Philippines – indirect tax guide
Philippines – indirect tax guide
Explore the requirements and rules that apply to indirect taxes in Philippines.
General
VAT.
Standard rate:
12 percent.
What supplies are liable to the standard rate?
Sale; barter; exchange of goods and/or properties in the course of trade or business in the Philippines; sale of services including the use or lease of properties in the course of trade or business in the Philippines; and importation of goods into the Philippines, whether or not in the course of trade or business.
Are there any reduced rates, zero- rates or exemptions and if so, what do they apply to?
Zero-rate transactions include:
- export sales
- foreign currency denominated sales
- sales to any person/entity whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sale to zero-rate
- sales of services rendered to persons engaged in business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed (the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)); and other services contemplated in Section 108 (B) of the National Internal Revenue Code (NIRC).
Pursuant to the Tax Reform for Acceleration and Inclusion Act (TRAIN), which is effective from 1 January 2018, certain export sales under section 106 and 108 of the NIRC would be subject to twelve percent (12 percent) VAT and no longer be zero-rated upon satisfaction of certain conditions, including the successful establishment and implementation of the enhanced VAT refund system. With this development, the sale of goods to certain entities with incentives (e.g. PEZA-registered enterprises) are no longer zero-rated. Instead, the entities need to first pay 12 percent VAT and then claim a refund for unutilized input VAT under the enhanced VAT refund system.
Exempt transactions include, among others, certain residential sales or leases; educational services; employment; services rendered by regional or area headquarters established in the Philippines by multinational corporations that act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia Pacific Region and do not earn or derive income from the Philippines; transport of passengers by international carriers doing business in the Philippines; sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment, and spare parts for domestic or international transport operations; sale or lease of goods and services to senior citizens and persons with disabilities; association dues, membership dues, other assessments and charges collected on a purely reimbursement basis by homeowners’ associations and condominium corporations; sale of drugs and medicines prescribed for diabetes, high cholesterol and hypertension beginning 1 January 2019 as determined by the Department of Health; and sale or lease of goods or properties or the performance of services other than the transactions mentioned (the gross annual sales and/or receipts cannot exceed the amount of 3,000,000 Philippine pesos (PHP)).
VAT/GST registration
Who is required to register and what is the threshold?
Any person or entity who, in the course of trade or business, sells, exchanges, or leases goods or properties, or renders services; and any person who imports goods if gross sales or receipts per annum exceed PHP3,000,000.
Is voluntary registration possible?
Yes.
Is voluntary registration available for an overseas company or a fiscal representative?
No.
VAT/GST compliance
What is the typical frequency of returns?
In general, every taxpayer liable to pay VAT shall file the following returns:
- monthly VAT declaration within 20 days after the end of the month
- quarterly VAT return within 25 days following the close of taxable quarter
- if applicable, remittance return of VAT and other percentage taxes withheld for those required to withhold VAT.
However, taxpayers registered under the Electronic Filing and Payment System (eFPS) shall be required to file monthly VAT declarations within the period prescribed in the VAT Regulations depending on the business industry classification of the taxpayer. The quarterly VAT returns of eFPS filers will still be filed within 25 days following the close of the taxable quarter, regardless of the business industry classification.
VAT/GST recovery
Are there any items that a registered business cannot recover VAT on?
Yes, for instance, input tax attributable to exempt sales may not be used as credit against output tax.
Can an overseas company recover VAT if it is not registered?
No, if an overseas company is subject to VAT in the Philippines, the Philippine payee is required to withhold the applicable VAT. The VAT paid by the Philippine payee can be claimed as input tax by the Philippine payee subject to certain conditions.
How long does it typically take to obtain a VAT refund following a return filing?
A VAT refund in the Philippines is a difficult process, and the proper substantiation of sales (output tax) and purchases (input tax) is critical including compliance with invoicing requirements.
The processing time of VAT refunds has been reduced to 90 days from the date of submission of the official receipts or invoices and other documents which support the application.
Invoices
Are there specific requirements for the content of invoices to be considered valid for VAT purposes?
Yes, invoices must include the following requirements, among others:
- statement that the seller is a VAT registered person followed by his taxpayer identification number (TIN)
- total amount paid with the indication that such amount includes VAT
- the term ‘VAT-exempt sale’ or ‘zero-rated sale’, whichever is applicable (must be written or printed prominently)
- date of transaction, quantity, unit cost and description of goods.
Invoices and official receipts are preapproved by the tax authority in the process of obtaining an Authority To Print (ATP) prior to actual printing.
Special indirect tax rules
Other indirect taxes
Disclaimer
All information within this guide is provided by KPMG professionals in Philippines and based on information available as of September 2019.