The rule
You must register for VAT if your gross sales or receipts for the past 12 months, or expected for the next 12 months, exceed ₱3,000,000 (Sec. 109(BB) and Sec. 236(G) of the Tax Code, as amended by TRAIN). Below that, you are non-VAT and pay 3% percentage tax — or, as an individual, you can choose the 8% income tax option which covers both.
| Non-VAT (≤ ₱3M) | VAT-registered (> ₱3M) | |
|---|---|---|
| Tax on sales | 3% percentage tax (or none with 8% option) | 12% VAT, minus input VAT on purchases |
| Income tax options | 8% option, or graduated rates | Graduated rates only |
| Invoices | Non-VAT invoice | VAT invoice showing VATable sales and VAT |
Example: a ₱250,000 project for a client
If you are VAT-registered, you bill ₱250,000.00 + 12% VAT (₱30,000.00) = ₱280,000.00. You remit the VAT you collected less the VAT you paid on your business purchases.
Adding VAT to amounts
| Net price | VAT 12% | Total |
|---|---|---|
| ₱1,000.00 | ₱120.00 | ₱1,120.00 |
| ₱25,000.00 | ₱3,000.00 | ₱28,000.00 |
| ₱100,000.00 | ₱12,000.00 | ₱112,000.00 |
| ₱250,000.00 | ₱30,000.00 | ₱280,000.00 |
| ₱1,000,000.00 | ₱120,000.00 | ₱1,120,000.00 |
Crossing the threshold mid-year
Once your sales for the year go above ₱3,000,000, update your BIR registration to VAT right away (BIR expects it within the month after the threshold is crossed) and charge VAT from then on. If you had chosen the 8% option, it ends and your income tax for the year is computed under graduated rates.
You may also register for VAT voluntarily even below ₱3 million — useful if your clients are VAT-registered businesses that want to claim input VAT.
Keep an eye on your running total
Track your gross sales month by month. When you get close to ₱3,000,000, plan ahead: check your prices (12% VAT will be added for VAT-registered sales), talk to an accountant about input VAT records, and update your invoices. Planning a few months early makes the switch much smoother.
FAQ
What is the VAT threshold in the Philippines?
₱3,000,000 of annual gross sales or receipts. Above that, VAT registration is mandatory.
How much VAT do I add to ₱250,000?
12% = ₱30,000.00, for a total invoice of ₱280,000.00.
Can I use the 8% income tax option if I am VAT-registered?
No. The 8% option is only for non-VAT taxpayers with gross sales not over ₱3,000,000.
Sources (checked 5 November 2026): NIRC Secs. 106–109 as amended (12% VAT; VAT registration threshold ₱3,000,000 under RA 10963); RA 9994 (Expanded Senior Citizens Act) and RA 10754 (PWD) — 20% discount and VAT exemption on qualified purchases; BIR Revenue Regulations No. 7-2010 (senior citizen discount computation, group meals) and RR No. 5-2017 (PWD); RA 12023 (VAT on digital services, effective June 2025); bir.gov.ph.