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Clarification of Issues in relation to Revenue Regulations (RR) No. 21-2021 Implementing the Amendments to the Value-Added Tax (VAT) Zero-Rating Provisions

The Commissioner of Internal Revenue has issued Revenue Memorandum Circular No. 24-2022 to clarify the transitory provisions and issues pertaining to the VAT zero-rating transactions under RR No. 21-2021 and on the effectivity and VAT treatment of transactions by registered business enterprises (RBEs) particularly, the registered export enterprises.

Salient provisions of the issuance include the following:

• With the passage of CREATE, only those goods and services that are directly and exclusively used in the registered projects or activities of RBEs shall qualify as VAT zero-rated local purchases.
• Thus, the “cross border doctrine”, or the rule that the sales of goods/services by a VAT-registered seller to registered enterprises inside the economic and freeport zones were treated as constructive export subject to zero percent (0%) VAT, has been rendered inoperative.
• Effectively zero-rated sales shall only apply to sales of goods and services rendered to persons or entities who have direct and indirect tax exemption granted pursuant to special laws or international agreements to which the Philippines is a signatory.
• Business enterprises duly registered with the concerned Investment Promotion Agencies (IPAs) shall now be governed by the provisions of CREATE with respect to their tax incentives. Enterprises registered prior to the effectivity of CREATE shall continue to enjoy VAT exemptions and VAT zero-rating, subject to the rules as provided in Rule 18, Section 5 of the CREATE IRR (i.e., only to those goods and services directly attributable to and exclusively used in the registered product and activity of the export enterprise during the period of registration until the expiration of the transitory period).
• Business enterprises duly registered with the concerned IPA shall be accorded VAT zero-rating only on their local purchases of goods and/or services that are directly and exclusively used in the registered project or activity.
• The sale of goods and services that transpired from 27 June 2021 to 30 June 2021 should be subjected to 12% VAT. Meanwhile, for the sale of goods and services from 1 July 2021 to 27 July 2021, the seller and the buyer have the following options: (1) retain the transaction as subject to VAT; or (2) revert the transaction from VATable to zero-rated.
• Sales declared by the taxpayers as zero-rated for the period of 1 July 2021 up to 9 December 2021 (before the effectivity of RR No. 21-2021) shall remain as zero-rated transactions applying the non-retroactivity rule under Section 246 of the Tax Code. However, for those taxpayers that declared their transactions as subject to VAT, the options stated above may be followed
• The sale of goods and services by VAT-registered suppliers to registered export enterprises enjoying the fiscal incentives under CREATE shall be treated as VAT zero-rated, provided that the goods and services are directly and exclusively used in the registered projects/activities. The VAT zero-rating shall be enjoyed for a maximum period of 17 years from the date of registration, unless extended under the Strategic Investment Priority Plan (SIPP).
• The taxability of existing export enterprises registered prior to CREATE are as follows:

0% VAT

1. Sales of suppliers from the customs territory to existing registered export enterprises inside the Ecozones or Freeport zones but only until the expiration of the transitory period or for the remaining period of their incentives; and
2. Sales by VAT registered sellers to export enterprises registered with Board of Investments (BOI) and IPAs other than PEZA.

12% VAT

1. Sale of goods/services to existing registered non-export enterprises located inside the Ecozones or Freeport zones;
2. Sale of goods/services to non-resident foreign buyers by non-RBEs not enjoying incentives, but were delivered or rendered to export-oriented companies in the Philippines; and
3. Local purchases of a VAT-registered RBE with expired registration with an IPA

VAT exempt

1. The sale of processing, manufacturing or repacking services by PEZA RBEs entitled to 5% GIT or SCIT to persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP; and
2. The sale of raw materials or packaging materials by a PEZA RBE entitled to 5% GIT and SCIT to a non-resident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing, or repacking in the Philippines of the said buyer's goods.
   • All approved applications and applications for VAT zero-rating that were suspended due to the effectivity of RR No. 9-2021 shall remain effective as if the RR was not implemented should the taxpayers involved in the transaction opt to revert the same as VAT zero-rated, except for the four (4)-day period covering 27 June 2021 to 30 June 2021.
   • The IPA shall issue annually a VAT 0% certification only to registered enterprises. On the other hand, the registered export enterprise buyers shall provide their suppliers with a photocopy of BIR Form No. 2303, as well as the Certificate of Registration and VAT Certification issued by IPA. The registered export enterprise shall provide their suppliers a sworn declaration stating that the goods and/or services being purchased shall be used directly and exclusively in the registered project.
   • Should a local supplier inadvertently pass on VAT to the registered export enterprise, the latter may contest the same and/or resolve with the former the reimbursement of VAT paid, if any. The previously issued SI/OR must be surrendered/returned to the local supplier for cancellation or replacement.
   • VAT paid or incurred for purchases not directly and exclusively used in the registered project or activity of the registered export enterprise are not allowed for VAT refund. However, the following options may be availed of:
     1. If VAT registered and enjoying ITH, claim the passed-on VAT as input tax credit and apply against future output VAT.
     2. Should there be no sales subject to VAT, accumulate the input tax credits and claim as VAT refund upon expiration of VAT registration.
     3. If non-VAT registered, charge to cost or expense account.

(Revenue Memorandum Circular No. 24-2022 dated 23 February 2022)

Guidance on the claim of Input VAT on Purchases or Importations of Capital Goods Pursuant to Section 110 of the National Internal Revenue Code of 1997, as amended by TRAIN Law

The Commissioner of Internal Revenue has issued RMC 21-2022 to clarify the work-around procedures and guidelines in claiming input VAT on capital goods pending the revisions on BIR Forms 2550M and 2550Q pursuant to Section 110 of the Tax Code, as amended, and implemented under Section 4-110-3(c) of Revenue Regulations 13-2018.

The work-around procedures and guidelines prescribed by the RMC are as follows:

In addition, the RMC clarified that under EFPS and eBIR Forms, the balance of input tax to be carried to the succeeding periods shall be computed automatically by the systems. Thus, for implementation purposes, all input tax on purchases of capital goods shall already be allowed upon purchase/payment and will no longer be deferred effective 1 January 2022. In accomplishing the relevant schedules, the taxpayer shall indicate roman numeral “1” as the estimated and recognized useful lives and encode the total input taxes claimed under column “G”, to show a nil amount under column “H”.

Taxpayers with unutilized input VAT on capital goods prior to 1 January 2022 shall be allowed to amortize the same as scheduled until fully utilized. Thus, Schedule 3(B) should still be filled-out. If the capital goods are transferred within five (5) years or prior to the exhaustion of the amortizable input tax, the unamortized portion can be claimed as input tax credit in full during the month/quarter when the sale or transfer was made.

(Revenue Memorandum Circular No. 21-2022 issued 21 February 2022)

For more information, please contact:
Malou Lim
Tax Managing Partner, PwC Philippines

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