Are Sales of Rice Seeds VAT-Exempt in the Philippines?

Short answer

Yes. The sale and importation of rice seeds for planting are VAT-exempt in the Philippines. They fall under the statutory exemption for “fertilizers; seeds, seedlings and fingerlings” in Section 109 of the National Internal Revenue Code (NIRC), as amended. Because they are exempt (not zero-rated), no output VAT is charged and no input VAT may be claimed on purchases attributable to such sales. Below is a complete guide, with edge cases and compliance pointers.

Legal framework and scope

1) Statutory basis

NIRC, Sec. 109 (VAT-Exempt Transactions) expressly exempts the sale and importation of “fertilizers; seeds, seedlings and fingerlings.” Rice seeds intended for planting are squarely within this category.
This exemption is independent of the small-business threshold. It applies whether a seller’s gross sales are ₱3,000,000 or more, or less.

2) What exactly is covered

Covered (VAT-exempt):
- Certified/registered rice seeds for planting (foundation, registered, certified seeds).
- Parent lines/breeder seeds supplied to seed growers for propagation.
- Importation of rice seeds for planting.
Not covered (generally VATable, unless another exemption applies):
- Paddy/rice as food sold in commercial channels (this falls under the “agricultural and marine food products in their original state” exemption only if unprocessed; but it’s a different paragraph from the “seeds” rule and follows its own tests about “original state”).
- Processed seed products not intended for planting (e.g., roasted or edible seeds).
- Ancillary non-seed items (packaging materials, branded merchandise, equipment) sold separately.

Practical test: Intended use = planting → falls under the “seeds” exemption. Keep documentation (see “Evidence” below).

Tax treatment and compliance

1) Output VAT

No 12% VAT should be charged on sales invoices/ORs for rice seeds for planting.
For mixed suppliers (selling both VATable items and rice seeds), invoices must segregate VAT-exempt sales from VATable sales.

2) Input VAT

Input VAT directly attributable to exempt seed sales is not creditable. Capital goods, services, or supplies used exclusively in exempt activities have non-creditable input VAT (becomes part of cost/expense).
For mixed transactions, allocate input VAT using a reasonable and consistent method (e.g., turnover ratio, floor-area use, specific identification). Only the portion attributable to VATable or zero-rated sales is claimable.

3) Invoicing and disclosures

Use a sales invoice (goods) or official receipt (services) that clearly bears a conspicuous legend such as:
- “VAT-EXEMPT SALE under Sec. 109, NIRC (seeds for planting).”
Show separate lines for VAT-exempt and VATable items and maintain separate series if the BIR registration uses distinct books/series.

4) Registration status

Persons exclusively selling VAT-exempt goods (e.g., a seed company that sells only rice seeds for planting) are not required—and generally not allowed—to register as VAT taxpayers.
If you also engage in VATable activities, you may be VAT-registered for those, but seed sales remain exempt. Maintain books and accounts that clearly track mixed transactions.

5) Percentage tax

The 3% percentage tax (Sec. 116) applies to persons exempt from VAT solely because they do not exceed the ₱3,000,000 threshold.
The seed exemption is a transaction-based exemption under Sec. 109 (seeds/seedlings), not the threshold exemption. Therefore, sales of rice seeds for planting are not subject to percentage tax merely by virtue of being exempt from VAT. (If you sell other non-exempt, non-VAT items as a non-VAT taxpayer below the threshold, those may be subject to percentage tax—distinct from the seed sales.)

6) Withholding taxes (income tax, not VAT)

No final/creditable VAT withholding applies to an exempt sale (there is no VAT to withhold).
Creditable withholding tax on income payments (e.g., 1% on goods under the general EWT rules, or special rates for government procurement) may still apply. Check your customer’s BIR “Notice to Withhold” and the current Revenue Regulations.

Special situations

A) Importation of rice seeds

Import VAT is not due on importation of seeds for planting (covered by the same exemption).
Keep import documents (bill of lading/air waybill, import entry, packing list, commercial invoice) and any certifications from DA/BPI or seed certification bodies to substantiate that the goods are “seeds for planting.”

B) Exports

Export sales by a VAT-registered person generally qualify as zero-rated if they meet the statutory requirements for “export sales” (proper proof of export, payment in acceptable foreign currency where applicable, etc.).
Important nuance: If a taxpayer is exclusively engaged in VAT-exempt transactions (e.g., sells only seeds) and thus is not VAT-registered, its sales (including exports) are exempt, not zero-rated. Only VAT-registered persons may have zero-rated sales. Zero-rating and exemption are mutually exclusive.

C) Bundled supplies and services

Bundling seeds with VATable services (e.g., custom planting, agronomic consulting) may create mixed transactions. Segregate the consideration; otherwise, the BIR may re-characterize the entire bundle as VATable if the principal object is a VATable supply.

D) Toll processing and contract growing

If you process breeder/parent lines into certified seeds under a tolling arrangement, the seed output remains exempt when sold as seeds for planting.
The processing service fee may be VATable if the processor is VAT-registered and the service is not covered by a specific exemption. Clarify roles (owner of raw seeds vs. toller) and VAT on services.

E) Cooperatives and farmers’ organizations

Registered agricultural cooperatives enjoy additional VAT privileges under the NIRC and the Cooperative Code (e.g., sales by members to their coop, and coop sales to members). These may overlap with the seeds exemption but have distinct documentation and qualification requirements (e.g., CDA registration, BIR accreditation, member relationships).

Evidence and documentation (what to keep on file)

Contracts/Purchase Orders stating the goods are “rice seeds for planting.”
Seed certification (e.g., breeder/registered/certified seed tags, DA/BPI seed certification or variety registration where applicable).
Delivery documents (DRs) and Sales Invoices bearing the VAT-EXEMPT SALE legend and Sec. 109 reference.
For imports: complete customs entry + DA/BPI permits to prove exempt character.
For exports (if VAT-registered and claiming zero-rating on export sales): BOL/AWB, export declarations, bank certificates of inward remittance (as required), and proof of shipment.
Input VAT allocation worksheets for mixed sellers, kept with books.

Common pitfalls (and how to avoid them)

Vague descriptions on invoices like “agri inputs” without stating “seeds for planting” → use precise descriptions.
Charging 12% VAT by mistake → unnecessary cost to buyers and possible input VAT disallowance. Cancel and reissue with correct legend where legally feasible.
Claiming input VAT on exempt activities → BIR will disallow; capitalize the input VAT into inventory/costs or expense it (per accounting policy).
Failing to segregate mixed sales → risk of assessments; maintain separate accounts and clear invoice lines.
Assuming percentage tax applies just because the sale is not VAT-able → for seed sales, it typically does not (the exemption is transaction-based, not threshold-based).
Treating exports as zero-rated when not VAT-registered → exports by non-VAT taxpayers are exempt, not zero-rated.

Frequently asked questions

1) Are “hybrid seeds” also exempt? Yes, if they are seeds for planting. The exemption hinges on their use (propagation), not on the breeding method.

2) What if the seeds are treated (e.g., coated with fungicide)? Seed treatments that are customary for planting quality generally do not negate the exemption. The intended use remains planting. Keep supplier certifications/MSDS and note the seed-treatment on the invoice to avoid confusion with edible/processed goods.

3) We sell both rice seeds and crop protection chemicals. How do we bill? Issue an invoice that segregates:

Line A: Rice seeds for planting – VAT-EXEMPT (Sec. 109)
Line B: Agri-chemicals – VATable, 12% (unless another specific exemption applies)

4) Can we opt to be VAT-registered just for marketing reasons? If you exclusively sell VAT-exempt rice seeds, VAT registration is generally not allowed. You may register as a non-VAT taxpayer. If you also engage in VATable sales, you may be VAT-registered for those; your seed sales remain exempt.

5) Are deliveries to government agencies still exempt? Yes. The nature of the item (seeds for planting) controls. There is no VAT to withhold. However, creditable income tax withholding (e.g., 1% on goods) may still apply under government procurement rules.

Practical compliance checklist

Confirm intended use: planting.
Keep seed certifications and DA/BPI permits (if applicable).
Use invoices stating “VAT-EXEMPT SALE (Sec. 109, NIRC – seeds for planting).”
Segregate VAT-exempt sales from VATable lines.
Disallow/allocate input VAT tied to exempt seed sales.
For imports: compile customs entries + permits; for exports (if VAT-registered): keep full zero-rating support.
Review withholding (income tax) obligations.

Bottom line

Domestic sale and importation of rice seeds for planting are VAT-exempt under the NIRC.
No output VAT is charged; input VAT attributable to exempt sales is not creditable.
Percentage tax does not ordinarily apply to these transaction-based exemptions.
Mixed businesses must segregate sales and allocate input VAT.
Keep robust documentation to substantiate the exempt character of the goods.