Amendments on VAT zero-rated sale of goods and services; VAT zero-rating incentive for registered business enterprises

Amendments on VAT zero-rated sale of goods and services; VAT zero-rating incentive for registered business enterprises

(Revenue Regulations No. 21-2021 issued on December 7, 2021)

This Tax Alert is issued to inform all concerned on the amendments on VAT zero-rated sale of goods and services to registered business enterprises pursuant to Republic Act No. 11534, also known as the CREATE Act.

Pursuant to CREATE, its Implementing Rules and Regulations (IRR), and RR No. 21-2021, the following sale to registered business enterprises (RBEs) shall be VAT zero-rated:

1. Sale of raw materials, inventories, supplies, equipment, packaging materials, and goods, to a registered enterprise, to be used directly and exclusively in its registered project or activity.
2. Sale of services, including provision of basic infrastructure, utilities, and maintenance, repair and overhaul of equipment, to a registered export enterprise to be used directly and exclusively in its registered project or activity for a maximum of 17 years from the date of registration, unless extended under the SIPP.

For newly registered export enterprises under CREATE, the above VAT zero-rating shall be for a maximum of 17 years from the date of registration, unless extended under the SIPP. While for existing registered export enterprises located inside ecozones and freeport zones, the VAT zero-rating incentive shall be until the expiration of the applicable transitory period.

A registered export enterprise shall refer to an export enterprise which is an individual, partnership, corporation, Philippine branch of a foreign corporation, or other entity organized and existing under Philippine laws, and 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), and resulting in the direct exportation, and/or sale of its manufactured, assembled or processed product or IT/BPO services to another registered export enterprise that will form part of the final export product or export service of the latter, of at least seventy percent (70%) of its total production or output.

The vat zero-rating on local purchases shall be granted upon the endorsement of the concerned IPA, in addition to the documentary requirements of the BIR.

In addition, RR No. 21-2021 provides that sales to persons or entities whose exemption from direct and indirect taxes under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. While processing, manufacturing or repacking goods for other 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 were removed in the list of VAT zero-rated sale of service.

RR No. 21-2021 took effect immediately upon publication on December 10, 2021, and covers transactions entered into in the third quarter of Taxable Year 2021 and onwards.