VAT for Entrepreneurs FAQ (v2022-1)
Q: Do I need to worry about paying VAT? What is VAT?
A: Yes. You need to check. It is important to know if you are covered by VAT. VAT stands for Value Added Tax. VAT is a type of sales tax applied to both goods and services at a rate of 12% - which is a huge amount for any business. If for instance, you are covered by VAT but are not aware, you are still liable to remit 12% of the sales of goods or services!
Q: What kinds of goods and services are covered?
A: In general, all good and services are covered by VAT. But, if your sales are below Php3,000,000.00 per year, you are not required to register under the VAT system.
Q: Are there any exceptions?
A: Yes, some items are exempt from VAT. There is also such a thing as zero-rated VAT.
Q: What are some exempted items?
A: Some examples are agricultural food products in the original state, educational services rendered by duly accredited institutions, etc. A list can be found in Section 109 of the Tax Code.
Q: What is the difference between VAT exempt and zero-rated.
A: It's a bit technical. Generally, exempt means that the transaction is not subject to VAT, and not part of the VAT system at all. However zero-rated transactions are still part of the VAT system, and those with zero-rated transactions can still be credited with any 'input' VAT that has been paid.
Q: What do you mean by 'input' VAT?
A: A good way to understand input VAT is to take a manufacturing example. If your company purchased supplies for manufacturing and already paid VAT on such supplies, the VAT paid considered as 'input' VAT. When you compute the 12% liability VAT on the sale of your manufactured item, that is called 'output' VAT. You may deduct the input VAT from the output to reduce your liability.
Q: Who must remit the VAT?
A: The registered VAT entity is required to remit the VAT.
Q: Who is required to register as a VAT entity?
A: If you are a seller of goods and/or services, with gross receipts of more than Php3,000,000.00, you are required to register as a VAT tax payer and issue receipts that show how much of the price paid is VAT.
NOTE: If you are liable to register and pay VAT, it is recommended that you consult with a Certified Public Accountant and/or a Law Office with tax practice.