VAT for Corporations in the Philippines

Updated on June 9, 2022

VAT for Corporations in the Philippines

Contents 

In the Philippines, this tax is called VAT (Value Added Tax) and it is levied on the sale of both goods and services. If applicable, VAT may be levied at every step of the sales process, from the manufacturer through the final purchaser.

VAT filings are needed monthly and quarterly in the Philippines, resulting in constant tax obligations for firms.

Consequently, in order to comply with their VAT filing obligations, firms, accountants, and bookkeepers in the Philippines must always be aware of and knowledgeable of

Corporate taxation in the Philippines is notoriously difficult, as we’ve previously noted. VAT is the sole subject of this page, which is devoted to explaining the VAT system.

Companies in the Philippines should be aware of the country’s value-added tax (VAT). Examples of VAT documentation in financial accounting, bookkeeping and tax compliance have also been provided.

Please, let’s begin.

What is VAT?

In the Philippines, a tax known as Value Added Tax (VAT) is levied on the sale, exchange, or rental of commodities, properties, and services. As an import tax, VAT is also levied in the Philippines.

Other countries, like Singapore, use the term “Goods and Sales Tax,” or GST, to refer to VAT.

The seller is the statutory taxpayer for VAT purposes, which means that the seller is responsible for filing and remitting VAT payments to the Bureau of Internal Revenue (BIR). Although the buyer has the financial burden (i.e. the cost) of VAT on the transaction, the seller bears the burden of the tax.

Output VAT v Input VAT in the Philippines

The best way to demonstrate Output VAT and Input VAT is to use a real-world example.

If a customer buys something from a small local retail store, the sales receipt is likely to include a charge for “VAT.” It is the customer’s responsibility to pay any applicable VAT. Output VAT on the sale of taxable products is what this VAT is to a retail store (VAT on sales). This VAT must be paid by the retail store to the BIR.

As a result, when a retail store buys items from a manufacturer or wholesaler, the retail store will have to pay VAT to the manufacturer/wholesaler as part of this transaction. It is called Input VAT from the retail store’s point of view since it is a tax that the retail store firm pays on its own purchases (VAT on purchases). VAT must be remitted to the BIR by the manufacturer or wholesaler involved in this transaction.

Retail stores can utilize the Input VAT value from their purchases as a form of credit to offset the Output VAT from their sales when calculating the amount of VAT they must submit to the BIR each month or quarter. The BIR shall be responsible for any Output VAT overages.

The VAT due to the BIR is calculated as follows: Output VAT minus Input VAT.

VAT Rate in the Philippines

The Philippines has a VAT rate of 12 percent.

VAT is levied on the gross selling price of goods and assets, and on the gross value of receipts from services and property leases.

The entire cost of importation is used to calculate the 12% VAT on imported products.

Export sales and sales with a 0% VAT rating are subject to a 0% VAT rate as well (see further below).

VAT Invoices 

When selling or leasing goods or properties, or providing a service for payment, Philippines VAT-registered firms must provide a VAT Invoice for each transaction and a VAT Official Receipt for any transaction that involves a service sale.

VAT must be clearly displayed as a separate item on the VAT Receipt or VAT Invoice.

If a sale or transaction is either VAT-exempt (see below) or VAT-rated at zero percent (see below), the VAT Invoice or VAT Official Receipt should make that plain and visible.

If you want to learn more about the Philippines’ sales invoices and receipts, check out two of our most recent posts.

0% VAT-Rated

Zero-Rated or 0% VAT sales are allowed in the Philippines under the country’s VAT framework. For VAT purposes, these sales are taxable transactions, although they do not produce Output VAT. A seller does not have to charge VAT at the regular rate of 12 percent while making such sales. Sales made with zero VAT can, nevertheless, receive a credit for Input Tax that corresponds to those sales.

VAT-registered taxpayers may be eligible for a 0% VAT rate on the following activities:

Goods are processed, manufactured, or repackaged for the purpose of export by third parties doing business outside the Philippines
Services other than processing, manufacturing, or repackaging, rendered to a person operating in a company outside the Philippines
Exports of commodities from the Philippines
Exports of services from the Philippines
Services that are exempt from VAT under international agreements or specific regulations.
Corporations can consult the BIR advice HERE for a complete list of 0% VAT-Rated operations and sales.

VAT Taxpayers in the Philippines

The following organizations are subject to VAT:

If the total of your gross sales or receipts surpasses three million pesos in the course of your business, you are liable for paying VAT on those sales, exchanges, rentals, and services (Php3,000,000).
Voluntary taxpayers, even if they don’t achieve the P3,000,000 threshold in gross sales or revenues, are subject to VAT.
People or organizations that import products.
Remember! To avoid paying VAT, corporations must register as VAT taxpayers if required to do so (if they haven’t already done so). The company is still responsible for the Output VAT it owes for the time it was not officially registered. Furthermore, if you don’t register or pay VAT, you won’t be able to use your input VAT to offset your output VAT.

VAT Exempt versus 0% VAT

VAT free sales and zero-rated VAT sales do not entail the obligation to pay VAT. However, the treatment of Input VAT represents a major distinction between the two categories.

The Input VAT cannot be credited against the Output VAT in sales that are exempt.

Output VAT can be credited back against the Input VAT in zero-rated sales

VAT-Exempt Activities 

VAT is not required to be remitted and filed by enterprises in the Philippines if their gross sales or revenues do not exceed Php3,000,000 (three million pesos). Those businesses are excluded from the rule.

However, a company’s specific business activity is also taken into consideration when determining VAT exemptions.

This portion of the BIR’s website, found HERE, has a complete list of all Philippine sales that are exempt from paying value-added tax (VAT).

If you’re selling goods or services, it’s crucial to know whether or not the items or services are subject to VAT. Check with an accountant or bookkeeper in the Philippines before making any decisions about your tax and accounting responsibilities.

How to Know if your Corporation is VAT Registered? 

In the Philippines, a Certificate of Registration is issued upon registration with the Bureau of Internal Revenue (BIR) (Form 2303). This Certificate outlines the corporation’s tax responsibilities. Whether or whether the business has filed for VAT will be revealed by this.

Some businesses do not register for VAT when they first get their business license. Although a firm can apply for VAT registration at a later date. Verify your VAT registration status by looking through your Certificate of Registration and any other documentation that prove you were previously registered for VAT.

Our most recent BIR Form 2303 or Certificate of Registration article goes into great detail about the significance of this important corporate document.

Accounting for VAT

Below, we use an example of a fictitious company, QRS Co. which shows how VAT is recorded from an accounting, bookkeeping and tax compliance perspective

QRS Co. is a VAT-registered company. In the month of April, its total purchases amounted to P4,480,000 inclusive of P480,000 VAT (Input VAT). Sales for the same month amounted to P5,200,000 (exclusive of VAT).

The Output VAT for the month is computed as P624,000 (P5,200,00*12%). Here is how the VAT transactions would be recorded in QRS Co.’s books:

1. To record the purchase of goods

Purchases P  4,000,000
Input VAT     480,000
Accounts payable P   4,480,000

2. To record the sales of goods

Account Receivables P 5,824,000
Sales P 5,200,000
Output VAT     624,000

3. To close the VAT accounts to the VAT payable account

Output VAT P 624,000
Input VAT P 480,000
VAT payable     144,000

4. To record the payment of VAT

VAT payable P 144,000
Cash P 144,000

VAT Filings

The BIR Form 2550M must be filled out and submitted monthly in the Philippines to report and pay VAT (Monthly Value-Added Tax Declaration). There is a 20-day deadline following each month’s end for filing this. This month’s VAT will be included in Form 2550M, which is a monthly VAT return.

The BIR Form 2550Q is used to submit a quarterly VAT return (Quarterly Value-Added Tax Return). This must be submitted no later than 25 days following the conclusion of the applicable quarterly period. Each quarter’s total VAT liability is included in Form 2550Q.

CloudCfo 

Companies in the Philippines can turn to CloudCfo for help with their financial management and tax compliance needs.

Our Philippine accountants and bookkeepers are here to assist you maintain your business compliant with all of the laws and regulations in the country.

Talk to us today! Contact us at [email protected] or www.cloudcfo.ph to speak with a member of our team.