The Bureau of Internal Revenue (BIR) issues Revenue Memorandum Circular (RMC) No. 49-2022 to amend certain parts in the Questions and Answers (Q&A) within RMC 24-2022 so that it properly aligns with the CREATE act and its own Implementing Rules and Regulations (IRR). These were also implemented in response to taxpayers affected by the postponement of Revenue Regulations (RR) No. 9-2021 under RR No. 15-2021.
As a reminder, RMC 24-2022 addressed issues regarding the CREATE Act’s amendments on the VAT-zero rating provisions of the Tax Code, which were applied before on RR No. 21-2021.
With the previous entries taken into consideration, the BIR introduces all the following amendments to the Q&A of RMC 24-2022 through RMC 49-2022:
The RMC highlights the workaround stated in Question 10, which states:
The new amendment explains that the workaround won’t be solely used for the sales of registered export enterprises and domestic market enterprises (DMEs) located inside Ecozones and Freeport Zones; it will also apply to all other sales transactions stated in RR No. 9-2021. The RMC explained that transactions that have been considered by the seller as VAT zero-rated will still be considered as VAT zero-rated for the period July 1, 2021 to December 9, 2021.
The RMC clarified the additional conditions for certain taxpayers who have declared their transactions to be subject to VAT. The question amendment states the following:
“However, for those affected taxpayers that have declared their transactions as subject to VAT. the options laid down in Q&A No. 8 and 9 may be followed.”
The RMC provides clarifies the rules regarding the treatment of sales by DMEs found in Ecozones and Freeport Zones, explaining that a DMEs’ sale of goods and services is entirely dependent on whether they were registered before to or during the Create Acts duration.
A seller is registered BEFORE to CREATE:
• If the non-export locator is under the 5% Gross lncome Tax (GIT) regime, the locator is a VAT-exempt entity; hence, it shall treat its sales, whether inside the Ecozones or Freeport Zones as well as from the customs territory, as VAT-exempt only to the extent of the registered activity. The VAT passed on by its VAT-registered local suppliers shall form part of profits costs or expenses.
• If the non-export locator is under the income tax holiday (lTH), sales to registered export enterprises are subject to VAT at zero rates, provided the goods and services are directly and exclusively used in the latter's registered project or activity.
• If the non-export locator is under the ITH, sales to non-export locators or DMEs within the Ecozones and Freeport Zones and sales to enterprises from the customs territory are subject to VAT.
A seller is registered DURING the effectivity of CREATE:
• Then, the sales to registered export enterprises will become subject to VAT at zero rates if the goods and services are directly and exclusively used in the latter's registered project or activity.
• The sales to DMEs within the Ecozones and Freeport Zones and sales to enterprises from the customs territory are subject to VAT.
An amendment was added to the answer to Question No. 31; it highlights the requirements from the existing registered export enterprises that have accomplished their Income Tax Holiday (ITH) and have fallen below the 5% Gross Income Tax (GIT) or the Special Corporate Income Tax (SCIT) regime but are still considered as a VAT -registered entity.
It also explains that if a taxpayer conducts other activities that are not registered with the IPA that is subject to VAT, then they will still be considered a VAT taxpayer and will have to report the sales in the VAT returns as “VATable”, zero-rated and VAT-exempt whatever the situation for the action may be.
The local suppliers of goods/services timeline for securing VAT zero-rating sales to registered export enterprises before BIR approval found in Question No. 33 was further clarified.
The RMC stated that it is essential to validate whether the requisites were compiled before availing of the VAT zero-rate incentive by the supplier of the registered export enterprise. If these requisites are not validated before approval from the BIR, a disallowance of the VAT zero-rated sale of the supplier may be incurred.
However, it explained that for the sales transactions that are qualified for VAT zero-rating but have failed to secure an approved application for VAT zero-rating with the BIR, the application may not be required until March 9, 2022, or until the effectivity of the RMC.