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Deductions from Gross Income

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Basis Ceiling Rule
VAT
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Application for Registration
-apply on RDO where the principal place of business is located
-on or before the commencement of the business
-in case of storage places, within 30 days from the date such premises have been used for storage
-a person who maintains a head office, branch or facility shall register with the RDO having jurisdiction over the head
office, branch or facility (Sec 236)

Annual Registration Fee


-P500 upon registration and every year thereafter on or before the last day of January
-use BIR Form 0605 for every separate or distinct establishment or place of business including facility type where sales occur
-registration fee of a person maintaining a head or branch office shall be paid to any accredited bank in the Revenue District
where such offices are located; in areas where there are no accredited banks, the same shall be paid to the RDO, RCO, and
authorized treasurer of the municipality/city

Responsibility of the taxpayer to update RDO


-transfer of place; head office or branch
-update his registration information; tax type, taxpayer details

Persons required to register for VAT


-any persons in the course of trade or business, sells, barters or exchange goods or properties, or engages in the sale or
exchange of services subject to VAT (Sec 106 & 108) shall be liable to register if:
>gross receipt or sales (other than those exempt transactions) for the past 12 months have exceeded 1,919,500 or
>reasonable grounds that gross income or receipts for the next 12 months (excluding exempt transactions) will
exceed 1,919,500
-any person liable for the abovementioned basis; failure to register will cause the taxpayer to pay for the tax under Sec 106 &
108 as if he is a VAT-registered taxpayer but without the benefit of input tax credits for the period he was not properly
registered
-franchise grantees of radio and television broadcasting whose annual gross receipts for the preceding year exceeded
10,000,000 shall register within 30 days from the end of the taxable year (per Sec 119)

Optional VAT registration for tax-exempt persons


-VAT-exempt taxpayer not required for VAT registration may elect to be VAT registered by registering with the RDO and pay the
prescribed annual registration (he shall not be entitled to cancel his registration for the next 3 years)
-VAT-registered taxpayer but enters into transactions exempt from VAT may opt that the VAT apply to his transaction which
would have been exempt under Sec 109 (he shall not be entitled to cancel his registration for the next 3 years)
-franchise grantees of radio and television broadcasting whose annual gross receipts for the preceding year do not exceed
10,000,000 derived from business covered by the law granting the franchise may opt for VAT registration; this option is
irrevocable once exercised
N! taxpayers who opted these may apply for VAT registration not later than 10 days before the beginning of the quarter and
pay the annual registration unless they already paid at the beginning of the year
N! once registered, the taxpayer shall be liable for output tax and be entitled to input tax credit beginning on the first day of the
month following registration
N! only one 9-digit TIN will be issued to the taxpayer; in case of a branch, it will use the 9-digit home office TIN plus a 3-digit
branch code

Certificate of Registration
-must be posted in a conspicuous place in his principal and in each branch office together with the duly validated Registration
Fee Return
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Registration of non-VAT or exempt taxpayer
-every person engaged in business (other than those required to be registered as VAT taxpayers)
-taxpayer required to registered as non-VAT persons are those engage in business under Sec 109 who did not opt to register as
VAT taxpayers
-individuals engage in business where their gross sales or receipt do not exceed 100,000 during any 12-month period (N! they
are required to register but will not be made to pay the registration fee of 500)
-non-stock, non-profit organizations and associations engage in business whose gross sales or receipt do not exceed 1,919,500
for any 12-month period
-cooperatives (other than electric cooperatives) must be registered as non-VAT (N! they too are not required to pay registration
fee)
-radio and TV broadcasting whose gross annual receipts do not exceed 10,000,000 and which do not opt to be VAT registered
-PEZA and other eco-zone registered enterprise enjoying the preferential tax rate of 5% in lien of all taxes
-Subic Bay Metropolitan Authority and other freeport zone registered enjoying the preferential tax rate of 5% in lien of all taxes
-marginal income earners

Compliance activities after registration


-pay the registration amount for every place of business that generate sales
-registration of the books of accounts before using
-registration of sales invoices and official receipts as VAT-invoices or VAT – official receipts (N! if there are transactions not
subject to VAT, a separate set of non-VAT invoices/official receipts need to be registered for use on transactions not subject to
VAT
-filing of the Monthly Value-added Tax Declaration on or before the 20th day following the end of the taxable month (for
manual filers) and before the prescribed due dates enunciated in Rev. Regs No. 26-2002 (for E-filers) using BIR Form 2550M
-filing of Quarterly VAT Return on or before the 25th day following the end of the taxable quarter using BIR Form 2550Q
reflecting therein:
>gross receipt/sales and output tax (VAT on sales)
>purchases of goods and services made in the course of trade or business
>input tax (VAT on purchases)
>other allowable VAT credits as in the case of advance VAT payments, VAT withheld by government payors, VAT
payable or excess input VAT, whichever is applicable (N! the monthly VAT Declaration and the QVAT Return shall
reflect the total for all the taxable lines of activity and all the establishments – head office and branches
>submission (RDO/LTDO) of softcopy of the Quarterly Schedule of QSchedule of Monthly Sales and Output Tax (if
QSales exceeds
2,500,000
>submission (RDO/LTDO) of soft copy of QSchedule of Monthly Domestic Purchases and Input Tax/ the softcopy of
Schedule of Transactional/Individual Importation (if the quarterly total purchases exceed 1,000,000)

Cancellation of VAT Registration


-written application to the Commissioner:
>satisfactorily demonstrate that his sales or receipts (other than exempted transactions) for the following 12 months
will not exceed 1,919,500
>he ceased to carry his trade or business and does not expect to commence within the next 12 months
N! cancellation of the registration will be effective from the first day of the following month
-instances:
>change of ownership in the case of single proprietorship
>dissolution of a partnership or corporation
>merger or consolidation with respect to the dissolved corporation
>registered prior to planned business commencement but failed to actually start his business

Update of VAT Registration


-submission of duly accomplished Registration Update Form (BIR Form 1905)
-instances:
>person’s business has become exempt in accordance with Section 109
>change in the nature of the business itself from sales of taxable goods/services to exempt sales/services
>a person whose transactions are exempt from VAT under Section 109 who voluntarily registered under VAT system,
but who, after a lapse of three years, applies for cancellation of his registration as such
>a VAT-registered person whose gross sales/receipts for three consecutive years did not exceed 1,919,500
Liability for Percentage Tax
-upon updating his registration, the taxpayer shall become liable to the percentage tax imposed in Section 116, a short period
return for the remaining period that that he was VAT-registered shall be filed within 25 days from the date of cancellation of his
registration
-for purposes of the percentage tax, the taxpayer shall file a monthly return; an initial return shall be filed for the month
following the month of cancellation/update of his registration

Minor changes in original registration


-changes which may not necessitate cancellation of the registration shall be effected by accomplishing Registration Update
Form (BIR Form 1905)

Cancellation of Optional Registration


-any person who opted to be registered optionally may apply for cancellation of such registration
-optional registration of a franchise grantee of radio/ and or television broadcasting whose gross annual receipts for the
preceding calendar year did not exceed 10,000,000 shall not be revocable

Change of Address
-a VAT registered person who changed his place of principal business should file a notice in the prescribed form within 15 days
from the date such change was made
>if within the revenue district; file with the RDO
>if from one RDO to another RDO; both his former and new RDO must be notified`
>if changes is in the place of business, or branches or creation of a new branch; RDO where his principal place of
business is situated shall be notified

Invoicing and accounting requirements for VAT-registered persons


-a VAT invoice is issued for every sale, barter or exchange of goods or properties
-a VAT official receipts is issued for every lease of goods or properties, and for every sale, barter or exchange of services
-only VAT-registered persons are required to print their TIN followed by the word VAT in their invoces/receipts
-all purchases covered by invoices/receipts other than VATinvoice/receipts shall not give rise to any input tax

Contents of VAT invoice/official receipt


-a statement that the seller is a VAT-registered person, followed by the taxpayer’s identification number (TIN)
-the total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes
the VAT:
>the amount of tax shall be shown as separate item in the invoice or receipts
>”VAT-exempt Sale” shall be written or printed prominently on the invoice/receipts if the sale is exempt from VAT
>”Zero-reted Sale” shall be written or printed prominently on the invoice or receipt if the sale is zero percent (0%)VAT
>breakdown of the sale price and calculation of VAT on each portion of the sale must be clearly indicated in the
invoice/receipts of sale of goods, properties or services involving a VAT, zero-rated or VAT-exempt; however the seller
has the option to issue separate invoices or receipts for the taxable, exempt and zero-rated components of the sale
-the date of transaction, quantity, unit cost and description of the goods or properties or nature of the services
- in the case of sales in the amount of 1,000 or more where the sale or transfer is made to a VAT-registered person, the name,
business style, address and TIN of the purchaser, customer or client (Sec 113)
N! the buyer must be properly identified in the invoice before he is given the privilege of claiming an input tax credit on his
purchases of taxable goods, properties or services (VAT Ruling No. 015-05, August 26, 2005)

Consequences of issuing erroneous VAT invoice or VAT official receipts


-VAT invoice/official receipt is issued by a non-VAT person (issues an invoice or receipt showing his TIN followed by the word
“VAT” shall result to liability for:
>percentage taxes applicable to his transactions
>VAT due on transactions under Section 106 & 108 without the benefit of any input tax credit
>50% surcharge as civil penalty under Section 248 (B)
N! the VAT shall be recognized as an input tax credit to the purchaser under Section 110 provided the requisite
information required is shown in the invoice or receipts
-VAT invoice/official receipt is issued by a VAT-registered person(failed to display prominently the words “VAT-exempt Sale” on
the invoice/official receipts) on an exempt transactions
>transaction shall become taxable and the issuer shall be liable to pay VAT thereof
N! the purchaser shall be entitled to claim an input tax credit on his purchases (section 113)
Accounting requirements-all persons subject to VAT
-shall maintain a subsidiary sales journal and purchase journal which every sale or purchases on any given day is recorded
-shall maintain a subsidiary record in ledger form for all acquisition, purchases, or importation of depreciable assets or capital
goods which shall contain among others, information on the total input tax thereon as well as the monthly input tax claimed in
VAT declaration or return

Copies and Distribution


-invoices/receipts are prepared at least in duplicate copies
-original copy is given to the buyer and the duplicate is retained by the seller as part of his accounting records

Information that must appear on sales invoices/official receipts and other commercial invoices from CRM & POS
-VAT taxpayer engaged in mixed transactions; must be broken down to VATable Sales, VAT amount, Zero-Rated Sales and VAT-
exempt Sales
-non-VAT sales receipt, official receipt and commercial invoices (VAT or non-VAT) such as delivery receipts, order slips, purchase
orders, provisional receipts, acknowledgement receipts, collection receipts, credit/debit memo, job orders and sililar
documents used shall have the phrase “THIS DOCUMENT IS NOT VALID FOR CLAIM OF INPUT TAX” be conspicuously printed in
bold letters at the bottom part
-non-VAT principal invoices/official receipts must be issued for transactions not subject to VAT or percentage tax shall have the
word “EXEMPT” thereon
N! registered taxpayer with CRM, POS and other similar machines or software are required to use non-thermal papers only

Invoicing and recording income payments for media advertising placements


-common flow of payments
>advertisers pay the media supplier for cost of production and media placements
-media supplier bill the advertisers
-advertisers withhold 2% of the billed amount (based on amount net of VAT) and pay
-advertisers issue Certificate of Creditable Income Tax Withheld at Source (BIR Form 2307) in the name of
the media supplier
-media supplier issue VAT invoice/official receipts to advertisers
>the media supplier pays the service fee and commission of the advertising agencies
-advertising agencies bill the media supplier
-media supplier withholds 2% of the billed amount (based on amount net of VAT) and pay
-media supplier issue Certificate of Creditable Income Tax Withheld at Source (BIR Form 2307) in the name
of the advertising agency
-advertising agency issue VAT invoice/official receipts to media supplier
-split payment arrangement
>advertisers contract the media suppliers
>advertisers contract the advertising agency

Invoicing and recording “deemed sale” transactions


-transfer, use or consumption of goods or properties not in the course of business (e.g. personal use)
>subsidiary sales journal must have a memorandum entry to record such use
-distribution or transfer to shareholders or investors share in the profits of VAT-registered person, or to creditors in payment of
obligations within 60 days without actual sale (not in retirement or cessation of business)
>invoice must be prepared at the time of occurrence of the transaction
>invoice data must be recorded in the sales journal as “deemed sale” transaction
-in case of cessation or retirement from business
>inventory shall be prepared and submitted to RDO not later than 30 days after the retirement or cessation
>an invoice shall be prepared for the whole inventory and be entered into the subsidiary sales journal
>make a reference to the inventory regarding the description of the goods
>if new owners or successors continue the business, the entire amount of output tax on the “deemed sold” shall be
allowed as input taxes
>if the business is liquidated and goods in inventory are sold or disposed to a VAT-registered buyer, an invoice shall
be prepared for the “deemed sale” transactions
Filing of return and payment of VAT
-Monthly VAT Declarations (BIR Form 2550M)
>filed and paid not later than the 20th day following the end of the month
-Quarterly VAT Return (BIR Form 2550Q)
>filed and paid within 25 days after the close of the taxable quarter
>includes first two months amounts of the taxable quarter which payments made are credited
-in case of Electronic Filing and Payment System (EFPS)
>Monthly VAT Declaration is filed on or before:
Group A 25 days following the end of the month
Group B 24 days following the end of the month
Group C 23 days following the end of the month
Group D 22 days following the end of the month
Group E 21 days following the end of the month
>return for withholding of VAT shall be filed on or before the 10th day of the following month; the electronic return
shall be filed on or before 10:00pm of the prescribed dates
>electronic payment of tax for the returns required to be filed under the staggered filing system give instructions to
the AAB to debit its account for the amount on or before the due date for payment
-in case of advance payment
>the sale of refined sugar and flour is subject to the advance payment of VAT per Rev Regs No. 16-2005, Section
4,114.1B, CVR
-in case of short period run
>any person who retires from business:
-give notice to the BIR office where the taxpayer head office is located
-file a final quarterly return and the tax thereon within 25 days from the end of the month when the
business ceases to operate or when VAT registration was cancelled
-monthly declaration and quarterly return are still required if the winding up reveal taxable transactions
>any person shall be liable to VAT on the effective date of registration stated in the Certificate of Registration (it’s the
first day of the month following their registration)
-if the effective date falls on the first or second month of the taxable quarter; Monthly VAT Declaration shall
be filed for that month (within 20 days after the end of the month) and a Quarterly VAT Return after the
taxable quarter (on or before the 25th day after the end of the taxable quarter)
-if effectivity date falls on the third month ; no Monthly Vat Declaration needed to be filed, only the
Quarterly VAT Return (on or before the 25th day after the end of the taxable quarter)
-where to file and pay
> Monthly VAT Declaration, Quarterly VAT Return and VAT due paid to the AAB shall be filed under the jurisdiction of
the RD/BIR office where the taxpayer head office is located
-in the absence of AAB in the locality, its filing and payment should be made to RDO, RCO, duly authorized
Treasurer of the municipality/city where the head office of the taxpayer is located
-if the Monthly VAT Declaration and Quarterly VAT Return involves no payment, it shall be filed to
RDO,LTDO, LTAD, RCO, duly authorized
Treasurer of the municipality/city where the head office of the taxpayer is located
-taxpayers filing via EFPS shall comply with the provisions on electronic filing (Sec 114B), (Sec 4.114-1)
-consolidated return
>only one consolidated quarterly VAT return or monthly VAT declaration covering the results of operation of the head
office as well as the branches for all lines of business

-tax computation
Output tax (12% of taxable sales/receipts) xx
Less: Input Tax
-Carried over from previous months
-On taxable goods/services --> exclude input taxes claimed or being claimed for refund/tax credit certificate
xx
VAT payable/(excess input tax) xx
Add: Surcharges
Interest
Compromise Penalty xx
Total amount payable/(excess credit) xx
Withholding of VAT
-on government money payments
>for goods = 5% final VAT + 1% (extended withholding tax)
>for services = 5% final VAT + 2% (extended withholding tax)
-on government, GOCCs, private corporations, individuals, estates and trust whether large or non-large taxpayers
>12% VAT for payment for lease or use of properties or property rights owned by the non-residents
>12% VAT for other services rendered in the Philippines by non-residents
>these VAT may be claimed as input tax by said VAT-registered withholding agent; and shall form part of cost of
purchases treated as “asset” or “expense” by the non-VAT registered taxpayer
N! VAT withheld shall be remitted within 10 days following the month the withholding was made using BIR Form 1600

Persons required to withhold VAT

SECTION 109 Exempt Transactions


> (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 therefore

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; [55]

(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;

(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. [56]
(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; [57]

(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; [58]

(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;

(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;

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

(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) [59] and
below, house and lot, and other residential dwellings valued at Two million five hundred thousand pesos (P2, 500, 000) [60] 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); [61]

(Q) Lease of a residential unit with a monthly rental not exceeding Ten thousand pesos (P10, 000):[62]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); [63]

(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;

(S) Transport of passengers by international carriers;

(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;

(U) Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations;

(V) Services of bank, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial
intermediaries; an

(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);