RR No. 4-2021: Implements the provisions on Value-Added Tax (VAT) and Percentage Tax under RA No. 11534 (Corporate Recovery and Tax Incentives for Enterprises Act or CREATE Act), which further amended the NIRC of 1997, as amended, as implemented by RR No. 16-2005, as amended

Key points

1. Real property sales. From January 1, 2021, VAT exemption applies only to sales of real property not primarily held for sale to customers or for lease in the ordinary course of business. It also applies to real property used for socialized housing under RA No. 7279, as amended, and to house and lot or other residential dwellings with a selling price of not more than Two Million Pesos (₱2,000,000.00), as adjusted in 2011 using the 2010 CPI. These amounts are adjusted every three (3) years using the PSA’s Consumer Price Index.
2. Books and medicines. Sale, importation, printing or publication of books and similar educational reading material, including digital format, is VAT-exempt if not devoted principally to paid advertisements and compliant with National Book Development Board requirements under RA No. 8047. Prescription drugs for diabetes, high cholesterol and hypertension are exempt from January 1, 2020, and those for cancer, mental illness, tuberculosis and kidney diseases from January 1, 2021, if on the DOH list of approved drugs.
3. COVID-19 related items. From January 1, 2021 to December 31, 2023, exempt items are capital equipment, spare parts and raw materials for PPE components, drugs, vaccines and medical devices for COVID-19 treatment, and FDA-approved clinical trial drugs. Equipment and raw materials need DTI certification of non-local availability, and suppliers submit the manufacturer-buyer’s License to Operate and a Sworn Declaration. The exemption is subject to post audit by the BIR or BOC.
4. Small business threshold and Percentage Tax. Sales or leases and services not otherwise listed are VAT-exempt if gross annual sales and/or receipts do not exceed Three Million Pesos (₱3,000,000.00). Non-VAT persons then pay 3% of gross quarterly sales or receipts, except cooperatives and self-employed individuals and professionals availing of the 8% tax, and the rate is 1% from July 1, 2020 until June 30, 2023.
5. VAT to non-VAT switch. A VAT-registered taxpayer who opted to register as non-VAT under the new exemptions, without meeting the Section 109(1)(CC) threshold, submits an inventory of unused invoices and receipts and surrenders them for cancellation. Some may be used if stamped “Non VAT registered as of (date of filing an application for update of registration) Not valid for claim of input tax.” until new ones are received or until August 31, 2021.
6. Excess taxes paid. Unutilized VAT on purchases and importations under the new exemptions from January 1, 2021 may be carried over or charged to cost under Section 110, with only a ratable portion for input VAT not attributable to exempt goods. Excess Percentage Tax from the 1% rate is carried forward on Line 17 of BIR Form No. 2551Q, and excess input taxes from the VAT to non-VAT change may be refunded or credited with a TCC under Sec. 112(B).

Who is affected

• Sellers of real property
• Publishers and sellers of books and reading materials
• Sellers of listed prescription drugs and COVID-19 related items
• Persons with gross annual sales not exceeding ₱3,000,000.00
• VAT-registered taxpayers who opted to become non-VAT

Deadlines and effectivity

• Real property rules effective January 1, 2021
• COVID-19 related exemption: January 1, 2021 to December 31, 2023
• 1% Percentage Tax: July 1, 2020 until June 30, 2023
• Stamped invoices usable until new ones are received or until August 31, 2021