Indirect tax snapshot
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Value Added Tax (VAT) is the main type of indirect taxation in the Philippines.
VAT is levied on the sale, barter, exchange, lease of goods or properties and services in the Philippines, and on importation of goods into the Philippines.
A business registered for the tax will charge VAT (output tax) on its sales, and incur VAT (input tax) on its purchases (including any VAT paid on importation). If the amount of input tax is greater than the amount of output tax at the end of any taxable quarter, the resulting amount is treated as Tax Credit (deferred asset). If the excess input over output arises from a quarter return, it may be carried over to the next month and quarter/s return. Input VAT attributable to zero rated sales may entitle the seller to input tax credit or refund, subject to certain conditions.
The amortization of the input VAT with respect to purchases of depreciable assets, the aggregate acquisition cost of which, in a calendar month, exceeds Php1 million was only allowed until 31 December 2021. Afterwards, only the unutilized input tax on capital goods purchased or imported on or before 31 December 2021, shall be allowed to be amortized until fully utilized.
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 exempted from VAT.
Businesses with VAT exempt sales are not allowed to claim all of the input tax that they incur. Input VAT incurred on the VAT exempt sales shall form part of the expense or cost to of the asset purchased.
The input tax on purchases of goods, properties or services related to zero-rated sales shall be available as input tax credit against the output tax due from transactions subject to the 12% VAT rate, or can be recovered from the government by applying for a tax refund or tax credit.
Goods imported into the Philippines are subject to VAT equivalent to 12% based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges prior to the release of such goods from the customs custody. Enterprises registered with Investment Promotions Agencies are not subject to 12% VAT on importation, subject to certain conditions.
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 and/or receipts 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 to not register are required to pay 3% tax on their gross quarterly sales or receipts.
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 closure of a business may also be imposed for failure to register.
Overseas companies not established in the Philippines are not required to register for VAT in the Philippines.
The Philippines follow the destination principle which means VAT shall be imposed on goods consumed and/or services rendered in the Philippines. Hence, services rendered outside the Philippine territory is not subject to Philippine Tax. However, in some cases involving e-commerce and electronically downloaded software, the payments shall be considered as an importation subject to VAT.
No, the appointment of a fiscal representative is not required in the Philippines. In case a non-established person is subject to VAT in the Philippines, the VAT shall be withheld and remitted by the person or entity in the Philippines in behalf of the unregistered person by filing a separate VAT declaration/return (BIR Form 1600).
The VAT withheld and paid for the non-established business 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 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.
The Philippine VAT law and regulations imposes upon VAT- registered taxpayers an obligation to file monthly VAT declaration and quarterly VAT returns. The monthly VAT declarations are filed for the first two months of the taxable quarter, while the quarterly VAT return is filed at the end of the taxable quarter.
The monthly VAT declaration returns covering the monthly sales and/or receipts should be filed, and VAT due thereon should be paid not later than the 20th day following the end of the month. In the case of VAT-registered taxpayers enrolled in the electronic filing and payment system (eFPS), their monthly VAT return should filed on a staggered basis (not later than the 21st day to 25th day after the end of the month) depending on their industry grouping.
On the other hand, the quarterly VAT returns cover the amount of gross sales or receipts for the taxable quarter. The VAT payable for the taxable quarter is reduced by the payments in the monthly VAT declarations and allowable input taxes. The quarterly VAT return should be filed by a VAT-registered taxpayer, whether filing manually or under eFPS, not later than the 25th day following the close of the taxable quarter.
However, under the TRAIN Law (RA 10963), beginning 2023, VAT filing and payment shall be limited to quarterly filing.
No annual VAT return is required to be filed by VAT registered taxpayers in the Philippines.
A 25% surcharge, interest of 12% (computed double the legal interest rate) and compromise penalty based on the tax unpaid may be imposed by the tax authority if VAT returns are not submitted or paid on time, or erroneously filed. The interest is imposed on the unpaid amount of tax from the date prescribed for the payment until amount is fully paid.
In case of willful neglect to file VAT return within the prescribed period, or in case a false or fraudulent return is wilfully made, a surcharge of 50% of the deficiency tax shall be collected in addition to the interest imposed on the unpaid amount of tax, and compromise penalty.
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). 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.
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 receipts and 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 or official receipt
- printing of other fraudulent receipts or sales or commercial invoices.
Criminal proceedings may be brought in the case of more serious matters.
No. The VAT incurred by an overseas business may not be the subject of a claim for refund if it is not registered as a VAT taxpayer in the Philippines.
A VAT registered taxpayer may claim for refund its unutilized excess input tax attributable to zero-rated sales. It may also refund all of its accumulated input VAT upon closure or cessation of its business.
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 or receipt shall clearly indicate the break-down 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 or The seller has the option to issue separate invoices or receipts for the taxable, exempt, and zero-rated components of the sale
- 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/receipt: (a) the name; (b) business style, if any; and (c) address and TIN of the purchaser, customer or client.
Only VAT invoices and official receipts duly registered with the Bureau of Internal Revenue can be issued and be used as a valid source of input tax. In case the taxpayer uses a computerised accounting system which includes e-invoicing, prior approval of the Bureau of Internal Revenue must be secured prior to its use.
Yes. In pursuant to the TRAIN Law (RA 10963), a business entity engaged in the export of goods and services and taxpayers under the jurisdiction of the Large Taxpayers Service are required to electronically report their sales data to the taxing authority through the use of electronic point of sales systems. However, the implementation is still underway, subject to the establishment of a storing and processing system by the tax authority.
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