Understanding Your Tax Type: VAT vs Non-VAT (Philippines, 2025)
A step-by-step overview of the 2025 business registration process in the Philippines, plus a clear guide to choosing between VAT and Non-VAT for your business.
What you’ll learn in this VAT vs Non-VAT tax type guide
This VAT vs Non-VAT tax type guide for the Philippines (2025) explains thresholds, filing obligations, and how your choice affects invoicing and pricing so you can register with BIR correctly from the start.
For a full picture of compliance, you may also want to read our BIR Business Registration Guide, Digital Tax Filing (eBIRForms) Guide, and TRAIN Law Compliance Guide.
Before you choose your tax type with the BIR, you should understand the full registration flow and how your gross sales/receipts affect whether you are VAT or Non-VAT.
Below is a condensed business registration process as of 2025, followed by an easy comparison of VAT vs Non-VAT so you can register correctly.
🧭 Step-by-Step Business Registration with Fees (2025)
Choose Business Structure and Name
Decide if you will operate as a sole proprietorship, partnership, or corporation.
- For sole proprietors, reserve and register your business name with the DTI.
- For partnerships and corporations, register with the SEC.
DTI Registration Fees by Territorial Scope:
- Barangay: ₱200
- City/Municipality: ₱500
- Regional: ₱1,000
- National: ₱2,000
A Documentary Stamp Tax (DST) of ₱30 is also required upon registration.
Obtain Barangay Clearance
Get a Barangay Business Clearance from the Barangay Hall where your business is located.
Fees typically range ₱300–₱500 depending on the barangay.
Secure Mayor's / Business Permit
Apply at the City or Municipal Hall (Business Permits and Licensing Office).
Fees typically range from ₱2,000–₱5,000 depending on the LGU.
This permit is renewed annually.
Register with the Bureau of Internal Revenue (BIR)
Submit requirements to the BIR Revenue District Office (RDO) that covers your business location or use the NewBizReg Portal (if available):
- DTI/SEC Registration Certificate.
- Mayor’s / Business Permit.
- Lease contract or proof of ownership of business location.
- Filled BIR forms (e.g., BIR Form 1901 for sole proprietors).
Pay Documentary Stamp Tax (DST) of ₱30 for the BIR Certificate of Registration.
The annual ₱500 registration fee was removed starting January 2024. You still need to pay for books of accounts and printing of official receipts/invoices.
Register Books & Official Receipts
Purchase books of accounts and have them registered with BIR.
Costs: around ₱200–₱5,000 including official receipts/invoices printing.
Start Operations & Tax Compliance
Display your permits and start issuing official receipts/invoices.
Comply with monthly, quarterly, or annual tax filing requirements depending on your tax type.
⚖️ VAT vs Non-VAT: Which Tax Type Applies to You?
VAT (Value-Added Tax)
- If your business’s annual gross sales or receipts exceed ₱3,000,000, you must register as a VAT taxpayer.
- Standard VAT rate is 12%.
- You file monthly and quarterly VAT returns.
- Your invoices must indicate “VAT-registered” and show the VAT amounts separately.
Non-VAT (Percentage Tax)
- If your annual gross sales or receipts are below ₱3,000,000, you usually register as Non-VAT (subject to percentage tax).
- Percentage tax rate is currently around 1% for many MSMEs.
- You file quarterly percentage tax returns.
- Your invoices typically indicate “Non-VAT registered” and show the percentage tax when needed.
You choose your tax type during BIR registration. Make sure to declare your expected annual gross sales or receipts and consult your RDO or accountant if you are close to the ₱3,000,000 threshold.
If your Non-VAT business later exceeds the threshold, you are generally required to update your registration to VAT and start filing VAT returns.