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Kimberly Mae R.

Aguidan
BSA IV

Chapter 8: Output VAT Zero-rated Sales

What are Zero-rated sales?


foreign consumptions and sales conferred with an export sale treatments by special laws and
international agreements to which the Philippines is a signatory
foreign consumptions like export of goods or services is not charged with consumption taxes.
Hence, the export sales of VAT taxpayers are subject to VAT at zero rate.
The export of sales of a non-VAT taxpayer are exempt from the 3% general percentage tax.

What is the benefit of zero-rating?


zero output VAT but with a deductible input VAT
taxpayer will fully recover the VAT for paid on his domestic purchases and on importation
either by credit to tax liability of the taxpayer with the govt or by tax refund

Zero-rated Sales Exempt Sales


Output VAT No output VAT. Hence, the taxpayer does not pay VAT.
Treatment of Input VAT Creditable or refundable Non-creditable and non-
refundable
Extent of tax relief Total relief to the taxpayer Partial relief to the taxpayer

Categories of Zero Rated Sales


a. Zero-rated sales of goods or properties
1. Export sales
2. Foreign Currency denominated sales
3. Sales to tax exempt persons or entities under special laws on international agreements
b. Zero-rated sales of services

ZERO-RATED SALES OF GOODS OR PROPERTIES


EXPORT SALES
Under the NIRC as amended, it shall mean:
1. Direct export
2. Indirect export
3. Sale of raw materials or packaging materials to an export-oriented enterprise
4. Sale of gold to BSP
5. Those considered export sales under EO 226 (The Omnibus Investment Code of 1987) and
other special laws
6. Sale of goods or properties, supplies, equipment and fuel to person engage in international
shipping or international air transport operations

Export Sales sales to non-residents


a. Direct export sale and actual shipment of goods from the Philippines to a foreign
country, irrespective of the shipping arrangement.
b. Indirect export 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 buyers

Requirement for zero-rating of export sales to non-residents


a. The sale must have been paid for in acceptable foreign currency or its equivalent in good
or services.
b. The sale must be accounted for under the rules of the BSP.
Kimberly Mae R. Aguidan
BSA IV

Sales to Residents Considered Export Sales


Sale to an export-oriented enterprise
the sale of raw materials or packaging materials to an export- oriented enterprise whose
sales exceed seventy percent (70%) of total annual production is subject to zero-rated VAT.
Any enterprise whose export sales exceed 70% of the total annual production of the
preceding taxable year shall be considered and export-oriented enterprise

Sale of gold to the BSP


fulfils the same purpose of increasing our national reserve similar to a direct export or a
foreign currency denominated sale
considered at export sale and is legally conferred a zero-rating treatment

Transactions considered export sales under EO 226 and other special laws
It shall mean:
1. The Philippine FOB value of export products exported directly by an export producer.
2. The net selling price of export products sold by a registered export producer to another
export producer.
3. The net selling price of export products sold by a registered export producer to an
export trader that subsequently exports the same
4. Even without actual exportation, the following shall be considered constructively
exported:
a. Sales to bonded manufacturing warehouses of export-oriented enterprises
b. Sales to export processing zones pursuant to RA 7916, 7903, 7922 and other similar
export processing zones
c. Sales to enterprises duly registered and accredited with the Subic Bay Metropolitan
Authority
d. Sales to registered export traders operating bonded manufacturing warehouses
supplying raw materials in the manufacture of export products
e. Sales to diplomatic missions and other agencies and or instrumentalities granted tax
immunities, of locally manufactured, assembled or repacked products whether or
not paid for in foreign currencies
f. Sales of goods, properties or services to a BOI- registered manufacturer or producer
made by VAT-registered supplier to a BOI registered manufacturer or producer
whose products are 100% exported are considered export sales.

Commission income on export sales


the export sales of registered export traders shall include commission income.
Exportation of goods on consignment shall not be considered export until the export products
abroad are in fact sold by the consignee

Sale of goods, supplies, equipment and fuel to persons engaged in international shipping or
international air transport operations
generally used outside Philippine territories
The sale to these entities is foreign consumption rather than domestic consumption, hence,
subject to zero-rated VAT
Limited to goods, supplies, equipment and fuel pertaining to or attributable to the transport of
goods and passengers from a port in the Philippines directly to a foreign port, or vice versa, without
docking or stopping at any port in the Philippines unless the docking or stopping is for the purpose of
unloading passengers and or cargoes originated from abroad, or to load passengers and or cargoes
bound for abroad
Kimberly Mae R. Aguidan
BSA IV

FOREIGN CURRENCY DENOMINATED SALE


sale to non-residents of goods, except export of automobiles and non-essential commodities,
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 regulation
of BSP

Sales under the Internal Export Program of the government


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 Internal Export Program of the government paid for in convertible
foreign currencies and accounted for with the rules and regulations of the BSP shall also be
considered export sales.

SALES TO TAX-EXEMPT PERSONS OR ENTITIES UNDER SPECIAL LAWS OR INTERNATIONAL


AGREEMENT

Tax-exempt entities under special law:


a. Subic bay metropolitan authority- registered enterprises
b. Philippine economic zone authority- registered enterprises
c. Philippine national red cross
d. PAGCOR

Tax-exempt entities under international agreements


a. Asian development bank
b. International rice research institute
c. United nation and its various orgs (world health org & UNICEF)
d. United stated agency for international development
e. Embassies, qualified employees and dependents subject to reciprocity rule

The VAT reciprocity exemption on embassies and their personnel


Embassies and their qualified employees and dependents of employees do not have indirect
tax exemption under the Vienna Convention on Diplomatic Relations but they may be exempt
under the principle of reciprocity.
Under the reciprocity rule, foreign governments granting Philippine embassies and diplomats
indirect tax exemption shall likewise be conferred the same treatment on their embassies or
diplomats in the Philippines.
VAT taxpayers selling to foreign embassies, personnel or their dependent with VEC or VEIC
shall be entitled to the benefit of zero-rating.

EFFECTIVELY ZERO-RATED SALES OF GOODS OR PROPERTIES


local sale of goods or properties by a VAT-registered person to a person or entity who was granted
indirect tax exemption under special laws or international agreement

Requirement for effective zero-rating


require prior application with the appropriate BIR office for effective zero-rating. Without an
approved application for effective zero-rating, the transaction otherwise entitled to zero-rating
shall be considered exempt.
an approved application shall be given prospective effect from the date received by the BIR.
The same shall be valid until Dec 31 of the same year and renewable every year thereafter.
Kimberly Mae R. Aguidan
BSA IV

ZERO-RATED SALES OR SERVICES

Categories:
1. Sale of services to non-residents
2. Effectively zero-rated sales of services
3. Transport of passengers and cargoes by domestic air or sea carriers from the Philippines to a
foreign country
4. Sale of power fuel generated from renewable sources of energy

Sales of services to non-residents


1. Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines, which goods are subsequently exported
2. Services other than processing, manufacturing or repacking rendered to a person 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.
*other services not limited only to project studies, info services, engineering and architectural
designs as originally conceived by the BIR.

Requirement:
a. The services must be performed in the Philippines
b. The services must be paid for in acceptable foreign currency or its equivalents in goods
or services
c. The payment must be accounted for under the rules and regulations of the BSP.

Effectively zero-rated sales of services


refer to the local sale of services to a person or entity who was granted indirect tax exemption
under special laws or international agreements
shall be limited to local sale to persons to a person or entities that enjoy exemption from
indirect taxes:
a. Services rendered to persons/ entities exempt under special law or international
agreement
b. Services rendered to persons engaged in international shipping or air transport
operations, including leases of property for use thereof
c. Services performed by subcontractor and or contractors in processing, converting or
manufacturing goods for an enterprise whose export sales exceed 70% of total annual
production

Transport of passengers and cargo by domestic air or sea carriers from the Philippines to a
foreign country
outgoing: subject to zero-rated VAT
incoming transport services of domestic air carrier or sea carrier constitute services rendered
abroad to non-residents: foreign consumption exempts from VAT

Sale of power or fuel generated through renewable sources of energy


zero-rated; includes biomass, solar, wind, hydropower, geothermal and steam, ocean energy
and other emerging sources using technologies such as fuel cells and hydrogen fuels

Types of Businesses in the electricity business:


a. Generation companies persons or entities authorized by the Energy Regulatory
Commission to operate facility used in the production of electricity
Kimberly Mae R. Aguidan
BSA IV

b. Transmission companies any person or entity that owns and conveys electricity
through the high voltage backbone system and or subtransmission assets
c. Distribution companies persons or entities including a distribution utility such as
electric cooperative which operates a distribution system with the provision of RA 9136