Revised and Consolidated Value-Added Tax Regulations

June 14, 1994 REVENUE REGULATIONS NO. 10-94 SUBJECT : Revised and Consolidated Value-Added Tax Regulations TO : All Internal Revenue Officers and Others Concerned CHAPTER I SCOPE OF THESE REGULATIONS SECTION 1 . Scope . Pursuant to the provisions of Sections 245 and 4 of the National Internal Revenue Code (NIRC), as amended, in relation to Section 20 of Republic Act No. 7716, these Regulations are hereby promulgated to implement the provisions of Sections 99, 100, 102, 103, 104, 106, 107, 108 and 110 of Title IV, Sections 112, 115, 117 and 121 of Title V, Sections 236, 237 and 238 of Title IX all of the NIRC, as amended, and to consolidate and further amend Revenue Regulations No. 5-87, as amended. cd CHAPTER II DEFINITION OF TERMS SECTION 2 . For purposes of these Regulations, the following definitions of words and phrases are hereby adopted : a. "Act" refers to Republic Act No. 7716. b. "Automobile" as contemplated under Section 104 (a)(1)(E) of the Code, shall mean a 4-wheeled luxury motor vehicle, which is used in the trade or business of the VAT taxpayer, propelled by any motive fuel with engine displacement of 2,000 cc or more, and specially designed for the transport of persons and not used primarily for the carrying of freight or merchandise; Provided , however, that the definition shall not apply to those required in the trade or business of the VAT taxpayer, such as hotel limousines, funeral hearse, ambulances and similar vehicles. c. "Branch" means a fixed establishment in a locality which conducts operation of the business as an extension of the principal office. d. "Capital goods or properties" refers to goods or properties with estimated useful life greater than one year and which are treated as depreciable assets under Section 29 (f), used directly or indirectly in the production or sale of taxable goods or services. e. "Code" refers to the National Internal Revenue Code, as amended, unless otherwise specified. f. "Common carriers" refer to persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public, and shall include transportation contractors. g. "Considered export sales under Executive Order No. 226" shall mean the Philippine port F.O.B. value, determined from invoices, bills of lading, inward letters of credit, landing certificates, and other commercial documents, of export products exported directly by a registered export producer or the net selling price of export products sold by a registered export producer to another export producer, or to an export trader that subsequently exports the same: Provided, That sales of exports products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter, as evidenced by landing certificates or similar commercial documents. Provided, further, That without actual exportation the following shall be considered constructively exported for purposes of these provisions: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export processing zones; (3) sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue and the Bureau of Customs; (4) sales to foreign military bases, diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not: Provided, further, that export sales of registered export traders may include commission income: and Provided, finally, that exportation of goods on consignment shall not be deemed export sales until the export products consigned are in fact sold by the consignee . cd i Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad and other non-residents of the Philippines as well as returning Overseas Filipinos under the International Export Program of the government and paid for in convertible foreign currency inwardly remitted through the Philippine banking systems shall also be considered export sales. h. "Constructive receipt" occurs when the money consideration or its equivalent is placed at the control of the person who rendered the service without restrictions by the payor. The following are examples of constructive receipts: 1) deposit in banks which are made available to the seller of services without restrictions; 2) issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment for services rendered; and 3) transfer of the amounts retained by the contractee to the account of the contractor. i. "Dealer in securities" means a merchant of stocks or securities, whether an individual, partnership or corporation, with an established place of business, regularly engaged in the purchase of securities and their resale to customers, that is, one who as a merchant buys securities and sells them to customers with a view to the gains and profits that may be derived therefrom. j. "Export Sales" shall mean: 1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); 2) The sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); 3) The sale of raw materials or packaging materials to an export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production; 4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and 5) Those considered export sales under Article 23 of Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws, e.g., SBMA Law, R.A. 7227. k. "Foreign currency denominated sale" means the sale to a non-resident of goods, except those mentioned in Sections 149 and 150 of the Code, assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). l. "Goods or properties" refer to all tangible and intangible objects which are capable of pecuniary estimation and shall include: 1. Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business; 2. The right or the privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill, trademark, tradebrand or other like property or right; 3. The right or the privilege to use in the Philippines any industrial, commercial or scientific equipment; 4. The right or the privilege to use motion picture films, film tapes and discs; and 5. Radio, television, satellite transmission and cable television time. m. "Gross receipts" refer to the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding VAT. It shall likewise refer to "gross income" as defined under Section 28(a) of the Code, whenever applicable. n. "Gross selling price" means the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the value-added tax. The excise tax, if any, on such goods or properties shall form part of the gross selling price. o. "Importer" refers to any person who brings goods into the Philippines, whether or not made in the course of his trade or business. It includes non-exempt persons or entities who acquire tax-free imported goods from exempt persons, entities or agencies. p. "In the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests) or government entity in its exercise of proprietary functions. The rule of regularity to the contrary notwithstanding, services as defined in the Code rendered in the Philippines by non-resident foreign persons shall be considered as being rendered in the course of trade or business. q. "Initial Payments" shall mean payments received in cash or property other than evidences of indebtedness of the purchaser during the taxable year in which the sale or other disposition is made. This term must not be equated with what is commonly called "downpayment". While it covers any downpayment made, it goes further and includes all payments actually or constructively received during the year of sale and the aggregate of all such payments determines whether or not the aforementioned limit which the laws has set has been exceeded. r. "Input tax" means the value-added tax due from or paid by a VAT-registered person in the course of his trade or business on importation of goods or local purchases of goods or services, including lease or use of property, from a VAT-registered person. It shall also include the transitional or presumptive input tax determined in accordance with Section 105 of the Code. It includes input taxes which can be directly attributed to transactions subject to the value-added tax plus a ratable portion of any input tax which cannot be directly attributed to either the taxable or exempt activity. s. "International cargo vessel" refers to ships and aircraft used in the transport of freight/cargoes in the international route. t. "Lending investor" includes all persons who make a practice of lending money for themselves or others at interest with authorized capital not exceeding TEN MILLION PESOS (P10,000,000.00) u. "Low-Cost housing" refers to housing projects intended for homeless low-income family beneficiaries, undertaken by government or private developers, which may either be a subdivision or a condominium, registered and licensed by the Housing and Land Use Regulatory Board/Housing and Urban Development Coordinating Council ( HLURB/HUDCC) under BP 220, PD 957 or any other similar law, wherein the unit selling price is within the selling price ceiling per unit of BP 220 as determined from time to time by HLURB/HUDCC. v. "Non-electric cooperative" refers to a duly registered association of persons entitled to such rights and privileges granted by Republic Act No. 6938, otherwise known as the Cooperative Code of the Philippines, which is not formed primarily for the purpose of supplying, promoting and encouraging the fullest use of electric service to its members pursuant to the provisions of P.D. No. 269. w. "Non-life insurance companies" shall include all individuals, partnerships, associations, or corporations, including professional reinsurers d efined in Section 280 of PD 612, otherwise known as The Insurance Code of the Philippines, mutual benefit associations and government-owned or controlled business, engaging in the business of property insurance, as distinguished from insurance on human lives, health, accident and insurance appertaining thereto or connected therewith. x. "Non-resident lessor/owner" refers to any person, natural or juridical, an alien, or a citizen who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein, and who owns/leases properties, whether tangible or intangible, located in the Philippines. cdt y. "Output tax" means the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered or required to register under Section 107. z. "Person" refers to any individual, trust, estate, partnership, corporation, joint venture, cooperative or association. aa) "Principal place of business" refers to the place where the head or main office is located as appearing in the corporation's Articles of Incorporation. In the case of an individual, the principal place of business shall be the place where the head or main office is located and where the books of accounts are kept. bb) "Real estate dealer" includes any person engaged in the business of buying, selling, exchanging, leasing, or renting property as principal and holding himself out as a full or part-time dealer in real estate or as an owner of real property or properties rented or offered for rent. cc) "Sale of real property on the installment plan" means real property is sold, the initial payments of which in the year of sale do not exceed twenty-five percent (25%) of the selling price. dd) "Sale or Exchange of Services" means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by the following: 1) construction and service contractors; 2) stock, real estate, commercial, customs and immigration brokers; 3) lessors of property, whether personal or real; 4) warehousing services; 5) lessors or distributors of cinematographic films; 6) persons engaged in milling, processing, manufacturing or repacking goods for others; 7) proprietors, operators, or keepers of hotels, motels, resthouses, pension houses, inns, resorts; 8) proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; 9) dealers in securities; 10) lending investors; 11) operators of taxicabs; 12) utility cars for rent or hire driven by the lessees (rent-a-car companies), tourist buses; 13) other common carriers by land, air, and sea relative to their transport of goods or cargoes; 14) franchise grantees of telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 117 of the Code; 15) banks, non-bank financial intermediaries, finance companies and other intermediaries not performing quasi-banking functions; 16) non-life insurance companies (except their crop insurances) including surety, fidelity, indemnity and bonding companies; and 17) similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. The phrase "sale or exchange of services" shall likewise include: 1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, tradebrand or other like property or right; 2) The lease or the use of, or the right to use any industrial, commercial or scientific equipment; 3) The supply of scientific, technical, industrial or commercial knowledge or information; 4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment of any such property, or right as is mentioned in subparagraph (2) hereof or any such knowledge or information as is mentioned in subparagraph (3) hereof; or 5) The supply of services by a non-resident person or his/its employee in connection with the use of property or rights belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from such non-resident person; 6) The supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme; 7) The lease of motion picture films, film tapes and discs; 8) The lease or the use of or the right to use radio, television, satellite transmission and cable television time. ee) "Sale of real property on a deferred payment basis, not on the installment plan" means real property is sold, the initial payments of which in the year of sale exceed twenty-five percent (25%) of the selling price. ff) "Section" refers to a section of the National Internal Revenue Code, unless otherwise specified. gg) "Separate or distinct establishment" shall mean any branch or warehouse where a taxpayer conducts his business operation. hh) "Socialized housing" refers to housing programs and projects covering houses and lots or homelots only undertaken by the Government or the private sector for the underprivileged and homeless citizens which shall include sites and services development, long-term financing, liberalized terms on interest payments, and such other benefits in accordance with the provisions of R.A. No. 7279 otherwise known as the "Urban Development and Housing Act of 1992". "Socialized housing" shall also refer to projects intended for the underprivileged and homeless wherein the housing package selling price is within the lowest interest rates under the Unified Home Lending Program (UHLP) or any equivalent housing program of the Government, the private sector or non-government organizations. ii) "Specialty feeds" refer to non-agricultural feeds or food for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets. jj) "Taxable person" refers to any person liable for the payment of value-added tax, whether or not registered in accordance with Section 107. kk) "Taxable Sale" refers to the sale, barter, exchange and/or lease of goods or properties, including transactions "deemed sale" and the performance of service for a consideration, all of which are subject to tax under Sections 100 and 102 of the Code. ll) "Total invoice amount" refers to the total amount appearing in the invoice or receipt, which includes the gross selling price or gross receipt and the amount intended to cover the VAT. mm) "Value-added tax payable" means the excess of output tax over allowable input tax. In the case of importation, it is the VAT due on such importation. nn) "VAT" means value-added tax. oo) "VAT-registered person" refers to any person registered in accordance with Section 107. pp) "VAT-registrable person" refers to any person who is required to register under the provisions of Section 107(a),(b) or (c), as amended, but failed to register. qq) "Warehouse" means the place or premises where the inventory of goods for sale are kept and from which such goods are withdrawn for delivery to customers, dealers, or persons acting in behalf of the business. rr) "Warehousing service" means rendering personal services of a warehouseman such as: 1. engaging in the business of receiving and storing goods of others for compensation or profit; 2. receiving goods and merchandise to be stored in his warehouse for hire; 3. keeping and storing goods for others, as a business and for use. CHAPTER III COVERAGE, NATURE, BASIS AND RATE OF VALUE-ADDED TAX (VAT) SECTION 3 . Persons liable . Any person who, in the course of his trade or business, sells, barters, exchanges or leases goods or properties, renders services; and any person who imports goods shall be liable to VAT imposed in Sections 100 to 102 of the Code. However, in the case of importation of taxable goods, the importer, whether an individual or corporation and whether or not in the course of his trade or business, shall be liable to VAT imposed in Section 101 of the Code. SECTION 4 . Value-added tax; nature and characteristics . VAT is an indirect tax and the amount of the tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. There rules shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of the Act. SECTION 5 . Value-added tax on sale of goods or properties . VAT is imposed and collected on every sale, barter or exchange or transactions "deemed sale" of taxable goods, (including capital goods, irrespective of the date of acquisition), or properties. Any person otherwise required to register for VAT purposes who fails to register shall also be liable to VAT on his sale of taxable goods or properties as defined in Section 2(kk) of these Regulations. The sale of goods subject to excise tax is also subject to VAT, except manufactured petroleum products (other than lubricating oil, processed gas, grease, wax and petrolatum). Sale of real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business of the seller shall be subject to VAT. In the case of sales of such real properties "on the installment plan" as defined under Section 2(cc) of these Regulations, the seller shall be subject to VAT on the installment payments, including interest and penalties, actually received on or after May 28, 1994, the date of effectivity of the Act. However, in the case of sales of such real properties "on the deferred payment basis, not on the installment plan", as defined under Section 2 (ee) of these Regulations, the subsequent installment payments and/or payments of the balance of the entire purchase price on or after May 28, 1994 shall no longer be subject to VAT since in a sale on a deferred payment basis, not on the installment plan, the obligations of the purchaser received by the vendor are to be considered as the equivalent of cash. Initial payments as defined under Section 2(q) of these Regulations do not include the amount of mortgage on the real property sold except when such mortgage exceeds the cost or other basis of the property to the seller. Where the mortgage exceeds the cost or other basis of the property to the seller, the excess has to be included in the initial payments. Also excluded from initial payments are notes or other evidences of indebtedness issued by the purchaser to the seller at the time of the sale. The entire purchase price of a sale of real property on the deferred payment basis not on the installment plan made on or after May 28, 1994 shall be subject to VAT. Pre-selling of real estate properties by real estate dealers and/or developers shall be subject to VAT, subject to the presumptive input tax as provided under Section 20 hereof. Transmission of property to a trustee shall not be subject to VAT if the property is to be merely held in trust for the trustor and/or beneficiary. SECTION 6 . " Transactions Deemed Sale" The following transactions shall be "deemed sale" pursuant to Section 100 (b) of the Code: A) Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business. Transfer of goods or properties not in the course of business can take place when the VAT-registered person withdraws goods from his business for his personal use; B) Distribution or transfer to: 1) Shareholders or investors as share in the profits of the VAT-registered person; Property dividends which are distributed by the company to its shareholders and declared out of retained earnings beginning May 28, 1994 shall be subject to VAT based on the market value or zonal valuation, whichever is higher, at the time of receipt. 2) Creditors in payment of debt or obligation. C) Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned. Consigned goods returned by the consignee within the 60-day period is not deemed sold; D) Retirement from or cessation of business with respect to all goods on hand, whether capital goods, stock-in-trade, supplies or materials as of the date of such retirement or cessation, whether or not the business is continued by the new owner or successor. The following circumstances shall, among others, give rise to transactions "deemed sale" for purposes of this Section: i) Change of ownership of the business; and ii) Dissolution of a partnership other than a general professional partnership and creation of a new partnership which takes over the business. E) The Commissioner shall, by regulations, determine the appropriate tax base in cases where a transaction is deemed a sale, barter or exchange of goods or properties under paragraph (B) hereof, or where the gross selling price is unreasonably lower than the actual market value. SECTION 7 . Changes in or cessation of status as a VAT-registered person . a) Subject to tax . The value-added tax provided for in Section 100 and 102 of the Code shall apply to services, goods or properties originally intended for sale or for use in business and capital goods which are existing as of the occurrence of the following: 1) Change of business activity from value-added taxable status to exempt status. An example is a VAT-registered person engaged in a taxable activity like wholesaler or retailer who decides to discontinue such activity and engages instead in life insurance business or in any other business not subject to VAT; 2) Approval of a request for cancellation of registration due to reversion to exempt status. 3) Approval of a request for cancellation of registration due to a desire to revert to exempt status after the lapse of two (2) consecutive years from the time of registration by a person who voluntarily registered inspite of being exempt under Section 103 (a),(b),( c ) and (d) of the Code with respect to his export sales only, and Section 103(t) of the Code . aisa dc 4) Approval of a request for cancellation of registration of one who commenced business with the expectation of gross sales or receipts exceeding P500,000 but who failed to exceed this amount during the first twelve months of operation. b. Not subject to output tax." The VAT shall not apply to goods or properties existing as of the occurrence of the following: 1) Change of control of a corporation by the acquisition of the controlling interest of such corporation by another stockholder or group of stockholders, Example: transfer of property to a corporation in exchange for its shares of stock under Section 34(c)(2) and (6)(c) of the Code. 2) Change in the trade or corporate name of the business; 3) Merger or consolidation of corporations. The unused input tax of the dissolved corporation as of the date of merger or consolidation shall be absorbed by the surviving or new corporation. SECTION 8 . Value-Added Tax on the Sale of Services and Use or Lease of Properties . (a) Sale or exchange of services, as well as the use or lease of properties, as defined in Section 102(a) of the Code and Section 2(dd) of these Regulations shall be subject to VAT. 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 is leased or used in the Philippines. b) The VAT on rental and/or royalties payable to non-resident foreign corporations or owners for the sale of services and use or lease of properties in the Philippines shall be based on the contract price agreed upon by the licensor and the licensee. The licensee shall absorb the VAT on such rentals and/or royalties, and claim the same as input tax credit only upon filing of the return and payment of the output tax. The remittance advice of the royalty is sufficient evidence for purposes of claiming the VAT absorbed by the licensee as input tax credit. For purposes of the VAT on rentals or royalties, the phrase "sale or exchange of services" shall include: 1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right; 2) The lease or the use of, or the right to use of any industrial, commercial or scientific equipment; 3) The supply of scientific, technical, industrial or commercial knowledge or information; 4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment of any such property, or right as is mentioned in subparagraph (2) hereof or any such knowledge or information as is mentioned in subparagraph (3) hereof; or 5) The supply of services by a non-resident person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any brand, machinery, or other apparatus purchased from such nonresident person; 6) The supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme; c) In a lease contract, the advance payment by the lessee may be: (i) a loan to the lessor from the lessee, or (ii) an option money for the property, or (iii) a security deposit to insure the faithful performance of certain obligations of the lessee to the lessor, or (iv) pre-paid rental. If the advance payment is really a loan to the lessor, or an option money for the property, or a security deposit for the faithful performance of certain obligations of the lessee, such advance payment is not subject to VAT. However, a security deposit that is applied to rental shall be subject to VAT. If the advance payment is, in fact, pre-paid rental, then such payment is taxable to the lessor in the month or quarter when received regardless of the accounting methods used. d) Non-life insurance companies including surety, fidelity, indemnity and bonding companies are now subject to VAT. They are no longer liable to the payment of the premium tax under Section 121 of the Code. Reinsurance premiums are subject to VAT. The VAT due from the foreign reinsurance company is to be withheld by the local insurance company and to be remitted to the BIR. Commissions of insurance agents and/or brokers are subject to VAT. The gross receipts on such non-life insurance companies shall mean total premiums collected, whether such premiums are paid in money, notes, credits or any substitute for money. e) Dealers in securities and lending investors shall be subject to VAT on the basis of the gross income they derive, respectively, from their sale or exchange of securities or their lending activities. In the case of pre-need companies, they shall be considered as dealers in securities and their gross receipts shall mean actual receipts on contract price minus contributions to the trust funds to be set up independently as mandated by the Securities and Exchange Commission. f) Services of franchise grantees of telephone and telegraph, radio and television broadcasting and all other franchise grantees except electric, gas and water utilities shall be subject to VAT. However, they are no longer subject to the franchise tax on their gross receipts derived from their franchised operations under their respective charters or Section 117 of the Code. Franchise grantees of telephone and telegraph shall be subject to VAT on their gross receipts derived from their telephone, telegraph, telewriter exchange, wireless and other communication equipment services as well as from their overseas dispatch, message, or conversation originating from the Philippines. They shall no longer be subject to the percentage tax imposed under Section 118 o f the Cod e. g) A person engaged in milling for others (except palay into rice, corn into corn grits, and sugarcane into raw sugar) is subject to VAT on sale of services. If the miller is paid in cash for his services, the VAT shall be based on his gloss receipts during the month or quarter. If he receives a share of the milled products, instead of cash, the VAT shall be based on the actual market value of his share in the milled products. Sale by the owner or the miller of his share of the milled product, (except rice, corn grits and raw sugar) shall be subject to VAT on sale of goods. h) All receipts from service, hire, or operating lease of transportation equipment not subject to tax on common carriers and keepers of garages, shall be subject to VAT. Operators of taxicabs shall be subject to VAT but not to the percentage tax imposed under Section 115 of t he Cod e. SECTION 9 . Computation of Output tax . a) On sale of goods or properties; sale of services and use or lease of properties. The output tax on the sale of goods or properties as well as on the sale of services and use or lease of properties during the month or quarter shall be computed by multiplying the total amount indicated in the invoice by 1/11. Where the gross selling price stated in the invoice is unreasonably lower than the actual market value, the Commissioner shall by regulations determine the appropriate tax base. In computing the taxable base during the month or quarter, the following shall be allowed as deductions from gross selling price or gross receipts : A) Discounts granted and determined at the time of sale which are expressly indicated in the invoice and the amount thereof forming part of the gross sales duly recorded in the books of accounts. Sales discount granted and indicated in the invoice and the amount thereof forming part of the gross sales duly recorded in the books of account. Sales discount granted and indicated in the invoice at the time of sale and the grant of which does not depend upon the happening of a future event may be excluded from the gross sales within the same quarter it was given. B) Sales returns and allowances for which a proper credit or refund was made during the month or quarter to the buyer for sales previously recorded as taxable sales. b) On transactions " de emed sal e" The output tax equivalent to 10% based on the market value of the goods deemed sold shall be imposed as of the occurrence of the transactions enumerated in Section 6 (A), (B) and (C) of these Regulations. However, in the case of retirement from or cessation of business under Section 6(D) of these Regulations, the tax base shall be the acquisition cost or the current market price of the goods, whichever is lower. c) Invoicing and recording " deemed sale transactions." In the case of Section 6(A) of these Regulations, a memorandum entry in the subsidiary sales journal to record withdrawal of goods for personal use is required. In the case of Section 6(B) and (C) of these Regulations, an invoice shall be prepared at the time of the occurrence of the transaction, which should include, among others: (1) nature of the transaction; (2) quantity and description of the goods involved; (3) amount (tax base); and (4) the output tax due. The data appearing in the invoice shall be duly recorded in the subsidiary sales journal. The total amount of "deemed sale" shall be included in the return to be filed for the month or quarter. In the case of retirement from or cessation of business, an inventory shall be prepared and submitted to the Revenue District Officer who has jurisdiction over the taxpayer's principal place of business not later than 30 days after the retirement or cessation from business. An invoice shall be prepared for the entire inventory, which shall be the basis of the entry into the subsidiary sales journal. The invoice need not enumerate the specific items appearing in the inventory, but it must show the total amount. It is sufficient to just make a reference to the inventory regarding the description of the goods. However, the sales invoice number should be indicated in the inventory filed and a copy thereof shall form part of this invoice. If the business is to be continued by the new owners or successors, the entire amount of output tax on the amount deemed sold shall be allowed as input taxes. If the business is to be liquidated and the goods in the inventory are sold or disposed of to VAT-registered buyers, an invoice or instrument of sale or transfer shall be prepared, citing the invoice number wherein the tax was imposed on the deemed sale. At the same time the tax paid corresponding to the goods sold should be separately indicated in the instrument of sale. d) Basis of tax arising from changes in or cessation of status of a taxpayer as a VAT-registered person . The output tax on goods or properties originally intended for sale or for use in business, including capital goods, existing as of the time of the changes in or cessation of the status of taxpayer as a VAT registered person, shall be based on the acquisition cost or the current market price of the goods, whichever is lower. cdt Any unused input taxes as of the retirement, change or cessation of status as VAT-registered person shall be allowed as credit against any output tax resulting therefrom. The balance, if any, shall, subject to the filing of an application within two years from date of retirement, cessation or change of status, be issued a tax credit certificate which can be used in payment of any internal revenue tax due from him or a tax refund, if he has no pending internal revenue tax ability. SECTION 10 . Value-Added Tax on importation of goods . (a) In general The VAT is imposed on goods and properties brought into the Philippines, whether for use in business or not. The tax shall be based on the total value, used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise tax, if any, and other charges prior to the release of goods or properties from customs custody such as postage, commissions, and similar charges. In case the valuation used by the Bureau of Customs in computing customs duties is by volume or quantity, the landed cost shall be the basis for computing the value added tax. Landed cost consists of the invoice amount, customs duties, freight, insurance and other charges. If the goods imported are subject to excise tax, the excise tax shall form part of the tax base. Importation of petroleum products and the raw materials to be used in the manufacture thereof, subject to excise tax under Title VI of the Code, shall be exempt from VAT. However, VAT shall be collected from the importer of lubricating oil, processed gas, grease and petrolatum and the raw materials to be used in the manufacture thereof. b) Applicability and Payment . The rates prescribed under Section 101 (a) shall be applicable to all importations entered or withdrawn from customs custody. The value-added tax on importation shall be paid by the importer prior to the release of such goods from customs custody. c) Sale, transfer or exchange of imported goods by tax-exempt persons . In the case of goods imported into the Philippines by VAT-exempt persons, entities or agencies which Q sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the latter shall be considered the importers thereof who shall be liable for the VAT on such importation. SECTION 11 . Zero-Rating . a) In general. A zero-rated sale by a VAT registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods or services related to such zero-rated sale shall be available as tax credit or refund in accordance with these regulations. b) Zero-rated sale of goods . The following sales by a VAT-registered persons shall be zero-rated: 1) Export sales as defined in Section 2(j) and (g) of these Regulations. Any enterprise whose export sales exceed 70% of total annual production of the preceding taxable year shall be considered an exporter upon accreditation as such by the Export Development Council. 2) Foreign currency denominated sale, e xcept those mentioned in Sections 14 9 a nd 15 0 of the Code. 3) Sales to person or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero-rate. 4) Domestic sales paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. c) Transactions subject to zero-rate . The following services performed in the Philippines by VAT-registered persons shall be subject to 0%. 1) Processing, manufacturing or repacking goods or other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. 2) Services other than those mentioned in the preceding subparagraph, e.g., those rendered by hotels and other service establishments, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. 3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero-rate; 4) Services rendered to ships and aircrafts engaged exclusively in international shipping; and 5) Services performed by subcontractors and/or contractors duly accredited by either the Board of Investments and the Export Development Council in processing, converting, or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of the total annual production. d) Effectively zero-rated sale of goods, properties or services . Effectively zero-rated sales of goods properties or services shall refer to the sale by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or international agreements. Under these Regulations, effectively zero-rated transactions shall be limited to the local sale of goods, properties or services to persons or entities who enjoy exemption from indirect taxes, e.g., Asian Development Bank, International Rice Research Institute, etc. e) Application for effective zero-rating . Except for actual export sale, other cases of zero-rated sales in the preceding paragraph with the Revenue District Office for effective zero-rating, the transaction otherwise entitled to zero-rating shall be considered exempt. SECTION 12 . Exemptions . (A) I n Genera l . An exemption means that the sale of goods or properties and/or services and the use or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT (input tax) previously paid. The person making the exempt sale of goods or services shall not bill any output tax to his customers because the said transaction is not subject to VAT. On the other hand, a VAT-registered purchaser of goods or services which are exempt from VAT is not entitled to any input tax on such purchase. (B) Exempt transactions . The following shall be exempt from the VAT: (a) Sale of nonfood agricultural products marine and forest products in their original state by the primary producer or the owner of the land where the same are produced. In the hands of a subsequent seller, the sale shall be subject to VAT. (b) Sale of cotton and cotton seeds in their original state; and copra; (c) Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor. However, importation of meat shall be subject to VAT . aisa dc Livestock shall include cows, bulls and calves, pigs, sheep, goats and rabbits. Poultry shall include fowls, ducks, geese and turkey. (It does not include fighting cocks, race horses, zoo animals and other animals generally considered as pets.) Marine food products shall include fish and crustaceans, such as, but not limited to, eels, trout, lobsters, shrimps, prawns, oysters, mussels and clams. Meat, fruit, fish, vegetables and other agricultural and marine food products, shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the market, such as freezing, drying, salting, smoking or stripping, including those advanced technological means of packaging, such as shrink wrapping in plastics, vacuum packing, tetra-pack, and other similar packaging methods. Polished and/or husked rice, corn grits and locally produced raw cane sugar and ordinary salt shall be considered as agricultural food products in their original state. Raw cane sugar refers to the crystalized or solidified juice of sugar cane through a milling process, short of the process of being refined, without any addition of chemicals, resulting in muscovado or granulated sugar. It does not include refined sugar, molasses or bagasse. (d) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specially feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets); (e) Sale or importation of petroleum products (except lubricating oil, processed gas, grease, wax and petrolatum) subject to excise tax imposed under Title VI; (f) Sale or importation of raw materials to be used by the buyer or importer himself in the manufacture of petroleum products subject to excise tax, except lubricating oil, processed gas, grease, wax and petrolatum; (g) Importation of passenger and/or cargo/vessel of more than five thousand tons, whether coastwise or ocean going, including engine and spare parts of said vessel to be used by the importer himself as operator thereof; (h) Importation of personal and household effects belonging to residents of the Philippines returning from abroad and non-resident citizens coming to resettle in the Philippines: Provided , that such goods are exempt from customs duties under Tariff and Customs Code of Philippines; (i) Importation of professional instruments and implements, wearing apparel, domestic animals, and personal household effects (except any vehicle, vessel, aircraft, machinery and other goods for use in the manufacture and merchandise of any kind in commercial quantity) belonging to persons coming to settle in the Philippines, for their own use and not for sale, barter or exchange, accompanying such persons, or arriving within ninety (90) days before or after their arrival, upon the production of evidence satisfactory to the Commissioner of Internal Revenue, that such persons are actually coming to settle in the Philippines and that the change of residence is bonafide. (j) Services subject to percentage tax under Title V, are as follows: 1. Any person who is not a VAT-registered person (Sec. 112, NIRC); 2. Sale or lease of goods or properties on the performance of service other than the transactions mentioned in paragraphs (a) to (s), Section 103, the gross annual sales and/or receipts of which do not exceed the amount of FIVE HUNDRED THOUSAND PESOS (P500,000.00) (Sec. 112, NIRC); 3. Keepers of garages and common carriers by land, air or water for the transport of passenger (Sec. 115, NIRC); 4. Franchise grantees on electric, gas and water utilities (Sec. 117, NIRC); 5.) Person, company or corporation (except purely cooperative companies or associations) doing life insurance business of any sort in the Philippines (Sec. 121, NIRC) (k) Services by agricultural contract growers and milling for others of palay into rice, corn into grits, and sugar cane into raw sugar. Agricultural contract growers refer to those producing for others poultry, livestock or other agricultural and marine food products in their original state. (l) Medical, dental, hospital and veterinary services, except those rendered by professionals. Laboratory services are also exempted. If the hospital or clinic operates a pharmacy or drug store, the sale of drugs and medicine, if it exceeds P500,000.00 during a 12-month period is subject to VAT. (m) Educational services exempted refer to academic, technical or vocational education provided by private educational institutions duly accredited by the Department of Education, Culture and Sports and those rendered by government educational institutions. It does not include seminars, in-service training, review classes and other similar services rendered by persons who are not accredited by the Department of Education, Culture and Sports. (n) Sale of works of art, literary works and musical compositions is exempt only if sold by the artist himself. If sold by other persons in the course of business, it shall be subject to VAT. If the services of the artist are engaged for the production of such works, his receipts therefrom are exempt from VAT. (o) Services rendered by individuals pursuant to an employer-employee relationship; (p) Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as supervisory, communications and coordinating centers for the affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines; (q) Transactions which are exempt under international agreements to which the Philippines is a signatory, as well as under special laws, except those granted under the following laws: 1. P.D. No. 66 Export Processing Zone Authority (EPZA) registered firms; 2. P.D. No. 529 Petroleum Exploration Concessionaires under the Petroleum Act of 1949; 3. P.D. No. 972 Operators of Coal Mines; 4. P.D. No. 1491 Export-oriented industries in the Phividec Industrial areas; 5. P.D. No. 1590 Philippine Airlines (PAL) relative to domestic transport of goods or cargoes; 6. P.D. No. 6938 N on-electric cooperative s. (r) Export sales by persons who are non-VAT-registered; (s) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business or real property utilized for low-cost and socialized housing as defined by R.A. No. 7279, otherwise known as the "Urban Development and Housing Act of 1992", and other related laws; (t) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts of which do not exceed the amount of FIVE HUNDRED THOUSAND PESOS (P500,000.00). The foregoing exemptions to the contrary notwithstanding, any person whose sale of goods, properties or services which are otherwise subject to VAT, but who issues a VAT invoice or receipt therefor shall, in addition to his liability to other applicable percentage tax, if any, be liable to the tax imposed in Sections 100 or 102 of the Code without the benefit of input tax credit, and such tax shall not also be recognized as input tax credit to the purchaser under Section 104, of the Code. C ooperatives duly registered under R.A. No. 6938, otherwise known as the "Cooperative Code of the Philippines", transacting business with both members and non-members are subject to VAT. Importations by non-electric cooperatives under R.A. No. 6938 of machinery, equipment and spare parts to be used by them and which are not locally available as certified by the Department of Trade and Industry (DTI) are subject to VAT. E lectric cooperatives are not subject to VA T. CHAPTER IV TAX CREDITS SECTION 13 . Credits for input tax . Any input tax evidenced by a VAT invoice or official receipt issued by a VAT-registered person in accordance with Section 108 of the Code, on the following transactions, shall be creditable against the output tax: (a) Purchase or importation of goods (1) For sale; or (2) For conversion into or intended to form part of a finished product for sale, including packaging materials; or (3) For use as supplies in the course of business; or (4) For use as raw materials supplied in the sale of services; or (5) For use in trade or business for which deduction for depreciation or amortization is allowed under the Code, except automobiles, aircraft and yachts. In determining whether the input tax on automobiles can be allowed, the definition of automobiles as contained in Section 2 (b) of these Regulations in relation to Section 104 (a)(1)(E) of the Code should be considered. (b) Purchase of real properties for which a VAT has actually been paid; (c) Purchase of services in which a VAT has actually been paid; (d) Transactions "deemed sale" under Section 100 (b) of the Code; (e) Presumptive input tax allowed to be carried over as provided for in Section 20 of these Regulations; (f) A VAT-registered person who is also engaged in transactions not subject to VAT shall be allowed input tax credit as follows: (1) Total input tax which can be directly attributed to transactions subject to VAT; and (2) A ratable portion of any input tax which cannot be directly attributed to either activity. SECTION 14 . Persons who can avail of the input tax credit . The input tax credit on purchase of goods or properties or services shall be creditable: (a) To the purchaser of the domestic goods or properties upon consummation of the sale and on the importation of said goods or properties. The recognition of VAT in the consummation of the sale shall be either the invoicing of the sale, delivery of the goods or payment of the account, whichever comes first. (b) To the importer upon payment of VAT prior to the release of goods from Customs custody. (c) To the purchase of services or the lessee or licensee upon payment of the compensation, rental, royalty or fee. SECTION 15 . Determination of input tax deductible during a taxable month or quarter . All input taxes creditable to a VATregistered person during a taxable month or quarter plus any input tax carried over from the preceding month or quarter plus any input tax carried over from the preceding month or quarter shall be reduced by the amount of the claim for refund or tax credit for VAT and other adjustments, such as, purchase returns or allowances and input tax attributable to exempt sales. The claim for tax credit shall include not only those filed with Bureau of Internal Revenue but also those filed with the Department of Finance, the Board of Investments and the Bureau of Customs. SECTION 16 . Determination of the output and input taxes and computation of VAT payable or excess tax credits . In the sale of goods, properties or services, VAT is computed by multiplying the total amount indicated in the invoice or official receipt by 1/11. This is referred to as the "output tax". The creditable input tax is the VAT on transactions enumerated in Section 13 of these Regulations. 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. This is termed as the VAT payable. If, however, the input tax exceeds the output tax, the excess shall be carried over the succeeding months or quarters. SECTION 17 . Substantiation of claims for input tax credit . (a) Input taxes shall be allowed only if the domestic purchase of goods, properties or services made in the course of trade or business. The input tax should be supported by an invoice or receipt showing the information as required under Section 108 (a) a nd 23 8 of the Code. A BIR cash-register machine tape of a VAT registered buyer shall constitute valid proof of substantiation of tax credit only if the name and TIN of the purchaser is indicated in the receipt and authenticated by a duly authorized representative of the seller. (b) Input tax on importations shall be supported with the import entry or other equivalent document showing actual payment of VAT on the imported goods. (c) Presumptive input tax shall be supported by an inventory of goods as shown in a detailed list to be submitted to the BIR. (d) Input tax on "deemed sale" transactions shall be substantiated with the required invoices. (e) Input tax from payments made to non-resident shall be supported by a copy of the VAT return filed by the resident licensee/lessee in behalf of the non-resident licensor/lessor evidencing remittance of the VAT due. SECTION 18 . Refunds or tax credits of input tax . (a) Zero-rated sales of goods or properties or services Only a VAT-registered person may be given a tax credit certificate or refund of VAT paid corresponding to the zero-rated sales of goods, properties or services, excluding the presumptive input tax and to the extent that such input tax has not been applied against the output tax. The application should be made within two (2) years after the close of the taxable quarter when the sales were made. However, where the taxpayer is engaged in both zero-rated or effectively zero-rated sales and in taxable or exempt sales of goods, properties or services, and where the amount of creditable input tax due or paid cannot be directly and entirely attributable to any one of the transaction, only the proportionate share of input taxes allocated to zero-rated or effectively zero-rated sales can be refunded or issued a tax credit certificate. (b) Capital Goods . Only a VAT-registered person may apply for issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased. The refund shall be allowed to the extent that such input taxes have not been applied against output taxes or other internal revenue taxes. The application should be made within two (2) years after the close of the taxable quarter when the importation or purchase was made. Refund of input taxes on capital goods shall be allowed only to the extent that such capital goods are used in VAT taxable business. If it is also used in exempt operations, the input tax refundable shall only be the ratable portion corresponding to the taxable operations . cd (c) Any unused input taxes as of the date of retirement, change or cessation of status of a VAT-registered person shall be allowed as credit against any output tax resulting from such change of status and the balance, if any, shall, subject to the filing of an application within two (2) years from the date of retirement, change or cessation of status, be issued a tax credit/refund. SECTION 19 . Procedures for claiming refunds or tax credits of input tax a) Where to file the claim for refund or tax credit . Claims for refunds or tax credit shall be filed with the appropriate Revenue District Office (RDO) having jurisdiction over the principal place of business of the taxpayer. However, direct exporters may also file their claim for tax credit with the One Stop Shop Unit of the Department of Finance. b) Cancellation of VAT Registration A person whose registration has been cancelled due to retirement from or cessation of business, or due to changes in or cessation of status under Section 100(c) of the 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 he may use in payment of his other internal revenue taxes. However, he shall be entitled to a refund if he has no pending internal revenue tax liabilities. c) Period Within which Refund or Tax Credit of Input Taxes Shall Be Made . In proper cases, the Commissioner shall grant a tax credit/refund for creditable input taxes within sixty (60) days from the date of submission of complete documents in support of the application filed in accordance with subparagraphs (a) and (b) above. In case of full or partial denial of the claim for tax credit/refund as decided by the Commissioner of Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the receipt of said denial, otherwise the decision will become final. However, if no action on the claim for tax credit/refund has been taken by the Commissioner of Internal Revenue after sixty day (60) period from the date of submission of the application but before the lapse of the two (2)-year period from the date of filing of the VAT return for the taxable quarter, the taxpayer may appeal to the Court of Tax Appeals. d) Manner of Giving Refund . Refund shall be made upon warrants drawn by the Commissioner or his duly authorized representative without the necessity of being countersigned by the Chairman, Commission on Audit (COA), the provision of the Revised Administrative Code to the contrary notwithstanding: Provided , that refunds under this paragraph shall be subject to post audit by the COA. SECTION 20 . Presumptive input tax on beginning inventories . Taxpayers who became VAT-registered persons upon the effectivity of RA No. 7716 or who have exceeded the minimum turnover of P500,000.00 or who voluntarily register even if their turnover does not exceed P500,000.00 shall be entitled to a presumptive input tax on the inventory on hand as of May 28, 1994 on the following: (a) goods purchased for resale in their present condition; (b) materials purchased for further processing, but which have not yet undergone processing; (c) goods which have been manufactured by the taxpayer; (d) goods in process and supplies, all of which are for sale or for use in the course of the taxpayer's trade or business as a VAT-registered person. However, in the case of real estate dealers, the basis of the presumptive input tax shall be the improvements, such as buildings, roads, drainage systems, and other similar structures, constructed on or after the effectivity of E.O. 273 (January 1, 1988). The presumptive input tax shall be 8% of the value of the inventory or actual VAT paid, whichever is higher, which amount may be allowed as tax credit against the output tax of the VAT-registered person. cd i The value allowed for income tax purposes on inventories shall be the basis for the computation of the 8% excluding goods that are exempt from VAT under Sec. 103. Only VAT-registered persons shall be entitled to presumptive input tax credits. CHAPTER V COMPLIANCE REQUIREMENTS SECTION 21 . Registration of Value Added Taxpayers . (a) I n G eneral . Under Section 107 of the Code, any person who sells, barters, exchanges, leases goods or properties and renders services subject to VAT imposed in Sections 100 and 102 of the Code shall register with the appropriate Revenue District Officer and pay an annual registration fee in the amount of One thousand pesos (P1,000) for every separate or distinct establishment or place of business and every year thereafter on or before the 31st day of January. Any person who maintains a head or main office and branches in different places shall register with the Revenue District Office which has jurisdiction over the place wherein the main or head office is located. However, the registration fee shall be paid to any accredited bank in the Revenue District where such person is registered provided that in areas where there are no accredited banks, the same shall be paid to the Revenue District Officer, collection agent, or duly authorized treasurer of the municipality where each place of business or branch is situated. Each VAT-registered person shall be assigned only one Taxpayer's Identification Number (TIN). b) Mandatory : 1) Persons covered. Every person who, in the course of trade or business, sells, barters, exchanges, leases goods, properties or renders services subject to VAT, if the aggregate amount of his actual or expected gross sales and/or gross receipts exceeds FIVE HUNDRED THOUSAND PESOS (P500,000.00) for any 12-month period; 2) Persons first beginning business. Any person, before engaging in the business of selling or leasing goods, properties or services subject to VAT under Sections 100 and 102 of the Code, whose expected gross sales or receipts on all taxable activities for the next 12-month period shall exceed P500,000.00, must register with the appropriate Revenue District Officer where his principal place of business is situated within thirty (30) days before such business is begun, and pay annual registration fee in the amount of P1,000.00 for every separate or distinct establishment or place of business and every year thereafter on or before the last day of January. 3) Persons becoming liable to the Value-added tax. Any person whose gross sales or receipts in any 12-month period exceeds the amount of P500,000.00 shall register and pay the annual registration fee of P1,000 within thirty (30) days after the end of the last month of that period; and shall be liable to the value-added tax commencing from the first day of the month following his registration. c) Optional Registration of VAT-Exempt Person . Any of the following VAT-exempt persons may, at their option, apply for VAT Registration: 1) Seller of goods, properties or services whose taxable sale or gross receipts do not exceed FIVE HUNDRED THOUSAND PESOS (P500,000.00) for any 12-month period; 2) Export seller of agricultural and marine food products in their original state; 3) Export seller of fertilizers, seeds, seedlings, and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds; 4) Export seller of non-food agricultural products, marine and forest products in their original state by the primary producer or owner of the land where the same are produced; 5) Export seller of cotton and cotton seeds in their original state; and copra. Once registered, the taxpayer shall be liable for VAT and be entitled to tax credit/refund. casia SECTION 22 . Non-VAT Registration . Under Section 237 of the Code, every person, other than persons required to be registered under the provisions of Section 107, engaged in any business shall, on or before the commencement of his business or whenever he transfers to another revenue district, register with the Revenue District Office concerned within 10 days from the commencement of business or transfer and shall pay the annual registration fee in the amount of one thousand pesos (P1,000.00) for every separate distinct establishment or place of business and every year thereafter on or before the last day of January. The fee shall be paid to any accredited bank, where each place of business or branch is situated. In areas where there is no accredited bank, such person shall pay the fee prescribed herein with the Revenue District Officer, collection agent, or authorized municipal treasurer. The registration shall contain his name or style, place of residence, business, the place where such business is carried on, and such other information as may be required by the Commissioner in the form prescribed therefor. The following shall be considered as non-VAT registrants: 1. VAT-exempt person under Section 103 (a), ( b ), ( c ), ( d ) a nd (t ) of the Code who did not opt to register as VAT taxpayer; 2. Persons engaged in trade or business, or exercise of profession, other than those subject to VAT and other percentage taxes under Title V of the Code; Any taxpayer who sells goods in the course of his trade or business shall register the place where his inventory of goods for sale or for use in business is kept as well as any of his branch office(s); 3) Non-stock, non-profit organizations and associations engaged in trade or business whose gross receipts do not exceed P500,000.00 for any 12-month period. SECTION 23 . Application for Registration . The application shall be filed with the Revenue District Office where the principal place of business, branch, storage, place or premises is located, as the case may be, before commencement of business or production or qualification as a withholding agent. In the case of storage places, the application shall be filed within (30) days from the date the aforesaid premises have been used for storage. In any case, the Commissioner may, for administrative reasons, deny or revoke any application for registration. SECTION 24 . Certificate of Registration The certificate shall be issued to the applicant by the Revenue District Officer concerned upon compliance with the requirement for registration. SECTION 25 . Posting of VAT-Registration Certificate . Every person registered as a VAT-taxpayer pursuant to Section 107 of the Code, shall post or exhibit his VAT registration Certificate and receipt of payment of registration fee at a conspicuous place in his principal place of business and at each branch in such a way that is clearly and easily visible to the public. SECTION 26 . C ancellation of Registratio n . Any subsequent major change in the original registration shall be effected by accomplishing the Application For Cancellation of Registration (BIR Form 1557) and pay the registration fee, if applicable. However, any minor changes in the original registration (such as change of address within the same RDO, typographical errors, and etc.) which may not necessitate cancellation of the registration shall be effected by accomplishing the Registration Change Form. Some instances where a VAT-registered person may apply for cancellation of registration are: 1) A person has retired from business; 2) A person's business has become exempt in accordance with Section 7(b) of these regulations; 3) A change in the nature of the business itself from sale of taxable goods and/or services to exempt sales and/or services; 4) A change of ownership, in the case of a single proprietorship; 5) Dissolution of a partnership or corporation; 6) Merger or consolidation with respect to the dissolved corporation(s); acd 7) A person who has registered prior to planned business commencement fails to actually start his business; 8) A person whose transactions are exempt from VAT under Section 103(a), (b), (c), (d), and (t) who voluntarily registered under the VAT system, who after the lapse of two years, applies for cancellation of his registration as such; 9) A VAT registered person whose gross sales or receipts for two consecutive years did not exceed P500,000.00; and 10) A VAT-registered person whose gross sales or receipts did not exceed P500,000.00 during his first 12 months in business. The RDO shall, upon application of any person who ceases to be liable to VAT cancel the registration of the said person. Any person otherwise exempt who opted to be registered under paragraph (d) of Section 107 of the Code and Section 21(c) of these Regulations may apply for cancellation for such registration. Upon cancellation of registration under (9) and (10) above, the taxpayer shall become liable to the 3% percentage tax imposed in Section 112 of the Code. A final VAT return for the remaining period that he was registered shall be filed within twenty (20) days from the date of cancellation of his registration up to the end of his initial quarter. For purposes of the 3% percentage tax, the taxpayer shall file quarterly return corresponding to the quarter of the taxable year adopted by him for income tax purposes. An initial return shall be filed corresponding to the period from the date of cancellation of his registration up to the end of his initial quarter. All applicants for cancellation of registration due to closure/cessation or termination of business shall be subjected to immediate investigation by the RDO concerned to determine the taxpayer's tax liabilities. SECTION 27 . Change of address or principal place of business . Whenever a VAT-registered person changes his place of principal business, he should file a notice in the prescribed form within fifteen (15) days from the date such change was made. If the change of address is within the revenue district, the notification shall be filed with the RDO in that district. However, if the change of address is from one revenue district to another revenue district, the RDO in his former and new place of business should both be notified. In the case of change of place of business or branches or creation of a new branch, the RDO where his principal place of business is situated shall be notified. SECTION 28 . Indication of Taxpayer Identification Number (TIN) For tax identification purposes, any person required under the authority of the Code, to make, render, or file a return, statement, or a document, shall be supplied with or assigned a TIN, which shall be indicated on such return, statement or document. Any person who shall secure more than one TIN or who fails to indicate his correct TIN as required in the foregoing paragraph, shall be criminally liable under the provision of Section 274 of the Code. CHAPTER VI INVOICE AND/OR RECEIPTS SECTION 29 . (a) Invoicing Requirements . All VAT-registered person shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: 1) A statement that the seller is a VAT registered person, followed by his TIN; and 2) The total amount which the purchaser pays or is obligated to pay to the seller. Only VAT-registered persons can print their TIN, followed by the word "VAT", which shall be their VAT registration numbers in their invoices or receipts and this shall be considered as a "VAT Invoice". All purchases covered by invoices other than "VAT Invoice" shall not give rise to any input tax. If the taxable person is also engaged in exempt operations, he should issue separate invoices or receipts for the taxable and exempt operations. A "VAT Invoice" shall be issued only for sales of goods or services subject to VAT imposed in Sections 100 and 102 of the Code. The invoice or receipt shall be prepared in quadruplicate. The 1st and 2nd copies shall be given to the buyer and the 3rd and 4th copies to be retained by the seller. The 2nd copy shall be attached to the VAT return to be filed by the buyer and the 3rd shall also be attached to the VAT return to be filed by the seller. The original copy shall be presented by the grantee of refund or tax credit certificate to be cancelled by the issuing internal revenue office prior to the release of said refund or tax certificate. In the case of government offices-buyers, the 2nd copy of the invoice shall be submitted to the Revenue District of the city or municipality where the said government office is located within 15 days following the end of each calendar quarter pursuant to Memorandum Order No. 219 of the President of the Republic of the Philippines dated February 13, 1989. SECTION 30 . Accounting requirements . Notwithstanding the provisions of Section 233, all persons subject to VAT tax under Sections 100 and 102 of the Code 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 Commissioner of Internal Revenue. SECTION 31 . 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 its purchase of goods from sellers and services rendered by contractors which are subject to the value-added tax imposed in Sections 100 and 102 of the Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on gross receipts for services rendered by contractors on every release or installment payment which shall be creditable against the VAT liability of the seller or contractor: PROVIDED , however that the VAT payment for lease or use of properties or property rights to non-resident owners shall be subject to 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. SECTION 32 . Tax On Persons Exempt From VAT . Any person whose sales or receipts are exempt under Section 103(t) of the Code from payment of VAT and who is not a VAT-registered person shall pay a tax equivalent to three percent (3%) upon the effectivity of the Act and four percent (4%) two (2%) years thereafter, of his gross quarterly sales or receipts. SECTION 33 . Filing of return and payment of VAT . A) Filing of Return . Every person liable to pay VAT shall file a quarterly return of the amount of his gross sales receipts within twenty (20) days following with close of calendar quarter. B) Payment of VAT . All persons liable to VAT shall pay the tax monthly based on the taxable sales/receipts for the month, using the monthly VAT declaration form within twenty five (25) days after the end of the month. The declaration shall be accomplished only for the first two months of each calendar quarter. The VAT payable (output tax less input tax) for each calendar quarter shall be reduced by the total amount of the tax(es) previously paid for the preceding two months and/or the sum of the excess input taxes allowed under Title IV of the Code. cdt C) Short Period Return . Any person who retires from business or whose registration has been cancelled shall file a final quarterly return and pay the tax due thereon within twenty (20) days from the date of cessation from business or cancellation of registration. The final return may cover a period of less than three (3) months. Thus, if a taxpayer's certificate of registration is cancelled on April 30, 1994, he shall file his final quarterly VAT return and pay the tax per return on or before May 20, 1994. A newly registered VAT person under Section 21 (b)(2) of these Regulations shall file an initial monthly VAT declaration and pay the tax due thereon within twenty five (25) days after the end of the month of registration, and shall file the initial quarterly return and pay the tax due thereon on or before the 20th day of the month following the end of the calendar quarter, in which case no monthly declaration need be filed by the taxpayer and the quarterly VAT return shall be filed not later than the 20th day of the month following the end of the quarter. All persons first registered under Section 21(b)(3) and 21(c) of these Regulations shall be liable to VAT on the effective date of registration stated in their Certificates of Registration; i.e., the first day of the month following their registration. If the effective date of registration falls on the first or second month of a calendar quarter, the initial VAT monthly declaration shall be filed within twenty five (25) days after the end of the month, and the initial quarterly return shall be filed on or before the calendar quarter. On the other hand, if the effective date of registration falls on the third month of the calendar quarter, the quarterly return shall be filed on or before the 20th day of the month following the end of the quarter, and no VAT monthly declaration need be filed. Thereafter, the VAT-registered person shall file his VAT monthly declarations and quarterly returns in accordance with Sec. 34(A) and (B) of these regulations. D. Where to file and pay . The monthly VAT declaration and quarterly return shall be filed with, and the VAT due thereon paid to, a bank duly accredited by the Commissioner located in the revenue district where such person is registered or required to be registered. In cases however where there are no duly accredited agent banks within the municipality or city, the return shall be filed with and any amount due shall be paid to the Revenue District Officer, Collection Agent or duly authorized Treasurer of the Municipality where such taxpayer has his principal place of business. Only one consolidated VAT declaration where no payment, either by cash, check, or Tax Debit Memo, is involved, shall be filed with the Revenue District Officer, Collection Agent or duly authorized Treasurer of the Municipality where the taxpayer has his principal place of business. cd i CHAPTER VII SECTION 34 . Transitory, Effectivity and Repealing Provisions . a) Short quarter return Any person filing percentage tax return either on a fiscal or calendar quarterly basis who will be subject to VAT on the effectivity of RA 7716 shall file on or before July 20, 1994, a short quarter percentage tax return for the period ending May 27, 1994, after which the initial VAT return and the succeeding returns shall be filed in accordance with these Regulations. Similarly, persons who have ceased to become liable for VAT upon the effectivity of R.A. No. 7716 shall file a short quarter return covering the period ending May 27, 1994. This short quarter returns shall be filed on or before June 25, 1994. b) Presumptive Input Tax Credits (i) For goods, materials or supplies not for sale but purchased for use in business in their present condition, which are not intended for further processing and are on hand as of date of registration or July 1, 1994 whichever is earlier, a presumptive input tax equivalent to 8% of the value of the goods or properties shall be allowed. (ii) For goods or properties purchased with the object of resale in their present condition, the same presumptive input tax equivalent to 8% of the value of the goods unused as of May 27, 1994 shall be allowed, which amount may also be credited against the output tax of a VAT-registered person. (iii) For real estate dealers, the presumptive input tax of 8% of the value of improvements constructed on or after January 1, 1988 (then effectivity of E.O. 273) shall be allowed. For purposes of sub-paragraphs (i), (ii) and (iii) above, an inventory as of May 27, 1994 of such goods showing the quantity, description, and amount should be filed with the RDO not later than 45 days from the effectivity of RA 7716. c) Unused invoices or receipts All VAT-registered persons who have in their possession invoices or receipts printed prior to May 28, 1994, should submit an inventory of such invoices or receipts indicating the number of unused booklets and the corresponding serial number on or before June 28, 1994. The use of such invoices or receipts will be allowed for use in transactions subject to VAT on the condition that the VAT-registered person shall be required to stamp on all copies of the unused invoices or receipts with the words "VAT-registered as of _________, 1994." The District to which the principal place of business is located should also be indicated in the stamp. These unused invoices or receipts with the proper stamp shall be allowed for use in transactions subject to VAT only within six months from the effectivity of these Regulations. casia d) Registration and Payment of VAT . During the declared transitory period between May 28, 1994 up to June 30, 1994, the following guidelines shall be followed: Group 1 Those VAT-Taxpayers under E.O. No. 273 (Old Law) Need only to re-register starting May 30 to June 30, 1994; pay the registration fees of P 1,000.00 for every separate or distinct establishment either in full or in five (5) equal monthly installments; and indicate the word VAT on all copies of unused VAT invoices/receipts. They shall continue to be entitled to VAT input tax credit. Group II Those Taxpayers becoming liable to VAT under R.A. No. 7716 are required to register as VAT taxpayer starting May 30 to June 30, 1994; pay registration fees of P1,000.00 for every separate or distinct establishment or place of business either in full or in five (5) equal monthly installments; submit inventory list of unused Non-VAT Invoices/receipts; and indicate the word VAT on all copies of unused Non-VAT invoices/receipts. The VAT taxpayers shall become liable for the output VAT on registration date on July 1, 1994 whichever comes first and shall be entitled to input VAT credit from date of VAT registration on purchases from VAT-Registered suppliers of goods and properties or lease of service. The initial monthly VAT declaration and payment thereof for those liable for the output tax for the month starting July 1, 1994 shall be due not later than August 25, 1994. GROUP III Those VAT Taxpayers who cease to become VAT liable under R.A. No. 7716 shall apply for cancellation of their VAT registration and submit inventory list of unused VAT invoices/receipts for stamping as Non-VAT. They shall, however, when applicable, register as non-VAT-taxpayers and pay the registration fees of P1,000.00 for every separate or distinct establishment or place of business either in full or five (5) equal monthly installments. GROUP IV Non-VAT Taxpayers engaged in business are required to register starting May 30 until June 30, 1994, as Non-VAT Taxpayers under Section 237 of the Code and shall pay the registration fees of P 1,000.00 for every separate or distinct establishment or place of business either in full or in five (5) equal monthly installments. e) Penalties Those who fail to register within the registration period from May 30, 1994 to June 30, 1994 shall be liable to VAT starting July 1, 1994 but they cannot pass on said output VAT to their customers. Likewise, they cannot claim input VAT credit for purchases of goods, properties and services even from VAT registered suppliers. On the other hand, buyers cannot claim input tax credit for purchases of goods from VAT Registrable sellers who failed to register during the period of registration. SECTION 35 . Moratorium on the Effectivity of the Imposition of VAT on Certain Goods, Properties and Services . VAT should be levied, assessed and collected, two years after the effectivity of R.A. No. 7716, on the following: (a) Services performed in the exercise of profession or calling subject to the professional tax under the Local Government Code or R.A. No. Act 7160, and professional services performed by registered general professional partnerships; actors, actresses, talents, singers and emcees; radio and television broadcasters, choreographers; musical, radio, movies, television and stage directors; and professional athletes. (b) Services rendered by banks, non-bank financial intermediaries, finance companies and other financial intermediaries not performing quasi-banking functions; (c) Services rendered by international cargo vessels, which includes international airlines and freight forwarders with their own fleet and/or planes; and (d) The lease or use by the amateur players of sports facilities and equipment which are not exclusively or mainly for the private use of shareholders or members of the club or o rganization which owns or operates the facility as provided under R.A. No. 6847. However, before the effectivity period herein provided, the above-listed services shall continue to be subject to the percentage taxes. Thereafter, VAT shall commence to be imposed on the said services unless the President, upon the recommendation of the Secretary of Finance, decides otherwise based on the criteria provided in this section. In the event of any such exclusion by the President, the above-listed services shall continue to be subject to the percentage taxes. SECTION 36 . Repealing Clause . All regulations, rulings, orders, or portions thereof which are inconsistent with the provisions of these Regulations are hereby revoked and/or amended. R.A. No. 7 716 expressly repealed certain paragraphs of Article 3 7 of Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987 to wit: 1. "Paragraph (c)" which refers to exemption from customs duty and tax on imported capital equipment. 2. "Paragraph (d)" which refers to tax credit on domestic capital equipment, and cd i 3. "Paragraph (e)" which refers to exemptions on contractor's tax (now VAT). Enterprises registered with BOI under EO 226 before May 28, 1994 shall continue to enjoy the above benefits and incentives. However, enterprises registered under EO 226 after May 28, 1994, shall now be subject to VAT on imported capital equipment and VAT on services rendered and shall not be entitled to tax credit on domestic capital equipment insofar as VAT is concerned. SECTION 37 . Effectivity . These Regulations shall take effect fifteen (15) days after publication in a newspaper of general circulation in the Philippines. (Sgd.) ROBERTO F. DE OCAMPO Secretary of Finance Recommending Approval: (Sgd.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue