Indirect tax - Philippines

Value Added Tax (VAT) is the main type of indirect taxation in the Philippines.
VAT is levied on every sale, barter, or exchange of goods or properties, on every importation, and on the sale or exchange of services, including digital services, and the use or lease of properties in the Philippines.

A VAT-registered seller  charges VAT (output VAT) on its sales, and incurs VAT (input VAT) on its purchases (including VAT paid on importation, among others). Only the input VAT attributable to VATable and zero-rated sales is deductible against output VAT.

If the amount of output tax exceeds the input tax, the resulting difference is the VAT payable, which must be remitted by the seller to the taxing authority. On the other hand, if the amount of input tax exceeds the output tax, the excess input VAT may be carried over to the next quarter.  Input VAT attributable to zero-rated sales may entitle the seller to an input tax credit or refund, subject to certain conditions.

A VAT-registered seller may deduct the output VAT related to uncollected receivables from its output VAT in the following quarter, after the lapse of the agreed upon period to pay, provided that the seller has fully paid the VAT on the transaction; provided further, that the VAT component of the uncollected receivables has not been claimed as allowable deduction under Section 34(E) of the Tax Code.

The rates of VAT that are applied to goods and services in the Philippines are the standard rate of 12% and the zero rate. In addition, some goods and services are exempt from VAT.

Input VAT related to zero-rated sales may be used as an input tax credit against output tax due from transactions subject to the 12% VAT rate, or it may be recovered from the government by applying for a tax refund or tax credit. On the other hand, input VAT attributable to its VAT-exempt sales forms part of the cost to acquire what was purchased.

Goods imported into the Philippines are subject to VAT at a rate of 12% based on the total value used by the Bureau of Customs for computing tariff and customs duties. This value includes customs duties, excise taxes (if any), and other charges incurred prior to the release from customs custody.

Sales of VAT-registered suppliers of goods and services directly attributable to the registered project or activity of a registered export enterprise registered with an Investment Promotion Agency (IPA), such as those registered with Philippine Economic Zone Authority (PEZA) or the Board of Investments (BoI), among others, or a registered high-value domestic market enterprise, including expenses incidental thereto, subject to conditions, are zero-rated. PEZA and BOI- registered entities are not subject to 12% VAT on importation, subject to certain conditions.

A taxpayer who either makes or intends to make taxable supplies of goods or services in the course or furtherance of a business must register for VAT if the value of its annual gross sales exceed Php 3,000,000, or is expected to exceed the limit in the near future. A business can register on a voluntary basis even if the registration limit has not been exceeded. Taxpayers who opted not to register are required to pay 3% tax on their gross quarterly sales.

Branches must register separately from the head or main office, although only one consolidated VAT return must be filed for the principal place of business or head office and its branches.

There is no group VAT registration in the Philippines.

If a person who is liable to register for VAT fails to register, they shall be liable to pay output VAT as if they were a VAT-registered person, but without the benefit of input tax credits for the period in which he was not properly registered. Suspension or temporary closure of a business may also be imposed for failure to   register and shall be lifted only upon compliance with whatever requirements prescribed by the Commissioner in the closure order.

Overseas companies not established in the Philippines are not required to register for VAT in the Philippines, except for nonresident digital service providers (NDSP) who sells digital services consumed in the Philippines.

NDSPs that sell digital services consumed in the Philippines are required to register for VAT with the BIR. Failure to register may result in suspension of operations in the Philippines and various penalties.

Yes. Under the newly signed Value-Added Tax on Digital Services Act (R.A. No. 12023), digital services provided by a NDSP for digital services consumed in the Philippines shall be subject to 12% VAT based on gross sales beginning 02 June 2025.

For the sale by NDSP of digital services consumed in the Philippines, the manner of remitting the VAT will depend on the type of customer. If it’s a business-to-business (B2B) transaction, including transactions with the Philippine government, VAT will be remitted through a withholding VAT mechanism (i.e., reverse charge mechanism). On the other hand, if it’s a business-to-consumer (B2C) transaction, the NDSP shall remit the VAT to the BIR. The NDSP shall not be allowed to claim creditable input VAT.

No, the appointment of a fiscal representative is not required in the Philippines for a non-established foreign business to be registered with the taxing authority.

In case a non-established foreign business is subject to VAT in the Philippines for services rendered in the Philippines, or in case an NDSP provided digital services consumed in the Philippines to a person engaged in business in the Philippines, the VAT shall be withheld and remitted by the person or entity in the Philippines on behalf of the unregistered person by filing a separate VAT declaration/return (BIR Form 1600-VT). In case the transaction of the NDSP is with a consumer, the NDSP will be the one to remit the VAT to the BIR.

The VAT withheld and paid for the non-established foreign business and NDSP which VAT is passed on to the person or entity in the Philippines may be claimed as input tax. The duly filed BIR Form 1600-VT and proof of payment thereof shall serve as documentary substantiation for the claim of input tax by the person or entity in the Philippines upon filing its own VAT return.

On the other hand, VAT-registered NDSP may appoint a resident third-party service provider (an individual or entity, such as a law firm, accounting firm, or consultancy firm) for purposes of receiving notices, record keeping, filing of tax returns and other reporting obligations. The NDSP shall notify the BIR in writing within 30 calendar days from the date of appointment.

The Philippine VAT law and regulations imposes upon VAT- registered taxpayers an obligation to file VAT returns on a quarterly basis. The quarterly VAT returns cover the amount of gross sales for the taxable quarter and should be filed by a VAT-registered taxpayer, whether filing manually or electronically, not later than the 25th day following the close of the taxable quarter.

The VAT-registered taxpayer, however, has the option to continue to file and pay the VAT on a monthly basis, but a quarterly VAT returns is required to be filed.

No annual VAT return is required to be filed by VAT-registered taxpayers in the Philippines.

For medium and large taxpayers, the penalties are 25% surcharge on the unpaid amount of tax, additional 12% interest per annum (p.a.) computed from the date prescribed for the payment until amount is fully paid, P1,000 for failure to file certain information returns, and compromise penalties based on the amount of tax belatedly remitted to the taxing authority.

On the other hand, for micro and small taxpayers, the penalties are 10% surcharge on the  unpaid amount of tax, additional 6% interest p.a. computed from the date prescribed for the payment  until amount is fully paid, P500 for failure to file certain information returns, and reduced compromise penalties of at least 50% based on the amount of tax belatedly remitted to the taxing authority.

In case of willful neglect to file a VAT return within the prescribed period, or in case a false or fraudulent return is willfully made, a surcharge of 50% of the tax or deficiency tax shall be collected in addition to the interest imposed on the unpaid amount of tax, and compromise penalty.

All VAT-registered taxpayers are required to submit quarterly  summary list of sales (SLS), summary list of purchases (SLP)  and, if applicable, summary list of importations (SLI). The information in the summary lists is used for computerized matching to detect under declaration of sales and/or purchases.

VAT-registered persons with discrepancy on their sales and/or purchases shall be notified of the findings through a letter of notice (LN). Once the LN was issued to the taxpayer, the taxpayer shall be disqualified from amending his/her/its return covering the period referred to in the LN upon issuance of the same. In case the taxpayer refutes the discrepancy, the taxpayer shall be given the opportunity to reconcile its records with the BIR and to submit documentary proofs in support of its arguments.

In case of no response from the taxpayer, or the taxpayer failed to settle the deficiency tax and corresponding penalties, a letter of assessment shall be issued.

Yes. A range of penalties can be imposed where businesses do not comply with the VAT rules.

Aside from the penalties for late and erroneous filing of returns, administrative and penal sanctions may be imposed, among others, in the following cases:

• failure to issue invoices
• failure to submit the quarterly list of sales and purchases
• failure to maintain or keep any record and supply the correct and accurate information
• failure to indicate separately the VAT in the VAT invoice
• printing of other fraudulent receipts or sales or commercial invoices.

Criminal proceedings may be brought into the case of more serious matters.

No. The VAT incurred by an overseas business may not be claimed for refund or input VAT credit if it is not registered as a VAT taxpayer in the Philippines.

Only VAT-registered taxpayers can claim the VAT incurred as deduction from output VAT,  or apply for refund the unutilized excess input tax attributable to zero-rated sales. 

A VAT invoice must show:

• a statement that the seller is a VAT-registered person, followed by his Taxpayer Identification Number (TIN)
• the total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT, provided that:
  • the amount of tax shall be shown as a separate item in the invoice or receipt
  • if the sale is exempt from VAT, the term ‘VAT-exempt sale’ shall be written or printed prominently on the invoice or receipt
  • if the sale is subject to 0% VAT, the term ‘zero-rated sale’ shall be written or printed prominently on the invoice or receipt
  • if the sale involves goods, properties or services, some of which are subject to 12% VAT and some of which are VAT zero rated or VAT-exempt, the invoice shall clearly indicate the breakdown of the sale price between its taxable, exempt and zero-rated components, and the calculation of the VAT on each portion of the sale shall be shown on the invoice. The seller has the option to issue separate invoices for the taxable, exempt, and zero-rated components of the sale.
• The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service;
• In the case of sales in the amount of one thousand pesos (P1,000.00) or more where the sale or transfer is made to a VAT-registered person, the following additional information should be indicated in the VAT invoice: (a) the name; (b) address, and (c) TIN of the purchaser, customer or client.

Only VAT invoices duly registered with the Bureau of Internal Revenue can be issued and be used as a valid source of input VAT. In case the taxpayer uses a computerised accounting system which includes e-invoicing, an Acknowledgement Certificate must be secured from the Bureau of Internal Revenue prior to its use.

On the other hand, for VAT-registered NDSP supplying or delivery digital services that are consumed or used in the Philippines, the following information shall be indicated in the invoice:

• Date of the transaction;
• Transaction reference number;
• Identification of the consumer;
• Brief description of the transaction; and
• The total amount with the indication that such amount includes the value-added tax:

If the sale of digital services includes some services which are subject to VAT, and some that are VAT zero-rated, or VAT-exempt, the invoice shall clearly indicate the breakdown of the sale price by its taxable, VAT-exempt, and VAT zero-rated components: Provided, further, That the calculation of the value-added tax on each portion of the sale shall be shown on the invoice.

Sales or commercial invoices issued by NDSP may be electronic and need not be registered with the BIR. The contents should be in English language or include an English translation and all the required information above are present in the issued invoice. Consequently, NDSP are not required to secure an Authority to Print for the related invoices.

Yes. Pursuant to TRAIN Law (R.A. No. 10963), as amended by CREATE More Law (R.A. No. 12066), a business entity engaged in the export of goods and services, and taxpayers under the jurisdiction of the Large Taxpayers Services, are required to electronically report their sales data to   the taxing authority through the use of electronic point of sales systems upon the establishment of a system capable of storing and processing the required data.