Implementing rules and regulations of the TRAIN Law - …

1 Philippines | Tax & Corporate Services | 21 March 2018 Implementing rules and regulationsof the TRAIN LawThe Bureau of Internal Revenue (BIR) issued Revenue RegulationsNo. (RR) 13-2018 Implementing the value-added tax (VAT)provisions of Republic Act No. 10963 or Tax Reform for Accelerationand Inclusion ( TRAIN ) Law by amending RR 16- 2005 (ConsolidatedVAT regulations of 2005 ), with its salient features as follows:VAT zero-rated sales of goods and VAT zero rating on the following sales by VAT registeredtaxpayers shall be removed upon satisfaction of the followingconditions: (a) the successful establishment andimplementation of an enhanced VAT refund system thatgrants and pays refunds of creditable input tax within 90 daysfrom the filing of the VAT refund application with the BIR; and(b) cash refund by 31 December 2019 of all pending VATrefund claims as of 31 December sale of raw materials or packaging materials to anon-resident buyer for delivery to a resident localexport-oriented enterprise to be used inmanufacturing, processing, packing, or repacking inthe Philippines of the said buyer's goods, paid for inacceptable foreign currency, and accounted for inaccordance with the rules and regulations of theBangko Sentral ng Pilipinas (BSP) sale of raw materials or packaging materials to anexport-oriented enterprise whose export sales exceed70% of total annual considered export sales under ExecutiveOrder No.

2 226, otherwise known as the OmnibusInvestments Code of 1987, and other special to bonded manufacturing warehouse for export-orientedmanufacturers, export traders, diplomatic missions, andPhilippine Economic Zone Authority (PEZA) are consideredexport sales under Executive Order No. 226 and other speciallaws subject to 0% without actual exportation, the following shall beconsidered constructively exported subject to 0% VAT: (1)sales to bonded manufacturing warehouses of export-orientedmanufacturers; (2) sales to export processing zones; (3)sales to registered export traders operating bonded tradingwarehouses supplying raw materials in the manufacture ofexport products under guidelines to be set by the Board inconsultation with the Bureau of Internal Revenue (BIR) andthe Bureau of Customs (BOC); (4) sales of locallymanufactured, assembled, or repacked products - whetherpaid for in foreign currency or not - to diplomatic missionsand other agencies and/or instrumentalities granted , VAT zero rating on sales to bonded manufacturingwarehouse for export-oriented manufacturers, export traders,diplomatic missions, and PEZA shall be removed uponestablishment of enhanced refund system and cash refund by31 December 2019 of all pending VAT refund claims as of 31 December zero rating on sale of goods, supplies, and equipment tointernational shipping and international air transportcompaniesTo be subject to 0% VAT, the sale of goods, supplies,equipment, and fuel to persons engaged in internationalshipping or international air transport operations should beused exclusively for international shipping or air zero-rated sale of zero rating on sale of service to international shippingand international air transport companiesTo be subject to 0% VAT.

3 Services rendered to personsengaged in international shipping or air transport operations,including leases of property, shall be exclusively forinternational shipping or air transport transport of passengers and cargo by domestic air or seavessels from the Philippines to a foreign country is a VATzero-rated VAT zero rating on the following sales by VAT registeredtaxpayers shall be removed upon satisfaction of the followingconditions: (a) the successful establishment andimplementation of an enhanced VAT refund system thatgrants and pays refunds of creditable input tax within 90 daysfrom the filing of the VAT refund application with the BIR; and(b) cash refund by 31 December 2019 of all pending VATrefund claims as of 31 December , manufacturing, or repacking of goods forother persons doing business outside the Philippines,which are subsequently exported, where the servicesare paid for in acceptable foreign currency andaccounted for in accordance with the rules andregulations of the performed by subcontractors and/orcontractors in processing, converting, or manufacturinggoods for an enterprise whose export sales exceed 70%of the total annual productionVAT-exempt sale of goods and importation of personal belongings of OFWs orFilipinos settling in the PhilippinesThe importation of professional instruments and implements,tools of trade, occupation or employment, wearing apparel,domestic animals, and personal and household effectsbelonging to persons coming to settle in the Philippines orFilipinos or their families who are considered residents orcitizens of other countries, such as OFWs.

4 In quantities and ofclass suitable to the profession, rank, or position of theperson importing said items, for their own use and not forbarter or sale, or arriving within a reasonable time, shall beexempt from of electricity subject to 12% VATThe sale of electricity, transmission by any entity, includingthe National Grid Corporation of the Philippines, anddistribution companies, including electric cooperatives, shallbe subject to 12% on sale and lease of real propertiesBeginning 1 January 2021, the VAT exemption shall onlyapply to sale of real properties not primarily held for sale tocustomers or held for lease in the ordinary course of trade orbusiness, sale of real property utilized for socialized housingas defined by Republic Act (RA) No. 7279, sale of house andlot, and other residential dwellings with selling price of notmore than P2,000, of residential units with a monthly rental fee per unitnot exceeding P15,000 is VAT exempt. In cases where alessor has several residential units for lease where some areleased out for a monthly rental fee per unit not exceedingP15,000 while others are leased out for more than P15,000per unit, his tax liability will be as gross receipts from rentals not exceedingP15,000 per month per unit shall be exempt from VATregardless of the aggregate annual gross receipts.

5 Itis also exempt from the 3% percentage gross receipts from rentals exceeding P15,000per month per unit shall be subject to VAT if theaggregate annual gross receipts from said units onlyexceeds P3,000,000. Otherwise, the gross receiptswill be subject to the 3% tax imposed under Section116 of the National Internal Revenue Code of 1997,as amended (Tax Code). on importation of fuel, goods, and supplies byinternational shipping and air transport operatorsThe importation of fuel, goods, and supplies by personsengaged in international shipping or air transport operationsshall be used for international shipping or air transportoperations to be exempt from sale or lease of goods and services to seniorcitizens and persons with disabilitiesThe sale or lease of goods and services to senior citizens andpersons with disabilities, as provided under RA 9994(Expanded Senior Citizens Act of 2010) and RA 10754 (An ActExpanding the Benefits and Privileges of Persons withDisability), respectively, shall be exempt from transfer of property under Section 40(C)(2) ofthe Tax CodeThe transfer of property pursuant to Section 40(C)(2)

6 Of theTax Code is exempt from exemption of condominium duesAssociation dues, membership fees, and other assessmentsand charges collected on a purely reimbursement basis byhomeowners associations and condominium corporationsestablished under RA 9904 (Magna Carta for Homeownersand Homeowners Association) and RA 4726 (TheCondominium Act), respectively, are exempt from sale of gold to BSPThe sale of gold to BSP shall be exempt from VAT, instead ofsubject to 0% of drugs and medicines for diabetes and cholesterol andhypertension shall be VAT exempt starting 1 January sale of drugs and medicines prescribed for diabetes, highcholesterol, and hypertension beginning 1 January 2019, asdetermined by the Department of health , shall be exemptfrom threshold increased to P3 millionThe VAT-exempt threshold on sale or lease of goods orproperties or the performance of services is increased fromP1,500,000 (P1,919,500) gross annual sales and/or receiptsto P3,000, of amortization of input VAT on capital goodsThe amortization of input VAT shall only be allowed until 31 December 2021, after which taxpayers with unutilized input VAT oncapital goods purchased or imported shall be allowed to apply thesame as scheduled until fully of input tax due to cancellation of VAT registrationThe date of cancellation for refund purposes is the date of issuanceof tax clearance by the BIR after full settlement of all tax liabilitiesrelative to cessation of business or change of status of the concernedtaxpayer.

7 The filing of the claim for refund in relation to theretirement or cessation of business shall be made only aftercompletion of the mandatory audit of all internal revenue taxliabilities covering the immediately preceding year and the shortperiod return and the issuance of the applicable tax clearance/s bythe appropriate Revenue District Office (RDO) having jurisdictionover the to refund or credit input taxesThe BIR has 90 days to grant the refund of creditable input VAT fromthe date of submission of the official receipts or invoices and otherdocuments in support of the application 90-day period to process and decide, pending the establishmentof the enhanced VAT Refund System, shall only be up to the date ofapproval of the Recommendation Report on such application for VATrefund by the Commissioner or his duly authorized claims for refund/tax credit certificate filed prior to 1 January2018 will be governed by the 120-day processing on the part of any official, agent, or employee of the BIR toact on the application within the 90- day period shall be punishableunder Section 269 of the Tax Code, as more monthly VAT returns beginning 1 January 2023 Beginning 1 January 2023.

8 The filing and payment required under theTax Code shall be done within 25 days following the close of eachtaxable to creditable withholding VAT system on governmentmoney payments starting from 1 January 2021 Beginning 1 January 2021, the 5% final withholding VAT system onsales to government will shift to creditable VAT system, except forpayments for purchase of goods and services arising from projectsfunded by the Official Development Assistance (ODA) as definedunder RA 8182 (Official Development Assistance Act of 1996), whichshall not be subject to the final/creditable withholding and self-employed individuals/professionalsavailing of 8% tax exempt from payment of 3% percentagetaxCooperatives and self-employed individuals and professionalsavailing of the 8% tax on gross sales and/or receipts and other non-operating income whose sales or receipts are exempt from thepayment of VAT and who are not VAT-registered persons shall beexempt from the payment of 3% percentage tax (Section 4-116).

9 Transitory existing VAT-registered taxpayer whose gross sales/receiptsin the preceding taxable year did not exceed the VAT threshold ofP3,000,000 may continue to be VAT-registered taxpayer andavail of the Optional Registration for Value-Added Tax of ExemptPerson . Once availed, the taxpayer shall not be entitled tocancel the VAT registration for the next three VAT-registered taxpayer who opted to register as non-VAT as aresult of the implementation of the TRAIN Law shall an inventory list of unused invoices and/orreceipts as of the date of filing of application for update ofregistration from VAT to non-VAT, indicating the numberof booklets and its corresponding serial the said invoices and/or receipts forcancellation A number of unused invoices/receipts, as determined by thetaxpayer with the approval of the appropriate RDO, may beallowed for use provided the phrase Non-VAT registered asof (date of filing an application for update ofregistration). Not valid for claim of input tax.

10 Shall bestamped on the face of each and every copy thereof, until newregistered non-VAT invoices or receipts have been received bythe taxpayer. Upon such receipt, the taxpayer shall submit anew inventory list of, and surrender for cancellation, all unusedpreviously-stamped clickhere to view Revenue regulations No. 13-2018 for yourreference and inquiries, please contact: Walter L. Abela Jr. Tax +63 2 581 9034 Alvin Noel R. SaldanaTax 2 581 9046 Richard R. LapresTax 2 581 9044 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limitedby guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each ofits member firms are legally separate and independent entities. DTTL (also referred to as DeloitteGlobal ) does not provide services to clients. Please to learn moreabout our global network of member communication contains general information only, and none of Deloitte Touche TohmatsuLimited, its member firms, or their related entities (collectively, the Deloitte Network ) is, bymeans of this communication, rendering professional advice or services.