Automatic zero rated- no need to get a bir ruling or certification, declaring that transaction is subject to

zero rated vat

If effectively zero rated- must get ruling or certification. Failure to do so, the BIR might treat it not
subject to zero percent vat but as exempt transaction.

VAT exempt transition.

Under letter A, there are three transcations under here Exmpt sale of agriculutrual food product in its
original state, exempt sale of marine food procducts in its orig state. Thrid sale of livestock or poultry,
two purpose: genetics or breeding purposes or human consumption.

When it comes original state, simple process lng. It includes FDBRSS.

In relation ot. Sec 109 A since what is exempt is the product we also have to exempt the labor aspecet or
service. Thats why letter F exempts so. Services rendered by agricultural, growers, millers…exempt from
VAT

What is exempted here is the finished output. (Letter A)

Letter F ( exempted is the service)

Letter B.
How many transactions / products exempted from VAT?
3 only. Semi colon.
1) Fertilisers
2) Seeds, seedlings, fingerlings
3) Sale of FEEDS

This is exempted because the fish prawn etc where u are feeding the feeds as well as agri produce will
eventually be consumed by Human.

Hence if specialty feeds NOT USED FOR CONSUMPTION. Like for racehorses, fighting cocks, aquarium
fish, zoo animals etc
Definition of specialty feed: Feed it to animals which u do not eat or consume.
Feeds of cat or dogs basically do not fall under the exemption.

Also included in letter B is the iNGREDIENTS. This however refer only to manufacture of feeds and does
not cover ingredients of manufacture of fertiliser.

Letter C Sec. 109

-Exempted here is household effects or personal belongings. Not for commercial purpose. For
PERSONAL USE of the citizen.

Citizen here is Limited to FILIPINO non-resident..

SCENARIO:
An alien, wanted to resettle her in the Philippines , wanted to bring his personal effects or belongings.
Not exempted under Sec 109 C because this applies only to Filipinos whether resident or non resident.

Other way where he could be exempted?

-Under sec 109 D, “persons and household effect belonging to persons coming to settle in the Phili”

-This line did not- qualify what type of person whether filipino or alien.

Is there a specific period of time for the properties to arrive in the philippines?

- Before it must arrived 90 days before or after actual date of arrival of the foreigner but it was no
changed to a REASONABLE period of time.
- Within reasonable time – more open fo explanation and interpretation that even if went
beyond the 90 day period there could be some reason nganu nadugay ang deliver.

What do the foreginer need to present to the costums?

- Musst produced satisfactory evidence. Like declaration or affidavit or the best thing is the VISA
that you intend to resettle here the philippines not just on a tourist visa. Residence visa. Or in
the process of naturaltization, or married to a Pinay Submit all satisfactory proof.
As a foreginer can he bring his car in the US to the Phil?
- Yes but subject to VAT already since it is provided as an exception to the VAT exempt
transaction.
What are these exceptions?
- Vessel,, Yatch, vehicle, machinires.

Another amendment in the train law is, :In commercial quantity is now deleted. Bsta all classfied as
vessel, machine and vehicle not covered under the exception.

Problem:
ORGANIC POULTRY SUPPLY IMPORTS POTASSIUM NITRATE OR FERTILISERS FROM CHINA, THEY SELL THE
IMPORTED FERTILZERS TO THE LOCAL DEALERS IN THE MARKET.

ARE THE IMPORTATION AND SALE SUBJECT TO VAT?

-IMPORTATION FALLS UNDER THE EXEMPTION
SALE OF FERTILISERS TO THE LOCAL MARKET- STILL EXEMPT UNDER SEC. 109 B

IF IMPORTING RAW MATERIAL FOR THE USE IN THE PRODUCTION OF FERTILISERS IN THE PHILIPPINES.
- NOT VAT EXEMPT SINCE WHAT IS EXEMPT IS THE RAW MATERIALS TO BE USED FOR. THE
PRODUCTION OF FEEDS. AND NOT FOR TO THE FERTILISER.

Sec 109 D – this covers not only Filipino citizen but also alien so long as they come here to the
Philippines to resettle and the household effects/ professional insturments arrives here in the country
within reasonable time. It includes wearing apparels and even domestice animals or pets. And not
subject to VAT. Not autoamtic submit satisfactory proof to the Commissioner that you wanted to settle
here in ht e Philippines.

Letter E of Sec 109. SERVICES SUBJECT TO PERCENTAGE TAX. WHY?

WHAT ARE THE EXAMPLE OF THESE SERVICE SUBJECT TO PERCENTAGE TAX?
- VAT IS A PERCENTAGe TAX. Since they are the same or business taxes they cannot be implemented at
the same time..
-This refers to those services specifically enumerated and indicated from Sec 117 onwards of the NIRC
under the percentage tax ttile. Way labot sec 116.

Example of services subject to zer percentage tax and di na vatable :

-Transpiration of passenger by land.
Life Insurance contract
-Sale of shares of stock listed and traded in the stock exchange – not subject to VAT

LETTER G, medical dental hospital. Except rendered by professionals.

If medical dental and vet services EXCEPT by those rendered by professional.

If edical dental vet services is rendered by a professional, it may now be sujvet to VAT npot exe,pted.

RENDERED BY A PROFESSIONAL when it is rendered in a clinic of a doctor or in a clinic of veterinarian.

Once paid you are given an official receipt in the name of practicing doctor

When we say services exempted from the VAT we are referring to the services included in your
HOSPITAL BILL.

ILLUSTRATION:
A patient goes to a clinic of a doctor for consultation and you are billed by the doctor basically you can
be subjected to VAT because not a VAT exempt transaction. The service there is deemded rendered by a
professional.

Different if you went to Hospital then you are admitted then there is doctor mag rounds, then you have
to pay Professional fee, it must be indicated in the OR. So the PF indicated in the OR together with
Diagnostic results of the XRAy or other rests is VAT EXEMPT because it falls under Letter G. Sec 109.

What if nag pa OPD? Out patient?

The professional fee for this still falls under the exemption since the OR is under the name of the
hospital and not doctor. So deemed hospital services.

SALE ON DRUGS, what is the RULE?

If the sale of drugs is to the in patient of the hospital, (in patient if the sale is billed in the hospital bill of
the hospital.. EXEMPT from VAT under Hospital OR since considered hospital service.

But if the sale of DRUGS is given to OUTPATIENT, (meaning the OR is not in the OR of the hospital but in
the OR of the pharmacy itself, it maybe subject to VAT not exempt (maybe because we have to check if
ni exceed na sya sa threshold.) If wala niexceed because ang primarily gi cater Is inpatients then 3
percent OPT ang applicable.

What’s the rule when it come to diagnostics services, xray laboratory?

 - If the bill of the diagnostics etc is included in the hospital bill or OR then exempted from VAT.
But if rendered by an independent consultant or professional, then it is not covered by the
exemption.
- Like bill in High precision? Diagnostic centeres, does it fall under medical services exempted
from VAT? - YES since considered medical services.
- Different story if specific doctor, since considered rendered by professional.
What about veterinary?
-If you admit it, that falls under exempt from Vat transcations.

We move on to LETTER H. Educational services rendered by private educational institution.

(If you notice from the start of section 109 up to here, the one exempted are the BASIC NEESD. From
food to education and medication.

So in this case, exempted from VAT are educational services without qualification on whether non stock
or proprietary so long as there is proper accreditation issued by the DEPED, CHED or TESDA.
So dapat sa tuition, there is no VALUE ADDED TAX.

I,EYE SERVICES RENDERED BY INDIVIDUAL PRUSUANT TO AN EMPLOYER EMPLOYEE RELATIONSHIP.

REASON:EMPLOYEMENT is not a business. So not subjected to business tax.

J. Services rendered by regional or area headquarters establish in the Philippines by multi national corp.
-Exempted from Vat because NO OPERATION in the Philippines which generates income. So no gross
receipts here. Hence exempted from VAT. (WAIT AND SEE in the TRABAHO Bill)
For operating head quarters- VATABLE
This referes to REGIONAL AREA not Regional Operation

K. Transcations. Which are exmpt under intenration agreement to which the Phil is a singatory or under
speccial laws or PD 529

When we say INTERNATIONAL AGREEMENT – like treaties, Double Taxation Agreement – usually it only
contains business profit or relief on income taxation. Not much on Business Taxation.

What are special laws that here is exemption o exemption VAT. Special economic zone act. Special law
creating PEZA. If peza registered enterprise. One of your fiscal incentives is 5 percent tax of gross income
earned in lieu of all taxes including Vat. Hence exempted VaT.

PD 529- this refers to petroleum operators. Not anymore exempt from VAT subject already to Vat.

LETTER L. Section 109 (agricultural cooperatives)

- What is the main purpose? To support its members in the sale of produces.
- The agricultural coop as a person is exempt from vat. So what is the only requirement?
- Must be duly registered under CDA
- In reality, the BIR will also ascertain if you are a member of Good standing. And you become one
if you are submitting annual reports to the cooperative development authority( one way to
determine by BIR if pila ang incentives na foregone niya.
But when it comes to transactions entered into by an agricultural cooperative, how many transactions
entered into?
THREE ACTUALLY:
1)SALES OF PRODUCED OR NON PRODUCE TO MEMBER, 2)SALES OF PRODUCE TO NON-MEMBERS,
3)IMPORTATION OF FARM INPUTS ETC. SPARE PARTS TO BE USED DIRECTLY AND EXCLUSIVELY FOR THE
PRODUCTION AND PROCESSION OF THE PRODUCE.

1) SALES TO MEMBER. ARE ALL SALES HERE EXEMPTED FROM VAT? WHETHER SALES OF
PRODUCED OR NON PRODUCE – EXEMPTED FROM VAT.
2) SALES TO NON-MEMBER - EXEMPTED FROM VAT ONLY IF PRODUCE BY AGRICULTURAL COOP.
REASON WHY NOT EXEMPTED? GO BACK TO THE PURPOSE: FOR THE SAKE OF THE BENEFIT OF THE
MEMBERS. SO IF YOU EXEMPT SALE OF NON-PRODUCE TO NON MEMBERS – NOT ANYMORE THE
FUNCTION OF A COOPERATIVE. IT IS A FUNCTION OF MARKETING COMPANY. SO IF EXEMPT. IT COULD
BE USED AS CIRCUMVENTION TO AVOID VAT. HENCE HAS TO BE EXCLUDED.

Next cooperative exempted?

Difference of a lending cooperative vs multi purpose?

Lending Cooperative – engages in loan transaction

Multi-purpose – mamaligya, pautang.

If pa register ka cooperative, same as registering a normal corporation in SEC, Primary purpsoes, specify
if lending or multi purpose. Condition is Must be registered in CDA, in practice certificated of Good
standing.

What is cooperative subject to VAT? Electric Cooperative pursuant to EVAT law.

LETTER “O” (export sales of persons who are not VAT regsitred.)
-This is related to vat zero rated sales of goods or properties.
-If into export but not registered to VAT then not VAT exempt. Cross border doctrine. Not zero percent
to avail but here under Letter O. A fall back provision under the law.

LETTER P and Q. (Usually meet in practice)

Letter p very long provisions.

What is the transaction being exempted here? Sale of real properties. What are the 5 instances when
the sale of real properties may be exempted.

1) If the real property is not primarily held for sale to customer or held for lease in the ordinary
course of trade or business. Referring to a CAPITAL ASSET. If sell it as Capital Asset, subject it to
capital gains tax and it considered as one time transaction. Unless mufall under habitual sale of
real property.

Since subjected already to CGT then no collection of 12 percent tax or business tax.
If the real property is classified as ordinary assets, as a rule VATable. How many instances for
real property to be exempted in VAT?
A) If use the real property for socialised housing
B) For low cost housing
C) If selling residential lot not exceeding the threshold of 1.5Million
D) If selling residential house and lot and other dwelling not exceeding the threshold of 2.5
Million.

Hence if you are selling a commercial lot or industrial lot considered as an ordinary asset? Not
exempt.

FOR A and B. for it to be considered as such it must under go the requirement under RA 7279.
Who declares that it I a socialized or low cost?
-It is the HLURB. Mu matter if pag qualify if socialised or low cost ang pricing and area ang imu
gibaligya. So on the part of the developer, inventory niya primarily held for sale. But since
classified as low cost or socialised then exempt from VAT.

Usually done in developer, they apply BOI accreditation. Because if BOI maka enjoy kas income
tax holiday. So no payment of income tax and VAT.

So if you don’t like to pay Vat. Pa classify ka as low cost housing or socialised housing. NO VAT
hence no income tax bayaran. Otherwise if not falling under the two housings then income tax
exempted ka but not VAT.

Who is barato? – Barato si socialized since the value does not exceed 400K. Mas mahal si low
cost, in excess of 450K -1.7. Tear 1.7 to 3Million. Hence may apply for low cost and socialized.

For letter C – residential lot not exceeding the threshold of 1.5M

Primary purpose should build a residential house.
Before train, the threshold is 1919500. Same also with residential house and lot.reduced to
2.5Million from 3199200.

Reduction. Advantage of the government. Disadvantage of the real estate sector because if they
didn’t register is a lowcost housing, say for example u are selling it at 3M then subject to VAT,
and take note, the one subjected to VAT is the entire selling price. Not the excess.

Example. 2.8Million you didn’t register as low cosst housing na close nimo year 2017. Take note
that when it comes to VAT collection on sale of real property, you see if deferred cash basis or
isntallment basis. You don’t pay biya the 2.8 in cold cash, when you sign the contract to sell, It
takes 5 years to 10 yeaers. So if you look at it technically especially if it is installment sale,
collections ni developer 2018 onwards subject already to VAT every-time you having instalment
payments.

IN MANILA they are still using the old rate. Don’t believe in the revenue regulation. The best is
to ask for a BIR Ruling if you are truly exempted. Follow. Don’t do the AGGRESSIVE approach
(following the old law) If you take the more conservative approach, nothin happens. If nasayop
BIR then ask for a refund. Ikaw mugukod kay BIR not the other way around. Follow the law. The
NEW law train law. 1.5M etc.
 Effective January 2021 onwards, the sale of house and lot and other residential dwelling will be
reduced further to 2.5M to 2M and NO MORE EXEMPTION ON SALE OF RESIDENTIAL LOT

The intention of the lawmakers is to offset the tax losses in the reduction of personal income
tax. And one way to do it is by reducing the threshold.

LETTER Q
- Refers to lease of residential unit with monthly rental not exceeding 15K pesos before train it is
12,800.
It must be a residential unit, not commercial or industrial. Purpose is to REST. This covers
apartment, dormitory bed spaces..
DOES not included, MOTELS, HOTELS, PENSION HOUSES AND LODGING HOUSES. Reason?
You are there not solely for residential purpose. But for the service. Like towel.
Unit refers to APARTMENT UNIT, IN THE CASE OF APARTMENT HOUSE, IN THE CASE OF
RESDIENTIAL HOU, PER PERSON- DORMITORIES, BOARDING HOUSE AND BED SPACES.