How to Register for VAT or Non-VAT with the BIR in the Philippines

When registering your business with the Bureau of Internal Revenue (BIR) in the Philippines, one of the critical decisions is whether to register as a VAT (Value-Added Tax) or Non-VAT taxpayer. This classification affects how you will report and pay taxes and is determined by your business’s annual gross sales or receipts.

This blog provides a step-by-step guide on how to register for VAT or Non-VAT with the BIR, along with a comparison to help you decide the best option for your business.

Understanding VAT and Non-VAT

What is VAT?

• VAT is a 12% tax applied to the sale of goods, services, and properties in the Philippines.
• Businesses are required to collect VAT from customers and remit it to the BIR after deducting input VAT (the VAT paid on purchases).
• Mandatory for businesses with annual gross sales or receipts exceeding ₱3,000,000.

What is Non-VAT?

• Non-VAT (Percentage Tax) applies to businesses with annual gross sales or receipts below ₱3,000,000.
• The current percentage tax rate is 1% (reduced from 3% under CREATE Law until 2025).

Steps to Register for VAT or Non-VAT with the BIR

Step 1: Determine Your Taxpayer Classification

• If your gross sales or receipts are ₱3,000,000 or above, you are required to register as a VAT taxpayer.
• If your gross sales or receipts are below ₱3,000,000, you may opt to register as:
  • Non-VAT (Percentage Tax).
  • VAT (voluntarily, even if not required).

Step 2: Prepare the Required Documents

Gather the following documents for BIR registration:

1. BIR Form 1901 (Sole Proprietorship) or BIR Form 1903 (Corporations/Partnerships).
2. DTI Certificate of Registration (for sole proprietors) or SEC Certificate of Incorporation/Partnership (for corporations/partnerships).
3. Mayor’s Permit or proof of application.
4. Valid Government-Issued ID (for sole proprietors).
5. Articles of Incorporation/Partnership (for corporations/partnerships).
6. Lease Contract or proof of property ownership for the business location.
7. Sketch of Business Location.
8. Payment for Registration Fee:
   • ₱500 annual registration fee (use BIR Form 0605).
   • Additional documentary stamp tax (DST) as required.

Step 3: Submit Documents to the BIR

• Submit the required documents to the Revenue District Office (RDO) where your business is located.
• Indicate whether you are registering for VAT or Non-VAT on your application form.

Step 4: Secure Your Certificate of Registration (COR)

• Once approved, the BIR will issue your Certificate of Registration (Form 2303), which indicates your tax type (VAT or Non-VAT).
• Display this certificate at your place of business.

Step 5: Register Official Receipts and Invoices

• For VAT taxpayers, invoices must include:
  • The statement “VAT-registered.”
  • The 12% VAT amount.
• For Non-VAT taxpayers, receipts must include:
  • The statement “Non-VAT registered.”
  • The 1% percentage tax amount.

Submit BIR Form 1906 to authorize the printing of receipts and invoices.

Step 6: Maintain Books of Accounts

• Register and maintain BIR-approved books of accounts, such as the General Journal, General Ledger, and other required books.

Step 7: File and Pay Taxes

• For VAT Taxpayers:
  • File monthly VAT returns (BIR Form 2550M) and quarterly VAT returns (BIR Form 2550Q).
  • Pay the 12% VAT collected from sales minus input VAT.
• For Non-VAT Taxpayers:
  • File quarterly percentage tax returns (BIR Form 2551Q).
  • Pay the 1% percentage tax on gross sales or receipts.

VAT vs. Non-VAT: Which is Better for Your Business?