VAT vs non-VAT: the ₱3 million line and what changes on your invoices
Last reviewed · 6 min read · Checked against the BIR issuances listed under Sources
The short answer
You must register for VAT when your gross sales for the past 12 months exceed ₱3,000,000, or you expect them to in the next 12. Below that, you are non-VAT and pay 3% percentage tax on gross quarterly sales, or choose the 8% income tax option if you qualify. A non-VAT invoice says "Non-VAT Reg TIN" and must never show VAT. A VAT invoice says "VAT Reg TIN" and shows the 12% VAT separately.
This is general information, not tax advice. Rules change and your case may differ, so check with your RDO or a CPA before you act on it.
Whether your store is VAT-registered changes the tax you pay, the price you quote and what your invoice says. The dividing line is ₱3,000,000 in gross sales a year. Below it, most small stores are non-VAT and pay 3% percentage tax. Above it, you must register for VAT and charge 12%.
The ₱3 million line
Sales of goods or services are VAT-exempt when your gross annual sales don't exceed ₱3,000,000 (Tax Code Section 109(CC), as amended by the EOPT Act). The law lets this amount be adjusted for inflation every three years. As of this review, we found no adjustment.
You must register for VAT if your gross sales for the past 12 months went over ₱3 million, or you have reason to expect they will in the next 12 months.
If you should have registered but didn't, you owe VAT as if you had registered, with no input tax credits.
When the change starts
We found no rule setting a number of days to register. The BIR's example in RR 13-2018 shows a seller whose total sales crossed ₱3 million in October. That seller:
- owes 12% VAT from November;
- must update their registration from non-VAT to VAT by 30 November.
Ask your RDO about your own timing.
Registering for VAT voluntarily
You can register for VAT even below ₱3 million, for example if your buyers are businesses that want to claim input VAT. Once you do, you can't cancel for the next three years. You also can't choose the 8% income tax option.
VAT vs non-VAT at a glance
| Non-VAT | VAT-registered | |
|---|---|---|
| Business tax | 3% percentage tax on gross quarterly sales (Section 116), unless you chose the 8% option | 12% VAT on sales, less input VAT on your purchases |
| On the invoice | "Non-VAT Reg TIN". No VAT shown. | "VAT Reg TIN". VAT shown as a separate line. |
| When to issue an invoice | Sales of ₱500 or more, a daily total once it reaches ₱500, or when asked | Every sale, whatever the amount |
| SC/PWD discount | 20% off the selling price | Remove VAT first, then 20% off |
Percentage tax is back to 3%
The CREATE Act (RA 11534) cut percentage tax to 1% from 1 July 2020 to 30 June 2023. From 1 July 2023 it is 3% again. Some older guides still say 1%.
The 8% option
Self-employed individuals and professionals whose sales don't exceed the VAT threshold can choose to pay 8% income tax on gross sales above ₱250,000. This replaces both the graduated income tax rates and the 3% percentage tax. The ₱250,000 deduction is only for purely self-employed individuals, not for people who also earn a salary.
Crossing ₱3 million ends the 8% option. Corporations can't use it.
What changes on your invoices
- Non-VAT: "Non-VAT Reg TIN" followed by your TIN and branch code. If you pay neither VAT nor percentage tax, the invoice says "EXEMPT".
- Non-VAT with some exempt sales: if you pay percentage tax and also have exempt sales, split the invoice into sales subject to percentage tax and exempt sales.
- Never show VAT if you're non-VAT. RR 7-2024 makes you liable for that VAT, with no input tax credit, plus a 50% surcharge, on top of your percentage tax.
- VAT-registered: "VAT Reg TIN", the VAT as a separate amount, and a split of VATable, VAT-exempt and zero-rated sales when a sale mixes them.
- Switching to VAT: the words on your invoices change, so check with your RDO about updating your registration and printing invoices that match.
Pricing when you become VAT-registered
If you keep your shelf price at ₱112 after becoming VAT-registered, ₱12 of it is now VAT (₱112 ÷ 1.12 = ₱100). You keep ₱100, not ₱112, before you net off your own input VAT. Work out your new prices before the switch. The free VAT calculator splits a VAT-inclusive price for you.
Don't confuse the ₱3 million lines
₱3 million is also the line between a micro and a small taxpayer under RR 8-2024, which the EIS rules use. The two tests aren't worded the same:
- RR 8-2024 counts gross sales for the taxable year, net of VAT, and a micro taxpayer is "less than" ₱3 million.
- The VAT test is gross sales that "do not exceed" ₱3 million.
Check each one separately. See who must e-invoice.
Frequently asked questions
What is the VAT threshold in the Philippines?
₱3,000,000 in gross sales. You must register for VAT if your gross sales for the past 12 months exceeded it, or you expect them to in the next 12 months. The law lets the amount be adjusted for inflation every three years, but no adjustment had been issued as of this review.
Is percentage tax 1% or 3%?
3%. The CREATE Act set 1% only from 1 July 2020 to 30 June 2023. From 1 July 2023 the 3% rate under Section 116 applies again.
Can a non-VAT store show VAT on its invoice?
No. Under RR 7-2024, a non-VAT seller whose invoice shows VAT owes that VAT, with no input tax credit, plus a 50% surcharge, on top of percentage tax.
Sources
- Republic Act No. 11976, Ease of Paying Taxes Act (approved 5 January 2024). Makes the invoice the main document for goods and services, sets the ₱500 invoice threshold for non-VAT sellers and keeps the ₱3M VAT threshold (Section 109(CC)). https://lawphil.net/statutes/repacts/ra2024/ra_11976_2024.html. Checked .
- Republic Act No. 10963, TRAIN law (approved 19 December 2017). Set the ₱3M VAT threshold and the 8% income tax option in lieu of graduated rates and percentage tax. https://lawphil.net/statutes/repacts/ra2017/ra_10963_2017.html. Checked .
- Republic Act No. 11534, CREATE Act (approved 26 March 2021). Cut percentage tax under Section 116 to 1% from 1 July 2020 to 30 June 2023; the 3% rate applies again after that. https://lawphil.net/statutes/repacts/ra2021/ra_11534_2021.html. Checked .
- BIR RR No. 13-2018. Illustrates crossing ₱3M: VAT applies from the following month and registration is updated by the end of that month. https://bir-cdn.bir.gov.ph/local/pdf/RR%20No.%2013-2018%20Corrected%20Copy.pdf. Checked .
- BIR RR No. 7-2024 (effective 27 April 2024). The EOPT invoicing rules: required invoice contents, the ₱1,000 buyer-details rule, official receipts as supplementary documents, VAT sellers invoice every sale, non-VAT sellers who show VAT owe it plus 50%. https://bir-cdn.bir.gov.ph/BIR/pdf/RR%20No.%207-%202024.pdf. Checked .
- BIR RR No. 8-2024 (digest). Taxpayer classes under EOPT by gross sales for the year, net of VAT: micro under ₱3M, small ₱3M to under ₱20M, medium ₱20M to under ₱1B, large ₱1B and up. https://bir-cdn.bir.gov.ph/BIR/pdf/RR%208-2024.pdf. Checked .