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Amendments to the VAT regulations

Amendments to the VAT regulations (Revenue Regulations No. 4-2007, Published March 22, 2007)

The BIR has provided clarifications and introduced amendments to Revenue Regulations (RR) No. 16-2005 or the comprehensive VAT regulations, as follows:

1.      The 12% VAT rate was reflected in the regulations.

2.      Sale of real properties

2.1.   Determination of the VAT component -  If the contract is silent, the selling price in the sales document shall be deemed VAT-inclusive.  If the FMV is higher than the selling price, the FMV shall be deemed VAT-exclusive. 
2.2.   For installment sale, the output/input VAT shall be recognized upon receipt/payment of every installment payment.  If the FMV is higher than the selling price, the output VAT shall be [Actual Collection ÷ Agreed consideration net of VAT × FMV × VAT rate], billed separately and noted as based on the FMV.  The VAT rate on the date of installment payment applies, regardless of when the contract to sell was executed. 
2.3.    In a tax-free exchange pursuant to Sec. 40(C )(2) of the Tax Code, transfer of real property between two real estate dealers in exchange for shares shall be VAT-exempt.

3.      Sale  of goods/properties to ecozone enterprises (PEZA ecozones, Cagayan SEZ, Zamboanga City SEZ and SBMA) shall be considered constructive exports subject to automatic VAT zero-rating. No similar amendment was introduced on sale of services.

4.      Reinsurance premiums - Non-life reinsurance premiums shall not be subject to VAT if the non-life insurance premium has already been subjected to VAT.

5.      Gross receipts  subject to VAT shall not include

5.1.   Amounts earmarked for payment  to an unrelated third party, or
5.2.   Amounts received as reimbursement for advance payment made to a third party

The payment should be evidenced by a sales invoice/official receipt in the name of the party claiming the expense.  Employees, affiliates, relatives, and trust fund where the taxpayer is the trustor, trustee or beneficiary shall be considered as related parties.

6.      Exempt transactions

6.1.   Sale of an agricultural cooperative to non- members shall be VAT-exempt only if the agricultural products sold are produced by the cooperative itself.

6.2.   Sale of real property not primarily held for sale or for lease is, in general, VAT-exempt.  However, if such property is used in the trade or business of the seller, the sale shall be subject to VAT as an incidental transaction to the seller’s main business.

6.3.   Importation of capital equipment and supplies for the operation or construction of shipping vessels are exempt subject to the provisions of “The Domestic Shipping Development Act of 2004”.

6.4.   Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations shall be exempt even if the vessel stops in another  Philippine port to unload passengers/cargoes that originated from abroad, or to load passengers/ cargoes bound for abroad before leaving for a foreign port.

6.5.   Services of money changers and pawnshops as non-bank intermediaries are subject to percentage tax, hence exempt from VAT.

7.      Input VAT on construction in progress (CIP) shall be recognized and claimed in the month of purchase (for goods) or payment (for services), if supported by a proper VAT invoice or official receipt.  The P1 million threshold on purch ase of capital goods requiri ng am ortization of the input tax es shall not apply on CIP.

8.      Final withholding VAT on government purchases remains at 5% while the standard input VAT is increased to 7%.

9.      Advance VAT payments which remained unutilized for more than one year prior to the effectivity of RR 4-2007 may be applied for issuance of TCC within two years from the date of filing or the due date.

10.  Mandatory registration applies within 30 days from the end of the taxable year to radio/ TV broadcasters whose gross annual receipt for the taxable year exceeded P10M.

11.  Registration of non-VAT taxpayers -  The following shall register as non-VAT taxpayers:

11.1. Radio and TV broadcasting whose gross annual receipts do not exceed ten million pesos (P10,000,000) and which do not opt to be VAT registered.

11.2.   PEZA, SBMA and other ecozone/free port zone registered enterprises under the 5% tax on GIE.


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