The Bureau of Internal Revenue (BIR) has added yet another clarification to earlier rules on value-added tax (VAT) zero-rate transactions on local purchases made by registered export enterprises or REEs granted VAT-zero rate incentives.
This comes as the BIR issued Revenue Memorandum Circular (RMC) No. 80-2023 on 9 August 2023 to further clarify the implementation of Revenue Regulations (RR) No. 3-2023.
RR 3-2023, which took effect on 28 April 2023, states that REEs are no longer required to secure prior BIR approval for VAT zero-rating and that local purchases of goods and services can be subject to zero percent VAT based on the VAT zero-rating certificate issued by the concerned investment promotion agency (IPA). Applications received but not yet acted upon by the BIR would be treated as VAT zero-rating from the date of filing of the application subject to post-audit verification.
Now, RMC 80-2023 adds that to qualify for VAT zero-rating, “the local purchase of the REE must be directly and exclusively used in the registered project or activity, and not included in the negative list provided in RR No. 3-2023.”
In case the purchase falls within the “negative list,” the REE can still set out to prove to the IPA that the goods and/or services are directly and exclusively used in its registered project by submitting supporting evidence.
The RMC also clarifies that while the VAT zero-rating on local purchases of goods and services can be availed of based on the IPA’s VAT zero-rating certificate, this may be subject to post-audit by the BIR.
As such, the REE should still provide its local suppliers with certified true copies of the following documents in case the BIR conducts a post-audit on a supplier:
• VAT Zero-Rate Certification issued by the concerned IPA
• Certificate of Registration (COR) issued by the BIR having jurisdiction over the head office/branch/freeport/ecozone location where the goods and/or services are to be delivered
• COR issued by the concerned IPA stating all registered ecozone locations
• A sworn affidavit executed by the REE-buyer, stating that the goods and/or services are directly and exclusively used for the production of goods and/or completion of services to be exported or for utilities and other similar costs, with the percentage of allocation in this registered activity
And on the issue of whether the provisions of RR 3-2023 has a retroactive effect, the RMC clarifies that any local purchase prior to 28 April 2023 without BIR approval is subject to 12 percent VAT.
RR 3-2023 was issued last April to amend earlier regulations in order to implement the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act. Under CREATE, VAT zero-rating on local purchases shall only apply to goods and services directly and exclusively used in the registered project or activity of REEs, to the exclusion of domestic enterprises.
RR 3-2023 states that local purchases of the following services shall not be considered as “directly and exclusively used” in an REE’s registered project or activity:
• Janitorial services
• Security services
• Financial services
• Consultancy services
• Marketing and promotion
• Services rendered for administrative operations such as Human Resources (HR), legal, and accounting
An REE refers to any Philippine entity registered with an IPA to engage in manufacturing, assembling or processing activity, and services such as information technology (IT) activities and business process outsourcing (BPO) that result in direct exportation, or the sale of the product or IT/BPO services to another REE.
