Tax Alert No. 16 [Revenue Regulations (RR) No. 3-2023 dated 20 April 2023]

Amending Certain Provisions of RR No. 16-2005, as Amended by RR No. 21-2021, to Implement Sections 294 (E) and 295 (D), Title XIII of the National Internal Revenue Code of 1997, as Amended by RA No. 11534 (CREATE Act), and Section 5, Rule 2 and Section 5, Rule 18 of the CREATE Act Implementing Rules and Regulations, as Amended

RR No. 3-2023 has been issued to amend certain provisions of RR No. 16-2005, as amended by RR No. 21-2021, with respect to the VAT zero-rating on local purchases by registered business enterprise as enacted by Sections 294 (E) and 295 (D) of the CREATE Act.

Local purchases of goods and services relating to the following shall not be considered as “directly and exclusively used” in the registered 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.
   

However, the registered export enterprise is not precluded from further proving to the concerned Investment Promotion Agency (IPA), with sufficient evidence, that any of the local purchases of goods and services relating to the above-mentioned list are indeed directly and exclusively used in its registered activity.

In the case of health maintenance organization (HMO) plans acquired by a registered export enterprise, the same shall be considered as “directly and exclusively used” provided that these form part of the compensation package of its employees who are directly and exclusively involved in the operations of their registered project.

If the purchased goods and services are utilized in both registered activity and administrative operations, a proper method shall be determined by the registered export enterprise to allocate the same. If proper allocation cannot be determined, the purchases shall be subject to 12% VAT. 

Further, the availment of the VAT zero-rating on local purchases shall be based on the VAT-zero rating certification issued by the concerned IPA, subject to the post audit verification of the BIR. 

For this purpose, upon effectivity of this RR, the local suppliers of a registered export enterprise shall no longer be required to apply for approval of VAT-zero rating with the BIR. All applications with VAT-zero rating certification issued by the concerned IPA which have been received but not yet acted upon by the BIR shall be granted the VAT zero-rating treatment from the date of filing of the application, subject to the post audit verification of the BIR that the goods and services are indeed directly and exclusively used by the registered export enterprise in its registered activity.

You may access the full version of this Circular through the BIR website.