VAT: 12%, and the ₱3,000,000 Registration Line
Bureau of Internal Revenue · taxes
Quick answer
Value-added tax is 12% of the gross selling price on goods and 12% of gross receipts on services. Registration is compulsory once gross sales or receipts exceed ₱3,000,000 in the past twelve months, or are expected to in the next twelve. Export sales are zero-rated.
Every figure on this page is from LawPhil Project's own published documents.
Last verified 1 source, listed below
Republic Act No. 10963, the TRAIN Act1. PHGuides is independent and not affiliated with BIR.
Value-added tax is a 12% tax, and the number that decides whether it applies to you is ₱3,000,000. Everything below is from the National Internal Revenue Code as amended by the TRAIN Act, Republic Act No. 10963, approved 19 December 2017.
The rate
| What is sold | Base | Rate | Section |
|---|---|---|---|
| Goods or properties | Gross selling price or gross value in money | 12% | 106 |
| Services, and the use or lease of properties | Gross receipts | 12% | 108 |
| Export sales by a VAT-registered person | - | 0% | 106 |
On goods the tax is paid by the seller or transferor. Section 108 defines “sale or exchange of services” broadly: construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, personal or real; warehousing; distributors of cinematographic films; milling, processing, manufacturing or repacking for others; and proprietors or keepers of hotels, motels, resthouses and pension houses, among others.
Zero-rated is not exempt
The two get confused constantly, and the difference decides whether your input tax is recoverable.
| Zero-rated | Exempt | |
|---|---|---|
| Rate applied | 0% | No VAT at all |
| Inside the VAT system? | Yes | No |
| Input tax | Still creditable | Not creditable |
| Where it sits | Section 106(A)(2), beginning with export sales | Section 109 |
When registration becomes compulsory
Section 236(G) sets two triggers, and either one is enough.
| Trigger | Threshold |
|---|---|
| Gross sales or receipts for the past 12 months, other than those exempt under Section 109(A) to (BB), have exceeded | ₱3,000,000 |
| Reasonable grounds to believe gross sales or receipts for the next 12 months will exceed | ₱3,000,000 |
The second one matters: you are not entitled to wait until the year closes if it is already clear you will cross the line.
Below that threshold you are VAT-exempt under Section 109(BB) and instead fall under the percentage tax in Section 116. The freelancer tax guide carries that rate table in full, including the 3% general rate and the sector-specific rates.
The exemptions that carry a number
Most of Section 109 is descriptive, but several exemptions turn on a peso threshold. These are the ones worth knowing before pricing anything.
| Exempt transaction | Threshold | Paragraph |
|---|---|---|
| Lease of a residential unit, monthly rental not exceeding | ₱15,000 | (Q) |
| Residential lot valued at and below | ₱1,500,000 | (P) |
| House and lot and other residential dwellings valued at and below | ₱2,500,000 | (P) |
| From 1 January 2021, house and lot and other residential dwellings with a selling price not more than | ₱2,000,000 | (P) |
| Sales by non-agricultural, non-electric and non-credit cooperatives, share capital contribution per member not exceeding | ₱15,000 | (N) |
| Sale or lease of goods, properties or services with gross annual sales or receipts not exceeding | ₱3,000,000 | (BB) |
The ₱2,000,000 figure is not fixed. Section 109(P) provides that every 3 years thereafter the amount shall be adjusted to its present value using the Consumer Price Index published by the PSA, so the number in the statute is a starting point rather than a current answer.
Also exempt without a threshold: the sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin appearing at regular intervals, and the sale of real property utilised for low-cost and socialised housing as defined by RA 7279.
The 8% option, and what it does not do
Section 24 as amended lets self-employed individuals and professionals elect an 8% tax on gross sales or receipts and other non-operating income in excess of ₱250,000, in lieu of the graduated income tax rates and the Section 116 percentage tax.
It is available only while you are under the VAT threshold. It is an income tax election, not an escape from VAT registration once gross sales pass ₱3,000,000.
The income tax table carries the graduated rates the 8% replaces.
Filing and paying
| Obligation | Period | Section |
|---|---|---|
| Quarterly return of gross sales or receipts | Within 25 days following the close of each taxable quarter | 114(A) |
| VAT-registered persons pay | On a monthly basis | 114(A) |
| From 1 January 2023, filing and payment | Within 25 days after each taxable quarter | 114(A) |
Section 114(C) adds a withholding duty on the buyer where the buyer is government: the Government, its political subdivisions, instrumentalities and agencies, including GOCCs, must withhold before paying for each purchase of goods and services.
Input tax, and the 59-month rule
Input tax is normally credited in the month incurred. Section 110 carves out capital goods:
The input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is allowed shall be spread evenly over the month of acquisition and the 59 succeeding months if the aggregate acquisition cost, excluding the VAT component, exceeds ₱1,000,000.
That is 60 months in total, which is why a large equipment purchase does not produce the immediate credit people expect. The rule bites only above ₱1,000,000, and Section 110 treats a capital good with an estimated useful life of less than 5 years differently for depreciation purposes.
Refunds
| Stage | Period | Section |
|---|---|---|
| Commissioner must grant a refund of creditable input tax | 90 days from submission of receipts, invoices and supporting documents | 112(C) |
| A denial must state the legal and factual basis | In writing | 112(C) |
| Appeal a full or partial denial to the Court of Tax Appeals | 30 days from receipt of the denial | 112(C) |
The 90 days runs from submission of the complete documents, so an incomplete filing does not start the clock.
One exemption worth knowing
Section 109(D) exempts the importation of professional instruments and implements, tools of trade, occupation or employment, wearing apparel, domestic animals, and personal and household effects belonging to persons coming to settle in the Philippines, or to overseas Filipinos and their families and descendants who are now residents or citizens of other countries, in quantities and of a class suitable to the person’s profession, rank or position, for their own use and not for barter or sale.
The balikbayan box guide and the import tax guide cover the customs side of bringing goods in.
What this page does not cover
Section 109’s full list of exempt transactions runs to more than two dozen lettered paragraphs and is not reproduced here; check the section itself for your specific transaction. This page also does not carry the VAT return form numbers and their line-by-line instructions, the invoicing and official receipt requirements introduced by the Ease of Paying Taxes Act, or the rules on transitional and presumptive input tax.
Related
The freelancer tax guide covers the percentage tax that applies below the VAT threshold, the income tax table covers the graduated rates, and the BIR Form 2303 guide covers the certificate of registration that states which returns you must file.
Frequently asked questions
- How much is VAT in the Philippines?
- 12%. Section 106 levies 12% of the gross selling price on the sale, barter or exchange of goods or properties, and Section 108 levies 12% of gross receipts on the sale or exchange of services and the use or lease of properties.
- When do I have to register for VAT?
- Once your gross sales or receipts for the past 12 months, excluding those exempt under Section 109(A) to (BB), have exceeded ₱3,000,000. You must also register if there are reasonable grounds to believe they will exceed ₱3,000,000 in the next 12 months.
- What is zero-rated VAT?
- A 12% rate replaced by 0%, beginning with export sales. It is not the same as exempt: a zero-rated sale is still a VAT transaction, so input tax remains creditable, while an exempt transaction is outside the system.
- How often do I file?
- Quarterly, within 25 days following the close of each taxable quarter. TRAIN also provided that VAT-registered persons pay monthly, and that from 1 January 2023 filing and payment are done within 25 days after each quarter.
- How long does a VAT refund take?
- The Commissioner shall grant a refund of creditable input tax within 90 days from the date you submit the receipts, invoices and supporting documents. A denial must state the legal and factual basis in writing.
- What if my refund is denied?
- You may appeal to the Court of Tax Appeals within 30 days from receipt of the decision denying the claim, whether the denial is full or partial.
- Can I avoid VAT by choosing the 8% option?
- The 8% option applies to self-employed individuals and professionals whose gross sales do not exceed the VAT threshold. It is taken in lieu of the graduated income tax rates and the Section 116 percentage tax, on gross sales above ₱250,000. It is an income tax election, not a way out of VAT once you cross ₱3,000,000.
- Does the government withhold VAT?
- Yes. Section 114(C) requires the Government, its political subdivisions, instrumentalities and agencies, including GOCCs, to withhold before making payment on each purchase of goods and services.