VAT-EXEMPT TRANSACTION

1. VAT-EXEMPT TRANSACTIONS UNDER SECTION 109

(a) Sale or importation of: Exempt sale of
- Agricultural and marine food products in their original state goods
- Livestock and poultry of a kind generally used as, or yielding or producing
foods for human consumption; and Exempt
- Breeding stock and genetic materials therefore; Importation
(b) Sale or Importation of: Exempt sale of
- Fertilizer, seeds, seedlings and fingerlings; goods
- Fish, prawn, livestock and poultry feeds, including ingredients, whether
locally produced or imported, used in the manufacture of finished feeds Exempt
- Except specialty feeds for race horses, fighting cocks, aquarium fish, zoo Importation
animals and other animals generally considered as pets);
(c) Importation of personal and household effects
- Belonging to residents of the Philippines returning from abroad and non- Exempt
resident citizens coming to resettle in the Philippines; Importation
- Provided, that such goods are exempt from customer duties under the Tariff
and Customs Code of the Philippines;
(d) Importation of the professional instruments and implements, wearing
apparel, domestic animals and personal household effects
- Except any vehicle, vessel, aircraft, machinery and other goods for use in the Exempt
manufacture and merchandise of any kind In commercial quantity; Importation
- Belonging to persons coming to settle in the Philippines, for their own use
and not for sale, barter or exchange,
- Accompanying persons, or arriving within 90 days before or after their
arrival, upon the production of evidence satisfactory to the Commissioner.
- that such persons are actually coming to settle in the Philippines and that
the change of residence is bona fide.
(e) Service subject to percentage tax Exempt Sale of Services

(f) Services by agricultural contract growers and milling for others of palay Exempt Sale of
into rice, corn into grits and sugar cane into raw sugar. Services
(g) Medical, dental, hospital and veterinary services except those rendered by Exempt Sale of
professionals, Services
(h) Educational services rendered by: Exempt Sale of
- private educational institution , duly accredited by DepEd, CHED and TESDA Services
,and
- those rendered by Government Educational Institutions;
(i) Services rendered by individuals pursuant to an employer-employee Exempt Sale of
relationship Services
(j) Services rendered by the regional area headquarters established in the Exempt Sale of
Philippines by multinational corporations: Services
- Which act as supervisory, communications and coordinating centers for their
affiliates, subsidiaries or branches in the Area-Pacific Region and
- Do not earn or derive income in the Philippines;
(k) Transactions which are exempt: Exempt Sale of Goods
- Under the international agreement to which the Philippines is signatory or Exempt Sale of
- Under special law except those granted under PD No. 629, Petroleum Exploration Services

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REVIEW MATERIALS PREPARED BY: JULIUS A. VITAO, CPA INSTRUCTOR, TARLAC CHRISTIAN COLLEGE Page 1
 Concessioners under Petroleum Act of 1949;
(l) Sales by agricultural cooperatives duly registered and in good standing
with the Cooperative Development Authority to their member as well as
- Sale of their produce, whether in its original state or processed form, to non- Exempt sale of
members, goods
- Their importation of direct farm inputs, machineries and equipment,
including spare parts thereof, to be used directly and exclusively in the Exempt
production and/or processing of their produce; Importation

Sale by agricultural cooperatives to non-members can only be exempted

from VAT if the producer if the agricultural products sold is the cooperative
itself. If the cooperative is not the producer (e.g., trader) then only the sales
to its members shall be exempted from VAT; it is to be reiterated, however,
that sale or importation of agricultural food products in their original state is
exempt from VAT irrespective of the seller and the buyer thereof, pursuant
to Subsection (a) hereof;
(m) Gross receipts from lending activities by credit or multi-purpose Exempt Sale of
cooperatives duly registered and in good standing with the Cooperative Services
Development Authority;
(n) Sales by non-agricultural, non-electric and non-credit cooperatives duly
registered and in good standing with the CDA; Exempt Sale of
- Provided, that the share capital contribution of each member does not Services
exceed P15,000 and regardless of the aggregate capital ad net surplus
ratably distributed among the members;
(o) Export sales by persons who are not VAT-registered Exempt Sale of Goods
(p) The following sales of real properties are exempt from VAT, namely:
(1) Sale of real property not primarily held for sale to customers or held for
lease in the ordinary course of trade or business.
However, even if the real property is not primarily for sale to customers Exempt Sale of
or held for lease in the ordinary course of trade or business but the same Real Properties
is used in the trade or business of the seller, the sale thereof shall be
subject to VAT being a transaction incidental to the taxpayers main
business;
(2) Sale of real property utilized for low-cost housing (price ceiling per unit
of : Level 1 P450,000to P1,700,000; Level 2 P1)
(3) Sale of real property utilized for socialized housing (price ceiling for
house and lot P450,000; lot only P160,000)
(4) Sale of residential lot valued at P1,919,500 (used to be P1,500,000) and
below and house and lot and other residential dwellings valued at
P3,199,200 (used to beP2,500,000) and below where the instrument of
sale/transfer/disposition/ was executed on or after July 1, 2005.
Note: Selling of parking lot in a condominium is a separate and distinct
transaction and is not covered by the rules on threshold amount not being a
residential lot, house and lot or a residential dwelling, thus, should be subject to
VAT regardless of the amount of selling price.
(q) Lease of:
- Residential units Exempt lease of

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 - With a monthly rental not exceeding P12,800 (used to be P10,000) properties
- Regardless of the amount of aggregate rentals received by the lessor during
the year;
(r) Sale or importation, printing or publication of book and newspaper, Exempt sale of goods
magazine, review or bulletin which appears at the regular intervals with Exempt sale of
Services
fixed prices for subscription and sale and which is not devoted principally Exempt Importation
to the publication f paid advertisement;
(s) The transport of passengers by international carriers doing business in the
Philippines and transport of cargo by international carriers doing business Exempt sale of
Services
in the Philippines (not allowed to register for VAT purposes);
(t) Sale, importation or lease of passengers or cargo vessels and aircraft,
including engine, equipment and spare parts thereof for domestic or Exempt sale of goods
Exempt Importation
international transport operations; Provided, however, that the exemption Exempt lease of
from VAT on the importation and local purchase of passengers and/or properties
cargo vessels retirement program of the MARINA;
(u) Importation of fuel, goods and supplies by persons engaged in
international shipping and air transport operation; Provided, that the said
fuel, goods or supplies shall be used exclusively or shall pertain to the
transport of goods and/or passengers from a port in the Philippines
Exempt Importation
directly to a foreign port, or vice-versa, without docking or stopping at any
other port in the Philippines unless the docking or stopping at any other
Philippine port is for the purpose of unloading passengers and/or cargoes
that originated from abroad; or to load passengers and/or cargoes bound
for abroad, Provided further, that if any portion of such fuel, goods and
supplies is used for purposes other than that mentioned in this paragraph,
such fuel and, goods and supplies shall be subject to 12% VAT;
(v) Services of banks, non-bank financial intermediaries performing quasi-
banking functions, and other non-bank financial intermediaries, such as Exempt sale of
money changers and pawnshops, subject to percentage tax under Secs. 121 Services
and 122, respectively, of the Tax Code; and
(w) Sale or lease of goods or properties or the performance of services other
than the transactions mentioned in the preceding paragraphs, the gross
annual sales and/or receipts do not exceed the amount of P1,919,500
(used to be P1,500,000) Exempt sale of goods
Exempt sale of
services
Provided that every three (3) years thereafter, the amount herein stated shall be Exempt lease of
adjusted to its present value using the Consumer Price Index, as published by the properties
NSO. Provided, further, that such adjustment shall be published through revenue
regulations to be issued not later than March 31 of each year.

For the purpose of the threshold of P1,919,500 (used to be P1,500,000), the

husband and the wife shall be considered separate taxpayers. However, the
aggregation rule for each taxpayer shall apply. For instance, if a professional,
aside from the practice of its profession, also derives revenue from other lines of
business which are otherwise subject to VAT, the same shall be combined for
purposes of determining whether the threshold has been exceeded. Thus, the

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 VAT-exempt sales shall not be included in determining the threshold.
Sale of any goods and services to Senior Citizen (e.g medicines, professional Exempt sale of goods
fees of attending physicians and licensed health workers, medical and dental Exempt sale of
services
services, actual fare for land transportation travel as well as air transport
services and sea shipping vessels, utilization of services in hotels and similar
lodging places, restaurants and recreational centers, admission fees charged
by theatres, cinema houses, etc. funeral and burial services for the Death of
the Senior Citizen)

TAX 2 VAT EXEMPT TRANSACTIONS; SOURCES: TEXTBOOKS BY BANGGAWAN, AMPONGAN AND DE VERA; AND VARIOUS CPA
REVIEW MATERIALS PREPARED BY: JULIUS A. VITAO, CPA INSTRUCTOR, TARLAC CHRISTIAN COLLEGE Page 4