The Philippines levies a value-added tax (VAT) on the supply of most services and imports, as well as on sales, barter, exchange, or lease of goods or properties (tangible or intangible). The standard VAT rate is 12%, whilst certain supplies are either exempt or zero-rated.

Zero-Rated Supplies Include:

Export of goods and services;
Sale of certain raw materials and packaging materials to a non-resident buyer for delivery to a local export-oriented enterprise;
Sale of goods to a registered export-oriented enterprise whose export sales is at least 70% of the total annual production of the preceding taxable year provided the goods are used directly and exclusively in its registered project or activity;
Sale of services to a registered export-oriented enterprise whose export sales is at least 70% of the total annual production of the preceding taxable year provided the services are used directly and exclusively in its registered project or activity;
Sales to bonded manufacturing warehouses of export-oriented enterprises;
Sales to existing registered export enterprises located in ecozones and freeport zones until the electronic sales reporting system is fully operational or until the expiration of the ten-year transitory period, whichever is earlier (effective for transactions entered into from 1 October 2021);
Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal and steam, ocean energy, and other emerging sources using technologies such as fuel cells and hydrogen fuels.
Ancillary services necessary to support the transmission of capacity and energy generated from renewable sources of energy;
Purchase by a renewable energy developer of local goods, properties, and services needed for the development, construction, and installation of plant facilities, and the whole process of exploration and development of renewable energy sources up to its conversion into power, including, but not limited to, the services performed by subcontractors and/or contractors (effective 15 July 2022);
Transactions with local suppliers of goods, properties, and services needed in the manufacture or fabrication of renewable energy equipment provided the required registration documents are available (effective 15 July 2022);
Sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations provided the supplies are used exclusively for international shipping or air transport operations; and
Services rendered to persons engaged in international shipping or air transport operations including leases of property provided that these services are exclusively availed/ used for international shipping or air transport operations.

Exempt Supplies Include:

Agricultural or marine food products;
Livestock or poultry for human consumption;
Import of fuel, goods and supplies used for international shipping or air transport operations;
Livestock or poultry feed and ingredients for producing feed;
Fertilizer and seeds;
International air or shipping carriers;
Educational services, online courses and training offered by private educational institutions accredited by specified education departments;
Sale of online subscription-based services provided to specified departments of education, and their recognized institutions;
Financial services delivered through digital platforms;
Banking and certain non-banking financial services;
Certain medical, dental, hospital, and veterinary services;
Certain sales of goods or services to senior citizens;
Sale, import, printing, or publication of books and newspapers or magazines when not primarily devoted to the publication of paid advertising;
Sales or exchanges of shares listed and traded at the local exchange or by initial public offering;
Sales of real property not primarily held for sale, lease, or use in the ordinary course of trade or business;
Sale of residential lots/dwellings (effective 1 January 2021);
Sale or importation of prescription drugs and medicines for:

diabetes, high cholesterol, and hypertension (effective 1 January 2020); and
cancer, mental illness, tuberculosis, and kidney diseases (effective 1 January 2021); and

Import of shipments for the manufacture or fabrication of renewable energy equipment, subject to certain conditions and prior approval from the department of energy (effective 15 July 2022).

Registration Threshold

Taxpayers are required to register for VAT if the taxable turnover exceeds or is expected to exceed PHP 3 million (increased from PHP 1,919,500 effective 1 January 2018) over a 12-month period. Suppliers with taxable turnover below the registration threshold may either register as VAT exempt and pay flat tax at the rate of 1% on gross quarterly sales or receipts (VAT rate reduced from 3% to 1% for the period 1 July 2020 until 30 June 2023), or may voluntarily register as a VAT payer. However, suppliers conducting online businesses with gross receipts not exceeding PHP 3 million are exempt from VAT.

Domestic market enterprises (covered by the transitory provisions of CREATE ACT) inside the economic or freeport zone availing of the 5% gross income tax (GIT) regime (see Sec. 10.1.) have the option to register as VAT taxpayers. This will enable VAT-registered domestic market enterprises to either charge output VAT to domestic customers or receive a refund from the Bureau of Internal Revenue (BIR) for the input VAT directly attributable to their zero-rated sales.

Returns and Payments

Effective 1 January 2023, taxpayers are no longer required to file the monthly VAT return, but are instead required to file the quarterly VAT return and make corresponding tax payments within 25 days following the close of each quarter.

VAT Withholding

Effective 1 January 2021, the sale of goods, properties or services (including digital services provided by registered non-resident digital service providers (DSPs)) to government entities is subject to a creditable withholding VAT at the rate of 5% on the gross payment (until 31 December 2020, supplies to government entities were subject to a final withholding VAT at the rate of 5%). The supply of services by a non-resident not registered for VAT in the Philippines to government entities is subject to withholding VAT at the rate of 12%.

Digital Supplies

Effective 18 October 2024, the supply of digital services by a resident or a non-resident without a fixed place of business in the Philippines is subject to VAT at the rate of 12%. Digital services refer to any service provided over the internet or other electronic networks using information technology when the transaction is essentially automated. It includes:

Online search engines;
Online marketplaces;
Cloud services;
Digital media and advertising;
Online platform; and
Sale of digital goods.

The following services are VAT exempt:

Educational services, including online courses, online seminars, and online trainings, rendered by private educational institutions duly accredited by the Department of Education (DepEd), Commission on Higher Education (CHED), Technical Education and Skills Development Authority (TESDA), and those rendered by government educational institutions;
Sale of online subscription-based services to DepEd, CHED, TESDA and educational institutions recognized by said government agencies; and
Services of bank, non-bank financial intermediaries performing quasi-banking functions and other non-bank financial intermediaries, including those rendered through different digital platforms.

Non-residents without a fixed place of business in Philippines providing digital services to a non-VAT registered customer (B2C) are liable to pay VAT and need to register for VAT if the registration threshold is exceeded. The non-resident is required to appoint a representative for complying with the VAT obligations. The supply of digital services by a non-resident without a fixed place of business in Philippines to any VAT registered payer (B2B) in Philippines is subject to VAT on a reverse charge basis. Such VAT is required to be paid by the customer within 10 days of the month following the month in which VAT on reverse charge is withheld.

Non-resident providers of digital services are subject to VAT after 120 days from the effective date of the implementing rules and regulations, which will be issued within 90 days from 18 October 2024.

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