philippines 2011 vat gst essentials

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GLOBAL INDIRECT TAX

PhilippinesCountry VAT/GST Essentials

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b | Philippines: Country VAT/GST Essentials

2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member frms o the KPMG network o independent frms are afliated with KPMG International. KPMG International provides no client services. All rights reserved.


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Philippines:Country VAT/GST Essentials

Contents

Scope and Rates 2

What supplies are liable to VAT? 2

What is the standard rate o VAT? 4

Are there any reduced rates, zero rates, or exemptions? 4

Registration 4

Who is required to register or local VAT? 4

Are there penalties or not registering or late registration? 5

Are there any simplifcations that could avoid the need

or an overseas company to register or VAT? 5

VAT Grouping 5

Is VAT grouping possible? 5

Can an overseas company be included in a VAT group? 5

Returns 5

How requently are VAT returns submitted? 5

Are there any other returns that need to be submitted? 5

VAT Recovery 6

Can I recover VAT i I am not registered? 6

Does your country apply reciprocity rules or reclaims

submitted by non-established businesses? 6

Are there any items that you cannot recover VAT on? 6

International Supplies o Goods and Services 6

How are exports o goods and services treated? 6

How are goods dealt with on importation? 6

How are services which are brought in rom abroad

treated or VAT purposes? 6

Invoices 7

What do I have to show on a tax invoice? 7

Can I issue invoices electronically? 7

Is it possible to operate sel-billing? 7

Transers o Business 8

Is there a relie rom VAT or the sale o a business as

a going concern? 8

Options to Tax 8

Are there any options to tax transactions? 8

Head Ofce and Branch Transactions 8

How are transactions between head ofce and branch

treated? 8

Bad Debt 9

Am I able to claim relie or bad debts? 9

Anti-Avoidance 9

Is there a general anti-avoidance provision under

VAT law? 9

Penalty Regime 9

What is the penalty and interest regime like? 9

All inormation reected in this document was obtained/summarized rom KPMG in Philippines as o October 2011.



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2 | Philippines: Country VAT/GST Essentials

Scope and Rates

What supplies are liable to VAT?

VAT is a tax on consumption levied on the sale, barter,

exchange or lease o goods or properties and services in the

Philippines and on importation o goods into the Philippines.

Any person in the Philippines, or entity who, in the course

o his trade or business, sells, barters, exchanges or leases

good or properties, or renders services in the Philippines,

and any person who imports shall be liable to VAT imposed

pursuant to the Philippine Tax Code.

A. Sale o Goods and Properties

The term goods or properties reers to all tangible and

intangible objects which are capable o pecuniary estimation

and shall include, among others:

real properties held primarily or sale to customers or

held or lease

the right or the privilege to use patent, copyright, design

or model, plan, secret ormula or process, goodwill,

trademark, trade brand or other like property or right

the right or the privilege to use any industrial commercialor scientifc equipment

the right or the privilege to use motion picture flms,

flms, tapes and discs

radio, television, satellite transmission and cable

television time.

With regard to sale o real properties, or it to be subject to

VAT, such should be held primarily or sale to customers or

held or lease in the ordinary course o trade or business o

the seller. In addition, the gross selling price should exceed

PHP1,500,000.00 or residential lot and PHP2,500,000.00 or

residential house and lot. I the sale is on installment basiswith gross selling price exceeding PHP1,000,000.00 shall

also be liable to VAT. Sale o real property on installment plan

is understood to be a sale o real property by a real estate

dealer, the initial payments o which in the year o sale donot exceed 25 percent o the gross selling price.

Also, included in the sale o goods or properties are those

considered as transactions deemed sale provided under

Section 106[B] o the Tax Code, to wit:

Transer, use or consumption o goods or properties

originally intended or sale or or use in the course o

business. Transer o goods or properties not in the

course o business can take place when VAT-registered

person withdraws goods rom his business or his

personal use.

Distribution or transer to:

Property dividends which constitute stocks in trade

or properties primarily held or sale or lease declared

out o retained earnings on or ater January 1, 1996

and distributed by the company to its shareholders

shall be subject to VAT based on the air market value

at the time o distribution.

Creditors in payment o debt or obligation.

Consignment o goods i actual sale is not made within

60 days ollowing the date such goods were consigned.

Consigned goods returned by the consignee within the

60-day period are not deemed sold.

Retirement rom or cessation o business with respect

to all goods on hand, whether capital goods, stock-

in-trade, supplies or materials as o the date o such

retirement or cessation, whether or not the business is

continued by the new owner or successor. The ollowing

circumstances shall also give rise to transactions

deemed sale:

Change o ownership o the business. There is a

change in the ownership o the business when a

single proprietorship incorporates; or the proprietor o

a single proprietorship sells his entire business.

Dissolution o a partnership and creation o a new

partnership which takes over the business.



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Philippines: Country VAT/GST Essentials | 3

B. Importation o Goods

VAT is imposed on goods brought into the Philippines,

whether or use in business or not, unless specifcally

exempted. VAT will apply to technical importation o goods

sold by a person located in the Special Economic Zone to a

customer located outside the economic zone.

C. Sale o Services and Use or Lease o Properties

Sale or exchange o services means the perormance o

all kind o services in the Philippines or others or a ee,

remuneration or consideration, whether in kind or in cash,

including those perormed or rendered, among others, by the

ollowing:

construction and service contractors

lessors o property, whether personal or real

lessors or distributors o cinematographic flms

proprietors, operators, or keepers o hotels, rest houses,

pension houses, inns, resorts

proprietors or operators o restaurants, rereshment

parlors, caes and other eating places, including clubsand caterers

dealers in securities

lending investors

common carriers by air and sea relative to their transport

o passengers, goods or cargoes

sales o electricity by generation, transmission, and/or

distribution companies

ranchise grantees o electric utilities, telephone and

telegraph, radio and/or television broadcasting and all

other ranchise grantees

non-lie insurance companies (except their crop

insurances), including surety, fdelity, indemnity and

bonding companies

the lease or the use o or the right or privilege to use any

copyright, patent, design or model, plan, secret ormula

or process, goodwill, trademark, trade brand or other like

property or right

the supply o services by a non-resident person or his

employee in connection with the use o property or

rights belonging to, or the installation or operation o any

brand, machinery or other apparatus purchased rom

such nonresident person

the supply o technical advice, assistance or services

rendered in connection with technical management or

administration o any scientifc, industrial or commercial

undertaking, venture, project or scheme

the lease o motion picture flms, flms, tapes, and discs

the lease or the use o, or the right to use, radio,

television, satellite transmission and cable television

time.



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What is the standard rate o VAT?

The prevailing rate o VAT is 12 percent o the gross selling

price or gross value in money or gross receipts rom the sale,exchange or lease o goods or properties and services in the

Philippines and on importation o goods into the Philippines.

Are there any reduced rates, zero rates, or exemptions?

The Philippine VAT laws provide or VATable transactions

subject to zero-rate, exempt, and 5 percent withholding VAT

in case o sale to the Philippine government. VAT-exempttransactions reer to sale o goods or properties and/or

services and the use or lease o properties that is not subject

to VAT (output tax) and the seller is not allowed any tax credito VAT (input tax) on purchases. A zero-rated sale o goods or

properties, on the other hand, is a taxable transaction or VAT

purposes but shall not result in any output tax. The 5 percent

withholding VAT is imposed to the government or any o its

political subdivisions, instrumentalities or agencies including

government owned and controlled corporations beore

making payment on account o each purchase o goods

and/or services taxed at 12 percent VAT.

Registration

Who is required to register or local VAT?

In general, any person who, in the course o his trade or

business, sells, exchanges or leases goods or properties,

or renders services, and any person who imports goods,

shall be liable to VAT, hence, required to register in the VAT

System. Note that there is no separate registration or VAT

only. A tax identifcation number (TIN) assigned to a taxpayer

shall be applied or all tax types including income tax and

VAT.

Persons Required to register or VAT

Any person who, in the course o trade or business, sells,

barters or exchanges goods or properties, or engages

in the sale or exchange o services, shall be liable to

register i gross sales or receipts or the past 12 months,

have exceeded One million fve hundred thousand pesos(PHP1,500,000); or i there are reasonable grounds to believe

that his gross sales or receipts or the next 12 months, will

exceed PHP1,500,000.

Every person who becomes liable to be registered shall do

so with the Revenue District Ofce which has jurisdiction

over its Philippine business address.

Optional registration or VAT o exempt person

Any person who is not required to register or VAT may elect

to register or VAT, which shall not be cancelled or the next

three years.



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Are there penalties or not registering or late

registration?

For those persons/entities required to register under theVAT law, but ails to register will still be liable to output tax

as i a VAT-registered person, but without the beneft o

input tax credits or the period in which he was not properly

registered.

In addition to other administrative and penal sanctions

provided or in the Tax Code and implementing rules and

regulations, the Commissioner o Internal Revenue or hisduly authorized representative may order the suspension

or closure o a business establishment or a period o not

less than fve (5) days or ailure o any person to register as

required under the Tax Code.

Are there any simplifcations that could avoid the need

or an overseas company to register or VAT?

Overseas companies need not register under the Philippine

VAT system unless it has an entity registered beore the

Securities and Exchange Commission. The mechanism in the

Philippines is withholding VAT payments on non-residents.

VAT Grouping

Is VAT grouping possible?

The recognition o a VAT group is not contemplated by VAT

laws as ar as the Philippine VAT system is concerned.

Can an overseas company be included in a VAT group?

The VAT grouping concept is not applicable in the Philippines.

Returns

How requently are VAT returns submitted?

See discussion below

Are there any other returns that need to be submitted?

In general, every person liable to pay VAT shall fle the

ollowing returns:

monthly VAT declaration within 20 days ater the end o

the month

quarterly return o the amount o his quarterly gross

sales or receipts within 25 days ollowing the close o

taxable period; and i applicable

remittance Return o VAT and other Percentage taxes

withheld or those required to withhold VAT.



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VAT Recovery

Can I recover VAT i I am not registered?

No. Under Philippine laws, only VAT-registered person are

entitled to claim or reund on excess input tax.

Does your country apply reciprocity rules or reclaims

submitted by non-established businesses?

No, not applicable in the Philippines.

Are there any items that you cannot recover VAT on?

As a general rule, excess input tax can be recovered subject

to substantiation requirements.

International Supplies o Goods and Services

How are exports o goods and services treated?

Exports o goods and services are subject to VAT at

0 percent rate.

How are goods dealt with on importation?

Importation o goods is subject to 12 percent VAT, as a

general rule.

How are services which are brought in rom abroad

treated or VAT purposes?

The tax situs o the perormance o services is the place

where services were perormed. Thus, all services

perormed in the Philippines shall be subject to 12 percent

VAT. Services perormed outside o the Philippines are not

subject to VAT.



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Invoices

What do I have to show on a tax invoice?

A VAT-registered person shall issue:

a VAT invoice or every sale, barter or exchange o goods

or properties

a VAT ofcial receipt or every sale or exchange o

services, including lease o goods or properties.

The ollowing inormation shall be indicated in VAT invoice or

VAT ofcial receipt:

a statement that the seller is a VAT-registered person

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 o tax shall be shown as a separate item

in the invoice or receipt.

I the sale is exempt rom VAT, the term

VAT-exempt sale shall be written or printed

prominently on the invoice or receipt.

I the sale is subject to 0 percent VAT, the term

zero-rated sale shall be written or printed

prominently on the invoice or receipt.

I the sale involves goods, properties or services

some o which are subject to and some o which

are VAT zero-rated or VAT-exempt, the invoice or

receipt shall clearly indicate the break-down o the

sale price between its taxable, exempt and zero-rated

components, and the calculation o the VAT on each

portion o the sale shall be shown on the invoice

or receipt. The seller has the option to issue separate

invoices or receipts or the taxable, exempt, and zero-

rated components o the sale.

The name, address and TIN o the purchaser, customeror client, shall be indicated in addition to the inormation

required in (1) and (2).

Can I issue invoices electronically?

Philippine seller o goods can provide e-invoices with prior

approval rom the Philippine tax authorities.

Is it possible to operate sel-billing?

We understand that sel-billing reers to the system where

the buyer prepares the VAT invoice on behal o their

VAT-registered supplier. This option is not available under thecurrent Philippine VAT system.



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Transers o Business

Is there a relie rom VAT or the sale o a business as a

going concern?

Philippine VAT law provides or transaction deemed sale or

transer, use or consumption not in the course o business

o goods or properties originally intended or sale or or use

in the course o business. Moreover, Philippine tax courts

had the occasion to hold that VAT applies to a supply [sale]

in the course or urtherance o business includes: (1) the

disposition o the assets and liabilities o a business, (2) the

disposition o a business as going concern; and (3) anything

done in connection with the termination or intendedtermination o a business.(CS Garments Inc. vs. the

Commissioner o Internal Revenue, C.T.A. EB Case No. 287.

14 January 2008.)

Options to Tax

Are there any options to tax transactions?

This option is not available in the Philippines.

Head Ofce and Branch Transactions

How are transactions between head ofce and branch

treated?

The VAT treatment o the transactions between the oreign

head ofce and its Philippine branch ofce has been the

subject o conicting point o views specifcally on whether

a sale service will qualiy or VAT zero rating, due to a court

decision.

One view considers the transaction between the head

ofce and branch as distinct rom the single corporate entity

concept that sale o service may qualiy or zero-rated VAT.The head ofce under this view is considered as doing

business outside the Philippines.

The other view is that the head ofce and the branch is a

single corporate entity thus the sale o service cannot qualiy

or VAT zero rating. The oreign head ofce is considereda resident oreign corporation because it is transacting

business in the Philippines. (Marubeni Corporation vs.

Commissioner o Internal Revenue, GR No. 76573 dated

14 September 1989.)



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Bad Debt

Am I able to claim relie or bad debts?

No. Relie or bad debts under the Philippine VAT law is

unavailable.

Anti-Avoidance

Is there a general anti-avoidance provision under

VAT law?

Sec 254 o the Tax Code provides that any person who

willully attempts in any manner to evade or deeat any taximposed under this Code or the payment thereo shall, in

addition to other penalties provided by law, upon convictionthereo, be punished by a fne o not less than PHP30,000

but not more than PHP100,000 and suer imprisonment o

not less than two years but not more than our years.

Penalty Regime

What is the penalty and interest regime like?

The Philippine tax laws impose dierent penalties or specifc

acts/omissions. In general, the penalties are the ollowing:

Interest is generally imposed at the rate o 20 percent

per annum rom the date prescribed or payment until the

amount is ully paid. Imprisonment ranging rom not less

than one year to not more than 12 years, depending on

the inraction Closure o business temporary/permanent,

depending on the inraction.



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The inormation contained herein is o a general nature and is not intended to address the circumstances o any particular individual

or entity. Although we endeavor to provide accurate and timely inormation, there can be no guarantee that such inormation is

accurate as o the date it is received or that it will continue to be accurate in the uture. No one should act on such inormation

without appropriate proessional advice ater a thorough examination o the particular situation.

2012 KPMG International Cooperative (KPMG International), a Swiss entity. Member frms o the KPMG network o independent

frms are afliated with KPMG International. KPMG International provides no client services. No member frm has any authority to

obligate or bind KPMG International or any other member frm vis--vis third parties, nor does KPMG International have any such

authority to obligate or bind any member frm. All rights reserved.

The KPMG name, logo and cutting through complexity are registered trademarks or trademarks o KPMG International.

Designed by Evalueserve.

Publication name: Philippines Country VAT/GST Essentials

Publicat ion number: 111202

Publication date: January 2012

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philippines 2011 vat gst essentials

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