THE BOARD of Investments (BoI) has updated its guidelines for granting value-added tax (VAT) zero-rating certifications for registered export enterprises (REEs) making local purchases.
Memorandum Circular (MC) No. 2023-007 governs the local purchases of goods and services directly and exclusively used in the registered project or activity. Eligibility for such a certification is good for 17 years from date of registration. The MC was signed on Oct. 17 and published on Oct. 24.
Trade Undersecretary and BoI Managing Head Ceferino S. Rodolfo said that the MC clarifies the changes to the revenue regulations in the implementing rules and regulations (IRR) of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.
“We need this to implement the IRR; this will serve as guidance to BoI-registered business enterprises (RBEs) … to make sure that even if their income tax holiday (ITH) incentive period ends, they can still register but only for purposes of availing of VAT zero-rating, as long as they are exporters,” Mr. Rodolfo said.
He said that some exporters, whose incentive availment period has ended, had not been allowed to avail of VAT zero-rating prior to the amendment of the IRR.
In August, the Departments of Finance (DoF) and Trade and Industry (DTI) approved the amendment of Rule 18, Section 5 of the CREATE Act IRR.
As a result of the amendment, transitory registered export enterprises (REEs) with expired income tax-based incentives may continue to enjoy VAT zero-rating on local purchases until the electronic sales reporting system of the Bureau of Internal Revenue (BIR) is fully operational, or until the expiration of the 10-year transitory period, whichever comes earlier.
Based on MC No. 2023-007, the qualified RBEs for VAT zero-rating are: BoI REEs registered under the CREATE Act; BoI REEs that are still enjoying their ITH incentive; and BoI REEs whose income tax-based incentives have expired.
BoI REEs may be issued VAT zero-rating certificate as long as both the supplier and the BoI REE buyer are VAT-registered, the exports of the BoI REE represent at least 70% of total production, and the local purchases of goods and services are directly used in the registered project or activity of the BoI REE.
The BoI will provide the BIR Audit Information, Tax Exemption and Incentives Division within 20 days following the close of each taxable quarter, a list of BoI REEs holding VAT zero-rating certificates.
The MC however excludes janitorial, security, financial and consultancy services, marketing and promotion and services rendered for administrative operations from activities classified as directly and exclusively used in the registered project or activity.
Once the documentary requirements are served and the procedures to issue the certificate are completed, the BoI’s Incentives Administration Service or the BoI Extension Office will release the certificate to the authorized representative of the BoI REE, which will be valid for one year.
The certificate may be revoked due to failure to comply with the registration terms, commitments and conditions, failure to export at least 70% of production, and fraudulent documentation or any other type of misrepresentation. — Justine Irish D. Tabile