The Filipino Taxpayer’s Guide to Value-Added Tax (VAT)

guide to VAT

In the Philippines, there are a number of taxes that individuals and businesses need to be aware of. 

Oftentimes, it can get overwhelming to understand which ones apply to your business or profession. So to help you out, we’re highlighting one of the common business taxes: Value-Added Tax or VAT.

What is VAT and why is it important?

As a consumer, you’ve likely paid VAT before – this could be upon buying electronics from a store or from renting a piece of property. 

VAT is considered an indirect business tax as it’s the buyer who covers the cost of the VAT payment. The seller, in turn, files and remits the total VAT payment to the Bureau of Internal Revenue (BIR). 

At present, the BIR is issuing a fixed 12% VAT rate on certain sales transactions. 0% VAT, on the other hand, is entitled to PEZA-registered companies as well as zero-rated businesses stated under the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE). 

We go more into detail on the different VAT-registered businesses in a bit. But for now, let’s ask the age old question: What’s the point of even paying VAT?

VAT has been adopted in more than 116 countries for good reasons including:

  • VAT is easy to administer and collect – reducing the risk of tax evasion among businesses.
  • VAT discourages illegal operations because it is imposed on businesses even before the product hits the shelf.
  • VAT is paid by almost everyone, regardless of their economic status.
  • VAT covers a wide range of products and commodities.

For businesses, becoming VAT-registered gives you credibility and an extra edge over non-complying competitors. VAT also makes it easier for you to establish a partnership with third-party services and suppliers. 

Are you required to pay Value-Added Tax?

VAT primarily applies to 3 taxpayer groups:

  1. Persons or entities who, in the course of trade or business, sells, exchanges, leases goods or properties or renders services subject to VAT where the aggregate amount of actual gross sales or receipts exceeds Three Million Pesos (Php3,000,000);
  2. Individuals or businesses that voluntarily registered as VAT taxpayers, even if they did not meet the VAT aggregate amount of P3,000,000 in gross sales or receipts; and,
  3. Persons or entities that import goods.

You should be able to determine if you’re a VAT or Non-VAT registered business by checking your Certificate of Registration (CoR).

Who is exempt from paying Value-Added tax?

Companies in the Philippines that do not exceed the aggregate amount of three million pesos (Php3,000,000) in actual gross sales or receipts are not required to remit and file VAT.

If you meet this criteria, you’re likely to be classified as a Non-VAT entity. 

Non-VAT registered entities are to file their Percentage Tax Returns. Like VAT, Percentage Tax is a form of business tax – except in this case, it’s the seller who shoulders the tax and pays it to the BIR. 

To ensure that you’re filing the correct business taxes, check your CoR or confirm with your nearest Revenue District Office (RDO).

Not sure what tax forms should you be filing?

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VAT Tax Returns: BIR Forms 2550M and 2550Q

Before filing the VAT, note that your business entity needs to be recognized and registered in the government. 

Once you’re settled, you’ll need to familiarize yourself with these BIR-mandated VAT forms:

  •  BIR Form 2550M (Monthly Value-Added Tax Declaration)
  • BIR Form 2550Q (Quarterly Value-Added Tax Return)

As the name implies, you’ll need to file BIR Form 2550M monthly and within 20 days from the end of the month to which the VAT applies. Form 2550M covers all the VAT payables for that particular month.
BIR Form 2550Q ,or your Quarterly Value-Added Tax Return, is filed within 25 days following the last month of the quarter. Form 2550Q includes the cumulative VAT amount payable for the quarter.

Other than the filing period, total tax payables, and months covered, there is no significant difference when filing these two forms. 

File your VAT Returns with Taxumo

Tax filing can be tedious. There’s the long lines, endless calculations, and countless forms that you need to fill up over and over again. But of course, you’ll need to comply to avoid paying hefty fines, business closure, and to establish business credibility.

The good news is that you can easily say goodbye to tax season stress with a tax compliance platform. 

Taxumo is a BIR-accredited web app that auto-calculates and auto fills your tax returns. On top of that, you can skip the lines and submit your taxes online. We ensure that our tax deadlines are a few days before BIR’s, so you never have to worry about late filings again. 

Start filing your Value-Added Tax Returns – and other applicable tax forms – with Taxumo today.

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