VAT Exempt Transactions

According to our tax code, the following are transactions that can be considered as VAT
exempt:

(A) Sale or importation of agricultural and marine food products in their original state,
livestock and poultry of or king generally used as, or yielding or producing foods for
human consumption; and breeding stock and genetic materials therefor.

Products classified under this paragraph 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.
Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and
copra shall be considered in their original state;

Sales by Agricultural To To
Cooperatives Members Non Members

Sale of cooperative’s own

produce (Processed or or EXEMPT EXEMPT
at its original state)

Other than the

Cooperative’s own produce EXEMPT VATABLE
(i.e. from “traders”)

*EXEMPT if referring to agricultural food product in its original state.

(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;

(D) Importation of professional instruments and implements, wearing apparel, domestic

animals, and personal household effects (except any vehicle, vessel, aircraft, machinery
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, that such persons are actually coming to settle in the Philippines
and that the change of residence is bona fide;

(E) Services subject to percentage tax under Title V of the Tax Code, as enumerated
below:

Sale or lease of goods or properties or the performance of services of

non-VAT-registered persons, other than the transactions mentioned in paragraphs (A) to
(AA) of Sec. 109(1) of the Tax Code, the gross annual sales and/or receipts of which
does not exceed the amount of Three Million Pesos (P3,000,000.00)

(F) Services by agricultural contract growers and milling for others of palay into rice,
corn into grits and sugar cane into raw sugar;

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

(H) Educational services 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;

(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;

(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;

(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 produce;

(M) Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered with the Cooperative Development Authority;

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 From From Non

Multi-Purpose Cooperative Members Members

From Lending Activities EXEMPT EXEMPT

From Non-Lending Activities VAT VAT

(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.

Importation by non-agricultural, non-electric and noncredit cooperatives of machineries

and equipment including spare parts thereof, to be used by them are subject to vat.
 Gross receipts/ From From Non
sales by Members Members

Electric Cooperatives VAT VAT

Non-agricultural, Non-electric, Non

lending/credit cooperatives:
●​ Contribution per member <15,000 EXEMPT EXEMPT
●​ Contribution per member >15,000 VAT VAT

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

By a non-vat reg VAT EXEMPT

EXPORT
SALES VATABLE @0%
By a-vat reg
(ZERO RATED SALES)

(P) Sale of real properties not primarily held for sale to customers or held for lease in
the ordinary course of trade or business or real property utilized for low-cost and
socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban
Development and Housing Act of 1992, and other related laws, residential lot valued at
One million pesos (P1,500,000) and below, house and lot, and other residential
dwellings valued at Two million five hundred thousand pesos (P2, 500, 000) and below:
Provided, That not later than January 31, 2009 and every three (3) years thereafter, the
amount herein stated shall be adjusted to their present values using the Consumer Price
Index, as published by the National Statistics Office (NSO);

(Q) Lease of a residential unit with a monthly rental not exceeding fifteen thousand
pesos (P15, 000) regardless of the amount of aggregated rentals received by the
lessor during the year VAT EXEMPT. Provided, That not later than January 31, 2009 and
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 National Statistics Office
(NSO);
(R) 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.

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. 804R (R 4-2021)

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 UNESCO.

Thus, 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.

(S) Transport of passengers by international carriers; doing business in the Philippines.

Transport of passengers by international carriers doing business in the Philippines is

not subject to business tax (vat and percentage tax).
On the other hand, transport of cargo by international carriers is not also subject to vat,
however, it is subject to percentage tax under Section 118 of the Tax Code, also known
as Common Carrier's Tax on International Carriers.

Domestics Common Carriers

TRANSPORT OF PASSENGERS Within the Philippines Philippines to Abroad

By Land Common Carrier’s Tax 0% VAT

Under Sec 117

By air or sea VAT 0% VAT

Cargo or goods VAT 0% VAT

*Generally subject to VAT. However, if applicable, it may be subject to percentage tax under
Sec. 18

(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 (R15-2015: RR
13-2018)

(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.

(V) Services of bank, 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 or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or
receipts do not exceed the amount of One million five hundred thousand pesos
(P1,500,000): Provided, That not later than January 31, 2009 and every three (3) years
thereafter, the amount herein stated shall be adjusted to its present With footnote in the
book value using the Consumer Price Index, as published by. the National
Statistics-Office (NSO);​
Note that a VAT-registered entity may elect that the above not apply to its sale of goods
or properties or services: Provided, that an election made under this subsection shall be
irrevocable for a period of three (3) years from the quarter the election was made.

(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).

(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 priveto 2018

(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: RR4-2021)

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 (RR 4-2021).

(BB) 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.

(CC) (Originally under paragraph BB). Sale or lease of goods or properties or the
performance of services other than the transactions mentioned in the preceding
paragraphs, the gross annual sales and/or receipts do not exceed the amount of
P3,000,000.

The P3,000,000 gross annual sales shall comprise of the business' total revenues from
sale of its products, which are either goods or services, including nonrefundable
advance deposits/payments for services, net of discounts, sales returns and
allowances, covering the fiscal or calendar year.

Sales incidental to the registered operations of the business shall also be included
pursuant to Section 105 of the Tax Code, as amended.