The Tax Reform for Acceleration and Inclusion, more popularly known as TRAIN, has amended the tax code to increase the VAT Threshold from P1.919 Million to P3.0 Million. If you are a registered VAT taxpayer earning less than P3.0 Million, you may now opt to be non-vat instead. This is great for services and high margin businesses as this will most likely result in tax savings.
Who’s eligible to change their tax type from VAT to Non-VAT?
Taxpayers whose Gross Sales/Receipts are less than or equal to exactly P3.0 Million in 2017. To be clear, by Gross Sales/Receipts, this is your earnings before ANY deductions.
How do I change from VAT to Non-VAT?
The Commissioner of Internal Revenue has recently released an advisory on how to change from VAT to Non-VAT. You can download and read the actual advisory here.
You can follow the following procedure:
- Download Form 1905 (xls / pdf) – Application for Registration Update. Do make sure you check for the latest version of this form on the BIR website.
- Fill out your form 1905 this way:
- Part I, Field 1: Enter your TIN
- Part I, Field 2: Enter your RDO Code
- Part I, Field 3: Enter Taxpayer’s Name (we recommend you double check with your COR and check the matching fields there)
- Part II: Tick (✔) letter G
- Part II, Field 4G: Write Value-Added Tax under Cancelled Tax Types (the BIR will fill out the rest of these fields)
- Part II, Field 5: Fill out and sign this section.
You MAY need to change your books of accounts AND your receipts. There are variances between RDO’s on this so better ask them when you submit your Form 1905. If you do need to change your receipts, you need to fill out a Form 1906 – Authority to Print Receipts so it may be a good idea to have it ready. Also, may be good to purchase 2 to 4 columnar books so that you don’t have to pay for overpriced ones that are invariably sold beside the RDOs.
When do I have to do this?
According to the advisory, you must file the accomplished BIR Form 1905 on or before March 31, 2018. Since March 31 is a Saturday, we recommend that you file on March 30, 2018 at the very latest. Of course, the earlier the better!
EDIT: The BIR recently released RR No 15-2018, extending this deadline to April 30, 2018. So if you want to change from VAT to non-VAT, do it before then!
What happens if I forget to file my Form 1905?
If the BIR does not receive your Form 1905, the BIR will take that as you opting to still pay VAT.
EDIT: If you missed the March 30, 2018 deadline, you can still update your registration via Form 1905, BUT you will have to show that you did not exceed P3,000,000 gross sales/receipts in the previous THREE years.
This article was written to help demystify and simplify the changes brought about by the TRAIN law. Taxumo was also created to continuously improve with the same spirit, by letting you compute and file your taxes online in minutes!
Right now I am a NonVat registered taxpayer. Do I still need to do this? Mr receipts are printed NonVat..
Hi Tusing, if you’re already a Non-VAT taxpayer, no need. 🙂
Hi, is it still 3% rate?
It would actually depend on the ATC you are using. But those rates haven’t changed.
Following the BIR Tax Advisory, what is meant buy this statement ” Unless the taxpayer signifies in the 1st quarter of the taxable year the intention to elect the 8% income tax rate, the taxpayer shall be considered as having availed if the graduated rates under section 24(a) of the tax code.”
If we would like to elect 8%, does this mean we need to request it in writing to the RDO or would BIR Form 1905 (change of tax type to remove percentage tax since I am non-vat) suffice? Or if there;s another process process? Please advise. Thanks.
Hi Ruel, more details on how to opt in can be read in a more recent blog post: How to Avail of the 8% Income Tax Rate on Gross Sales/Receipts
Im non-vat do i need to file 2551m monthly?
Hi Irine, 2551M is filed monthly yes. But note that as of Jan 2018, with TRAIN, percentage taxes are now filed quarterly via form 2551Q. 🙂
I have been a VAT taxpayer for the 3 or 5 years. Since My income last year was below the 3 M threshold, can i apply for NonVat before March 31?
I was told by my accountant that i need to wait for 3 years to downgrade, even if my income is below the new threshold.
Hi Irene, this was discussed in a recent article we published. [Read it here]
Is there a fee to be paid to the BIR when I file 1905 to change from VAT to NON VAT?
Yes there is. Around P500, I believe. 🙂
my client is a vat registered but stopped selling vatable goods in 2010. at present he is using the vat receipt since he has not changed his tax type from to non-vat. is there a penalty for not changing the tax type?
Even if you’re earning less than the VAT threshold, you can still opt for VAT. So technically, as long as you’re client is filing the correct forms as per his/her COR, then he/she should be all good.
I am registered as VAT TAxpayer but my gross income is less than 3M…I am opting to change from VAT to Nonvat…do i still have to file my monthly VAT until Im done processing with my tax update? thanks
Hi Mira, yes, that would be the prudent course of action to take. 🙂
Hello I am vat registered now would like to change to non vat but my accountant said Vat to percentage tax only is possible.Not Vat to non- Vat.
I need clarification and advises
Hi Lika, sounds like an argument on definition of terms more than anything. When I say non-vat, I mean percentage. 🙂
Do you know how much are to fees? BIR change vat to non vat
Hi Susana, I believe it’s around P500. 🙂
Greetings! You said gross sales of 2017. But my bookeeper told me that i should have not exceeded 3M for the past 3 years. Which is true? Tnx for your reply.
Hi Minerva, just gross sales of 2017 IF you change your registration BEFORE March 31, 2018. After that, you can still change, but you’re now checking for the past 3 years. You can read more about that in this new article I wrote. 🙂
What provision shall prevail? is it the Section 236 (F) of NIRC code or the provision indicated under RR8-2018?
based on Section 236, a VAT Registered person may OPT to cancel its VAT REgistration if they can demonstrate that they will not exceed the (1.5M now its 3M) threshold for the succeeding 12 monhts.
But under RR8-2018, the requirement is the three preceding years already.
how do we apply thisd.
Hi, from VAT reg to non Vat registered business , how do we deals with the 12% VAT exeptions of Seniors and diplomats? I am in a restaurant business., thanks
Hi Lani, percentage tax (non-vat) is applied to the cash/amount you received. So it would be after any discount you gave. Note that there would of course, no longer be any vat exemption as you’re no longer vat. 🙂
Hi! I have just registered my small business last Feb to VAT but now I am thinking of reverting it back to non VAT. Will I still be allowed if I already claimed my COR?
Yes, you can still do that. And you should before the first deadline is due actually to be sure.
Tax Advisory is for Individuals, is this as well applicable to Corporations, ie, condo corp? Assoc Dues are now Non-VAT. Thanks.
Hi Jane, nope, rules for corp are different altogether. This just applies to individuals/professionals. 🙂
hi sir non vat po kami..sa train law po ba imbes na 3percent magiging 8percent na babayaran sa gross sales?.
Hi Benjie, the 3% percentage Tax is different from the 8% Income Tax Rate. You can read more about the 8% income tax here.
Hi, talked to an RDO officer yesterday, it is still at 3% for non vat entity, given you do not apply for the consolidated income which is up to 3m annual at 8% rate. if you think you will go beyond the 1,919,5000 annual income, you should apply for the 8% rate non vat (up to 3m income) and your ta type will be changed.
Hope this help
Hi, how do you compute the Senior Citizen’s discount if you change from VAT to NON VAT?
Percentage Taxes are computed based on how much you received. If you give a discount, you basically compute percentage tax on the whole amount. 🙂
Thanks for this! I’ll be filing form 1905 tomorrow for change of tax type to 8% flat rate. I guess it’s the same procedure. Thank you so much.
Yes it is. 🙂 You’re welcome!
Hi, is it still at 3% rate?
It would actually depend on the ATC you are using. But those rates haven’t changed.
Vat reg po ako (self employed) pero ang income ko is less 250k. Kung hindi ako mag change from Vat to Non Vat, meron pa rin po ba ako personal exemption na 50k? Kasi under new law they removed the personal exemption and additional exemption po.
Hi Eliza – Wala na pong personal exemption as per TRAIN.
Does BIR requires 2017 Returns before accepting Form 1905?
Technically no. But they do take that opportunity sometimes to inform you if you have any open cases, so they will usually do a quick check for you. 🙂
If we have 1 type of government, same laws to implement, why does each RD have their own set of requirements?
A question for the BIR, my friend. Our question as well. 😉 With [Taxumo] we are helping the BIR adapt to changes – what were formally seen as advantages but are now becoming hindrances, can be fixed through technology. With your support we can continue to help the BIR become a world class government department!
what form do we submit to avail the flat 8%?is there a deadline?also,what happens if we file the 1905 1st week April?thank you
For that, you can read this article we wrote: How to Avail of the 8% Income Tax Rate on Gross Sales/Receipts
Hi, In RDO 39, they require us to submit Verification Slip together with Form 1905, may I ask verification slip of what kaya yun. Sobra ang haba ng pila, di nila in-explain basta iniabot ang list ng requirements. Thank you.
Hi Gina, that sounds like something specific from the RDO. You will have to ask them what they mean. 🙁
Hanggang ngayong march 31 nalang po pasahan ng 1905. May iba pa po bang date or extension na pwede magpasa? May penalty po ba kung pwede magpasa na lagpas march 31? Salamat!
As per the blog:
“If you missed the March 30, 2018 deadline, you can still update your registration via Form 1905, BUT you will have to show that you did not exceed P3,000,000 gross sales/receipts in the previous THREE years.”
No penalty po.
Di po namin naabot ang 3m as vat taxpayer mas maganda po bang iconvert na lang thanks papalitan po ba pati resibo
It depends po on whether your VAT-relevant expenses are enough to drive down your vat dues. If it is, VAT may still be a good option for you. For manufacturing/sales of goods where there are a lot of expenses, this may likely be the case. For services, however, most of the time their VAT-relevant expenses are not enough to drive down your VAT dues (at 12%) so definitely the non-vat is a more attractive option.
Having said that, it does vary from case to case so it would be specific to your particular business.
Planning to change from vat to non vat?
Aside from the documents to be submitted and fees, is there any kind of audit? Like submit ORs etc.
Hi Ana – normally, they would check if you have any open cases. So if you have any unsubmitted filings, they will point that out and tell you. They may also want to check your books of accounts and see if you filled them out properly. It won’t be a full blown audit but they may do some checks. Now with respect to ORs, you may need to replace all your OR booklets if you change from VAT so they may ask for those booklets as well. 🙂 Hope that helps!
Does the 3 year rule to revert back to nonvat still applies? now that the vat threshold is 3m.
They recently moved the date to April 30. So if you’re changing your COR before April 30, you can do so without having to show the past 3 years ITR.
Hi Sir EJ, I want to know if VAT sales is included in the said gross sales in order to be qualified in Non-VAT? What are the pros and cons when you’re a Non-VAT taxpayer?
Hi JC, the gross sales (inclusive of taxes) is considered when checking the P3M threshold for VAT. If your gross sales are less than P3M, you can opt to be non-VAT.
Non-Vat Taxpayers pay a (usually) 3% Percentage Tax on Gross Sales + Income Tax. Also less compliance requirements.
VAT Taxpayers pay 12% on their sales + Income Tax. Granted they can deduct the input taxes they get from sales to effectively lower it – but this would usually make sense only if your expenses are a considerable part of your income (low margin businesses). Also, there’s much more compliance requirements for VAT.
Hope that helps!
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How about from Non-VAT to VAT Status, thus the process is still the same as changing from VAT to Non-Vat?
I am a Non-VAT Taxpayer. But my sales skyrocketed and was above the threshold for the months of Oct, Nov, and Dec. I have already filed for a change of Non-VAT to VAT. I were VAT Registered last Dec 15.
My question is,
For the months of Oct, Nov, and Dec (1/2), I am not yet a registered VAT Taxpayer. Should I pay the 3% Percentage Tax and File the 2551Q? Or, Should I file the 2550Q instead, and deduct VAT Purchases from my Sales?
am i obliged to submit my ending inventory if i am going to apply from VAT to NONVAT ?
and if so, do i have to pay the 12% of my ending inventory submitted ?
Hello sir, I would like to ask if a vatable taxpayer in 2020 died on January 2021 is oblige to remit the 12% for the checks received on January & February? Isn’t it reasonable to pay only 3%percentage tax or 8% in 1st qtr w/o changing his COR to vat since he is already dead? Sonner the cancelation of registration process will be applied. Thanks
Hi good morning, right now Iam Not Vat registered, but this 3rd qtr of 2021. my Sales meet the 3M threshold, do i need to change from Non Vat to Vat automatically, or should i file the change by next year?
This is best discussed with a Certified Public Accountant who is am Accredited Tax Agent. Our Taxumo Consult session’s rate is Php 1,000.00 only for 45 minutes. You can book for a consultation session here:
If there is anything you need to ask about using Taxumo, feel free to reach out to us again.🙂
I registered for non vat in 2020 then it was completely 0% tax, then the next year (2021) I registered for the same type however I exceeded the total yearly earnings since September 2021 and I was billed for the calculated tax since then. What should I do ? Do I have to change from Non VAT to VAT. Will I be billed for that ? or is there penalties to do it ? Please advise
hi Ging! If your Annual Gross Income exceeded 3MM already then yes you need to update your registration from Non-VAT to VAT. With regards to the penalties and other implications, we suggest you to have this consulted with a Certified Public Accountant. If you know someone you may ask them what would happen if none we have CPA partners who can provide You can book for a consultation session here:
If there is anything you need to ask about using Taxumo, feel free to reach out to us again.🙂guidance.
Our co. was previously a Vat-Reg (from Jan to Mar 2018) and changed as Non-Vat effective April 2018. We submitted our Input and Output (Jan to Mar 2018) and from April to Dec ( I remitted the Output Vat , which is pertaining to payt to us when we are still Vat-Reg) but no Input Tax was offset to the said Output tax. Is it correct that we only remitted the (Input and Output) from Jan to Mar. and for the period Apr to Dec (only remitted the Output Vat and no Input tax were being offset on it)
If you were already NON VAT since April, as far as we know, you shouldn’t charge VAT anymore to your clients. It would be best if you do a consult regarding this.
You can book for a consultation session here:
Thank you and stay safe!