VAT Exempt Sales

A. 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
therefor.

 Products classified under this exemption (such as meat, fruits, and vegetables)
shall be considered in their original state even if they have undergone the
simple processes of preparation or preservation for the market, such as
freezing, drying, salting, broiling, roasting, smoking or stripping including
those using advanced technological means of packaging such as shrink
wrapping in plastics, vacuum packing, tetra-pack, etc.
VAT Exempt Sales

A.
 Polished and/or husked rice, corn grits, raw cane sugar and molasses,
ordinary salt and copra shall be considered in their original state.
 Raw sugar or raw sugar cane means sugar whose content of sucrose by
weight, in the dry state, corresponds to a polarimeter reading of less than 99.5
degrees.
 Raw cane sugar refers only to muscovado sugar
 Sale of marinated fish is NOT EXEMPT from VAT.
VAT Exempt Sales

A.

 Refined Sugar as sugar whose content of sucrose by weight in dry state,

corresponds to a polarimeter reading of 99.5° and above.
 Cane Sugar produced from the following shall be presumed, for internal revenue
purposes, as refined sugar:
• Product of a refining process
• Products of a sugar refinery; or
• Product of a production line of a sugar mill accredited by the BIR to be
producing and/or capable of producing sugar with polarimeter reading of
99.5° and above
VAT Exempt Sales

A.

Examples of agricultural and marine food products in their original state

Agricultural Marine Livestock Poultry
• Polished/husked rice • Fish • Cows • Fowls
• Corn grits • Crustaceans such as • Bulls • Ducks
• Raw cane sugar and - Lobsters, shrimps • Calves • Geese
molasses - Prawns, oysters • Pigs • Turkey
• Copra - Mussels, clams • Sheep
- Trout, eels • Goats
• Rabbits

Livestock or poultry does not include fighting cocks, race horses, zoo animals and other
animals generally considered as pets.
VAT Exempt Sales

B. 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)
C. Importation of personal and household effects belonging to the residents of
the Philippines returning from abroad and nonresident citizens coming to
resettle in the Philippines: Provided, That such goods are exempt from
customs duties under the Tariff and Customs Code of the Philippines
VAT Exempt Sales

D. Importation of professional instruments and implements, tools of trade,

occupation or employment, wearing apparel, domestic animals, and personal and
household effects 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 for barter or sale,
accompanying such persons, or arriving within a reasonable time: Provided, That
the Bureau of Customs may, upon the production of satisfactory evidence that
such persons are actually coming to settle in the Philippines and the goods are
brought from their former place of abode, exempt such goods from payment of
duties and taxes: Provided, further, That the vehicles, vessels, aircrafts,
machineries and other similar goods for use in manufacture, shall not fall within
this classification and shall therefore be subject to duties, taxes and other charges;
VAT Exempt Sales

E. Services subject to percentage tax under Title V of the Tax Code

VAT Exempt Sales

F. Services by
a. Agricultural contract growers and
b. Milling for others of palay into rice, corn into grits and sugar cane into
raw sugar
 "Agricultural contract growers" refer to those persons producing for others' poultry,
livestock or other agricultural and marine food products in their original state. Its
services growing of poultry, livestock or other agricultural and marine food products
into marketable poultry, livestock or other marine food products. There are
agricultural contract growers which offer toll processing/toll dressing/toll
manufacturing as a packaged service to its toll growing. "Toll processing/toll
dressing/toll manufacturing" involves procedures such as; weighing, killing,
dressing, scalding, cut-ups; and packaging.
VAT Exempt Sales
 However, after careful re-study by the Bureau, it was clarified under RR 97-2010,
that "toll processing services exempt from vat“ shall pertain only to services to
clients from which growing of animals were contracted. However, if such an activity
is done independently of growing poultry, livestock or other agricultural and marine
food products, the same can be considered as vatable services not covered by
agricultural contract growing.
VAT Exempt Sales

G. Medical, dental, hospital and veterinary services except those rendered by

professionals;
• Laboratory services are exempted from VAT
• Hospital bills constitute medical service, therefore, exempted from VAT.
• Medicines included in the hospital bill of in-patients are VAT exempted
• Sales made by drugstore and/or pharmacy of the hospital for out-patients
are subject to VAT.
• Services of professional practitioners (medical, CPAs, Insurance agents,
etc.) are subject to VAT if annual gross professional fees exceed P
3,000,000. Otherwise, such fees are subject to 3% percentage tax.
VAT Exempt Sales

H. Educational services (academic, technical, or vocational) rendered by

private educational institutions, duly accredited by the Department of
Education(DepED), the Commission on Higher Education (CHED), the
Technical Education and Skills Development Authority (TESDA) and those
rendered by government educational institutions
 Does not include seminars, in-service training, review classes, and other
similar services rendered by persons who are not accredited by the
DepEd, the CHED, and/or TESDA.
VAT Exempt Sales

I. Services rendered by individuals pursuant to an employer-employee

relationship
J. 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
VAT Exempt Sales

K. Transactions which are exempt under international agreements to which the

Philippines is a signatory or under special laws, except those under
Presidential Decree No. 529 (Petroleum Exploration Concessionaires under
Petroleum Act of 1949)
Examples of special laws:
• PD 1869 – PAGCOR Charter
• RA 9367 – Biofuels Act
• RA 10072 – Philippine Red Cross
• RA 9994 – Expanded Senior Citizens Act of 2010
• RA 10754 – Magna Carta for PWDs
VAT Exempt Sales

L. Sales by agricultural cooperatives duly registered with the Cooperative

Development Authority 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 product.
Sales by agricultural cooperatives To members To non-members
Sale of coop’s own produce (processed or at its Exempt Exempt
original state
Other than coop’s own produce (from “traders”) Exempt VATable*

*Exempt if referring to agricultural food product at its original state.

VAT Exempt Sales

M. Gross receipts from lending activities by credit or multi-purpose

cooperatives duly registered with the Cooperative Development Authority
(CDA). Exemption is not only limited to the gross receipts on loans extended
to its members but also to other persons who are not members.

Gross receipts by credit or multi-purpose From members From non-

cooperatives members
From lending activities Exempt Exempt
From non-lending activities VATable VATable
VAT Exempt Sales

N. Sales by non-agricultural, non- electric and non-credit cooperatives duly

registered with the Cooperative Development Authority: Provided, That the
share capital contribution of each member does not exceed Fifteen thousand
pesos (P15,000) and regardless of the aggregate capital and net surplus
ratably distributed among the members. Note: Sales only, and not
importation. Importation of machineries and equipment including spare
parts thereof, to be used by them are subject to VAT.
Gross receipts/sales by From members From non-
members
Electric cooperatives VATable VATable
Non-agricultural, non-electric, non-lending/credit
cooperatives
• Contribution per member does not exceed P15,000 Exempt Exempt
• Contribution per member exceeds P15,000 VATable VATable
VAT Exempt Sales

O. Export sales by persons who are not VAT-registered

By a non-VAT Reg. VAT exempt

Exports sales

By a VAT Reg. VATable @ 0%

(zero-rated
sales)
VAT Exempt Sales

P. Sale of real property

a. Real properties not primarily held for sale to customers or held for lease
in the ordinary course of trade or business
 If such property is used in the trade or business of the seller, the sale
shall be subject to VAT as an incidental transaction to the seller’s main
business.
VAT Exempt Sales

P. Sale of real property

b. Real property utilized for socialized housing as defined by Republic Act
No. 7279, as amended
 Socialized Housing refers to housing programs and projects covering
houses and lots or home lots only that are undertaken by the
government or the private sector for the underprivileged and homeless
citizens,
VAT Exempt Sales

P. Sale of real property

c. Sale of house and lot, and other residential dwellings ( in the ordinary
course of trade or business) with the selling price of not more than
P3,199,200
 Provided, further, That every three (3) years thereafter, the amount
herein stated shall be adjusted to its present value using the Consumer
Price Index, as published by the Philippine Statistics Authority(PSA)
 Sale of parking lot ( which may or may not be included in the sale of
condominium units) – subject to VAT regardless of selling price.
 If the sale of real property was NOT made in the ordinary course of
trade or business, the real property is classified as capital asset, hence,
not subject to VAT but to CGT.
VAT Exempt Sales

P. Sale of real property

c. Sale of house and lot, and other residential dwellings ( in the ordinary
course of trade or business) with the selling price of not more than
P3,199,200
 Subject to VAT:
1. Sale of residential house and lot and other residential dwellings if
the selling price is MORE than P3,199,200
2. Sale of residential lot
3. Sale of commercial lot/units
4. Other real properties not specifically provided under the law as
vat-exempt.
8-3
A V Regardless of the amount, sale of residential lot only (not classified as capital asset), is subject to VAT
B V Regardless of the amount, sale of residential lot only (not classified as capital asset), is subject to VAT
C V Regardless of the amount, sale of residential lot only (not classified as capital asset), is subject to VAT
D E Not subject to VAT because the asset sold is classified as capital asset; subject to CGT
E E Although the sale was made in the ordinary course of trade or business and the asset sold is residential
house and lot, the price is less than P3,199,200.
F V Price is more than P3,199,200
G V Regardless of the price, if the asset sold is parking lot, then that is subject to VAT
H E Not subject to VAT because the asset sold is classified as capital asset; subject to CGT
VAT Exempt Sales

Q. Lease of a residential unit with a monthly rental not exceeding Fifteen thousand pesos
(₱15,000)
 Per unit shall refer to: (1) apartment unit in case of apartments (2) house in case of
residential houses (3) per person in case of dorms, boarding houses and bed spaces
(4) per room in case of rooms for rent

1. Regardless of annual total receipts, units with monthly rental of P 15,000 and below
are exempted from VAT.
2. If the annual gross receipts of units with monthly rental of more than P 15,000 is P
3,000,000 or less, such amount is subject to other percentage tax (OPT).
3. If the annual gross receipts of units with monthly rental of more than P 15,000 is
above P 3,000,000, such amount is subject to 12% VAT.
 Regardless of the monthly rental per tenant, lease of commercial units is subject
to VAT or OPT
8-1.
For 2022 taxable year, determine the applicable business tax of the following:
Lease of Residential Units
Case Monthly Rental Aggregate annual rental Answer
A P14,000 P3,200,000 Exempt; monthly rental is below P15,000
B 16,000 2,800,000 OPT
C 16,000 3,000,000 OPT
D 18,000 3,200,000 VAT

Lease of Commercial Units (monthly rental is ignored)

Case Monthly Rental Aggregate annual rental Answer
E P12,000 P3,200,000 VAT; above P3M
F 16,000 2,800,000 OPT; less than P3M
G 16,000 3,000,000 OPT; not above P3M
H 10,000 3,500,000 VAT; above P3M
VAT Exempt Sales

R. (As amended under CREATE Law): Sale, importation, printing or

publication of books, and any newspaper, magazine, journal, review
bulletin, or any such educational reading material covered by the United
Nations Educational, Scientific and Cultural Organization (UNESCO)
Agreement on the importation of educational, scientific and cultural
materials, including the digital or electronic format thereof. Provided, That
the materials enumerated herein are not devoted principally to the
publication of paid advertisements. Provided further, That the materials
enumerated herein are compliant with the requirements set forth by the
National Book Development Board pursuant to R.A. No. 8047 (RR 4-2021),
VAT Exempt Sales

R
 Under BIR Ruling No. 083-2014, the term "book, newspaper, magazine,
review and bulletin" only covers printed matters in hard copy, and does not
apply to electronic format or versions including but not limited to:
• e-books
• e-journals
• electronic copies
• online library sources
• CDS and software
 Furthermore, the activities that exempt from vat under this provision are as
follows (1)sale, (2)Importation, (3)printing; and (4)publication of books,
newspapers, magazines, reviews and bulletins or any such educational
reading material covered by the UNSESCO.
VAT Exempt Sales

R
 A corporation's other transactions (such as the printing of brochures,
bookbinding, engraving, stereotyping, electrotyping, lithographing of various
reference books, trade books, journals and other literary works), are subject to
VAT.
 The taxpayer is required to register its business as a VAT business entity and
issue a separate VAT invoice/receipt to record such transactions.
VAT Exempt Sales

S. Transport of passengers by international carriers doing business in the

Philippines
International carriers (resident foreign corporations
TRANSPORT OF Originating in the Philippines
• Passengers VAT exempt
• Cargo of goods VAT exempt. However, subject to Common Carriers
Tax (Percentage Tax)

Domestic common carriers

TRANSPORT OF Within the Philippines From Philippines to Abroad
• Passengers
a. By land Common Carriers Tax 0% VAT
b. By air or sea** VAT 0% VAT
• Cargo of goods** VAT 0% VAT

*Generally subject to VAT. However, if applicable, it may be subject to percentage tax

VAT Exempt Sales

T. 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 subject to the requirements on restriction on vessel importation and
mandatory vessel retirement program of MARINA (RR15-2015; RR 13-2018)
VAT Exempt Sales

U. Importation of fuel, goods and supplies by persons engaged in international

shipping or air transport operations; Provided that the fuel, goods and
supplies shall be used for international shipping or air transport operations.
Thus, 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
port in the Philippines is for the purpose of unloading passengers/and or
cargoes that originated from 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 than that mentioned in this
paragraph, such portion of fuel, goods or supplies shall be subject to 12% vat
VAT Exempt Sales

V. Services of banks, non-bank financial intermediaries performing quasi-

banking functions, and other non-bank financial intermediaries, such as
money changers and pawnshops, subject to percentage tax under Sections
121 and 122, respectively of the Tax Code.
W. Sale or lease of goods and services to senior citizens and persons with
disabilities, as provided under RA No. 9994 (Expanded Senior Citizens Act
of 2010) and RA No. 10754 (An Act Expanding the Benefits and Privileges of
Persons with Disability (PWD), respectively.
X. Transfer of property pursuant to Section 40(C)(2) of the Tax Code, as
amended (Upon effectivity of RA10963-TRAIN Law only; new provision).
VAT Exempt Sales

Y. Association dues, membership fees, and other assessments and charges

collected on a purely reimbursement basis by homeowners‘ associations and
condominium corporations established under RA No. 9904 (Magna Carta for
Homeowners' and Homeowners Association) and RA No. 4726
(Condominium Act), respectively. This provision shall take effect only
beginning January 1, 2018 or upon the effectivity of RA10963-TRAIN Law
(new provision).
Z. Sale of Gold to the Bangko Sentral ng Pilipinas (Beginning January 1, 2018 or
upon the effectivity of RA10963-TRAIN Law. It is subject to 0% vat prior to
2018).
VAT Exempt Sales

AA.Sale or importation of prescription drugs and medicines prescribed for

diabetes, high cholesterol, hypertension beginning January 1, 2020 and
cancer, mental illness, tuberculosis and kidney diseases beginning January 1,
2021 (CREATE Law; RR 4-2021).
 The exemption from VAT under this subsection shall only apply to the sale
or importation by the manufacturers, distributors, wholesalers and retailer
of drugs and medicines if included in the "list of approved drugs and
medicines" issued by the Department of Health (DOH) for this purpose.
VAT Exempt Sales

AB.Sale or importation of the following beginning January 1, 2021 to December

31, 2023:
i. Capital equipment, its spare parts and raw materials, necessary for the
production of personal protective equipment (PPE) components such as
coveralls, gown, surgical cap, surgical mask, n-95 mask, scrub suits,
goggles and face shield, double or surgical gloves, dedicated shoes, and
shoe covers, for COVID-19 prevention;
ii. All drugs, vaccines and medical devices specifically prescribed and
directly used for the treatment of COVID-19; and
iii. Drugs for the treatment of COVID-19 approved by the Food and Drug
Administration (FDA) for use in clinical trials, including raw materials
directly necessary for the production of such drugs.
VAT Exempt Sales

BB
 Provided, That the Department of Trade and Industry (DTI) shall certify that
such equipment, spare parts or raw materials for importation are not locally
available or insufficient in quantity, or not in accordance with the quality or
specification required.
 Provided further, That for item (ii), within sixty (60) days from the effectivity
of the CREATE, and every three (3) months thereafter, the Department of
Health (DOH) shall issue a list of prescription drugs and medical devices
covered by this provision.
VAT Exempt Sales

BB
 Provided finally, That for items (i) and (iii) hereof, on the sale or importation
of equipment, spare parts and raw materials for the production of PPE
components as well as the sale or importation of raw materials directly
necessary for the production of drugs for the treatment of COVID-19, the
supplier/s or importer shall submit, for the purpose of availing the
exemption, the following:
 Certified true copy of "License to Operate", issued to the manufacturer-buyer by the DOH-
FDA authorizing the manufacture of medical grade PPE components and drugs for the
treatment of COVID- 19; and
 "Sworn Declaration" from the manufacturer-buyer that the items shall be used for the
manufacture of the PPE components and drugs for the treatment of COVID-19.
8-2
Case A X Case E V Case I V
Case B X Case F X Case J X (OPT)
Case C V Case G V (0%)
Case D V Case H V (assume domestic carrier)