Output VAT- Zero

Rated Sales
Chapter 8
 What are Zero Rated Sales?
• Basically Foreign Consumption.
• Equivalents of Foreign Consumption.
• Sales conferred by Special Laws in which the Philippines is a
signatory.
• Export sales of VAT Taxpayers are subject to VAT at Zero rate.
• Export Sales of Non- VAT Taxpayers are exempted from the
3% General Percentage Tax.
What are the Benefits of Zero-
Rating
•It has Zero Output VAT, but has a
creditable Input VAT.
•The Taxpayer will fully recover the VAT
paid on his domestic sales or his
importation either by Tax Credit or via
Tax Refund.
 Zero- Rated vs. Exempt Sales
Zero- Rated Sales Exempt Sales
Both does not Have Output VAT. The taxpayer
does not pay VAT.
Creditable and Non- Creditable and
Refundable Input VAT Nonrefundable input
VAT. (claimed via
Deductions in the ITR)
ILLUSTRATION

•During the month, Rizal Corporation

purchased goods invoiced at
P350,000 excluding P42,000 Input Tax.
It exported the goods for P12,000
which is equivalent to P510,000 and
incurred P10,000 in expenses.
Assuming Rizal Corporation is a VAT
Taxpayer
Output VAT P0
Less: Input VAT (P42,000)
Excess Input VAT P42,000
The P42,000 excess Input VAT on a Zero- Rated Sales is
claimable in Full as a tax credit against other Output VAT or
claimed as a Tax Credit against any internal Revenue tax
liability of Rizal Corporation or as a Tax Refund.
 Assuming Rizal Corporation is
subject to 30% Corporate Income
Tax
Sales P510,000
Less: Cost of Goods Sold (Exclusive (P350,000)
of VAT)
Gross Income P160,000
Less: Deductions (P10,000)
Taxable Income P150,000
Multiply By: Corporate Tax Rate 30%
Income Tax Due P45,000

The Input VAT cannot be claimed as deduction against Gross Income in Income Taxation because it is a Tax Credit or Tax
Refund.
 Assuming Rizal Corporation is a
Non- VAT Taxpayer
Sales P510,000
Less: Cost of Goods Sold (P392,000)
(350,000+42,000)

Gross Income P118,000

Less: Deductions (P10,000)
Taxable Income P108,000
Multiply by: Corporate Tax Rate 30%
Income Tax Due P32,400
 Summary: Table of Comparison
VAT Exempt Sales Zero-Rated Sales

OUTPUT VAT No Output VAT

INPUT VAT Deductible Creditable or

TREATMENT against Gross Refundable
Income
EXTENT OF TAX Partial Relief Full Relief
RELIEF
Zero-Rated Sales of
Goods
• Export Sales
• Effectively Zero-Rate Sales
Export Sales Include the Following:
• Direct Export
• Sale to Economic Zones and Tourism
Enterprise Zones.
• Sale of Goods or Properties, Supplies,
Equipment and Fuel to persons engaged in
International Shipping or International Air
Transport Operations.
 Direct Export
• Is the actual shipment and sale of goods from the
Philippines to any Foreign Country regardless of any
shipping agreement that influences or determines
the transfer of the goods exported.
• It must be paid in Acceptable Foreign Currency or it’s
equivalent goods or services.
• Such export must be in accordance with the Rules
and Regulations of the Bangko Sentral ng Pilipinas
(BSP).
 ILLUSTRATION: XLT Company
Customer/Buyer Place Delivered Payment
Resident Alien Philippines $15,000 cash
Visiting Tourist Philippines P420,000 cash
A Filipino Employee in Japan ¥800,000 cash
Japan
A Business in Indonesia $10,000 in services
Indonesia

The Relevant Conversion rates: €1:P60 ; $1:P52 ; ¥1:P.50

The Following are Zero Rated Sales
Customer Conversion Amount
Sale to Filipino ¥800,000*P.50 P400,000
in Japan
Sale to Business $10,000*P52 P520,000
in Indonesia
TOTAL Zero- P920,000
Rated Sales
The Following are Subject to 12%
VAT
Customer Conversion Amount
Resident Alien $15,000*P52 P780,000
Visiting Tourist P420,000
Total Zero- Rated P1,200,000
Sales

Domestic Sales shall be subject to 12% VAT even if they are consumed
by non-Resident Visitors or are paid for by Foreign Currency
 Illustration 2: Guimaras Company
Export Destination Terms Payment

Export for Hong Kong FOB Destination $100,000 Cash

Export for Thailand FOB Destination P450,000 Cash

Export to Japan FOB Shipping Point ¥800,000 Cash

Export to Indonesia Free Alongside Vessel $10,000 in Goods

The following are the Tax Treatment
for the said Company
If Guimaras is a:
VAT Taxpayer Non-VAT Taxpayer
Export for Hong Zero-Rated Exempt
Kong
Export for Thailand Exempt Exempt
Export to Japan Zero- Rated Exempt
Export to Indonesia Zero- Rated Exempt
Sale to Economic Zones or Tourism
Zones
• Economic Zones and Tourism Zones are
considered Foreign Territories.
• Sales to Locators or Registered Enterprises in
these zones are considered Technical
Exportation.
• The Zero- Rating of sales in these zones under
the TRAIN was Vetoed by the President.
Examples of Philippine Ecozones

1.Philippine Economic Zone Authority

(PEZA)
2.Cagayan Special Economic Zone
3.Zamboanga Special Economic Zone
4.Clark Special Economic Zone
5.Clark Freeport Zone
Examples of Philippine Ecozones

6. Poro Point Special Economic and

Freeport Zone
7. John Hay Special Economic Zone
8. Aurora Special Economic Zone (ASZ)
R.A. 9490
Sale of Supply, Goods, Equipment and Fuel to Persons
engaged in International Shipping or Air Transport
Operations

•These amenities are generally

Consumed Outside the Philippines.
•These are considered as Foreign
Consumption.
•Hence, these are subject to Zero-Rated
VAT.
Effectively Zero-Rated Sales

•These are persons or entities whose

exemptions come from laws and
agreements in which the Philippines is
a signatory.
•These exemptions effectively subjects
the sales to Zero-Rate.
Previously Zero-Rated Sales

•Foreign Currency Dominated Sales.

•Sales under the International Export
Program.
•Sales to the Boy Scouts of the
Philippines.
•Sale of Gold to the BSP.
Zero-Rated Sales of Services

•Sale of Services to Non- Residents

•Effectively Zero-Rated sales of Services
•Services rendered to persons engaged in
International Shipping and Air Transport
Operations. Including Leases of
Properties thereof.
 Zero-Rated Sales of Services
•Transportation of Passengers and Cargo by
Domestic Air or Sea Carriers from the
Philippines to a Foreign Country.
•Sale of Power or Fuel generated from
Renewable sources of Energy.
•Services rendered to Ecozones or Tourism
Enterprise Zones,
Enhanced VAT Refund System
• The Department of Finance and the Bureau of
Customs shall establish a VAT Refund center in
the BIR and in the BOC that will handle the
processing and granting the cash refunds of
Creditable Input VAT within 90 Days.
• 5% of the VAT Collections shall be treated as a
Special Account in the General Fund.
 Considered Export Sales under EO
226 and Other Special Laws
• The Philippine FOB value of export products exported
directly by an export producer.
• The Net Selling price of export products sold by a
registered export producer to another export
producer.
• The Net Selling price of export products sold by a
registered export producer to an export trader that
subsequently exports the same.
 Even without actual Exportation the Following
shall be considered as Constructively Exported.
• Sales to bonded manufacturing warehouses of
Export- Oriented Enterprises.
• Sales to Export processing Zones pursuant to RA
7916, 7903, 7922 and other similar Processing Zones.
• Sales to enterprises duly registered and Accredited
with the Subic Bay Metropolitan Authority (SBMA)
Under RA 7227.
 Even without actual Exportation the Following
shall be considered as Constructively Exported.
• Sales to registered Export Traders operating bonded
manufacturing warehouses supplying raw materials in the
manufacture of export products.
• Sales to diplomatic missions and other agencies and or
instrumentalities granted tax immunities of locally
manufactured, assembled or repacked products whether or
not paid for in foreign currencies.
• Sale of Goods, Properties and Services to a BOI registered
Manufacturer or Producer.