Deferred Input VAT
Last Updated: June 13, 2026
tips_and_updatesDefinition
Deferred Input VAT refers to input VAT paid on capital goods costing ₱1,000,000 or more that must be claimed as input tax credit over 60 months (5 years) instead of claiming the full amount in the month of purchase, as required under Section 110(A)(2) of the Tax Code.
When a VAT-registered business purchases capital goods (machinery, equipment, buildings) worth ₱1,000,000 or more, the input VAT cannot be claimed immediately in full. Instead, the input VAT must be deferred and amortized equally over 60 months starting from the month following the purchase. This deferral system prevents businesses from claiming large input VAT credits that could result in significant VAT refunds in a single period. The BIR implemented this rule through Revenue Regulations No. 16-2005 to improve cash flow management and prevent abuse of the VAT credit system. Capital goods subject to deferred input VAT include: - Manufacturing equipment and machinery - Office buildings and warehouses - Vehicles used for business operations - Computer systems and IT infrastructure - Production facilities and installations
Why it Matters
Understanding deferred input VAT is crucial for businesses making significant capital investments because: **Cash Flow Planning**: Businesses cannot immediately offset large input VAT amounts against output VAT, affecting monthly VAT payments and cash flow projections. **Compliance Requirements**: Incorrect treatment of deferred input VAT can result in penalties of ₱25,000 plus 25% surcharge under Section 248 of the Tax Code, along with potential criminal liability for tax evasion. **Financial Reporting**: Deferred input VAT appears as an asset on the balance sheet and must be properly amortized for both tax and accounting purposes, affecting financial statements and loan applications. **Tax Planning**: The 5-year deferral period affects VAT refund claims and overall tax strategy, particularly for export companies or businesses with excess input VAT credits.
How it Works
**Step 1: Identify Qualifying Capital Goods** Determine if the purchase qualifies as capital goods worth ₱1M+ under Revenue Regulations No. 16-2005. **Step 2: Calculate Deferred Amount** Compute total input VAT and divide by 60 months for monthly amortization. **Step 3: Record in Books** Create "Deferred Input VAT" asset account and amortize monthly starting the month following purchase. **Step 4: File VAT Returns** Report monthly amortization in BIR Form 2550M/Q, Line 11A "Input tax on capital goods to be amortized." **Step 5: Monitor Disposal** If capital goods are sold before full amortization, remaining deferred input VAT can be claimed in the disposal month per RR 16-2005, Section 4.4.3.
Examples
01Manufacturing Equipment Purchase
02Office Building Acquisition
03Multiple Capital Goods
04Export Company Impact
05Common Mistake - Immediate Claiming
Common Misconceptions
Misconception
All input VAT on equipment must be deferred
Reality
Only input VAT on capital goods costing ₱1M+ must be deferred
Misconception
Deferred input VAT cannot be claimed if asset is sold early
Reality
Remaining unamortized input VAT can be claimed in the month of disposal
Misconception
The ₱1M threshold includes VAT
Reality
The ₱1M threshold refers to the net amount excluding VAT
Frequently Asked Questions
Deferred input VAT is the requirement to spread input VAT claims on expensive capital goods (₱1M+) over 5 years instead of claiming the full amount immediately when purchased.
The BIR requires deferral to prevent large immediate VAT refunds that could strain government cash flow and to discourage artificial timing of capital purchases for tax benefits. This ensures more stable VAT collections.
Capital goods costing ₱1,000,000 or more (excluding VAT) require deferred input VAT. This includes machinery, equipment, buildings, vehicles for business use, and other assets with useful life exceeding one year.
Divide total input VAT by 60 months. For example: ₱3M equipment has ₱321,429 input VAT ÷ 60 months = ₱5,357 monthly starting the month after purchase.
You can claim the remaining unamortized deferred input VAT in the month of sale. For example, if you sell after 24 months, claim the remaining 36 months of deferred input VAT immediately.
Yes, export companies and zero-rated taxpayers can still claim monthly deferred input VAT for VAT refund applications, even without output VAT to offset against.
Immediate claiming instead of deferring results in 25% surcharge on the incorrectly claimed amount plus ₱25,000 compromise penalty, with potential criminal charges for willful tax evasion.
Record as 'Deferred Input VAT' asset account on the balance sheet, amortized monthly with corresponding entries to input VAT expense or VAT payable accounts.
The ₱1M threshold applies per individual capital good item. If you buy 10 machines at ₱500,000 each, no deferral is required since each item is below ₱1M.
Amortization begins the month following the purchase month. If you buy equipment in January 2026, start claiming ₱1/60th of input VAT in February 2026 through January 2031.
Learn More
VAT Calculator
Calculate VAT amounts and determine deferred input VAT requirements
BIR Form 2550M
Monthly VAT return form for reporting deferred input VAT
Capital Goods VAT Guide
Complete guide to VAT treatment of capital goods purchases
Input VAT vs Output VAT
Understanding the difference between input and output VAT
Related Content
Related Calculators
Related Tax Types
Related Taxpayers
Related BIR Forms
Related Guides
Glossary Terms
Sources & References (2)
Primary sources and the laws, regulations, and official issuances this page relies on. Each citation links directly to the issuing authority’s document.
- LawPhil Project (Arellano Law Foundation). “NIRC §110(A) as amended by RA 11976 (EOPT removed 60-month amortization) — full text.” lawphil.net. NIRC of 1997 (RA 8424), Sec. 110(A), as amended by RA 11976. Accessed .