CONSOLIDATED VALUE-ADDED TAX …

1 CONSOLIDATED VALUE-ADDED TAX regulations OF 2005 (RR 14-2005, as superseded by RR 16-2005) VAT is a tax on consumption levied on the sale, barter, exchange or lease of goods or properties and services in the Philippines and on importation of goods in the Philippines. The seller is the one statutorily liable for the payment of the tax but the amount of the tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. VAT Rates are retained at 10% & 0% January 1, 2006 to increase to 12% & 0% If any of the following conditions has been satisfied: VAT collection as a percentage of Gross domestic Product (GDP) of the previous year exceeds two and four fifth percent (2 4/5% or ); or National government deficit as a percentage of GDP of the previous year exceeded one and half percent (1 % or ).

2 VAT TRANSACTIONS a. VAT Transactions - any person who, in the course of his trade or business NEW LAW Liable to register for VAT if; GS/GR for the past 12 months have exceeded P1,500, There are reasonable grounds to believe that his GS/GR for the next 12 months will exceed P1,500, Sale of Goods or Properties VAT is imposed and collected on every sale, barter or exchange, or transactions deemed sale of taxable goods or properties at the rate per 10% of the gross selling price or gross value in money. Transactions Deemed Sales 1. Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business.

3 Transfer of goods or properties not in the course of business can take place when VAT-registered person withdraws goods from his business for his personal use; 2. Distribution or transfer to: Shareholders or investors share in the profits of VAT-registered person; Creditors in payment of debt or obligation. 3. Consignment of goods if actual sale is not made within 60 days following date such goods were consigned. 4. Retirement from or cessation of business with respect to all goods on hand, whether capital goods, stock-in-trade, supplies or materials as of the date of such retirement or cessation, whether or not the business is continued by the new owner or successor.

4 Change or ownership of the business. Dissolution of a partnership and creation of a new partnership which takes over the business. Real Properties - In case of sale of real properties on the installment plan, the real estate dealer shall be subject to VAT on the installment payments, including interest and penalties, actually and/or constructively received by the seller. - In case of sale of real properties on the deferred-payment basis (Initial payments of which in the year of sale exceed twenty-five percent (25%) of gross selling price, not the installment plan, the transaction shall be treated as cash sale which makes the entire selling price taxable in the month of sale.)

5 Sale or Exchange of Services means performance of all kind of services in the Philippines for others for a fee, remuneration or consideration, whether in kind or in cash. SEC Importation of goods the importer, whether an individual or corporation and whether or not made in the course of his trade or business, shall be liable to VAT. The tax shall be based on the total value used by the BOC in determining tariff and custom duties, plus customs duties, excise tax, if any, and other changers, such as postage, commission, and similar changes, prior to the release of the goods form customs custody.

6 NEW VAT COVERAGE - 10% VAT 1. Sale of nonfood agricultural products; marine and forest products in their original state by primary producer or owner of the land; 2. Sale of cotton and cotton seeds in their original state; 3. Sale or importation of coal and natural gas, in whatever form or state; 4. Sale or importation or petroleum products, including raw materials for their production; 5. Sale by the artist of his works of art, literary works, musical compositions and similar creations, or his services performed for the production of such works; 6. Services rendered by doctors of medicine duly registered with the PRC; 7.

7 Services rendered by lawyers duly registered with IBP; 8. Sale of electricity by generation, transmission and distribution companies (except sale of power/fuel generated through renewable sources of energy which is 0%); 9. Toll road operations 10. PAGCOR and its licensees and franchisees; 11. Sale of goods, supplies, equipment and fuel (including leases of property) and services to persons engaged in international shipping or international air transport operations. (However, services and goods pertaining to transport form one place in the Philippines to another place in the Philippines is subject to 10% VAT) 12.

8 Transport of passengers and cargo by domestic air or sea vessels with international operations from the Philippines to a foreign country of carrier. 13. Sale of power or fuel generated through renewable sources of energy such as biomass, solar, wind hydropower, geothermal, ocean energy and other emerging energy sources using technologies such as fuel cells and hydrogen fuels. 14. Sale of services paid for in acceptable foreign currency and accounted for in accordance with BSP rules provided that services should be preformed in the Phils. For the following: > Persons engaged in business conducted outside the Philippines; > Non-resident persons not engaged in business who is outside the Philippines when the services are performed.

9 B. Zero-Rated Transactions A zero-rated sale of goods or properties (by a VAAT-registered person) is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or services, related to such zero-rated sale, shall be available as tax credit or refund in a accordance with these regulations . Sales by VAT-registered persons shall be subject to zero (0%) rate: OLD LAW NEW LAW a. Export Sales > The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported, paid for in acceptable foreign currency or its equivalent if goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).

10 > The sale of raw materials or packaging materials to 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 buyer's goods, paid for in acceptable foreign currency, and accounted for in accordance with rules and regulations of hte BSP; > The sale of raw materials or packaging materials to an export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production; > Sale of gold to the BSP > Transactions considered export sales under Executive Order No. 226, otherwise know as the Omibus Investments Code of 1987, and other special laws.