So, you’re starting a business or maybe you’re already running one—and now you’re hearing all about VAT and Non-VAT registration. Sounds like jargon, right? Don’t worry! Let’s break it down in simple terms so you can figure out what’s best for your business.
What is VAT, Anyway?
VAT stands for Value-Added Tax. In the Philippines, it’s a 12% tax slapped on most goods and services. If you’re registered as a VAT taxpayer, you add this 12% to your sales, collect it from your customers, and then remit it to the BIR (yup, it’s not yours to keep).
When Do You Need to Register as VAT?
VAT registration isn’t for everyone. Here’s the deal:
- If your annual gross sales or receipts go over ₱3 million, the BIR requires you to register as a VAT taxpayer—no ifs or buts.
- Below ₱3 million? You have the option to stick with Non-VAT (also called Percentage Tax), but you can choose to be VAT-registered if you want.
What’s Non-VAT (Percentage Tax)?
Non-VAT businesses pay a 3% percentage tax on gross sales or receipts instead of charging the 12% VAT. You still need to file and pay taxes, but the process is generally simpler and the rate is lower.
Pros and Cons: VAT vs. Non-VAT
Here’s a clear look at the pros and cons:
VAT
- You charge 12% VAT on your sales.
- You can claim input VAT (the VAT you pay on your business purchases gets deducted from your VAT payable).
- More paperwork and monthly/quarterly reports.
- Often preferred if your clients are also VAT-registered businesses.
Non-VAT (Percentage Tax)
- You pay 3% of your gross sales/receipts.
- No need to charge VAT to customers.
- Simpler filing requirements.
- You can’t claim input VAT.
- Good for small businesses with sales under ₱3 million.
Quick Decision Checklist
- Are your total annual sales/receipts over ₱3 million? Go for VAT registration—it’s required.
- Under ₱3 million? You can stick with Non-VAT (3%), but consider VAT if your suppliers or clients prefer it, or if you want to claim input VAT.
Real Talk: Which Should You Choose?
If you’re just starting out and keeping things small, Non-VAT is less paperwork and easier on your cash flow. But as your business grows—or if you work mostly with other VAT-registered companies—going VAT can make sense.
Final Thoughts
VAT and Non-VAT sound intimidating, but once you know the basics, the choice becomes clearer. Always keep an eye on your sales, and don't hesitate to consult an accountant if you're approaching the threshold. Whatever you choose, make sure you’re registered properly and filing those returns on time.
Happy hustling!
But why navigate that threshold alone?
While the choice may become clearer, the complexity of registering and maintaining compliance for a growing Davao business is where many owners get stuck. Evergrow Business Services specializes in helping small business owners like you move smoothly from Non-VAT to VAT, or simply optimize their current status. We ensure you stay compliant and strategic, no matter where your sales figures lead.
Ready to Scale? Contact Evergrow.
Disclaimer:
The information in this blog is provided for general informational purposes only and is not intended as professional accounting, tax, or legal advice. While we aim to share accurate and timely information, laws and regulations may change and individual circumstances vary. For advice specific to your situation, please consult with a qualified accountant or professional advisor.