VAT-Exempt Transactions Under NIRC Section 109: The Full List Explained
NIRC Section 109 lists the specific sales of goods, properties, and services that are exempt from the 12% value-added tax (VAT) — meaning no output VAT is charged on the sale, and, unlike a zero-rated transaction, the seller generally cannot claim input VAT credits tied to it. The list has been amended repeatedly, most recently by the TRAIN Law, the CREATE Act and CREATE MORE Act, and the Ease of Paying Taxes (EOPT) Act.
This guide summarizes the main categories currently in force. For how VAT-exempt differs from the standard VAT and percentage tax regimes, see VAT vs. Percentage Tax; for the registration threshold that determines whether a business is in the VAT system at all, see VAT Registration Threshold.
Keep Your VAT and Non-VAT Filings Straight FREE →Why does it matter whether a sale is VAT-exempt? #
A VAT-exempt sale sits entirely outside the VAT system: the seller neither charges 12% output VAT to the buyer nor generally claims input VAT credit on purchases directly tied to that exempt sale. This is a different mechanism from zero-rating, where a transaction is still technically VAT-covered but taxed at 0% — a zero-rated seller can still claim or refund related input VAT, while an exempt seller usually cannot. Misclassifying a transaction as exempt when it’s actually zero-rated (or the reverse) understates or overstates VAT liability and distorts the input VAT a business can legitimately claim — see VAT Zero-Rating for Exporters for that separate category.
What categories does Section 109 currently exempt? #
Section 109’s exempt list spans basic necessities, essential services, and specific transaction types the law treats as social or economic priorities rather than ordinary commerce. The main categories currently in force:
| Category | Examples |
|---|---|
| Basic agricultural and marine food products | Unprocessed rice, corn, fish, meat, and vegetables in their original state; also fertilizers, seeds, and livestock/poultry feeds |
| Personal and household effects | Belongings of Philippine residents returning from abroad and qualified OFWs, within the limits allowed |
| Education | Tuition and fees from accredited private schools and government educational institutions |
| Healthcare | Medical, dental, and hospital services (excluding professionals’ individually rendered services), plus VAT-exempt sale of specific medicines (e.g., for diabetes, hypertension, cancer, mental illness, tuberculosis, and kidney disease) |
| Cooperatives | Transactions of duly registered cooperatives with their members, within statutory limits |
| Low-value transactions | Sales by taxpayers below the VAT registration threshold, who are subject to percentage tax instead |
| Residential real property | Sale of a residential lot or house-and-lot below the EOPT Act’s adjustable exemption threshold |
| Export-oriented and international transport inputs | Fuel, goods, and supplies used solely for international shipping or air transport operations, and specified imports of export-oriented enterprises, as expanded under CREATE MORE |
This is a summary of the main categories, not the full statutory text — a transaction on the edge of one of these categories should be checked against the current Section 109 wording and any implementing RMC before a business treats it as exempt.
What changed under TRAIN, CREATE, and EOPT? #
Each law has narrowed or expanded specific items on the exempt list rather than rewriting Section 109 wholesale. The TRAIN Law (RA 10963) refined the medicine and residential-property exemptions and set the original VAT registration threshold at ₱3,000,000. The CREATE Act and, more recently, CREATE MORE Act expanded exemptions tied to export-oriented enterprises and international transport fuel and supplies. The EOPT Act (RA 11976) reintroduced a mechanism to adjust the ₱3,000,000 VAT-exempt/registration threshold every three years based on the Philippine Statistics Authority’s consumer price index, and adjusted how the residential lot/house-and-lot exemption threshold is set going forward — meaning the specific peso figures in Section 109 are not permanently fixed and should be checked against the BIR’s current published amounts rather than assumed from an older source.
Worked example: a small bakery and a private clinic #
A neighborhood bakery sells only unprocessed and lightly processed bread and pastries with annual gross sales of ₱2,200,000 — below the VAT threshold, so it is non-VAT and pays percentage tax under BIR Form 2551Q rather than charging VAT at all. A private medical clinic next door bills patients directly for consultations and diagnostic services; those hospital and clinic services are VAT-exempt under Section 109, but the individual professional fee the attending physician separately bills the patient is not automatically covered by the same exemption — it depends on how that professional’s own income is structured and registered. Both businesses should confirm their specific transaction category against Section 109 and current BIR guidance rather than assuming “small business” or “healthcare-adjacent” is enough on its own to qualify.
Frequently asked questions #
What is a VAT-exempt transaction? #
A VAT-exempt transaction under NIRC Section 109 is a sale of goods, properties, or services that the law specifically excludes from the 12% value-added tax — the seller does not charge output VAT, and cannot claim input VAT credits related to that exempt sale.
Is VAT-exempt the same as VAT zero-rated? #
No. A VAT-exempt transaction is entirely outside the VAT system — no output VAT is charged and related input VAT is generally not creditable. A zero-rated transaction is still subject to VAT, but at a 0% rate, so the seller can still claim or refund related input VAT. These have very different cash-flow effects for a business.
What basic goods are VAT-exempt under Section 109? #
Section 109 exempts the sale or importation of agricultural and marine food products in their original state, fertilizers, seeds, and livestock and poultry feeds — items the law treats as basic necessities for food production, regardless of who sells them.
Does Section 109 exempt all healthcare and education services? #
No. It exempts educational services from accredited private and government schools, and medical, dental, and hospital services, but explicitly excludes services rendered by professionals practicing their profession individually — a doctor’s own professional fee, for example, is not automatically covered even where the hospital service is.
What is the current VAT-exempt threshold for the sale of a house and lot? #
Under the EOPT Act, the VAT-exemption threshold for residential lot and house-and-lot sales is periodically adjusted using the Philippine Statistics Authority’s consumer price index, so the exact peso figure changes over time rather than staying fixed — check the BIR’s current published threshold before applying it to a specific sale.
Summary #
Section 109 exempts a defined set of goods and services — basic food and farm inputs, education, healthcare (with the professional-fee carve-out), cooperatives, low-value sales below the VAT threshold, qualifying residential property, and export/international-transport inputs — and TRAIN, CREATE MORE, and the EOPT Act have each touched specific items on that list, including making the ₱3,000,000 threshold periodically adjustable rather than fixed. Confirm a transaction’s exact category against the current Section 109 text before treating it as exempt, and don’t confuse exemption with zero-rating — they carry different input VAT consequences. See Input VAT vs. Output VAT for how that distinction plays out on a VAT return.