VAT 12% Philippines — threshold, TRAIN and CREATE MORE
How VAT applies in the Philippines: standard 12% rate, PHP 3M registration threshold, percentage tax 3% for non-VAT and the CREATE MORE updates effective 2025.
The Philippines applies a Value-Added Tax of 12% as the standard rate on the sale, barter, exchange or lease of goods, properties and services under Section 106 and Section 108 of the National Internal Revenue Code (NIRC of 1997, as amended). The TRAIN Act (RA 10963, 2018) raised the VAT registration threshold to PHP 3,000,000 of annual gross sales — taxpayers below the threshold are subject to a 3% percentage tax under Section 116 (temporarily lowered to 1% from July 2020 to June 2023 under the CREATE Act, then back to 3%). The CREATE MORE Act (RA 12066, November 2024) refines export VAT zero-rating, input VAT refund procedures and the treatment of registered business enterprises in ecozones.
- Standard rate: 12% on goods and services (Sections 106 and 108 NIRC).
- VAT threshold: PHP 3,000,000 annual gross sales (TRAIN, RA 10963).
- Percentage tax: 3% under Section 116 for non-VAT taxpayers (was 1% in pandemic).
- Zero-rated: exports, sales to registered ecozone enterprises (RBE).
How it works
Determine whether you cross the VAT threshold. Under TRAIN (RA 10963) you must register for VAT if annual gross sales exceed PHP 3,000,000, or if you voluntarily opt in. Below the threshold you may stay on the 3% percentage tax (or 8% income tax option on gross under Section 24(A)(2)(b) for purely self-employed individuals). The choice is annual and irrevocable for the year.
Apply the correct VAT treatment per line. The standard 12% applies to most domestic supplies. Zero-rating (0%) applies to direct exports, sales to registered export enterprises (REEs) inside ecozones registered with PEZA/BOI/CDC/SBMA, and certain international services — but CREATE MORE Act (RA 12066) has tightened the documentary requirements. Exempt transactions (no VAT, no input VAT credit) include residential rentals below thresholds, agricultural products in original state, and educational services under Section 109.
Reflect the VAT on each Sales Invoice or Official Receipt with explicit breakdown: VAT-exclusive price, VAT 12% line and VAT-inclusive total. The BIR EIS schema requires separate VAT, VAT-exempt and zero-rated amounts. Without the correct breakdown the buyer cannot claim input VAT — leading to disputes and re-issuance under RR 8-2022.
File monthly VAT returns using BIR Form 2550M (now BIR Form 2550Q quarterly under the Ease of Paying Taxes Act, EOPT, RA 11976). Quarterly returns are due within 25 days after the close of each taxable quarter via eFPS / eBIRForms with payment through authorized agent banks or G-Cash / Maya / LandBank Link.Biz. Late filing triggers a 25% surcharge plus 12% per annum interest under Section 248-249.
Reconcile output VAT (charged on sales) with creditable input VAT (paid on purchases) to compute net VAT payable. Excess input VAT can be carried forward indefinitely, or claimed for refund/TCC by zero-rated taxpayers under Section 112 within two years from the close of the taxable quarter — CREATE MORE Act shortened the refund processing to 90 days for fully documented claims.
Legal framework
- National Internal Revenue Code of 1997 (RA 8424) — Title IV Sections 105-115.
- Tax Reform for Acceleration and Inclusion Act (TRAIN, RA 10963).
- Corporate Recovery and Tax Incentives for Enterprises Act (CREATE, RA 11534).
- CREATE MORE Act (RA 12066, signed November 2024) — VAT zero-rating refinements.
Frequently asked questions
When is a business required to register for VAT?
When annual gross sales or gross receipts exceed PHP 3,000,000 under TRAIN (RA 10963), as confirmed by Section 236(G) NIRC. Voluntary VAT registration is also possible below the threshold — useful for taxpayers whose customers are VAT-registered and want to claim input VAT. Registration is irrevocable for three years. Below the threshold and not voluntarily registered, the taxpayer pays 3% percentage tax under Section 116.
What is the percentage tax and why did it change to 1%?
Percentage tax (Section 116 NIRC) is a 3% tax on gross sales/receipts for non-VAT taxpayers below the PHP 3M threshold, in lieu of VAT. The CREATE Act (RA 11534) temporarily lowered it to 1% from 1 July 2020 to 30 June 2023 as a pandemic relief measure. From 1 July 2023 it reverted to 3%. It is filed quarterly via BIR Form 2551Q within 25 days after each quarter end.
What does CREATE MORE Act change for VAT?
CREATE MORE (RA 12066, signed November 2024) refines export VAT zero-rating rules: clarifies that local purchases by Registered Business Enterprises (RBEs) for direct use in registered activities qualify for 0% VAT or VAT exemption depending on incentive type; shortens VAT refund processing to 90 days for fully documented claims under Section 112; and introduces clearer rules for cross-border digital services under the Digital Services Tax framework (BIR RR 3-2025).
How are exports treated for VAT?
Direct exports of goods or services are zero-rated (0% VAT) under Section 106(A)(2) and 108(B) NIRC, meaning the seller charges no VAT but can still claim input VAT credit or refund under Section 112. Documentation required: export sales invoice, bill of lading or airway bill, proof of payment in acceptable foreign currency through Bangko Sentral channels and the underlying sale contract. Missing documents downgrade the sale to 12% VAT plus 25% surcharge.
Can a VAT-registered taxpayer downgrade to non-VAT?
Only after three years from initial VAT registration, and only if annual gross sales fall and remain below the PHP 3M threshold under Section 236(F)(2) NIRC. The taxpayer files a request for cancellation of VAT registration with the BIR Revenue District Office. While VAT-registered, the taxpayer cannot revert to percentage tax even if sales drop below the threshold within the lock-in period.