SEC. 110. TAX CREDITS. (A) Creditable Input Tax.

(1)

Any INPUT TAX evidenced by a VAT INVOICE OR OFFICIAL RECEIPT issued in accordance with Section 113
hereof on the following transactions shall be CREDITABLE AGAINST THE OUTPUT TAX:

(a)

PURCHASE OR IMPORTATION OF GOODS:

(i) For SALE; or
(ii) For CONVERSION into or intended to form PART of a FINISHED PRODUCT for sale including
PACKAGING MATERIALS; or
(iii) For use as SUPPLIES in the course of business; or
(iv) For use as MATERIALS supplied in the SALE of SERVICE; or
(v) For use in TRADE or BUSINESS for which DEDUCTION for DEPRECIATION or AMORTIZATION is
allowed under this Code,
except automobiles, aircraft and yachts.
(b) PURCHASE OF SERVICES on which a VAT has been ACTUALLY PAID.
(2) The INPUT TAX on DOMESTIC PURCHASE OF GOODS OR PROPERTIES shall be CREDITABLE:
(a) To the PURCHASER upon consummation of sale and on importation of goods or properties; and
(b) To the IMPORTER upon payment of the VAT prior to the release of the goods from the custody of the
Bureau of Customs.
Provided, that the INPUT TAX on goods purchases or imported in calendar month for use on trade or business for
which deduction is allowed under this Code,
shall be SPREAD EVENLY OVER THE MONTH OF ACQUISITION and the 59 succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT component thereof, EXCEEDS ONE MILLION pesos
(P1,000,000):
Provided, however, that if the ESTIMATED USEFUL LIFE OF THE CAPITAL GOOD is LESS THAN 5 YEARS, as used for
depreciation purposes,
then the input VAT shall be SPREAD OVER SUCH A SHORTER PERIOD:
Provided, finally, That, in the case of purchase of services, lease or use of properties,
the input tax shall be creditable to the purchaser, lessee or licensee upon payment of the compensation, rental,
royalty or free.

The INPUT TAX CREDIT on IMPORTATION of goods or LOCAL PURCHASES of goods, properties or
services by a VAT-registered person shall be creditable:
1. To the IMPORTER upon payment of VAT
prior to the release of goods from customs custody,
2. To the PURCHASER of the DOMESTIC GOODS or PROPERTIES
upon consummation of the sale, or
3. To the PURCHASER of services or the LESSEE or LICENSEE
upon payment of the compensation, rental, royalty or fee. (RR 16-2005)
An INPUT TAX - means the VAT due or paid by a VAT-registered person on importation of goods or local
purchases of goods, properties, or services, including lease or use of properties, in the course of his
trade or business.
It shall also include the transitional input tax and the presumptive input tax.
It also includes input taxes which

Can be directly attributed to transactions subject to the VAT, and

A ratable portion of any input tax, which cannot be directly attributed to

either the taxable or exempt activity.
Any input tax on the following transactions evidenced by a VAT invoice or official receipt by a VATregistered person in accordance with Sections 113 and 237 of the Tax Code shall be creditable
against the output tax:
1. Purchase or importation of goods for:
a. sale, or
b. conversion into or intended to form part of a finished product for sale, including
packaging materials, or
c. use as supplies in the course of business, or
d. use as raw materials supplied in the sale of services, or
e. use in trade or business for which deduction for depreciation or amortization is allowed
2. Purchase of real properties for which a VAT has actually been paid,
3. Purchase of services in which a VAT has actually been paid,
4. Transactions deemed sale,
5. Transitional input tax,
6. Presumptive input tax,

7.

Transitional input tax credits.

Rule on capital goods

Section 110 (A) proviso.

Provided, that the INPUT TAX on goods purchases or imported in calendar month for use on trade or business for
which deduction is allowed under this Code,
shall be SPREAD EVENLY OVER THE MONTH OF ACQUISITION and the 59 succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT component thereof, EXCEEDS ONE MILLION pesos
(P1,000,000):
Provided, however, that if the ESTIMATED USEFUL LIFE OF THE CAPITAL GOOD is LESS THAN 5 YEARS, as used for
depreciation purposes,
then the input VAT shall be SPREAD OVER SUCH A SHORTER PERIOD:
Provided, finally, That, in the case of purchase of services, lease or use of properties,
the input tax shall be creditable to the purchaser, lessee or licensee upon payment of the compensation, rental,
royalty or free.

CAPITAL GOODS or PROPERTIES refer to goods or properties

with estimated useful LIFE of more than one year and
which are treated as DEPRECIABLE under the income tax law,
USED directly or indirectly, in the production or sale of taxable goods or services.

A. If the input tax on capital goods purchased or imported in a calendar month does NOT

exceed P1m
the input tax will be allowed in the month of purchase.
B. If the aggregate acquisition cost of such goods in a calendar month, excluding the VAT,
EXCEEDS 1m:
a) If the estimated life is 5 years or more,
the input tax will be evenly spread over the month of acquisition and the 59
succeeding months.
b) If the estimated life is less than 5 years,
the input tax will be spread evenly on a monthly basis by dividing the input
tax by the actual number of months comprising the estimated useful life of the
asset.
For CONSTRUCTION in PROGRESS (CIP)
o CIP is the cost of construction, which is not yet completed. It is considered a
purchase of services, the value of which will be determined based on the
PROGRESS BILLINGS.
o Input taxes on such transaction will be recognized in the month that payment was
made.
o In case of contract for the sale of service where only labor will be supplied by the
contractor and the materials will be purchased by the contractee from other
suppliers,
Input tax on the LABOR will be recognized in the month that payment was
made based on progress billings.
Input tax on the PURCHASE of MATERIALS will be recognized at the time
when the materials were purchased.
An asset acquired in INSTALLMENT for an acquisition cost of more than P1m, excluding the
VAT, will be subject to the amortization of input tax despite the fact that the monthly
payments/installments may not exceed P1m.
o When an asset with an unamortized input tax is retired from business, the
unamortized input tax will be closed against the output taxes on the taxable period
in which it is retired.

Input tax allocation and mixed transactions

(3)

A VAT-registered person who is also engaged in transactions not subject to VAT shall be allowed tax credit
as follows:
(A) TOTAL INPUT TAX which can be directly attributed to transactions subject to value-added tax; and
(b) A RATABLE PORTION of any input tax which cannot be directly attributed to either activity.

The term "INPUT TAX" - means the VAT due from or paid by a VAT-registered person in the course of his trade or
business on

1)
2)
3)

importation of goods or

4)

transitional input tax determined in accordance with Section 111 of this Code.

local purchase of goods or services,

including lease or use of property, from a VAT-registered person.

It shall also include the

The term "OUTPUT TAX" - means the VAT due on the sale or lease of taxable goods or properties or services by any
person registered or required to register under Section 236 of this Code.

In crediting input tax, you have to look at three things:

1. Those which can be DIRECTLY ATTRIBUTED to transactions subject to VAT, and
2. Those which CANNOT BE DIRECTLY ATTRIBUTED to either
a. a VAT taxable or
b. VAT-exempt transaction.
*For these cases, the input tax shall be PRO-RATED to the VAT taxable and VATexempt transactions and only the ratable portion pertaining to transactions subject to
VAT may be recognized for input tax credit.
3.
Sales to the GOVERNMENT because you cant credit input tax arising
from sales to the Government since sales to the Government is subject to
final withholding VAT.

RR 16-2005 states:
All the input taxes that can be directly attributed to transactions subject to
VAT may be recognized for input tax credit;
PROVIDED, that input taxes that can be directly attributable to VAT taxable
sales of goods and services to the Government (or any of its political
subdivisions, etc) shall NOT be credited against output taxes arising from
sales to non-Government entities.

If any input tax cannot be directly attributed to either a VAT taxable or VATexempt transaction, the input tax shall be pro-rated to the VAT taxable and
VAT-exempt transactions and only ratable portion pertaining to transactions
subject to VAT may be recognized for input tax credit.

EXAMPLE: next page

Example
ABC Corporations has the following sales during the month:
To private entities subject to 12% - P100,000
Export sales
- P100,000
Exempt goods
- P100,000
To the Govt
- P100,000
Total
- P400,000
The following input taxes were passed on by its VAT suppliers:
On taxable goods 12%
- P5,000
On the exports
- P3,000
On sale of exempt goods
- P2,000
On sale to government
- P4,000
On depreciable capital good,
- P20,000
not attributable to any specific activity(60 month amortization)
From the facts, we can see that only the input tax on the depreciable capital good can not
be allocated to any specific activity. To get the input tax for that, you have to pro-rate it
among the transactions, using the following equation:
Specific transaction
Total Sales

14

Output Input
Allocated

14
15
16
17
18

Unallocated

Amount of input tax not directly

attributable to any activity

Total Creditable

Net Vat

12%
0%
Exempt

12k
0
0

5k
3k
2k

5k
5k
5k

10k
8k
7k

10k
8k
0

Payable
2k
0
0

Govt

12k

4k

5k

9k

7k18

5k

15

Excess

Refund/

Input
0
8k
0

Creditable
0
8k
0

Unrecoverable

17

16

0
0
7k
2k

Either the VATable, export, exempt or the govt

Math column. Output Tax Creditable Tax

Law column. Sec 112
Total input Creditable Tax
Why 7? Because 5% has been withheld by the Govt.

The input tax attributable to VAT-exempt sales shall not be allowed as credit against the
output tax but should be treated as part of cost or expense.

(B) Excess Output or Input Tax.

If at the end of any taxable quarter the OUTPUT TAX EXCEEDS THE INPUT TAX,
the excess shall be paid by the VAT-registered person.
If the input tax exceeds the output tax,
the excess shall be carried over to the succeeding quarter or quarters:
Provided, however, that any input tax attributable to zero-rated sales by a VAT-registered person may at his option
be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112. (RA 9361)
(C) Determination of Creditable Input Tax.
The SUM of the
1. EXCESS INPUT TAX carried over from the preceding month or quarter and the
2. INPUT TAX CREDITABLE to a VAT-registered person during the taxable month or quarter
shall be REDUCED by the
1. amount of claim for REFUND or TAX CREDIT for value-added tax and
2. other ADJUSTMENTS, such as

purchase returns or allowances and

input tax attributable to exempt sale.

The CLAIM FOR TAX CREDIT referred to in the foregoing paragraph shall include not only
1. those filed with the BIR but also
2. those filed with other government agencies, such as the Board of Investments the Bureau of Customs.

If at the end of any taxable quarter the output tax exceeds the input tax,
the excess shall be paid by the VAT-registered person. (Known as the Net VAT payable)
If the input tax inclusive of input tax carried over from the previous quarter exceeds the
output tax,
the excess input tax shall be carried over to the succeeding quarter or quarters,
o Provided, that any input tax attributable to zero-rated sales by a VAT-registered
person may at his option be refunded or applied for a tax credit certificate which may
be used in the payment of internal revenue taxes. (this is where you can get input
tax credit or refunds)
o In other words, any input tax, attributable to zero-rated sales may be:
a. Refunded, or
b. Credited against other internal revenue taxes of the VAT taxpayer.

Transitional and Presumptive Input Tax Credits

SEC. 111. TRANSITIONAL/PRESUMPTIVE INPUT TAX CREDITS. (A) Transitional Input Tax Credits.
A person who becomes liable to VAT or any person who elects to be a VAT-registered person shall, subject to the
filing of an inventory according to rules and regulations prescribed by the Secretary of finance, upon
recommendation of the Commissioner, be ALLOWED INPUT TAX ON HIS BEGINNING INVENTORY of goods, materials
and supplies equivalent to TWO PERCENT (2%) of the

a)
b)

value of such inventory or

the actual value-added tax paid on such goods, materials and supplies, whichever is HIGHER, which shall be
CREDITABLE AGAINST THE OUTPUT TAX.

TAXPAYERS who
a) become VAT-registered persons upon exceeding the minimum turnover of P1.5m in
any 12-month period, or
b) who voluntarily register even if their turnover does not exceed P1.5m (except
franchise grantees of radio and tv broadcasting whose threshold is P10m)
shall be ENTITLED to a TRANSITIONAL INPUT TAX on the INVENTORY ON HAND as of
the effectivity of their VAT registration, on the following:
1.
Goods purchased for RESALE in their present condition
2.
Materials purchased for FURTHER PROCESSING, but which have NOT yet
undergone processing,
3.
Goods which have been MANUFACTURED by the taxpayer
4.
Goods IN PROCESS FOR SALE, or
5.
Goods and supplies for USE IN THE COURSE of the taxpayers trade or business
as a VAT-registered person. (RR 16-2005)
The TRANSITIONAL INPUT TAX shall be
a. 2% of the value of the beginning inventory on hand, or
b. actual VAT paid on such goods, materials and supplies
whichever is HIGHER.
The transitional input tax credit operates to benefit newly VAT-registered persons,
whether or not they previously paid taxes in the acquisition of their beginning inventory
of goods, materials and supplies. (Fort Bonifacio Development Corp v CIR)
During that period of transition from non-VAT to VAT status, the transitional input tax
credit serves to alleviate the impact of the VAT on the taxpayer. (FBDC v CIR)
There is NO transitional input tax on capital goods or on supplies. (Reyes, 2009 Edition)
(B) Presumptive Input Tax Credits. (1) Persons or firms engaged in the

1.

PROCESSING of

i.
ii.
iii.
2.

sardines,
mackerel and
milk

MANUFACTURING

i.
ii.
iii.

refined sugar
cooking oil and

packed noodle-based instant meals,

shall be allowed a PRESUMPTIVE INPUT TAX, CREDITABLE against the output tax, equivalent to FOUR
PERCENT(4%) OF THE GROSS VALUE IN MONEY of their PURCHASES of PRIMARY AGRICULTURAL PRODUCTS,
which are used as INPUTS to their PRODUCTION.
As used in this Subsection, the term "PROCESSING"- shall mean
1. pasteurization,
2. canning and
3. activities which through physical or chemical process alter the exterior texture or form or inner substance of
a product in such manner as to prepare it for special use to which it could not have been put in its original
form or condition.

Presumptive input tax credits are given for those engaged in:
1. the processing of sardines, mackerel and milk; and

2. manufacturing refined sugar, cooking oil and packed

noodle-based instant meals

The RATE is 4% of the gross value in money.
They are given this 4% presumptive input tax because the goods used in the said
enumeration are VAT-exempt.
Refunds or Tax Credits on Input Tax
SEC. 112. Refunds or Tax Credits of Input Tax. (A) Zero-Rated or Effectively Zero-Rated Sales. - Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made ,
APPLY for the
a) issuance of a TAX CREDIT certificate or
B) REFUND of creditable input tax due or paid attributable to such sales, except transitional input tax, to the
extent that such input tax has not been applied against output tax:
Provided, however, That in the case OF ZERO-RATED SALES under Section 106(A)(2)(a)(1), (2) and (B) and Section
108 (B)(1) and (2),
the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the
rules and regulations of the BSP:
Provided, further, That where the taxpayer is engaged in
ZERO-RATED/EFFECTIVELY ZERO-RATED SALE and
also in TAXABLE or EXEMPT sale of goods of properties or services,
and the amount of creditable input tax due or paid CANNOT be directly and entirely ATTRIBUTED to any one
of the transactions,
it shall be ALLOCATED PROPORTIONATELY on the basis of the VOLUME of sales:
Provided, finally, that for a person making sales that are ZERO-RATED under Section 108(B)(6),
the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales.
(B) Cancellation of VAT Registration. - A person whose registration has been cancelled
a) due to retirement from or cessation of business, or
b) due to changes in or cessation of status under Section 106(C) of this Code
may, within two (2) years from the date of cancellation, APPLY for the issuance of a TAX CREDIT CERTIFICATE
for ANY UNUSED INPUT TAX which may be used in payment of his other internal revenue taxes.
(C) Period Within Which Refund or Tax Credit of Input Taxes Shall be Made. - In proper cases, the
Commissioner shall grant a REFUND or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of compete documents in support of the application filed
in accordance with Subsection (A) hereof.
In case of

a)
b)

FULL/PARTIAL DENIAL of the claim for tax refund or tax credit, or

the failure on the part of the Commissioner to act on the application within the period prescribed above,
the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after
the expiration of the one hundred twenty day-period, APPEAL the decision or the unacted claim with the Court of
Tax Appeals.(D) Manner of Giving Refund. - Refunds shall be made upon WARRANTS drawn by the Commissioner or by his
duly authorized representative without the necessity of being countersigned by the Chairman, Commission on
audit, the provisions of the Administrative Code of 1987 to the contrary notwithstanding:
Provided, That refunds under this paragraph shall be subject to post audit by the Commission on Audit.

There are
1.
2.
3.

3 instances where one can avail of a VAT REFUND:

When there is excess input VAT versus output VAT;
Zero-rated and effectively-zero rated sales
Cessation of business

For zero-rated and effectively zero-rated sales of goods, properties or services, the
application should be filed within 2 years after the close of the taxable quarter when such
sales were made.
o The two year period is reckoned from the close of the taxable quarter when the
relevant sales were made pertaining to the input VAT regardless of whether said
tax was paid or not. (CIR v Mirant Pagbilao Corp)
o Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent
transaction, said taxpayer only has a year to file a claim for refund or tax credit of

the unutilized creditable input VAT.

Take note of CIR v Aichi, 2010:

o The CIR has 120 days, from the date of the submission of the complete documents
within which to grant or deny the claim for refund/credit of input vat.
o In case of full or partial denial by the CIR, the taxpayers recourse is to file an
appeal before the CTA within 30 days from receipt of the decision of the CIR.
However, if after the 120-day period the CIR fails to act on the application
for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of
the CIR to CTA within 30 days.
Hence, if filed with CTA before the 120-day period expires, CTA will
dismiss for prematurity.
If filed with CTA after the 150-day (120 + 30 days), CTA will
dismiss for being late.
o Weird because it will dismiss even if still within 2 years.
o This only applies to credit input tax refunds.
For cessation of business, a VAT-registered person whose registration has been cancelled due
to retirement from or cessation of business, or due to changes in or cessation of status
under Sec. 106 (C), may within 2 years from the date of cancellation, apply for the
issuance of a tax credit certificate for any unused input tax which he may use in payment
of his other internal revenue taxes.
o Provided, that he shall be entitled to a refund if he has no internal revenue tax
liabilities against which the tax credit certificate may be utilized.
More on cessation of business or change of status as VAT-registered person (RR 16-2005):
o Subject to output tax:
Change of business activity from VAT taxable to VAT-exempt status.
Approval of a request for cancellation of registration due to reversion to
exempt status.
o Not subject to output tax:
Change of control of a corporation by the acquisition of the controlling
interest of such corporation by another stockholder or group of
stockholders. The goods or properties will not be considered sold, bartered,
etc.
Change in the trade or corporate name of the business.
Merger or consolidation of corporations. The unused input tax of the
dissolved corporation shall be absorbed by the surviving or new corporation.

Withholding of creditable value-added tax

(C) Withholding of Creditable Value-Added Tax. - The GOVERNMENT or any of its political subdivisions,
instrumentalities or agencies, including government-owned or -controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods from sellers and services rendered by contractors which
are subject to the value-added tax imposed in Sections 106 and 108 of this Code,
DEDUCT AND WITHHOLD the VAT due at the rate of FIVE PERCENT (5%) OF THE GROSS thereof:
Provided, That the PAYMENT for LEASE OR USE OF PROPERTIES OR PROPERTY RIGHTS to NONRESIDENT OWNERS
shall be subject to TWELVE PERCENT (12%) WITHHOLDING TAX at the time of payment. For this purpose, the
payor or person in control of the payment shall be considered as the WITHHOLDING AGENT.
The VAT withheld under this Section shall be REMITTED within ten (10) days following the end of the month the
withholding was made.

The VAT is withheld in two instances:

1. In sales of goods and services to the Govt (5% withheld by the government)
2. In payment for lease or use of properties to nonresident owners (12% withheld by the
lessee)
In TRANSACTIONS WITH THE GOVERNMENT,
the 5% final withholding VAT shall represent the net VAT payable for the seller.
the remaining 7% accounts for the standard input VAT for sales of goods or services to
the government or any of its political subdivisions, in lieu of the actual input VAT
directly attributable or ratably apportioned to such sales.

Should actual input VAT attributable to sales to government exceed 7% of gross

payments,
the excess may form part of the sellers expense or cost.
If the actual input VAT attributable to sale to government is less than 7%,
the difference should be counted as income.

EXAMPLE: Kaka sells to the Government something for P100. The VAT is P12. The P5 is
withheld by the government, so the Government only pays him P107.
In this scheme, the government assumes that your input VAT will be 7%. If it is
7%, then all is well.
But if the input VAT is higher than 7 (in Kakas case, for example it was P10), then
the excess of P3 will be treated as an expense. It will form part of the expense
column in the income statement.
But if the input VAT is smaller than 7% (for example, Kaka only spent P5), then
there is income on Kakas side, this will form part of his income.
In both instances, Kaka will lose or be benefited only by 30% (rate of income tax)
because it will form part of his income and subject to the income tax.
In TRANSACTIONS WITH NON-RESIDENTS, 12% will be withheld with respect to the
following payments:
1. Lease or use of properties or property rights owned by non-residents, and
2. Other services rendered in the Philippines by non-residents.
o The government did this as a matter of enforcement. How will the Government run
after the VAT of a non-resident, right? So, they just make the payors withholding
agents.
Jhunabhel lives in the condo owned by non-resident Tevez. Jhunabhel will
withhold P12 of the total amount of the lease of P112. Jhunabhel will only
pay Tevez P100.

The one who remits the 12% to the government, when he files his return can state
that he is entitled to an input tax credit.
In Jhunabhels case, she can ask for the input tax credit of P12.

VAT on the SALE OF REAL PROPERTY IN INSTALLMENTS BY A REAL ESTATE DEALER

A sale on installment of real property by a real estate dealer shall be subject to the 12%
VAT of the gross selling price.
A real estate dealer is any person engaged in the business of buying, developing, selling,
exchanging real property as principal and holding himself out as a full or part-time dealer
of real estate.
The gross selling price is whichever is highest of the:
a) Consideration in the deed of sale,
b) Zonal value, per CIR; and
c) fair market value per real property declaration with the provincial or city assessor.
When the initial payments do not exceed 25% of the selling consideration in the deed of sale,
the steps are:
1. Multiply the gross selling price by 12% (VAT)
2. Get the VAT on the installment payment received, using the formula below:
3.
Collection on the consideration (no VAT) x
Computed VAT in
Agreed consideration (no VAT)
Step 1
Initial payments are the payments
which the seller received before and upon the execution of the instrument of sale, and
which he expects or is scheduled to receive in cash or property (other than evidence of
indebtedness of the purchaser) during the taxable year of the sale or disposition.

It will include more than the down payment in the year of sale.
It will NOT include the amount of mortgage on the real property sold which was

already there at the time of sale and which was assumed by the buyer,

EXCEPT when such mortgage exceeds the cost or other basis of the
property to the seller, in which case the excess shall form part of the initial
payments.
For example, the mortgaged assumed by the buyer was P600k, and the cost
to the seller was just P500k. The P100k excess will be included as initial
payments

If the initial payments exceed 25% of the selling price,

the transaction shall be considered a cash sale with a VAT at the time of the sale.
Take note that it is the agreed consideration, which is used to determine the initial
payments, while it is the highest among the consideration, zonal value and FMV which
is used for the computation of the VAT.

VAT ON LEASE
GR: All forms of property for lease, whether real or personal, are liable to VAT
except when gross annual sales do not exceed P1.5m, in which case they will be exempt.
Lease of property shall be subject to VAT regardless of the place where the contract of lease
or licensing agreement was executed if the property leased or used is located in the
Philippines.
See also rules just mentioned when lessor is a non-resident.
In a lease contract, the ADVANCE PAYMENT by the lessee may be:
1. A loan to the lessor from the lessee, or
2. Option money for the property, or
3. Security deposit to insure the faithful performance of certain obligations of the lessee
to the lessor, or
4. Pre-paid rental.
If the advanced payment is #1, 2 or 3, not subject to VAT.
If the advanced payment is #4, then such payment is taxable to the lessor in the
month when it was received, irrespective of the accounting method employed by
the lessor.
If the security deposit (#3) is applied to rental, then it shall be subject to VAT at
the time of its application.
VAT REGISTRATION
Every taxpayer subject to the VAT must register with the BIR as a VAT taxpayer and pay an
annual registration fee of P500 for every separate and distinct establishment, including
facility types where the business is conducted.
Every taxpayer not subject to VAT but subject to the excise tax or percentage tax must
register with the BIR and pay an annual registration fee of P500 for every separate and
distinct establishment where the business is conducted.
SVAT exempt persons under Section 109 who did not opt to be registered as VAT
taxpayers must register as non-VAT taxpayers.

Mandatory Registration
Sec 236 (G) Persons required to register for Value-Added Tax
1) Any person, who in the course of trade or business, sells, barters or exchanges goods or properties, or
engages in the sale or exchange of services, shall be liable to register for VAT if:
a) His gross sales or receipts for the past 12 months, other than those that are exempt under Section 109(A) to
(U) have exceeded One Million Five Hundred Thousand Pesos (P1,500,000); or
b) There are reasonable grounds to believer that his gross sales or receipts for the next 12 months, other than
those that are exempt under Section 109 (A) to (U), will exceed One Million Five Hundred Thousand Pesos
(P1,500,000);
2) Every person who becomes liable to be registered under paragraph (1) of this Subsection shall register with the
Revenue District Office which has jurisdiction over the head office or branch of that person, and shall pay the annual
registration fee prescribed in Subsection (B) hereof. If he fails to register, he shall be liable to pay the tax under Title
IV as if he were a VAT-registered person, but without the benefit of input tax credits for the period in which he was
not properly registered.

Any person who, in the course of trade or business, sells, barters or exchanges goods or
properties, or engages in the sale or exchange of services shall be liable to register for
VAT if:
1) His gross sales or receipts for the past 12 months, other than those exempt under
Section 109 (A) to (U), have exceeded P1.5m; or
2) There are reasonable grounds to believe that his gross sales or receipts for the next
12 months, other than those exempt under Section 109 (A) to (U), will exceed P1.5m
If a person who is mandated to register does not, he shall:
o Be liable to pay the tax as if he were a VAT-registered person, and
o Without the benefit of input tax credits.
Optional registration
(H) Optional Registration for Value-Added Tax of Exempt Person. (1) Any person is not required to register for VAT under Subsection (G) hereof may elect to resiter for VAT by registering
with the Revenue District Office that has jurisdiction over the head office of that person, and paying the annual
registration fee in Subsection (B) hereof.
(2) Any person who elects to register under this Subsection shall not be entitled to cancel his registration under
Subsection (F)(2) for the next three years.
For purposes of Title IV of this Code, any person who has registered VAT as a tax type in accordance with the
provisions of Subsection (C) hereof shall be referred to as Vat-registered person who shall be assigned only one
Taxpayer Identification Number (TIN).

Any person who is not required to registered as a VAT taxpayer may register for the VAT.
He, however, cannot cancel his registration for the next three years.
Cancellation of VAT registration
(G) Cancellation of VAT registration. (1) A VAT-registered person may cancel his registration for VAT if:
(a) he makes written application and can demonstrate ot the commissioners satisfaction that his gross sales or receipts
for the following 12 months, over than those that are exempt under Section 109 (A) to (U), will not exceed one
million five hundred thousand pesos (P1,500,000), or
(b) he has ceased to carry on his trade or business, and does not expect to recommence any trade or business within
the next twelve months.
The cancellation of registration will be effective from the first day of the following month

Compliance Requirements
SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons.
- "(A) Invoicing Requirements. - A VAT-registered person shall issue:
"(1) A VAT invoice for every sale, barter or exchange of goods or properties; and
"(2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of
services. "(B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following information shall be
indicated in the VAT invoice or VAT official receipt:
"(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN);
"(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such
amount includes the value-added tax: Provided, That:
"(a) The amount of the tax shall be shown as a separate item in the invoice or receipt;
"(b) If the sale is exempt from value-added tax, the term "VAT-exempt sale" shall be written or printed
prominently on the invoice or receipt;
"(c) If the sale is subject to zero percent (0%) value-added tax, the term "zero-rated sale" shall be written or
printed prominently on the invoice or receipt;
"(d) If the sale involves goods, properties or services some of which are subject to and some of which are VAT
zero-rated or VAT-exempt, the invoice or receipt shall clearly indicate the breakdown of the sale price between its
taxable, exempt and zero-rated components, and the calculation of the value-added tax on each portion of the
sale shall be shown on the invoice or receipt: "Provided, That the seller may issue separate invoices or receipts for
the taxable, exempt, and zero-rated components of the sale.
"(3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the
service; and
"(4) In the case of sales in the amount of one thousand pesos (P1,000) or more where the sale or transfer is
made to a VAT-registered person, the name, business style, if any, address and taxpayer identification number
(TIN) of the purchaser, customer or client.
"(C) Accounting Requirements. - Notwithstanding the provisions of Section 233, all persons subject to the valueadded tax under Sections 106 and 108 shall, in addition to the regular accounting records required, maintain a
subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded. The
subsidiary journals shall contain such information as may be required by the Secretary of Finance.

A VAT-registered person shall issue:

1. A VAT invoice for every sale, barter or exchange of goods or properties; and
2. A VAT official receipt for every lease of goods or properties, and for every sale,
barter or exchange of services
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%, the term zero-rated sale shall be written or printed
prominently on the invoice or receipt
If the sale involves some which are subject to VAT and some which are zero-rated or
VAT-exempt, the invoice or receipt shall clearly indicate the break-down of the sale
price between the taxable, exempt and zero-rated components
o The calculation of the VAT on each portion of the sale shall be shown on the
invoice or receipt.
o But the seller may issue separate invoices or receipts for the taxable, exempt and
zero-rated components of the sale
The date of the transaction, quality, unit cost and description of the goods or properties
or nature of the services must also be indicated.
o Input tax cannot be credited against output tax when supported by an undated
official receipt or invoice. (Nesic Philippines Inc v CIR, May 6, 2010)
When the sale is P1000 or more to a VAT-registered person, the name, business style,
address and TIN of the purchaser, customer or client must also be placed in the receipt
or invoice.

Issuing Erroneous VAT invoice or VAT official receipt

Section 113(D) Consequence of Issuing Erroneous Vat Invoice or Vat Official Receipt.
(1) If a person who is not a VAT-registered person issues an invoice or receipt showing his Taxpayer Identification
Number (TIN), followed by the word VAT:
(a) The issuer shall, in addition to any liability to other percentage taxes, be liable to: (i)
The tax imposed in Section 106 or 108 without the benefit of any input tax credit; and (ii)
A 50% surcharge under Section 248 (B) of this code;
(b) The VAT shall, if the other requisite information required under Subsection (B) hereof is shown on the invoice or
receipt, be recognized as an input tax credit to the purchaser under Section 110 of this Code.
(2) If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt transaction, but fails to
display prominently on the invoice or receipt the term VAT-exempt Sale", the issuer shall be liable to account for the
tax imposed in Section 106 or 108 as if Section 109 did not apply.
"(E) Transitional Period. - Notwithstanding Subsection (B) hereof, taxpayers may continue to issue VAT invoices and
VAT official receipts for the period July 1, 2005 to December 31, 2005, in accordance with Bureau of Internal
Revenue administrative practices that existed as of December 31, 2004.

If a person is NOT a VAT-registered person issues an invoice or receipt showing his TIN
followed by the word VAT, the issuer shall be:
1. Liable for the percentage tax due on his transaction
2. Liable for the VAT, without credit for any input tax, and
3. Subject to a 50% surcharge.
o VAT shall be recognized as an input tax credit to the purchaser under Section 110,
provided the requisite information required in invoices or receipts are shown on the
invoices or receipts.
If a VAT-registered person issues a VAT invoice or official receipt for a VAT-exempt
transaction, but fails to display prominently on the invoice or receipt the term VATexempt sale, he shall be subject to the VAT, as if Section 109 on exempt transactions did
not apply.
o Meaning, he has to pay the VAT.
If the VAT is erroneously billed in the invoice, the total invoice amount shall be presumed
to be comprised of the gross selling price/gross receipts plus the correct amount of the
VAT.
o The output tax shall be computed by multiplying the total amount in the invoice by
a fraction using the rate of VAT as the numerator and 100% plus the rate of the
VAT as the denominator.
RR 8-99 says that penalties for violation of the requirement that output tax on sale of
goods and services should not be separately indicated in the sales invoice or official
receipt.
o The amount appearing in the sales invoices/receipts is thus deemed inclusive of the
Value-Added Tax due thereon.
o The penalty for violation of the said requirement is a fine of not less than One
Thousand Pesos (P 1,000) but not more than Fifty Thousand Pesos (P50,000), and
imprisonment of not less than two (2) years but not more than four (4) years.
Return and Payment of VAT
Sec. 114. Return and Payment of Value-Added Tax. "(A) In General. - Every person liable to pay the value-added tax imposed under this Title shall file a quarterly return
of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter
prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the value-added tax on a
monthly basis.
"Any person, whose registration has been cancelled in accordance with Section 236, shall file a return and pay the
tax due thereon within twenty-five (25) days from the date of cancellation of registration: Provided, That only one
consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches.
"(B) Where to File the Return and Pay the Tax. - Except as the Commissioner otherwise permits, the return shall be
filed with and the tax paid to an authorized agent bank, Revenue Collection Officer or duly authorized city or
municipal Treasurer in the Philippines located within the revenue district where the taxpayer is registered or required

to register.

Every person liable to pay VAT shall file a quarterly return of the amount of his quarterly
gross sales or receipts within 25 days following the close of the taxable quarter using the
latest version of Quarterly VAT Return.
The VAT-registered persons shall pay the VAT on a monthly basis.
Power of the Commissioner
SEC. 115. Power of the Commissioner to Suspend the Business Operations of a Taxpayer. - The
Commissioner or his authorized representative is hereby empowered to suspend the business operations and
temporarily close the business establishment of any person for any of the following violations:
(a) In the case of a VAT-registered Person. (1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as required under Section 114; or
(3) Understatement of taxable sales or receipts by thirty percent (30%) or more of his correct taxable sales or
receipts for the taxable quarter.
(b) Failure of any Person to Register as Required under Section 236. The temporary closure of the establishment shall be for the duration of not less than five (5) days and shall be lifted
only upon compliance with whatever requirements prescribed by the Commissioner in the closure order.