How to Compute VAT in the Philippines
The Value Added Tax (VAT) rate in the Philippines is 12%, as mandated by the National Internal Revenue Code (NIRC) and administered by the Bureau of Internal Revenue (BIR).
Adding 12% VAT to a price:
VAT amount = Ex-VAT price × 0.12
VAT-inclusive price = Ex-VAT price × 1.12
Extracting VAT from a VAT-inclusive price:
Ex-VAT price = VAT-inclusive price ÷ 1.12
VAT amount = VAT-inclusive price ÷ 1.12 × 0.12
When is VAT Required?
Businesses and individuals with annual gross sales or receipts exceeding ₱3,000,000 are required to register for VAT with the BIR. Those below this threshold may opt for the 3% percentage tax instead (or the 8% flat income tax rate for self-employed individuals).
Zero-rated and Exempt Transactions
- Exports of goods and services are zero-rated (0% VAT)
- Basic food items like rice, corn, and vegetables are VAT-exempt
- Educational services and medical services are VAT-exempt
- Senior citizens and persons with disabilities are entitled to VAT exemption on certain purchases
Frequently Asked Questions
What is the VAT rate in the Philippines?
12% — this rate has been in effect since 2006 under the Expanded VAT Law (Republic Act 9337). It applies to most goods and services sold in the Philippines.
How do I compute VAT from a receipt total?
Divide the total amount by 1.12 to get the ex-VAT amount. The VAT portion is the difference between the total and the ex-VAT amount. Example: ₱1,120 ÷ 1.12 = ₱1,000 (ex-VAT), VAT = ₱120.
Do freelancers in the Philippines need to charge VAT?
Only if your annual gross receipts exceed ₱3,000,000. Below that threshold, you register as a non-VAT taxpayer and pay the 3% percentage tax instead (or the 8% flat income tax if you qualify).
What is the difference between zero-rated and VAT-exempt?
Zero-rated (0%) means VAT applies but at zero rate — sellers can still claim input VAT credits. VAT-exempt means the transaction is completely outside the VAT system and sellers cannot claim input VAT.