BIR issues new amendments regarding zero-rated sales ­and VAT zero-rating certification

09 May 2023
The Bureau of Internal Revenue (BIR) adds new amendments to past provisions regarding Value Added Tax (VAT) zero-rated sales/transactions and VAT zero-rating certification.

BIR Commissioner Romeo D. Lumagui has announced an amendment to specific provisions in previously issued revenue issuances. These amendments were implemented through the Bureau’s Revenue Regulation (RR) 3-2023, released on April 26, 2023. These amendments tackle the VAT zero-rated sale of goods or properties, and services.

RR 3-2023 amends certain provisions of RR No. 16-2005 as amended by RR No. 21-2021, to implement Sections 294 (E) and 295 (D), Title Xlll of the National Internal Revenue Code of 1997, as amended by Republic Act (RA) No. 11534 (Corporate Recovery and Tax Incentives for Enterprise Act or CREATE Act), and Section 5, Rule 2 and Section 5, Rule 18 of the CREATE Act Implementing Rules and Regulations (IRR), as amended.

The commissioner comments that:

With the issuance of this regulation, the BIR is optimistic that it will help the economy by attracting more investors who are willing to engage in business in the Philippines, adding to the list of our partners in nation building.”

The amendments introduced pertain to Section 4.106-5 and Section 4.108-5 of RR No. 16-2005, as amended by RR No. 21-2021.

RR 3-2023 now clarifies that local purchases of goods/services relating to the following services enumerated below shall not be considered as "directly and exclusively used" in the registered project or activity of a registered export enterprise:

  1. janitorial services;
  2. security services;
  3. financial services;
  4. consultancy services;
  5. marketing and promotion; and
  6. services rendered for administrative operations such as Human Resources (HR), legal, and accounting.

This notwithstanding, the registered export enterprise can still prove, with supporting evidence, to the concerned Investment Promotion Agency (IPA) that any of the local purchase of goods/services relating to the above-listed services are indeed directly and exclusively used in its registered project or activity.

If the purchased goods/services are used in both the registered project or activity and administrative operations, the registered export enterprise shall adopt a method to best allocate the same. If a proper allocation cannot be determined, the purchase of such goods/services shall be subject to twelve percent (12%) VAT.

The VAT zero-rating on local purchases of goods/services shall be availed of based on the VAT zero-rating certification issued by the concerned IPA. However, it is still subject to the conduct of post-audit investigation/verification by the Bureau of Internal Revenue (BIR).

For this purpose, upon the effectivity of these Regulations, local suppliers of goods/services of registered export enterprises shall no longer be required to apply for approval of VAT zero-rating with the BIR. All applications with accompanying VAT zero-rating certification issued by the concerned IPA which have been received but have not yet acted upon by the concerned office of the BIR upon the effectivity of these Regulations shall be accorded VAT zero-rating treatment from the date of filing of such application subject to the conduct of post-audit by the BIR.
Also, Health maintenance organization (HMO) plans acquired by registered export enterprise for its employees who are directly and exclusively involved in the operations of their registered projects or activities and forming part of their compensation package shall be considered as "directly and exclusively used" in the registered project or activity of a registered export enterprise subject to the conditions provided under the existing laws, rules and regulations regarding the availment thereof.

To read the full text of RR 3-2023, click HERE.

The Commissioner concluded the announcement by commenting on the state of the bureau, stating that:

We are a fair agency. We honour VAT incentives. We run relentlessly against taxpayers involved in illicit activities such as those involved in ghost receipts/fake VAT transactions.”

The BIR provides that all rules and regulations issuances or parts thereof inconsistent with the provisions of this regulation are hereby repealed, amended, or modified accordingly. However, if any of the provisions in the RR are subsequently declared unconstitutional, the validity of the remaining provisions will retain their full effect.