Indirect tax

Indirect tax - Philippines

01 Jan 202520 min read

This tax guide provides an overview of the indirect tax system and rules to be aware of for doing business in Philippines.

Indirect tax snapshot
What are the current rate(s) of VAT?	Standard rate of 12% on gross sales of (a) sale, barter, or exchange of goods or properties (b) sale of services, including digital services, (c) lease of goods or commodities in the normal course of business; and (d) importation. Zero rated sales on transactions such as: Export sales of goods: Sale and actual shipment of goods from the Philippines to a foreign country, which is paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). Sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing, or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. Sale to an export-oriented enterprise whose export sales is at least seventy percent (70%) of the total annual production of the preceding taxable year, subject to conditions. Sale of goods, supplies, equipment, and fuel to persons engaged in international shipping or international airport operations: Provided that the goods, supplies, and equipment shall be used for international shipping or air transport operations. Sales to bonded manufacturing warehouses of export-oriented enterprises. Sale of goods and services to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory. Sale of VAT-registered suppliers of goods and services directly attributable to the registered project or activity of a registered export enterprise, or a registered high-value domestic market enterprise, including expenses incidental thereto, subject to conditions. Sales to offshore gaming licensees subject to gaming tax under Section 125-A of the Tax Code. Processing, manufacturing, or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. Sale of services other than those mentioned in the preceding paragraph, rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. Services rendered to persons engaged in international shipping or international air transport operations, including leases of property for use thereof: Provided, that these services shall be exclusive for international shipping or air transport operations. Services performed for an export-oriented enterprise whose export sales is at least seventy percent (70%) of the total annual production of the preceding taxable year, subject to conditions. Transport of passengers and cargo by domestic air or sea vessels from the Philippines to a foreign country. Sale of power or fuel generated through renewable sources of energy. Sales subject to zero percent (0%) VAT under special laws. Exempt sales cover transactions, includes among others: Sale or importation of agricultural and marine food products (in original state), livestock and poultry generally used for human consumption. Sale or importation of fertilizers, seeds, seedlings, fingerlings, and feeds. Sales by registered agricultural cooperatives. Sales by registered non-agricultural, non-electric, and non-credit cooperatives Services by agricultural contract growers and millers of palay, corn, and sugar cane Educational services. Sale of real properties not primarily held for sales to customers or held for lease in the ordinary course of trade or business. Sale of socialised housing as defined by Republic Act (RA) No. 7279. Sale of house and lot, and other residential dwellings valued at P2.5M (now P3.6m effective beginning 31 January 2024) and below. To be adjusted to its present value using the Consumer Price Index, as published by the Philippine Statistics Authority (PSA) every three (3) years thereafter. Medical, dental, hospital and veterinary services (except those rendered by professionals). Gross receipts from lending by credit or multi-purpose cooperatives duly registered with Cooperative Development Authority (CDA). Sale, importation, printing or publication of books, magazines and newspapers. Services subject to percentage tax (e.g. services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries, among others). Services rendered by individuals pursuant to an employer-employee relationship. Importation of personal and household products belonging to Philippine residents returning from abroad and non-resident citizens coming to resettle in the Philippines provided exempt from tariff and customs duties. 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. Lease of residential unit with a monthly rental not exceeding P15,000. Export sales by persons who are not VAT-registered. Sale, importation or lease of passenger or cargo vessels and aircraft. Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations. Sale or lease of goods and services to senior citizens and persons with disabilities. Association dues, membership fees, and other assessments and charges collected on a purely reimbursement basis by homeowners’ associations and condominium corporations. Sale of gold to the Bangko Sentral ng Pilipinas. Sale of or importation of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension beginning 1 January 2020, and for cancer, mental illness, tuberculosis, and kidney diseases beginning 1 January 2021. Sale or lease of goods or properties or services by persons whose gross annual sales or receipts do not exceed P3,000,000.
Are there any confirmed or anticipated changes to these rates?	No, but effective 02 June 2025, digital services provided by nonresident digital service providers (NDSP) for digital services consumed in the Philippines shall be subject to 12% VAT based on gross sales.
What is the principal indirect tax?	Value Added Tax (VAT) is the principal indirect tax in the Philippines. It is a tax on (a) the sale, barter, or exchange of goods; (b) the sale of services, including digital services; (c) the lease of goods or commodities in the normal course of trade/business (d) importation.
Is there a registration limit for the tax?	Yes. Any person or entity engaged in trade or business whose sales are not specifically exempt from VAT, and whose annual gross sales exceed Php 3,000,000, is required to register as a VAT taxpayer. If their gross sales do not exceed Php 3,000,000, they may opt not to register as a VAT taxpayer, but will be subject instead to a 3% percentage tax on their gross quarterly sales.
Does the same registration limit apply to non-established foreign businesses?	No. Non-resident foreign corporations supplying goods to any person in the Philippines and rendering services in the Philippines, except for NDSP, is not required to register as a VAT taxpayer in the Philippines.
Does a non-established foreign business need to appoint a fiscal representative in order to register?	No. There is no law requiring an appointment of a fiscal representative in the Philippines for a non-established foreign business to be registered with the taxing authority. However, a VAT-registered NDSP has the option to appoint a resident third-party service provider for purposes of receiving notices, record keeping, filing of tax returns, and other reporting obligations. For VAT purposes, the appointment of a third-party service provider shall not classify the NDSP as a nonresident foreign corporation doing business in the Philippines.
How often do returns have to be submitted?	Filing and payment of VAT shall be done quarterly by all VAT-registered taxpayers. However, taxpayers have the option to file and pay on a monthly basis.
Are penalties imposed for the late submission of returns/payment of tax?	Yes. If a VAT return, or the corresponding payment, is made belatedly, a surcharge, interest and compromise penalty may be imposed.
Are any other declarations required?	Yes. Summary list of sales, purchases, and importations, are required for submission on a quarterly basis.
Are penalties imposed in other circumstances?	Yes. Penalties can be imposed for a range of errors or omissions. These may also be in the form of administrative penalties for failure to issue receipts, failure to submit the attachments on time, and improper presentation in the returns or attachments, among others.
Can the tax incurred by overseas businesses be claimed if they are not registered in your country?	No. The option to refund is available only in certain circumstances to VAT-registered taxpayers in the Philippines.
Deduction of VAT	The following items may be deducted from output VAT: Output VAT on uncollected receivables, subject to certain conditions. Input VAT attributable to VATable and zero-rated sales, provided these are supported by documents that meet invoicing requirements. This includes input VAT from: Importation Local purchases of goods and services Payments to non-residents for services rendered in the Philippines Purchases of digital services from non-resident providers consumed in the Philippines Creditable VAT arising from VAT withheld by the government, supported by valid withholding tax certificates. If output VAT exceeds the total deductions, the difference is the VAT payable. Conversely, if the deductions exceed the output VAT, the excess input VAT can be carried over to the next quarter.

Please click on each section to expand further:

What is the principal indirect tax?

Value Added Tax (VAT) is the main type of indirect taxation in the Philippines.
VAT is levied on every sale, barter, or exchange of goods or properties, on every importation, and on the sale or exchange of services, including digital services, and the use or lease of properties in the Philippines.

A VAT-registered seller charges VAT (output VAT) on its sales, and incurs VAT (input VAT) on its purchases (including VAT paid on importation, among others). Only the input VAT attributable to VATable and zero-rated sales is deductible against output VAT.

If the amount of output tax exceeds the input tax, the resulting difference is the VAT payable, which must be remitted by the seller to the taxing authority. On the other hand, if the amount of input tax exceeds the output tax, the excess input VAT may be carried over to the next quarter. Input VAT attributable to zero-rated sales may entitle the seller to an input tax credit or refund, subject to certain conditions.

A VAT-registered seller may deduct the output VAT related to uncollected receivables from its output VAT in the following quarter, after the lapse of the agreed upon period to pay, provided that the seller has fully paid the VAT on the transaction; provided further, that the VAT component of the uncollected receivables has not been claimed as allowable deduction under Section 34(E) of the Tax Code.

The rates of VAT that are applied to goods and services in the Philippines are the standard rate of 12% and the zero rate. In addition, some goods and services are exempt from VAT.

Input VAT related to zero-rated sales may be used as an input tax credit against output tax due from transactions subject to the 12% VAT rate, or it may be recovered from the government by applying for a tax refund or tax credit. On the other hand, input VAT attributable to its VAT-exempt sales forms part of the cost to acquire what was purchased.

Goods imported into the Philippines are subject to VAT at a rate of 12% based on the total value used by the Bureau of Customs for computing tariff and customs duties. This value includes customs duties, excise taxes (if any), and other charges incurred prior to the release from customs custody.

Sales of VAT-registered suppliers of goods and services directly attributable to the registered project or activity of a registered export enterprise registered with an Investment Promotion Agency (IPA), such as those registered with Philippine Economic Zone Authority (PEZA) or the Board of Investments (BoI), among others, or a registered high-value domestic market enterprise, including expenses incidental thereto, subject to conditions, are zero-rated. PEZA and BOI- registered entities are not subject to 12% VAT on importation, subject to certain conditions.

Is there a registration limit for the tax?

A taxpayer who either makes or intends to make taxable supplies of goods or services in the course or furtherance of a business must register for VAT if the value of its annual gross sales exceed Php 3,000,000, or is expected to exceed the limit in the near future. A business can register on a voluntary basis even if the registration limit has not been exceeded. Taxpayers who opted not to register are required to pay 3% tax on their gross quarterly sales.

Branches must register separately from the head or main office, although only one consolidated VAT return must be filed for the principal place of business or head office and its branches.

There is no group VAT registration in the Philippines.

If a person who is liable to register for VAT fails to register, they shall be liable to pay output VAT as if they were a VAT-registered person, but without the benefit of input tax credits for the period in which he was not properly registered. Suspension or temporary closure of a business may also be imposed for failure to register and shall be lifted only upon compliance with whatever requirements prescribed by the Commissioner in the closure order.

Does the same registration limit apply to non-established businesses?

Overseas companies not established in the Philippines are not required to register for VAT in the Philippines, except for nonresident digital service providers (NDSP) who sells digital services consumed in the Philippines.

NDSPs that sell digital services consumed in the Philippines are required to register for VAT with the BIR. Failure to register may result in suspension of operations in the Philippines and various penalties.

Is there any specific legislation to tax non-resident digital service providers in your country?

Yes. Under the newly signed Value-Added Tax on Digital Services Act (R.A. No. 12023), digital services provided by a NDSP for digital services consumed in the Philippines shall be subject to 12% VAT based on gross sales beginning 02 June 2025.

For the sale by NDSP of digital services consumed in the Philippines, the manner of remitting the VAT will depend on the type of customer. If it’s a business-to-business (B2B) transaction, including transactions with the Philippine government, VAT will be remitted through a withholding VAT mechanism (i.e., reverse charge mechanism). On the other hand, if it’s a business-to-consumer (B2C) transaction, the NDSP shall remit the VAT to the BIR. The NDSP shall not be allowed to claim creditable input VAT.

Does a non-established foreign business need to appoint a fiscal representative in order to register?

No, the appointment of a fiscal representative is not required in the Philippines for a non-established foreign business to be registered with the taxing authority.

In case a non-established foreign business is subject to VAT in the Philippines for services rendered in the Philippines, or in case an NDSP provided digital services consumed in the Philippines to a person engaged in business in the Philippines, the VAT shall be withheld and remitted by the person or entity in the Philippines on behalf of the unregistered person by filing a separate VAT declaration/return (BIR Form 1600-VT). In case the transaction of the NDSP is with a consumer, the NDSP will be the one to remit the VAT to the BIR.

The VAT withheld and paid for the non-established foreign business and NDSP which VAT is passed on to the person or entity in the Philippines may be claimed as input tax. The duly filed BIR Form 1600-VT and proof of payment thereof shall serve as documentary substantiation for the claim of input tax by the person or entity in the Philippines upon filing its own VAT return.

On the other hand, VAT-registered NDSP may appoint a resident third-party service provider (an individual or entity, such as a law firm, accounting firm, or consultancy firm) for purposes of receiving notices, record keeping, filing of tax returns and other reporting obligations. The NDSP shall notify the BIR in writing within 30 calendar days from the date of appointment.

How often do returns have to be submitted?

The Philippine VAT law and regulations imposes upon VAT- registered taxpayers an obligation to file VAT returns on a quarterly basis. The quarterly VAT returns cover the amount of gross sales for the taxable quarter and should be filed by a VAT-registered taxpayer, whether filing manually or electronically, not later than the 25th day following the close of the taxable quarter.

The VAT-registered taxpayer, however, has the option to continue to file and pay the VAT on a monthly basis, but a quarterly VAT returns is required to be filed.

No annual VAT return is required to be filed by VAT-registered taxpayers in the Philippines.

Are penalties imposed for the late submission of returns/ payment of tax?

For medium and large taxpayers, the penalties are 25% surcharge on the unpaid amount of tax, additional 12% interest per annum (p.a.) computed from the date prescribed for the payment until amount is fully paid, P1,000 for failure to file certain information returns, and compromise penalties based on the amount of tax belatedly remitted to the taxing authority.

On the other hand, for micro and small taxpayers, the penalties are 10% surcharge on the unpaid amount of tax, additional 6% interest p.a. computed from the date prescribed for the payment until amount is fully paid, P500 for failure to file certain information returns, and reduced compromise penalties of at least 50% based on the amount of tax belatedly remitted to the taxing authority.

In case of willful neglect to file a VAT return within the prescribed period, or in case a false or fraudulent return is willfully made, a surcharge of 50% of the tax or deficiency tax shall be collected in addition to the interest imposed on the unpaid amount of tax, and compromise penalty.

Are any other declarations required?

All VAT-registered taxpayers are required to submit quarterly summary list of sales (SLS), summary list of purchases (SLP) and, if applicable, summary list of importations (SLI). The information in the summary lists is used for computerized matching to detect under declaration of sales and/or purchases.

VAT-registered persons with discrepancy on their sales and/or purchases shall be notified of the findings through a letter of notice (LN). Once the LN was issued to the taxpayer, the taxpayer shall be disqualified from amending his/her/its return covering the period referred to in the LN upon issuance of the same. In case the taxpayer refutes the discrepancy, the taxpayer shall be given the opportunity to reconcile its records with the BIR and to submit documentary proofs in support of its arguments.

In case of no response from the taxpayer, or the taxpayer failed to settle the deficiency tax and corresponding penalties, a letter of assessment shall be issued.

Are penalties imposed in other circumstances?

Yes. A range of penalties can be imposed where businesses do not comply with the VAT rules.

Aside from the penalties for late and erroneous filing of returns, administrative and penal sanctions may be imposed, among others, in the following cases:

failure to issue invoices
failure to submit the quarterly list of sales and purchases
failure to maintain or keep any record and supply the correct and accurate information
failure to indicate separately the VAT in the VAT invoice
printing of other fraudulent receipts or sales or commercial invoices.

Criminal proceedings may be brought into the case of more serious matters.

Can the VAT incurred by overseas businesses be claimed if they are not registered in the Philippines?

No. The VAT incurred by an overseas business may not be claimed for refund or input VAT credit if it is not registered as a VAT taxpayer in the Philippines.

Only VAT-registered taxpayers can claim the VAT incurred as deduction from output VAT, or apply for refund the unutilized excess input tax attributable to zero-rated sales.

What information must a VAT invoice show?

A VAT invoice must show:

a statement that the seller is a VAT-registered person, followed by his Taxpayer 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, provided that:
- the amount of tax shall be shown as a separate item in the invoice or receipt
- if the sale is exempt from VAT, the term ‘VAT-exempt sale’ shall be written or printed prominently on the invoice or receipt
- if the sale is subject to 0% VAT, the term ‘zero-rated sale’ shall be written or printed prominently on the invoice or receipt
- if the sale involves goods, properties or services, some of which are subject to 12% VAT and some of which are VAT zero rated or VAT-exempt, the invoice shall clearly indicate the breakdown of the sale price between its taxable, exempt and zero-rated components, and the calculation of the VAT on each portion of the sale shall be shown on the invoice. The seller has the option to issue separate invoices 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 service;
In the case of sales in the amount of one thousand pesos (P1,000.00) or more where the sale or transfer is made to a VAT-registered person, the following additional information should be indicated in the VAT invoice: (a) the name; (b) address, and (c) TIN of the purchaser, customer or client.

Only VAT invoices duly registered with the Bureau of Internal Revenue can be issued and be used as a valid source of input VAT. In case the taxpayer uses a computerised accounting system which includes e-invoicing, an Acknowledgement Certificate must be secured from the Bureau of Internal Revenue prior to its use.

On the other hand, for VAT-registered NDSP supplying or delivery digital services that are consumed or used in the Philippines, the following information shall be indicated in the invoice:

Date of the transaction;
Transaction reference number;
Identification of the consumer;
Brief description of the transaction; and
The total amount with the indication that such amount includes the value-added tax:

If the sale of digital services includes some services which are subject to VAT, and some that are VAT zero-rated, or VAT-exempt, the invoice shall clearly indicate the breakdown of the sale price by its taxable, VAT-exempt, and VAT zero-rated components: Provided, further, That the calculation of the value-added tax on each portion of the sale shall be shown on the invoice.

Sales or commercial invoices issued by NDSP may be electronic and need not be registered with the BIR. The contents should be in English language or include an English translation and all the required information above are present in the issued invoice. Consequently, NDSP are not required to secure an Authority to Print for the related invoices.

Are there any current or anticipated Standard Audit File for Tax (SAF-T) or similar electronic/digital filing requirements e.g. invoice listing data file/real-time VAT reporting?

Yes. Pursuant to TRAIN Law (R.A. No. 10963), as amended by CREATE More Law (R.A. No. 12066), a business entity engaged in the export of goods and services, and taxpayers under the jurisdiction of the Large Taxpayers Services, are required to electronically report their sales data to the taxing authority through the use of electronic point of sales systems upon the establishment of a system capable of storing and processing the required data.