VAT Exempt TransactionsThe Sec 109 exemption categories in plain language
Exempt means no output VAT is charged and no input VAT is claimed on the sale. The main categories are below in plain terms. Peso thresholds in Sec 109 are adjusted periodically, so confirm any amount against the current regulations before relying on it.
| Category | In plain terms |
|---|---|
| Agricultural and marine food products in their original state | Rice, fish, vegetables, and the like, unprocessed beyond simple preservation |
| Educational services | By accredited schools and institutions |
| Medical and hospital services | Except those rendered by professionals in their own practice |
| Books, newspapers, and similar publications | Including their qualifying digital forms |
| Residential leases within the monthly rent threshold | Low rent housing stays outside VAT; verify the current amount |
| Sales of qualifying residential properties within the price thresholds | Socialized and low cost housing bands; verify the current amounts |
| Sales to senior citizens and persons with disability | On qualifying goods and services, alongside the discount laws |
| Sales by qualifying cooperatives | Registered cooperatives under their governing rules |
| Small businesses under the VAT threshold | They pay percentage tax instead, unless they elect otherwise |
Exempt is not the same as zero rated: zero rated sales, such as qualifying exports, charge 0% output VAT and can still claim input VAT. Thresholds and qualifications change; verify each amount against the current law before relying on it.
Exempt sales change the input VAT math
Input VAT tied to exempt sales is not creditable, which forces allocation for mixed businesses. The payable estimator assumes fully VATable activity; mixed operations deserve an accountant's allocation.
Related
Exempt, zero rated, or VATable, tagged per line.
mybizmate carries the classification on every transaction so the 2550Q splits correctly.