How to Cancel Your VAT Registration and Shift Back to Non-VAT with the BIR

A VAT-registered business can cancel its VAT registration and shift back to non-VAT (percentage tax) status by filing BIR Form 1905 with its Revenue District Office (RDO) — but only once its gross sales or receipts have stayed at or below the P3,000,000 threshold for three consecutive years, under the update mechanics in Revenue Regulations No. 8-2018. A single slow year is not enough, and a voluntary VAT registrant faces a separate three-year lock-in regardless of sales.

This guide covers who is actually eligible to downgrade, how the “once VAT, always VAT” rule works for voluntary registrants, the BIR Form 1905 filing steps and attachments, and what happens to existing invoices, your Certificate of Registration, and any inventory still on hand.

When can a VAT-registered business cancel its registration? #

A business is only eligible to downgrade from VAT to non-VAT once its gross sales or receipts did not exceed the P3,000,000 threshold for the immediately preceding three consecutive years — a rolling look-back test, not a snapshot of the current quarter. This mechanism traces to Revenue Regulations No. 8-2018, issued to implement the income tax provisions of the TRAIN Law (Republic Act No. 10963), which first opened a one-time window (originally due March 31, 2018, extended to April 30, 2018 by Revenue Regulations No. 15-2018) for existing VAT registrants whose prior-year sales were already below the threshold to update to non-VAT. After that transition window closed, the standing rule carried forward: a VAT-registered taxpayer who has not exceeded the VAT threshold for three consecutive years may apply to update its registration to non-VAT, subject to the BIR’s rules on registration verification and the inventory and cancellation of VAT invoices and receipts.

Separately, Section 236(F) of the NIRC provides the general cancellation-of-registration rule: registration for any tax type a person ceases to be liable for is cancelled by filing an application for registration information update at the RDO — the same BIR Form 1905 used for a VAT-to-non-VAT downgrade.

Key facts:

• The three-consecutive-year test is measured backward from the date of application, not forward from an expectation of future sales
• A temporary dip below P3,000,000 in a single year does not by itself make a mandatorily VAT-registered business eligible to cancel
• The eligibility test uses the same P3,000,000 figure set by the TRAIN Law and now subject to the EOPT Act’s three-year CPI re-indexing under Revenue Regulations No. 3-2024 — see VAT Registration Threshold in the Philippines for how that figure moves over time

The “once VAT, always VAT” rule for voluntary registrants #

“Once VAT, always VAT” describes the lock-in that applies specifically to voluntary VAT registration, not to every VAT-registered business. Under Section 236(H) of the NIRC, a taxpayer not otherwise required to register for VAT may elect voluntary registration — and once elected, Section 9.236-1(b) of Revenue Regulations No. 16-2005 makes that election irrevocable for three (3) years, counted from the quarter in which the election was made, regardless of what happens to gross sales during that period.

This is a different lock-in from the three-consecutive-year look-back described above:

A business that both exceeded the threshold at some point and later chose to stay VAT-registered voluntarily should confirm with its RDO which test applies to its specific registration history before assuming it qualifies to downgrade.

How to file BIR Form 1905 to cancel VAT registration #

Cancelling VAT registration is done through the same multi-purpose BIR Form 1905 used for other registration updates, with the cancellation/update-of-tax-type box checked rather than a separate standalone form. The general sequence:

1. Confirm eligibility first. Pull gross sales/receipts for the preceding three years and verify each year fell at or below the applicable threshold before filing — a rejected application wastes a filing cycle.
2. Accomplish BIR Form 1905, checking the box for cancellation of VAT registration / update of registration information, and indicating the requested effective date.
3. Prepare the inventory of unused invoices and receipts — a list of unused VAT invoice/receipt booklets and their serial numbers as of the date of filing, a documentary requirement carried over from Revenue Regulations No. 8-2018’s original VAT-to-non-VAT transition rules.
4. Surrender the unused invoices/receipts and supporting registration documents — current BIR practice under Revenue Memorandum Circular No. 47-2026 (issued May 19, 2026) streamlined this step: taxpayers now simply surrender unused invoices and supplementary documents together with their inventory, rather than physically destroying them in front of BIR personnel as earlier circulars required.
5. File at the RDO where registered, along with the current Certificate of Registration (BIR Form 2303) for reissuance.
6. Await the updated COR reflecting the tax type change from VAT to percentage tax (Section 116), and confirm the effective date before your next quarterly filing.
7. Account for output VAT on remaining inventory (see below) in the return covering the change.

Requirements checklist for a VAT-to-non-VAT update #

Confirm the current checklist with your RDO before filing — documentary requirements are periodically simplified by new circulars, most recently RMC No. 47-2026.

What happens to invoices, your COR, and leftover inventory? #

Cancelling VAT registration does not erase the VAT consequences of transactions that already happened, and it can trigger a fresh VAT liability on inventory still on hand. Three things change or come due:

• Existing VAT invoices stop being valid as primary sales documents. Under Revenue Regulations No. 7-2024, as amended by Revenue Regulations No. 11-2024 (implementing the EOPT Act, Republic Act No. 11976), any unused VAT invoices or official receipts may only continue as supplementary — not primary — documents once stamped “This Document is not valid for claim of input tax,” and only until fully consumed.
• The Certificate of Registration is reissued without the VAT tax type, and the taxpayer switches quarterly filing from BIR Form 2550Q to BIR Form 2551Q, paying 3% percentage tax under Section 116 of the NIRC going forward.
• Deemed-sale output VAT applies to inventory on hand. Under Section 106(B) of the NIRC, cessation of VAT-registered status is treated as a deemed sale of goods and properties still on hand as of the change — the business owes output VAT on the fair market value of that remaining inventory, even though nothing has actually been sold to a customer yet. This is frequently overlooked by businesses focused only on the registration paperwork.

Worked example: a sari-sari wholesaler whose sales declined #

A general merchandise wholesaler registered for VAT in 2021 after gross sales crossed P3,000,000. Sales then declined as a nearby mall opened a competing supplier: trailing annual gross sales came in at P2,400,000 in 2023, P2,100,000 in 2024, and P2,300,000 in 2025 — three consecutive years at or below the threshold. In early 2026, the owner pulls the three years of sales records, confirms eligibility under RR No. 8-2018, and files BIR Form 1905 at the RDO to cancel VAT registration, attaching the inventory of unused VAT invoice booklets and the existing COR.

Because the wholesaler still holds P180,000 worth of unsold stock as of the change, that inventory is treated as a deemed sale under Section 106(B), and output VAT is computed on its fair market value in the VAT return covering the transition period — even though the stock will actually be sold later as non-VAT inventory. Going forward, the wholesaler files BIR Form 2551Q and pays 3% percentage tax, and its reissued COR reflects percentage tax rather than VAT.

For how the percentage tax side of this transition actually works day to day — the rate, the form, and how it compares to VAT — see VAT vs. Percentage Tax: Which Applies to Your Business?. If a registration update also involves other changes — a new address, a corrected name, or an RDO transfer — BIR Form 1905: How to Update Your Registration Information or Transfer RDO covers the rest of what that same form can do.

Frequently asked questions #

Can a VAT-registered business go back to non-VAT status? #

Yes, but not automatically and not immediately. A business that was mandatorily VAT-registered because it exceeded the P3,000,000 threshold can apply to cancel that VAT registration and shift to percentage tax only after its gross sales or receipts stay at or below the threshold for three consecutive years, following the update mechanics set out in Revenue Regulations No. 8-2018 and confirmed in current BIR practice.

What is the “once VAT, always VAT” rule? #

It refers to Section 236(H) of the NIRC, which governs voluntary VAT registration: a business that elects VAT registration even though its sales are below the threshold cannot cancel that registration for three years from the quarter the election was made, per Section 9.236-1(b) of Revenue Regulations No. 16-2005. It does not mean VAT registration can never be cancelled — it means voluntary registrants face a fixed three-year lock-in regardless of what happens to their sales in the meantime.

What form is used to cancel VAT registration with the BIR? #

BIR Form 1905, the Application for Registration Information Update/Correction/Cancellation, is used to cancel a VAT registration and update a taxpayer’s tax type to non-VAT/percentage tax. The taxpayer checks the applicable cancellation/update box, files it at the RDO where registered, and attaches the required inventory of unused invoices and other supporting documents.

Does BIR Form 2303 change after VAT registration is cancelled? #

Yes. Once the BIR processes the update, the taxpayer’s Certificate of Registration (BIR Form 2303) is reissued to remove the VAT tax type and reflect percentage tax under Section 116 instead, and the taxpayer must switch its quarterly filing from BIR Form 2550Q to BIR Form 2551Q from the effective date of the change.

What happens to unsold inventory when a business stops being VAT-registered? #

Under Section 106(B) of the NIRC, retirement from or cessation of VAT-registered status is treated as a deemed sale of goods and properties on hand, meaning the business must still account for output VAT on the fair market value of remaining inventory as of the change, even though those goods have not actually been sold to a customer.

Summary #

Cancelling VAT registration is a real, available path back to non-VAT status, but it is gated by two different tests depending on why a business is VAT-registered in the first place: mandatory registrants need three consecutive years of gross sales at or below the P3,000,000 threshold under Revenue Regulations No. 8-2018, while voluntary registrants face a flat three-year lock-in under NIRC Section 236(H) regardless of sales. Either path runs through BIR Form 1905, filed with the RDO along with an inventory of unused VAT invoices, and results in a reissued Certificate of Registration reflecting percentage tax under Form 2551Q. Don’t overlook the Section 106(B) deemed-sale output VAT on any inventory still on hand at the point of change — it is the detail most often missed in an otherwise straightforward paperwork exercise.