University of San Agustin

COLLEGE OF COMMERCE

VAT ON IMPORTATION
Sol T. Gaurana, CPA, MMTM
MODULE 2 LEARNING OBJECTIVES:

• By the end of this module, the students will be able to:

• Understand the concept of importation
• Remember the different type of consumption tax on importation
• Master the list of importation which are exempt consumption
• Comprehend the concept of qualified exemption
• Be able to understand and apply the concept of landed cost and
compute correctly the import VAT
 What is importation
Importation refers to the purchase of goods or services by the Philippine
residents from non-resident sellers.
TYPE OF CONSUMPTION TAX ON IMPORTATION
VAT on Importation Final withholding VAT *individuals engaged in
business and corporation
Object Goods Services
consumption
The VAT on importation is
Imposed upon Importers/buyers Foreign service providers
payable to the Bureau of
Statutory taxpayer Importers/buyers Resident purchaser of the Custom and is paid prior to the
service*
withdrawal of the goods from
Nature Direct consumption tax Indirect business tax the Customs warehouse. The
Tax basis Landed cost Contract price final withholding VAT is 12% of
the contract price for services
Collecting agency BOC BIR
rendered by non-residents. It is
Timing of payment Before withdrawal of goods After the month of payment remitted to the BIR.
 Importation of Exempt Goods
The importation of exempt goods are not subject to VAT:
A. Basic Human Food and related goods
1. Agricultural marine food products in their original state
2. Livestock and poultry of a kind, generally used as, or yielding
or producing foods for human consumption
3. Breeding stock and genetic materials therefore
B. Books, newspapers and magazines
C. Passengers or cargo vessels and aircrafts, including engine,
equipment and spare parts
Conditions for Importation of Passenger or
Cargo Vessels and Aircrafts
The incentive for VAT exemption is granted by law in an effort to help
the modernization of shipping, transportation and tourism industry.
To qualify for exemption, the importation must be subject to
requirements on restrictions on Vessel Importation and Vessel
Retirement Program of Marine Industry Authority (MARINA):
Passenger or cargo vessel - 15 years
Tankers - 10 years
High Speed Passengers Crafts - 5 years
 Conditions for Exemption of Newspaper,
Magazine Review Or Bulletin
1. They must appear at regular intervals with fixed prices for
subscription
2. The sale must not be devoted principally to the publication
of paid advertisements
 Question
What does it mean:
1. Agricultural marine food products in their original
state

2. Is cooked rice VATable?

3. If yes, when is rice become VATable
 Importation by VAT-exempt person
1. International Shipping or air transport operator
The exemption is limited to the importation of fuels, goods and
supplies
Although these goods and supplies are physically brought into the
Philippines, they are not intended to be consumed herein. They will
ultimately be used for international transport. This consumption is a
foreign consumption rather than domestic consumption.
 Importation by VAT-exempt person (cont’d)
2. Agricultural Cooperatives
The status of agri-coop as VAT exempt person is limited to importation
of direct farm inputs, machineries and equipment including their spare
parts (RA 9337)
Conditions for exemption:
1. The cooperative must be an agricultural cooperative duly registered
in good standing with the Cooperative Development Authority
(CDA);
2. The importation involves farm inputs, machineries and equipment
including their spare parts to be used directly and exclusively in the
production or processing of their produce.
 Importation by VAT-exempt person (cont’d)
3. Ecozone-Locators
Ecozones are designated places of economic activity for the production
of goods or services for export market. By legal fiction, economic zones
are considered foreign countries and are deemed outside custom
territory. Thus the importation of goods into the economic zones by
locators is not only exempt from VAT but also from customs duties. The
exemption from VAT covers goods, supplies and machineries brought
into the ecozones by locators. The rules of VAT on Importation into this
ecozones apply to Technical Importation by consumers in a customs
territory.
 Importation by VAT-exempt person (cont’d)
4. COVID 19 Related Goods
a. Capital equipment, its spare parts and raw materials, necessary for
the production of personal protective equipment components such
as coveralls, gown, surgical cap, surgical mask, N-95 mask, scrub
suits, goggles and face shield, double or surgical gloves, dedicated
shoes, and shoe covers, for COVID-19 prevention
b. All drugs, vaccines and medical devices specifically prescribed and
directly used for the treatment of COVID-19
 Importation by VAT-exempt person (cont’d)
c. Drugs for the treatment of COVID-19 approved by the Food and Drug
Administration (FDA) for use in clinical trials, including raw materials directly
necessary for the production of such drugs with the following conditions:
1. That the Department of Trade and Industry (DTI) shall certify that such
equipment, spare parts or raw materials for importation are not locally
available or insufficient in quantity, or not in accordance with the quality or
specification required;
2. That every three (3) months thereafter, the Department of Health (DOH)
shall issue a list of prescription drugs and medical devices covered by
exemption; and
3. That the exemption claimed shall be subject to post audit by the Bureau of
Internal Revenue or the Bureau of Customs as may be applicable.
 Importation by VAT-exempt person (cont’d)
5. Sale or importation of fertilizers; seeds, seedlings and fingerlings;
fish, prawn, livestock and poultry feeds, including ingredients, whether
locally produced or imported, used in the manufacture of finished
feeds (except specialty feeds for race horses, fighting cocks, aquarium
fish, zoo animals and other animals generally considered as pets);
6. Importation of personal and household effects belonging to the
residents of the Philippines returning from abroad and nonresident
citizens coming to resettle in the Philippines: Provided, That such goods
are exempt from customs duties under the Tariff and Customs Code of
the Philippines;
 Importation by VAT-exempt person (cont’d)
7. Importation of professional instruments and implements, tools of trade, occupation
or employment, wearing apparel, domestic animals, and personal and household
effects belonging to persons coming to settle in the Philippines or Filipinos or their
families and descendants who are now residents or citizens of other countries, such
parties herein after referred to as overseas Filipinos, in quantities and of the class
suitable to the profession, rank or position of the persons importing said items, for
their own use and not for barter or sale, accompanying such persons, or arriving within
a reasonable time, provided:
1. That the Bureau of Customs may, upon the production of satisfactory evidence
that such persons are actually coming to settle in the Philippines and the goods
are brought from their former place of abode, exempt such goods from payment
of duties and taxes:
2. That the vehicles, vessels, aircrafts, machineries and other similar goods for use
in manufacture, shall not fall within this classification and shall therefore be
subject to duties, taxes and other charges;
 Importation by VAT-exempt person (cont’d)
8. Sale of or importation of prescription drugs and medicines for:
a. Diabetes, high cholesterol, and hypertension beginning January
1, 2020; and
b. Cancer, mental illness, tuberculosis, and kidney diseases
beginning January 1, 2021.
*Provided, That the DOH shall issue a list of approved drugs and
medicines for this purpose.
 Importation Exempt Under Special Law or
Treaties
Presumption of VATability
Other importation of goods is subject to Vat regardless whether:
1. Importer is engaged or not engaged in trade or business
2. Importer is a Vat or non-VAT business
3. Importation is for business or personal use
4. Non-resident seller is engaged or not engaged in business
Importation is generally subject to VAT unless it can be proven as
exempt under any of those conditions discussed herein or a provision
of a special law or treaty. The burden of proof rest upon the importer
 Tax Basis of the VAT on Importation
The VAT on importation is 12% of the total landed cost of imported
goods or services
Composition of landed cost:
A. Dutiable Value
B. Other in-land costs b. brokerage fee
1. customs duty c. arrastre Charge
2. excise tax (if any) d. warfage due
3. other in-land costs e. documentary stamps
a. bank charges f. Import processing fees
 Tax Basis of the VAT on Importation (cont’d)
Simply landed costs encompasses all costs incurred prior to the
withdrawal of the goods from the warehouse of the Bureau of Customs
(BOC), except unofficial or illegal payments made.
Dutiable Value also called transaction value – refers to the total value
used by the BOC in determining customs duties such as:
1. Cost of goods
2. Freight
3. Insurance
4. Other charges and costs to bring goods therein
Customs Duty is computed as: Dutiable Value x Exchange rate x rate of
duty
 Import on Services
Import of Services is generally subject to final withholding VAT, except when
it is exempted or imposed with percentage tax.
Nature of Final Withholding VAT
In principle, domestic consumption by anybody (business or non-business) of
services from abroad should be subject to VAT regardless of the place (within
or without) where the service is rendered.
However, our current tax law views the final withholding VAT as a business
tax. The VAT deemed imposed upon non-resident service providers. For this
purpose, the law conclusively presumes that the non-resident sellers are
engaged in business even if their sales transactions are merely casual. Since
non-residents cannot be obligated to file tax returns due to territorial
consideration, the resident buyer is obligated to withhold the VAT and to
remit the same to the government.
 Import on Services (cont’d)
As a withholding tax, the obligation to withhold the VAT technically
exists only if:
1. The service is rendered within the Philippines
2. The payor-purchaser of the service is an individual engaged in
business or a corporation
Note: There is no obligation to withhold the VAT if the payor is not
engaged in business, except for corporate purchasers of service.
Moreover, the situs of taxation of services is determined by the place
where the service is rendered and not at the place where the output
of the service will be ultimately used. Hence, the service must be
rendered within (the country) to be subjected to the withholding tax.
 VAT Exempt Import Services
The following are exempt from final withholding VAT:
a. Purchase of services from non-residents when the service is rendered
abroad
b. Purchases of services from non-residents when the individual purchaser
is not engaged in business
c. Purchases of services from non-residents by VAT exempt persons such as
ecozone locators
Import of Services Specifically subject to percentage Tax
The only import of service that is currently subject to percentage tax is the
direct acquisition of insurance cover from abroad. The premium payment on
insurance policies directly sourced from abroad is subject to 5% percentage
tax. The policy holder shall pay the same to the BIR
 VATable Import Of Services
All other import of services is subject to final withholding VAT. The final
withholding VAT is computed at the rate of 12% of the contract price.
Unlike withholding income tax, this amount shall be deducted upon the
amount to be remitted abroad because it is deemed pass-on by the
non-resident service provider and withheld by the resident
payor-withholding agent.
Examples of VATable import of services:
1. Lease or use of properties or property rights owned by non-residents
2. Services rendered to local insurance companies with respect to
re-insurance premiums payable to non-residents
3. Other services rendered in the Philippines by non-residents
 Payment and Treatment of VAT on
Importation and the Withholding VAT
Payment of the Withholding VAT
Using BIR Form 1600, the withholding VAT is remitted monthly on or before
the 10th day of the following month after the withholding was made, except
taxes withheld for December which shall be filed or paid on or before
January 25 of the following year.
Treatment of the VAT on importation and the Withholding VAT
1. If the resident purchaser is a VAT registered business it can claim the VAT
on importation as creditable against output tax
2. If a resident purchaser is a non-VAT business, the VAT on importation is
part of the cost of purchases
3. If the purchaser is not engaged in business, the VAT on importation is
merely added to the cost of the goods imported.
 Questions
1. Can final withholding VAT be credited against output Tax?
2. If yes, when and how can it be credited against Output Tax?
3. If no, why?