Vat on Sale of Goods or Properties

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VAT ON SALE OF GOODS OR PROPERTIES Requisites of taxability of sale of goods or properties: 1. There is an actual or deemed sale, barter or exchange of goods or personal properties for valuable consideration; 2. The sale is in the course of trade or business or exercise of profession in the Philippines; 3. The goods or properties are located in the Philippines and are for use or consumption therein; and 4. The sale is not exempt from VAT under Section 109 of NIRC, special law, international agre
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   VAT ON SALE OF GOODS OR PROPERTIES   Requisites of taxability of sale of goods or properties:  1.   There is an actual or deemed sale, barter or exchange of goods or personal properties for valuable consideration; 2.   The sale is in the course of trade or business or exercise of profession in the Philippines; 3.   The goods or properties are located in the Philippines and are for use or consumption therein; and 4.   The sale is not exempt from VAT under Section 109 of NIRC, special law, international agreement  binding upon the government of the Philippines. Note:  Absence of any of the above requisites EXEMPTS the transaction from VAT. However, percentage taxes may apply (Section 116, NIRC). Requisites for taxability of sale or exchange of real property: 1.   The seller executes a deed of sale, including dacion en pago , barter or exchange, assignment, transfer, or conveyance, or merely contract to sell involving real property 2.   The real property is located within the Philippines; 3.   The seller or transferor is a real estate dealer 4.   The real property is an ordinary asset held primarily for sale or for lease in the ordinary course of  business 5.   The sale is not exempt from VAT under Section 109 of NIRC, special law, or international agreement binding upon the government of the Philippines 6.   The threshold amount set by law should be met. Note:  Absence of any of the above requisites EXEMPTS the transaction from VAT. However, percentage taxes may apply under Section 116 of NIRC The term goods or properties  which are subject to VAT shall mean 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, trade brand or other like property or right 3.   The right or the privilege to use in the Philippines of any industrial, commercial or scientific equipment 4.   The right or the privilege to use motion picture films, films, tapes and discs 5.   Radio, television, satellite transmission and cable television time (Sec. 106[A][1], NIRC)   Note:  Not all intangible properties are subject to VAT, only those capable of pecuniary estimation. (  Sec. 4.106-2, RR 16-2005  ) Sale of real properties 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. ( 1st par., Sec. 4.16-3, RR 16-2005.  As such, capital transactions of individuals are not subject to VAT. Only real estate dealers are subject to VAT. Taxable sales  refers to the sale, barter, exchange and/or lease of goods or properties, including transactions deemed sale and the performance of service for consideration, whether in cash or in kind. 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 VAT. The excise tax, if any, on such goods or properties shall form part of the gross selling price . The following are allowable deductions from the gross selling price: 1.   Discounts determined and granted at the time of the sale  2.   Sales returns and allowances for which proper credit or refund was made during the month or quarter to the buyer for sales previously recorded as taxable sales. Sale of real property subject to VAT when: 1.   Residential lot with gross selling price exceeding P1.5 million; 2.   Residential house and lot or other residential dwellings with gross selling price exceeding P2.5 million. Note:  Whether the instrument is denominated as a deed of absolute sale, deed of conditional sale or otherwise. Gross selling price (in case of sale or exchange of real property)  is the consideration stated in the sales document or the fair market value whichever is higher. If the VAT is not billed separately in the document of sale, the selling price or the consideration stated therein shall be deemed to be inclusive of  VAT. Initial Payments  are payments which the seller receives before or upon execution of the instrument of sale and payments which he expects or is scheduled to receive in cash or property (other than evidence of indebtedness of the purchaser) during the year when the sale or disposition of real property was made. Installment Plan   Deferred Plan  Initial payments do not exceed 25% of the gross selling price Initial payments exceed 25% of the gross selling price Seller shall be subject to output  VAT on the installment payments received, including the interests and penalties for late payment, actually and/or constructively received. Transaction shall be treated as cash sale which makes the entire selling price taxable in the month of sale. The buyer of the property can claim the input tax in the same period as the seller recognized the output tax. Output tax shall be recognized  by the seller and input tax shall accrue to the buyer at the time of the execution of the instrument of sale. Payments that are subsequent to “initial payments” shall be subject to output VAT Payments that are subsequent to “initial payments” shall no longer be subject to output VAT ZERO-RATED SALES OF GOODS OR PROPERTIES, AND EFFECTIVELY ZERO-RATED SALES OF GOODS OR PROPERTIES Zero-rated transaction is the gross selling price of goods or properties is multiplied by 0% VAT rate. Zero-rated sale of goods or properties by a VAT-registered person is a taxable transaction for VAT purposes but the sale does not result in any output tax. However, the input tax on the purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund. The difference  between “zero - rated” and “VAT - exempt” transactions  lies in the input tax. In  VAT-exempt transactions there is no input tax credit allowed. In the case of 0% rated transaction of a VAT registered person , the sale of goods or properties is multiplied by 0% thus his output tax is P 0.00. Since the person is VAT-registered, he can claim input tax for purchases made from VAT-registered entities.  E.g .: Output tax -------------------- P 0.00 Less: Input tax ------------------- 5,000.00  VAT Creditable P 5, 000.00 EXEMPT   ZERO-RATED     Nature of transaction  Not taxable; removes VAT at the exempt stage Transaction is taxable for  VAT purposes although the tax levied is 0%  By whom made  Need not be a VAT-registered person Made by a VAT-registered person Tax Credit/Refund   Cannot avail of tax credit or refund. Thus, may result in increased prices (Partial Relief) Can claim or enjoy tax credit/refund (Total Relief) Zero-rated sales of goods by a VAT-registered person are: 1.   Export sales 2.   Foreign currency denominated sale 3.   Sales to persons or entities whose exemption under special laws or international agreements to  which the Philippines is a signatory effectively subjects such sales to zero rate. The term export sales   means: 1.   The sale and actual shipment of goods from the Philippines to a foreign country: a.   irrespective of any shipping arrangement;  b.   paid for in acceptable foreign currency or its equivalent in goods or services; c.   accounted for in accordance with the rules and regulations of BSP. 2.   Sale of raw materials or packaging materials by a VAT-registered entity to a non-resident buyer: a.   for delivery to a non resident local export-oriented enterprise;  b.   used in the manufacturing, processing, packing, repacking in the Philippines of the said  bu  yer’s goods; c.   paid for in acceptable foreign currency; d.   accounted in accordance with the rules of BSP. 3.   Sale of raw material or packaging materials to export oriented enterprise whose export sales exceed 70% of total annual production 4.   Sale of gold to BSP 5.   Those considered as export sales under the E.O. 226 (Omnibus Investment Code of 1987) 6.   The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations. (Sec. 106[A][2][a], NIRC as amended by RA 9337 Note: Under Omnibus Investment Code: i.   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 ii.   The net selling price of export products sold by a registered export producer to another export producer, or to an export trader that subsequently export the same; iii.   Provided, that sales of export 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 Export sale is exempt if made by a non-VAT person (Sec. 109, NIRC) . On the other hand, it is zero-rated if made by VAT-registered person (Sec. 4.106-5, RR 16-2005).  Is the sale of goods to ecozone, such as PEZA, considered as export sale?  Yes. Notably, while an ecozone is geographically within the Philippines, it is deemed a separate customs territory and is regarded in law as foreign soil. Sales by suppliers from outside the borders of the ecozone to this separate customs territory are deemed as exports and treated as export sales. These sales are zero-rated or subject to a tax rate of zero percent. (CIR v. Sekisui Jushi Philippines, Inc., G.R. No. 149671, July 21, 2006)  An  ecozone  or a Special Economic Zone has been described as –  selected areas with highly developed or  which have the potential to be developed into agro-industrial, industrial, tourist, recreational, commercial, banking, investment and financial centers whose metes and bounds are fixed or delimited by Presidential Proclamations. An ecozone may contain any or all of the following: industrial estates (IEs), export processing zones (EPZs), free trade zones and tourist/recreational centers. The national territory of the Philippines outside of the proclaimed borders of the ecozone shall be referred to as the Customs Territory. (CIR v. Toshiba Information Equipment (Phils.), Inc., G.R.. No. 150154, August 9, 2005)   Constructive exports are: 1.   Sales to bonded manufacturing warehouses of export-oriented manufacturers 2.   Sales to export processing zones 3.   Sales to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant to RA 7227 4.   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 (BIR) and the Bureau of Customs (BOC) 5.   Sales to 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. The rationale for zero-rating exports sale  is because the Philippine VAT system adheres to the cross  border doctrine, according to which, no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. (Ibid.) Note: For purposes of zero-rating, export sales of registered export traders shall include commission income. Exportation of goods on consignment shall not be deemed export sales until the export products consigned are in facet sold the consignee. Provided, finally, that sales of goods, properties or services made by a VAT-registered supplier to a BOI-registered manufacturer/producer whose products are 100% exported are considered export sales A certification to this effect must be issued by the Board of Investment (BOI) which shall be good for one year unless subsequently re-issued by the BOI. The phrase 'foreign currency denominated sale'  means sale to a nonresident of goods, except those mentioned in Sections 149 and 150, 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). (Sec. 106[A][2][b], NIRC) Note: Section 149 refers to excise tax on automobiles. Section 150 refers to excise tax on non-essential goods. EFFECTIVELY    ZERO-RATED TRANSACTION    AUTOMATIC   ZERO-RATED TRANSACTION    Nature  Refers to the sale of goods, properties or services by a VAT-registered person to a person, or entity who was granted indirect tax exemption under special laws or Refers to taxable transaction for  VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties
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