A Philippine legal-practice article on classification, tax treatments, zero-rating boundaries, invoicing, and compliance

1) Why this topic is often confusing

Trucking sits at the intersection of (a) VAT on sale of services under the National Internal Revenue Code (NIRC) and (b) percentage taxes that apply to certain transport operators—especially common carriers by land. Add to that the Philippines’ special VAT concepts (zero-rating, exempt transactions, “eco-zones treated as foreign territory” for VAT purposes, documentation rules, invoicing requirements, and input tax credits), and it becomes easy to misapply a 12% VAT charge—or miss it when it actually applies.

This article focuses on trucking services rendered to non-PEZA entities (i.e., ordinary domestic customers not registered with PEZA), but it necessarily explains the broader framework so you can classify the service correctly.

2) The VAT baseline: when services are subject to 12% VAT

Under the NIRC, sale of services in the course of trade or business is generally subject to 12% VAT if:

The service provider is VAT-registered (whether mandatory or voluntary); or
The provider is required to be VAT-registered because it exceeds the VAT threshold (commonly ₱3,000,000 gross sales/receipts per year, subject to changes in law).

If a provider is not VAT-registered and not required to register, it is generally treated as a non-VAT taxpayer, typically subject to percentage tax (commonly 3% on gross receipts for non-VAT persons, subject to statutory changes and temporary rate adjustments in prior years).

So, the initial question is not “Is the customer non-PEZA?”—it’s:

Is the trucking activity VATable, VAT-exempt, or subject to percentage tax because it falls under a special transport category?

3) The decisive classification: “common carrier by land” vs. “contract/private carrier” (and why it matters)

A. Common carrier by land (often percentage tax; often VAT-exempt)

In Philippine law, a common carrier generally refers to one that holds itself out to the public as engaged in the business of transporting goods (or passengers), offering its services indiscriminately to the public for compensation.

For many trucking operators that function as common carriers by land, the tax system has historically treated them under percentage tax rules rather than VAT—meaning:

They may be subject to a percentage tax on gross receipts; and
Their transport receipts may be treated as VAT-exempt (because the Code often avoids double taxation by not imposing both VAT and certain percentage taxes on the same activity).

Practical markers of “common carrier by land” (facts that tend to support the classification):

The operator offers trucking services to multiple customers as a regular business.
It quotes rates to the public/market (not only one captive client).
It accepts jobs from various shippers and does not restrict service to one principal.
It has the operational profile of a trucking business open to the public.

Result for services to non-PEZA customers: If the operator is truly a common carrier by land and remains non-VAT under that regime, it typically should not bill 12% VAT; it bills the applicable percentage tax regime and issues the proper non-VAT receipts/invoices.

B. Contract carrier / private carrier / captive logistics (often VATable services)

Many logistics structures look like trucking but are not treated as “common carriage” in tax analysis because they are exclusive, captive, or contract-limited (e.g., serving only one company group, or operating under a dedicated arrangement that does not hold out to the public).

Common real-world examples:

Dedicated fleet for a single manufacturer/retailer under a long-term exclusive contract.
In-house logistics subsidiary that mainly serves affiliates and is not truly open to the public market.
“Managed transport” where the provider supplies trucks + drivers + dispatch under a service contract, functioning more like a logistics contractor than a public carrier.

Result for services to non-PEZA customers: If the trucking is classified as an ordinary sale of services (not under the special common-carrier-by-land percentage tax treatment), then it is typically:

12% VAT if the provider is VAT-registered/required to be VAT-registered; or
non-VAT percentage tax if below threshold and not VAT-registered.

C. Voluntary VAT registration can change the answer

Even if a business is otherwise in a non-VAT/percentage-tax posture, it may voluntarily register as VAT (subject to rules such as lock-in periods and BIR compliance). Once VAT-registered, the operator generally charges 12% VAT on VATable services and may claim input VAT credits (subject to substantiation).

4) Core rule for non-PEZA customers: no “special” zero-rating just because trucking supports exports

When the customer is non-PEZA, the transaction is usually treated as a domestic sale of service. The fact that the goods being trucked might later be exported does not automatically make the trucking fee zero-rated.

Common misconception

“If the delivery goes to a port/airport for export, the trucking should be zero-rated.”

In Philippine VAT, zero-rating is not based on the destination of the goods alone, but on whether the service qualifies as an export sale of services under the VAT rules (and whether documentary and payment conditions are met).

When could trucking be zero-rated in theory?

Zero-rated services tend to require elements like:

The service is rendered to a foreign client (a person doing business outside the Philippines), and/or
Payment is made in acceptable foreign currency and properly accounted for, and/or
The service is of a kind explicitly treated as zero-rated under the VAT provisions and regulations (often with strict “direct and exclusive use” concepts in certain investment/registered activity contexts).

For trucking services billed to a Philippine domestic customer (non-PEZA), the transaction typically stays domestic and therefore 12% VAT (if VAT-registered) or non-VAT percentage tax (if not VAT-registered and otherwise eligible).

5) Decision tree: determining the correct tax treatment (non-PEZA customer)

Step 1: What is the provider’s VAT registration status?

VAT-registered (mandatory or voluntary) → proceed to Step 2
Non-VAT (below threshold and not voluntarily registered) → proceed to Step 3

Step 2 (VAT-registered): Is the trucking receipt VATable, zero-rated, or exempt?

For a non-PEZA customer, trucking is almost always VATable at 12% unless the transaction is specifically VAT-exempt under the Code (or qualifies for a narrow zero-rated category, which is uncommon for purely domestic trucking billed to domestic customers).

Output:

Charge 12% VAT, issue a VAT invoice/official receipt (as applicable), and report output VAT.

Step 3 (Non-VAT): Is the provider under a special transport percentage tax regime?

If truly a common carrier by land under the percentage-tax framework → percentage tax applies, no 12% VAT billed
If not under that special treatment (i.e., it’s a general service contractor) → typically 3% percentage tax as a non-VAT person (subject to current law)

Output:

Do not charge 12% VAT; charge the appropriate percentage tax, issue non-VAT invoice/receipt, and file the correct percentage tax returns.

6) What exactly is being sold? (Trucking vs. bundled logistics)

Tax classification can change depending on whether the contract is pure hauling or a bundled logistics service.

A. Pure trucking / hauling

Point-to-point transport of goods, with freight charges billed as transport fees.

B. Bundled services (logistics package)

Contracts often include:

Warehousing
Cross-docking
Picking/packing
Inventory handling
Last-mile delivery management
Freight forwarding coordination
Demurrage/waiting time
Toll/fuel advances and reimbursements
Vehicle rental with driver

Why this matters: BIR analysis often looks at the dominant nature of the transaction and the separately stated charges. A bundled “logistics service” may be treated as a general sale of services (VATable if VAT-registered), even if a portion resembles transport.

Best practice:

Separate line items (freight vs warehousing vs handling) only if they are genuinely distinct services with distinct consideration and documentation.
Avoid “reimbursement” labels unless you can legally support agency treatment; otherwise they are usually treated as part of gross receipts.

7) Invoicing and documentation (where many assessments start)

A. VAT invoice/receipt requirements (if VAT-registered)

To support VAT treatment and input VAT claims (for the customer), the supplier’s invoice/receipt must generally show:

Supplier’s TIN and VAT registration status
Customer’s details (as required)
Description of the service
Amounts net of VAT, VAT amount, and total
Other invoice particulars required by regulations

B. Non-VAT documentation (if not VAT-registered)

Non-VAT taxpayers must issue invoices/receipts that do not pass on VAT and properly indicate non-VAT status (per invoicing rules).

C. Substantiation: supporting papers in trucking

Maintain, at minimum:

Contract / service agreement and rate cards
Delivery receipts, proof of completion, trip tickets, waybills, manifests
Billing statements and proof of payment
Fuel/toll/repairs documentation if billed onward
Authority to deduct/withhold taxes where applicable
Proof supporting whether charges are reimbursements vs part of consideration

8) Input VAT and cost structure: why some trucking operators choose VAT registration

A. If VAT-registered

A VAT-registered trucking provider may credit input VAT on VATable purchases (e.g., repairs subject to VAT, supplies, some services, and qualifying capital goods) against its output VAT.

But note: not all major costs carry input VAT (e.g., certain fuel transactions may not yield VAT invoices depending on supplier status and invoicing practices). The net benefit depends heavily on the operator’s cost base and documentation.

B. If non-VAT under percentage tax

No input VAT credit mechanism applies. Percentage tax is computed on gross receipts, with no input VAT offset.

9) Special scenarios frequently encountered in practice

A. Pass-through items: fuel and tolls

If the trucking provider bills “fuel” or “toll” as a separate charge:

If the provider is the one obligated to perform delivery and these are merely cost components, the BIR commonly views them as part of gross receipts unless a true agency relationship is established and documented.
Labeling something “reimbursable” is not, by itself, determinative.

B. Waiting time, demurrage, penalties, and service-level charges

These are generally treated as part of the consideration for the service and follow the same tax treatment as the principal service.

C. Subcontracting (primary hauler engages another trucker)

The primary hauler’s billing to the customer follows its own VAT/percentage tax classification.
The subcontractor’s billing follows the subcontractor’s classification.
Documentation should clearly establish the chain of service and prevent mismatches (e.g., customer expects VAT invoice but the supplier is non-VAT).

D. Government customers (withholding VAT rules)

Government transactions often involve special withholding VAT and withholding income tax rules. This affects cash flow and compliance, and the invoicing should align with the applicable withholding mechanism.

E. Mixed customers and mixed treatments

A single operator may have:

VATable logistics services (e.g., warehousing) and
Transport receipts subject to a percentage-tax regime (depending on classification)

This requires careful chart-of-accounts mapping and correct return filing.

10) Risk areas and audit triggers

Trucking assessments often arise from:

Incorrect VAT charging (billing VAT when non-VAT; or not billing VAT when required)
Mismatched returns vs invoices (customer claims input VAT but supplier filed non-VAT taxes)
Improper “reimbursement” deductions (excluding pass-through costs from gross receipts without legal basis)
Classification disputes (whether the operator is a true common carrier by land vs a contract/private carrier)
Poor substantiation (missing trip tickets, DRs, waybills, or contract support)

11) Practical compliance checklist (non-PEZA customer)

Classify the business model: common carrier by land vs contract/private carrier vs bundled logistics provider.
Confirm VAT registration status: mandatory, voluntary, or non-VAT.
Map each billing component: freight, handling, storage, waiting time, pass-through items.
Apply the correct tax type: 12% VAT vs percentage tax—and file the correct returns.
Issue correct invoices/receipts: VAT-compliant invoicing if VAT-registered; non-VAT invoicing otherwise.
Maintain trip-level substantiation: DRs, waybills, trip tickets, billing support, proof of payment.
Align customer expectations: especially if the customer wants an input VAT credit—ensure the supplier is actually VAT-registered and filing VAT correctly.

12) Bottom line for trucking to non-PEZA entities

For non-PEZA customers, the default outcome is straightforward once classification is correct:

If the trucking provider is VAT-registered and the service is not exempt/zero-rated: 12% VAT applies.
If the provider is non-VAT and treated under a percentage tax regime (often true for common carriers by land): no 12% VAT, but percentage tax applies.
The customer being non-PEZA generally removes any ecozone-driven zero-rating concepts and keeps the transaction in the domestic VAT/percentage tax framework.

This article is for general information and is not legal or tax advice. For an opinion on a specific contract, the decisive factors are the operator’s actual business model (common vs contract carriage), VAT registration posture, contract terms, billing structure, and documentation.