000,000 per year;
Percentage Tax which is also known as Non-VAT Tax is a business tax imposed on persons,
entities, or transactions specified under Sections 116 to 127 of the National Internal Revenue
 BUSINESS REGISTRATION, Irrevocable for 3 years

NON-VAT OPTION VAT

(OPT) NON-VAT or VAT (12%)

Sales or Gross receipts are

EXEMPT from VAT: More than P3,000,000/year

(Section 109 +TRAIN LAW) If Sales or Gross Receipts is Sales of Goods/ Services
Not More than P3,000,000/year
OPT
 Domestic carriers and keepers of Not:
garages Exempt
 International air/shipping carriers
 Franchise grantees (water/electric)
 Banks and non-bank financial
intermediaries performing quasi- Not:
banking functions Among OPT
 Insurance
 Amusement places
 COMPARISON OF BUSINESS TAXES on BUSINESS TRANSFERS

VAT NON -VAT

Sales of Goods/Services , More than P3M/year Sales of Goods/Services, P3M or below /year

Tax Rates, 12% INPUT, 12% OUT PUT Tax Rates, generally 3%, but OPT ranging from 1% to
30% regardless of amount of sales
CALCULATION, OUTPUT VAT – INPUT VAT CALCULATION, Sales/Gross Receipts X specific %

BURDEN of Tax, Indirect tax BURDEN of Tax, Direct tax

ACCOUNTING of Tax, OUT PUT VAT is accounted as ACCOUNTING of Tax, recorded as expense
Liability and INPUT VAT is treated as Asset.

TAX RETURN, 2550Q TAX RETURN, 2551Q

 VAT on IMPORTATION
Importation is the purchase of goods/services by Philippine residents from non-resident sellers.

TREATMENT of VAT
Importation of Goods;
 The importer is liable to the 12% VAT Component
 Creditable INPUT VAT if
paid by VAT registered
business and consumed as
Importation of Services; ordinary business expense.
 The Resident Payor is liable as withholding agent to
 INPUT VAT Expense, if paid
withhold final 12% withholding VAT. by the VAT registered
business and consumed for
BIR Form 1600, the final VAT W/Tax remittance form, personal use.
to be filed and amount to be remitted every 10th of
the month following the taxable month.  Tax expense if paid by non-
VAT person.
OTHER PERCENTAGE TAXES (OPT)

Domestic carriers and keepers of garages, (Transport of passengers by land), Gross receipts x 3%

International air/shipping carriers (Resident Foreign corp) doing business in the Philippines
Gross receipts(Sales) on transport of cargo from the Philippines to a foreign country x 3%

Franchise grantees:
Gas and water utilities, 2%
Radio and television broadcasting companies whose annual gross receipts

of the preceding year do not exceed Php10,000,000 and did not opt to register as
VAT
Overseas dispatch, message or conversation originating from the Philippines Amount paid for the service x 10%
taxpayer, 3%
Banks and non-bank financial intermediaries performing quasi-banking functions
Interest: • If maturity period is five years or less x 5%
• If maturity period is more than five years x 1%

Dividends and equity shares and net income of subsidiaries X 0%

Royalties, rentals of property, real or personal, profits from exchange and all other items treated as
gross income under Sec. 32 of the Tax Code, as amended, 7%
Life Insurance Company/Agent/Corporation (except purely cooperative companies or associations)
Total premiums collected X 2%

Agents of foreign insurance companies (except reinsurance premium):

Insurance agents authorized under the Insurance Code to procure policies of insurance for companies not
authorized to transact business in the Philippines
Total premiums collected X 4%

Owners of property obtaining insurance directly with foreign insurance companies

Total premiums paid X 5%

Proprietor, lessee or operator of the following:

Cockpits, Cabarets, Night or Day Clubs, videoke bars, karaoke bars, karaoke televisions, karaoke boxes and music
lounges
Gross receipts X 18%
Boxing exhibitions (except when the World or Oriental Championship is at stake in any division,
provided further that at least one of the contenders for World Championship is a citizen of the
Philippines and said exhibitions are promoted by a citizen/s of the Philippines or by a corporation/
association at least 60% of the capital of which is owned by said citizen/s)
Gross receipts X 10%

Professional basketball games (in lieu of all other percentage taxes of whatever nature and
description)
Gross receipts X 15%

Jai-alai and race track

Gross receipts X 30%
Winnings on horse races
· Winnings or 'dividends’ X 10%
· Winnings from double forecast/quinella and trifecta bets X 4%
· Prizes of owners of winning race horses X 10%

Sale, barter, exchange or other disposition of shares of stock listed and traded through the Local
Stock Exchange other than the sale by a dealer of securities Gross selling price or gross value in
money 6/10 of 1%
 VAT EXEMPT TRANSACTIONS (Chapter 4, Business and Transfer Taxation2019 edition by Rex B Banggawan)

Sale or of agricultural and marine food products in their original state, livestock and poultry of a kind generally
importation sed as, or yielding or producing foods for human consumption; and breeding stock and genetic materials
therefore (lechon manok if dined in is VATable VAT RULING 009-007)

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 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 custom duties
under the Tariff and Customs Code of the Philippines;

Importation of professional instruments and implements, tools of trade, occupation or employment, wearing apparel,
domestic animals, and personal and household effects ( except vehicles, vessels, aircrafts machineries and other similar
goods for use in manufacture which are subject to duties, taxes and other charges) belonging to persons coming to
settle in the Philippines or Filipinos or their families and descendants who are now residents or citizens of other
countries, such parties hereinafter referred to as overseas Filipinos, in quantities and of the class suitable to the
profession, rank or position of the persons importing said items, for their own use and not barter or sale, accompanying
such persons, or arriving within a reasonable time; Provided, That the Bureau of Customs may, upon the production of
satisfactorily evidence that such persons are actually coming to settle in the Philippines and that the goods are brought
from their place of residence, exempt such goods from payment of duties and taxes.
VAT EXEMPT
Services subject to percentage tax under Title V of the Tax Code, as amended
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 Department of
Education (DepED), the Commission on Higher Education (CHED) and the Technical Education and Skills
Development Authority (TESDA) and those rendered by the 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

Sales of cooperatives with Certificate of Tax Exemption

Marginal income earners (MIEs) refer to individuals not otherwise deriving compensation as an employee
under an employer-employee relationship but who are self-employed and deriving gross sales/receipts not exceeding
P100,000.00 during any 12-month period. Their activities are considered principally for subsistence or livelihood
VAT EXEMPT

The following sales of real properties:

1. Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of
trade or business.

2. 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;

3. Sale of real properties utilized for specialized housing as defined under RA No. 7279, and other related laws,
such as RA No. 7835 and RA No. 8763, wherein price ceiling per unit is Php 450,000.00 or as may from time to
time be determined by the HUDCC and the NEDA and other related laws;

Sale of residential dwellings valued at P3,199,200.00, applicable beginning 01 January 2021 per Bureau of
Internal Revenue (BIR) RR 08-2021 dated 11 June 2021. (If two or more adjacent lots are sold or disposed 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 One Million Five Hundred Thousand Pesos
(P1,500,000.00). Adjacent residential lots, although covered by separate titles and/or separate tax
declarations, when sold or disposed 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.)
VAT EXEMPT
Lease of residential units with a monthly rental per unit not exceeding Fifteen Thousand
Pesos (P15,000.00), regardless of the amount of aggregate rentals received by the lessor
during the year; Provided, that not later than January 31, 2009 and every three (3) years
thereafter, the amount of P10,000.00 shall be adjusted to its present value using the
Consumer Price Index, as published by the Philippine Statistics Authority (Formerly known as
Sale,
NSO) 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

Transport of passengers by international carriers(FOREIGN CORP.)

Sale, importation or lease of passenger or cargo vessels and aircraft, including engine equipment and spare parts
thereof for domestic or international transport perations; Provided, that the exemption from VAT on the importation
and local purchase of passenger and/or cargo vessels shall be subject to the requirements on restriction on vessel
importation and mandatory vessel retirement program of Maritime Industry Authority (MARINA

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 passenger from a port in the Philippines directly to a foreign port, or vice-versa, without docking or stopping
at any other port in the Philippines unless the docking or stopping at any other Philippine port is for the purpose of
unloading passengers and/or cargoes that originated form abroad, or to load passengers and/or cargoes bound for
abroad; Provided, further, that if any portion of such fuel, goods or supplies is used for purposes other that the
mentioned in the paragraph, such portion of fuel, goods and supplies shall be subject to 12% VAT
VAT EXEMPT

Sale or lease of goods and services to senior citizens and persons with disabilities, as provided
under Republic Act Nos. 9994 (Expanded Senior Citizens Act of 2010) and 10754 (An Act
Expanding the Benefits and Privileges of Persons with Disability), respectively (health care,
medicines, lodging, eatery, transpo fares, admission fees in amusement places)
Solo parents purchases of baby’s medicines, food supplements, and needs (RA 8972)

Sale of drugs and medicines prescribed for ((RMC 17-2024);

 Cancer  Kidney disease
 Diabetes  Mental illness
 High cholesterols  tuberculosis
 Hypertension

Transfer of property in merger or consolidation (pursuant to Section 40(C)(2) of the Tax Code,
as amended)
Association dues, membership fees, and other assessments and charges collected on a purely reimbursement basis
by homeowners’ associations and condominium established under Republic Act No. 9904 (Magna Carta for
Homeowners and Homeowner’s Association) and Republic Act No. 4726 (The Condominium Act), respectively

Sale of gold to the Banko Sentral ng Pilipinas (BSP) (previously zero-rated transaction)

Importation by RBEs thru a valid Certificate of Authority to Import issued by the concerned IPA shall be valid and be
considered by the BIR and BOC as proof of entitlement to tax and/or duty-free importation, notwithstanding the BOI-
COR.