# Do I need to register for VAT?

This page is for the owner or bookkeeper of a small business: a store, pharmacy, restaurant or online shop, or a freelancer. At the end you will know whether you must register, how to count your sales, and which form changes your registration.

## The rule

You must register for VAT if either of these is true ([NIRC section 236(F), as amended by RA 11976](https://www.lawphil.net/statutes/repacts/ra2024/ra_11976_2024.html)):

- your gross sales for the past 12 months exceeded the threshold
- there are reasonable grounds to believe your gross sales for the next 12 months will exceed it

The threshold in the law is **₱3,000,000** ([NIRC section 109(CC)](https://www.lawphil.net/statutes/repacts/ra2024/ra_11976_2024.html)). The same section says the amount is adjusted to present values every three years using the consumer price index, so check that it has not changed before you rely on it.

The 12 months are any 12 months in a row, not only the calendar year. The law says "the past twelve (12) months".

## What you count

Count your gross sales, and leave out sales that are exempt under sections 109(A) to (CC). The law says so in the same paragraph: "other than those that are exempt". Selling exempt goods or services does not push you toward the threshold.

## If you run a pharmacy

Some medicines are VAT-exempt, and the exemption covers the retailer's sale as well as the manufacturer's and the distributor's. Only products on the published list are exempt. [RMC 99-2021](https://bir-cdn.bir.gov.ph/local/pdf/RMC%20No.%2099-2021.pdf) names the diseases: diabetes, high cholesterol, hypertension, cancer, mental illness, tuberculosis and kidney diseases. It also says a medicine not on the list is not exempt.

So a pharmacy adds up:

| Sale | Counts toward the threshold? |
|---|---|
| A medicine on the list | No |
| A medicine that is not on the list | Yes |
| Anything else you sell in the store | Yes |

The list has been updated since 2021. Check each product against the latest list from the BIR, down to its dosage strength and form, because RMC 99-2021 ties the exemption to those details.

Keep the two kinds of sale apart in your records. Without that you cannot show which sales you left out.

A senior or PWD sale has its own record, separate from this count: see [Senior and PWD discount: what the seller records and deducts](/guide/senior-pwd-discount-seller).

## Below the threshold

If you stay under the threshold and are not VAT-registered, you pay percentage tax of 3% of gross quarterly sales instead ([NIRC section 116](https://www.lawphil.net/statutes/repacts/ra2024/ra_11976_2024.html)). See [How to fill out BIR Form 2551Q](/guide/bir-2551q-percentage-tax), which also explains when the 8% income tax rate replaces it.

You may also choose to register for VAT while under the threshold. If you do, you cannot cancel for the next three years ([NIRC section 236(G)](https://www.lawphil.net/statutes/repacts/ra2024/ra_11976_2024.html)).

## If you should have registered and did not

The law charges you as if you were VAT-registered, "but without the benefit of input tax credits for the period in which he was not properly registered" ([NIRC section 236(F)(2)](https://www.lawphil.net/statutes/repacts/ra2024/ra_11976_2024.html)). You owe VAT at 12% of gross sales ([NIRC section 106](https://www.lawphil.net/statutes/repacts/ra2024/ra_11976_2024.html)) and cannot subtract the VAT you paid your suppliers for that period. That is why it is cheaper to register on time.

## How to register

1. You register with your Revenue District Office, electronically or manually (section 236(F)(2)).
2. An existing business changes its tax type on [BIR Form 1905](/fill/bir-1905), under "Change/Add Tax Type Details" in item 7G.
3. Ask your RDO what it wants attached. This page does not list requirements because we have no BIR source for them that we could check.
4. After you are registered, you file [BIR Form 2550Q](/fill/bir-2550q) every quarter instead of 2551Q.

## Leaving VAT

You may cancel your VAT registration if you can show your sales for the next 12 months will not exceed the threshold, or if you stopped the business and do not expect to start again within 12 months. The cancellation takes effect on the first day of the following month ([NIRC section 236(E)(2)](https://www.lawphil.net/statutes/repacts/ra2024/ra_11976_2024.html)). The three-year wait above still applies if you registered by choice.

## Questions

### Do sales of VAT-exempt goods count toward the threshold?

No. The law counts gross sales "other than those that are exempt", so sales exempt under sections 109(A) to (CC) stay out of the total.

### Can I register for VAT if my sales are under the threshold?

Yes, you may choose to. If you do, you cannot cancel for the next three years.

### Are the 12 months the calendar year?

No. They are any 12 months in a row.

### What happens if I should have registered and did not?

You are charged as if you were VAT-registered, at 12% of gross sales, and you cannot subtract the VAT you paid your suppliers for that period.

## What this page does not cover

It is general information, not tax advice. Lessors, professionals and other businesses with special exemptions can have other rules. If your sales are close to the threshold, ask your RDO or an accountant before you decide.