(Chapter 4 Exempt Stes of Goods, Properties and Services CHAPTER 4 EXEMPT SALES OF GOODS, PROPERTIES & SERVICES (Chapter Overview and Objectives: Ti dpa mans comp wsunpon fom owas oto ‘exempt sales) ‘ ‘Aer his chapter, readers are expected to: 1, Master of at eas famllarze themselves with thelist ofexempt sale of _oods, properties or services, and 2, Masteethe exemption eteria on each ype of exempt sales Teen) ee EXEMPT SALES: au Exempt sles are exempt con sods. properties or services frpm \lomeste sellers Exempt sales re not subject to VAT and porcentago tx 1. WAT taxpayer making exempt sale of goods properties or services sha tcl an pat VAT to comer bene the le ot ack ‘Nnon-VAT person making exempt sles shall nt be subject othe 39% poreentage taxon the sles. Exempt Sales of Goods Properties Series 1 "Si tegen ehd mos predic hog te 2 Siro als ing nd gringo ew dnd pony fonds cuneate maa ae Teeds ana Svcs by arichural contrat rowers and wiling for thers ay te ly oe ton a ins cao an Sls Dapmen ory 5. Services perform! by individuals hr purauont to an employer and flags rlatonsip 4 Motel hsp nd veterinary services asp thse render ‘professionals and sales of drug by a hospital drug store " 1, Tramporttpntngr yeaa eres ta 10878) ‘chapter 4 Exempt Sales of Goods Propertiss and Services . Servees render by reglonal or area beadguartes established in the Pippines by sultnaons corporations which acs os supervisor, Communion and coordinating center fr Ue flats, tbs or frances inthe Asia Pale Repos and donot or derive income fom the Philipines 19, Salet by agricultural cooperatives dly registred in good standing with the nbperaee Development Acadey to thle members 36 wal a ses of thor produce wheter ine onginal state oF procesed form, to mon- Imembers ther inportion of ect farm inputs machieres and Ghuipmen.tecuding. spate. pars theea 10 be used det and ‘Sette inthe production and or procesing of hr produce 1 Gross reels rom ending aeites by ered oF mult-purpase (operatives duly rxistred and in goad standing with the Ceopertve Development aathorty su Secs ty onsguiuius), napladne and noncrsdt cooperative ly Fegisteredandin good standing with the CDA 42, Entnptsle ofl properties Sle of real properties not prima held fr slew customers or bed Tortease i the dinar course of usiness 2, Sleotrel properties urliued for low-cost housing, 4 Sale fel properties utllaed for soallaed housing {Sie Gr retigenol lot valued at P1,9193500 and below and other ‘siden deling valued at P3.198200 and below 13, tease a resident un wth mobi ental ot exceeding P2800 1, Ste prinung or publeation of bok apd any newspaper, magn, review, oe buen which appear at-reglar Intervals wi fied pies for crption and sole and which Ie not devoted princpaly to the pubes of paid advertisements 15, Sle or lease of passenger or cargo vessels and acral incading engine ‘uipment aol spare pat there or domestic or Interatonsl transport spention 16 Export sais by non-VAT persons 15, Transaclons whith ae sem nderfteroatonal agreement to which the Pilpine ea ignatary or under spel avs ‘To promote mistery and long-term retention of the exempt sales transactions, we wil coi them allows: [AJM MER V/A ERICT nb Code word — 'A/M. | ariel or marin food products orignal state | fleath or spit servis EL Bmplment >| | Reonal Admins eguartrs (RQ) —I 97‘Chapter 4 ~ Exempt Sales of Goods, Properties and Services Siler ase of ysl and grea ‘Education and related consumption ‘Ssleorless of ral properties under caRain conditions | “Transport of passengers by lnarnatinal cares =| Sls of Goapeatves | Transactions exempt under treaty or special laws | AGRICULTURAL OR MARINE FOOD PRODUCTS IN ORIGINAL STATE Neate provisons inthis cxtegry are 4 Sle areal ond marine fd product nth erga tt, vest ih pouty a ind gener wed ayo igor Prong fens oe man consumption: ad reedng tock and genetic hae thaloes 1 Sal of erties: seeds, seedings ad fagrings ish prawn livestock ad bout feds cating neers whether lal oad pect, ‘sein the mantatre of ned feta excep spt ec, Sale ofAgrcutaral or Marine Food Product in Original State The sale of agricultural and marine food products tn their orginal state ‘including tose that have undergone the simple process of preparation a rarket including advance ogi mins of exempt = "he conditions of exemption tothe VAT on importation on agricultural or ‘marine food products n Chapter 2 kewise apply withthe VAT on sales. stration 1: rulcand vegetable deer Mang Pando os meat nfs oul the Baul Cy ple mare. He Ndtheellowing sls rngthe month Tue mar Sale oft hogs P 320000 Soleo tone eacassand meat 240000 ~ fresh fhe ‘s0000 Silos dred anda stoked fish ‘0000 ‘ong Parong not subjc busines tax onal hes sles Iusteaton 2: Farmer ‘erorn i eexgd inthe feming and bore busines, eae the Sate ply ane » 1200000 Sac efbaann maroon ‘ooano ‘Chapter 4 Exempt Sales of Goods Properties and Services Sale ofrewood and charcoal 150000 Sale of orks, flowers nd Bonsai 250000 Pay ce, banana and mushrooms are exempt agrearl fod products. The ale offirewood, crcl orcs fers and bral are sublet to uses ae because thay are no food agricatara produ Iastraton 3: Poult operaior ‘Thefollowing elotes to theses ofr, ira poukey operator: Sales of hckon 400000 Sale of one-day ld chicks 20000 Sales of pg for poy” and “alot” 180000 Sale of ehicken manare 00900 Noe ofthese subject to Bsias tr Oia ehchon manure ent nended Jor amon consampion bts actual vegetable friar soar guano: ‘hs ao emp Iustration 4: Petshop Raymund, veterinarian operates a pet shop. The following were his aes and recep during te oaths Sales of pats 600.000 Sales af animal vitamins medicines and feeds 200,000, Receipts rom veterinary sercet. 200000 ‘Alto hase ae subject busines tox Fed for pts are votble Note ae that ‘sences provided by profesonls are vaeble ‘The meaning of" original state" As previously discussed, "Un origina state" meaps unprocessed. Agriclral for marine food produete are sil considered in orignal stato even i they have undergone the simple process of preparation ar preservation For the ‘market including advanced technological means of packaging “The use of heat employment of complex processes such a5 chemi Interesting, however mara or the proces of min withingeets or ring aw ceed y the iss ae serge BR considered 2 : . Coanpses ot innrgna sate (Riga 2011 Me Bc he ‘Secs riating ce ite rcene for sch pon ad tthe dmc nn eto gee pe 9‘Chapter 4 Exempt Sales of Goods, Properties and Services The term “i origina state" may be a contentious topic, Due to this, ts says suggested to taxpayers to secure a BIR rling on the proper ta Treatment of ther agreutural or marine fond product Iusteation 4 Jick Restarane serves a variety of menus from ces, nods, brad and ‘hoked mest sh vegetables and Hee Juck Restowon shal be ubjoc to busness tx Cooked egretaral or marine fo reds ra loge a hor. The are dy prcese Note Rey had the following sls on is tare Salesof meatus P 400000 Sale of hotdogs 1oe00 canned sdines and beans 0000 The sale of meat cus exempt Theses of hotdogs «up nodes and conned sods mich ve proces fds ae vtabe Sale of ertan Farm oF Fishery Inputs empcion is qualified and ime: "or plantar jet cutivation-feriizrs, seeds and seedings Fox aniel sandy = West, fees a ngrens for vestock and pouty feeds For shery operations fingerings Fish nd prawn lustration ‘Arn spy dealer sold the folate Tractors and water pape Ih seeds 1 One and inorganie erties i, Vesicles nd herder he sessed and fries ae exomp: The sal of form or chery equipment ‘uch tractors, water pumps and other farming fogs such as pets end heres are subject ta AT by wrt fhe lak of ees lege exemption Livestock/poultry feeds or ingredient nthe manufacture of feeds The sale of livestock oF pouley feeds and ingredients sed In the ‘manotactureoffnished feds is exempt rom VAT 100 caper 4p Sales of Goods, Properties and Services However, th sale of ingrodints hich may algo be use fr he prdcton or proceso od or uran consumption vatble ‘Thus, forthe sle (including importation) of livestock and pouty feeds or Ingredients isd inthe manafacture of frished fees tobe exempt from VAT, femur be proven tha the same sult or human consumption or that the ingredient cannot be used for the production of food for human fonsumption as ceriied. by the Food and Drug. Adminstration (PDA) eMCSS-2014 June 17,2018) Services by agricultural contract growers and milling for others of lay into rice, corn into grits and sugarcane into raw sugar, ‘Aavcuralconroctgrawers~ refers to perons produ. for others py veto or ober ageltural ad marine Tod pa niga te ‘stration 1 Jolin wa contracted by Tureprk, a stributor of pore and chicken meat routs to aie hogs ad chicken. onsale paid ied contract price for ‘he undertaking Jot on apc cntrect rower, he contract price rece by fon fom Purepor exp am business tox The sl of Purepork of ts meat products is abe exam from busines eax Cordilean Bling Company ors a variety of mili services ranging fam Pala, com, sug ean andgld ores I ho he flowing veceps during the oath Pay and corn ming fos P 600.00 Suga ling es 200,000 lee tal ling es 400.00 ‘nt thse receits from miling services forthe processing of agricultural produce for ultimate human consumption ae seca exempted. Hence, the recipes ‘am th bal ling of ol ore oe taxable HEALTH OR HOSPITAL SERVICES Medical, dental, hospital and veterinary services; except those ‘rendered by professionals and sales of drug by a hospital drug store “The sale of the above services Is not subject to business tox. This rule apples to al health serviees whether rendered by a private, non-peot oF fovernment hospital Health services endered by profesioalsandihe sale ‘drags vata 101Chapter 4 Exempt Sales of Goods, Properties and Services etany Hospital private hospital bad the folowing receipts and les ring pation revere — P 100.000 patent revenie= 20000 ahortory series - ‘aoon0 Jolesodrugsandnéaines tom pharmacy _aoong eal ESann000 opt series inching abratar srs re exempt The oles of drags ond ‘medicine from pharmacy or drugstore shal be subject to business ee a empLovment Services performed by iadvduas In pursuant to an employer and employee relationship. roe ‘The provision of services to an employer under an employerempayes ‘eatonsipisnota business Hence exempt tom busessenes Profsonal prtionrs, cannes JV ass, brokers 9 agents are nok emloyees hence. subjects barngastise usration ‘jn am aut practioner anda parttime teacher eared the following Conpenatoncome 1.200.000 Recep rom aut cents 7 1200000 i compat income meng fom ins tes empayment mt ne th 20400 ri fm pfeil es pes te Utena the reste proton cose bane De Mando Dugas arranged with a hospital o accept his hens He entertain ‘nts nthe hosp The hospital shal il Ms professional een the nae of th hsp The host repays DeBus hs pression sles Rep The profesional es are not compensation income and are there sujet to ‘naess tx. Furthermore. medial practitioners ett allowed te coin ‘tempi ander te clk ofthe hospi exempt rama ‘Chapter Exempt Sales of Goods, Properties and Services Director's Fees Previously under RMC 34-08, dreciors who are not employtes of a corporation are considered engaged in business and. enc, subject to busines tes ‘The BIR made a reversal ofthe rule in RMC 77-2008, declaring that Aiectrs fees 16 ot care 0 of business painting, among, thers, that directors fees does not arise from an undertaking that Intended to be pursued in the couse of business. ‘According to RMC 77-2008, engagement in business or trade inenes the folowing naa _ar Continuity of sctvity ona going concern baste ‘Ge objecive ro earn unrestricted amounts pecuniary galns or profits Te Unrestricted fering ofthe gods or service ay easton aeclent [REGIONAL OR AREA HEADQUARTER OF A MULTINATIONAL COMPANY Service rendered by regional or area headquarters established inthe Philippines by multinational corporations whieh acts as supervisory, communications and coordinating centers. for theltaffliates, Subsidiaries or branches in the Asta Pacific Region and do not oF Aerive income from the Philipines ‘A regional or area headquarter (RAH oF RHQ) isan integral part of the multinational corporation It nt a separate business of 4 branch i an ‘inietraiveofce wilh do ot deriv inca on ow ence, not Subject to business UX Oh the other hand, a regional operating headouarter (ROHQ) stable OF AIRCRAFT OR SEA VESSELS, INCLUDING ENGINE, EQUIPMENT AND SPARE PARTS THEREOF FOR DOMESTIC. OR INTERNATIONAL OPERATION ‘The sale or lease of sireraft or sea vessels ncuing engine, equipment and spare parts thoref for domestic or interstonal transport is exert frm busines tx. This petains tothe sgme passenger-oF cago wesels and scat exempt fom importation As aforementioned in Chapter 2 the leg ‘semption is grounded upon our shortage ofthese transport ehices Iustration {x Shipyard manufactures ship for drneste transport. During the moth it made 3 etl sales f P100,000,00 from these of ney contruced ship 0 2 dome ship company. 103(Chapter 4 txempt Sales of Goods, Properties and Services ‘The sl ofthe ship no sujet business tax Note also thatthe rental rom eng of hse voices is nempe from business ta epucarion Related in this category are Schools 1h Hooks newspapers, magazine, review or bulletin dacatonal series rndere by pte aucatoal atu duly ealited by the Department of Education, the Commisstorron Wigher [Education and Technical Education and Skills Development Authority and those rendered by government educational institution Cosine aon ea ce, dns ho son Danes ag Tls exempt covers goverment and te Senn pronritany er arp so lon a he hae he equked werden al The exemption doesnot cover seminars, in-service traning, eview classes and otter similar services rendered by educational instiutons that are not accredited by the DepEd the CHED and/or TESDA. Masrati Hebron Collage, a pate college acerettad by CHED, report P2000,000, ‘ects rom sation fer uring the month Hebron azo reported POD O00 ental income rom the bulding being ented by comme ia tenants ‘The tution fis not subj esis tax. The P100000 rental an income From uneloted ade to education: henee subject busines ta Sale, printing or publication of books and any newspaper, magazine, ‘eve, or bulletin whieh appear at regular interval with fixed prices 3 subseription and sale and which fs not devoted principally to the “on of pa advertisements Jet Bokstore reid the ollwing sles during the i: Sales of ook inventories P 400,000 Sdeot periodicals 200.000 ~Salesol school upper 300000 Commission income rm book publishers 30000 108 caper ‘he sale of books and periodic sexe. Te ale of schol suppl wd the comission come subject business Exempt Sales of Goods Properties and Services station? Cordilera Cause publishes weekly newspaper. During the month, ha the folowing receipts: Sale of mespapers P 500,000 e Fes from advertisements.“ 300,00 : Renttrom esses of ect spaces 50.00 Ont the sale of wewspapers xempe, Advertisement fs and the ren ofits vacant Spacear subject to busines ‘astration Hague Printing Pres reported the lowing cents rom pining services: Books P 300000 Newspapers 20.000 s ‘arpa and campaign ads © 200.000 ‘he receipt rom priming of tarps end compalgn as subject business {The ring festom Books and naspapars ae oxampt SALE OR LEASE OF REAL PROPERTIES UNDER CERTAIN CONDITIONS Categories of exempt transactions on rel properties A. Saleof el properties {2 Byaperson not engaged inthe realty buslness onsale) 1B By person engaged in the realy business which complies with Stung clings ele) 0. _Lease fea ding no exceeding P1200 unit par math ateof Rea Properties Sale non-dealer cos! sle) Sil of veal properties no primary held for slo customers oe hela Tease inthe ordinary couse oF Busnes oer fom busines tox, The ‘ensonis thatthe sel snot engaged in sins For VAT txpayers, however, the solos of properties held forse. the tnsines (ordinary assets) are subject VAT evn ifthe sale not regula Nowever the sale of properties considered as capital asses ane_exempt fama af 105 ee aeChapter 4 Exempt Sales of Goods, Properties and Services Sale by a realty dealer developer or lessor Normal the saleby a dealer Is subjoc to business tx, except sales of the folowing resident proper if the plies with the Following price clings 1, Sale ofreal properties uted for socialized housing unt owe aoe pactage- 450,000 Residential lots only = P180,000(R4C35-2014) (Per HUDEC Memarondun Cesar Na 12013 October 16 2013) 2 Sale of real properties uilzed for low-eost- housing wherein the price ling per units 750,000 2 Sale of residential lt valued at P1919500 and below 4. Sale ofresientil duollngvalued at P2199.200 and below ‘Sted hosing «bowing prog and pit covering Noes an os oy ‘seen Btn Governmet xp str Sundog ond Mas Rael shall te sho ad sve Telopnee ae ltrs on irs payments and sch he eee war ke a, Devlpmant ening tte RAIS and RAO Salad ang stl als rte poets ended forthe unde sien on edgar ay eel op ow cast housing ~ rls housing poets nnd fo te boneless ame fay eileen yt Covert o pre deca ahaa Lit A Aeon CR ra We a, Fe oy 70.000 underRA 7279 and beri sacha A 9S aA eT lastraton 1 A Realty Corporation sold aresfentil lat at pice of 1.0,00. This sale is exempt from busines tax ince the sale conforms tothe P1949,500 Sales price ceing on sales of resent tuner the law AC Rea Corporation ola house nd lot ate rie of 24000. he salen suet to business tox (Le VAT) since the sl is above the P3,19,200 ‘bee elings on the sole of resiental dling. Note tha Breese of ther Yolo se rears ore wally regtered as VAT payers 106 Chapter 4~Bxempt Sales of Goods, Properties and Services IMustration 3 Don Pedro an employe, soda resident lot for P2000,000 The sales exempt from business to. P1515 print ven iLmade above the P5195 becuse Dom Paro isnt raga engaged in heresy Busnes. ‘he reset oi opt ast emp fram VAT: It must be emphsiced hat {he sale of rol propery eased as capt ase suber the 6% eptel fas eax int be subject ta busines Itartration 4 ‘The National Housing Authority, 9 government agency, sels “owas houning ‘ns wth pie of 1,000,000 per ni to guid apoeants The sole of the housing units shal be sublet to tax dept being deseribe as “Yost hosing amit because deer ot comply with Ge price iit yas Sale ofadjacent lots For the purpose ofthe calling the sale of adacen residential las house an Tots an ther residential dwellings itn the favor of F 5 ong (RRT3-20127TWis eae i intended to ‘counter unwarranted partition ofthe ale into stveal deeds to evade the business tax. A reaty developer was supposed to sell 100m a ata pice of P2,000,000, However the lp sum seo he ot wuld ae subject obsess ak ‘The developer proposed o sll the st 80 my lo or P,000.000 the ate the other SD mor sneer P1,000,00 so thatthe sae ofthe lt would be tax fee ‘his tax minimizetion technique na longer allowed. The sala the eacet lo to the sane ger sl be aggregated for purposes ofthe thresh Since the aagregate elig pric ofthe fos ezeds te pric celing, both sles are bert ‘obasness tx (he VAT). The VAT wl be recoiled on the stand sale ‘This aggregation eu doesnot apply to sale of parking lots which may or may not be included in the sale of condominium unite because parking lots Isneither a residential lt, house and lot nor residential dwellings, The le olgarkingt is vata var Rely sol a vesidental house ant far 2.800000 together with an jacent parang Lt separately priced fer F200 000 toa ye ‘he 200.000 soles of parking oc atale. The PAM sale of resent ot ‘exempt. The aggregation rae des not op. 07