Tax Alert No. 27 [Revenue Memorandum Circular (RMC) No. 80-2023 dated 09 August 2023]

Clarifies issues relative to the implementation of Revenue Regulations (RR) No. 3-2023 and other related concerns on Value-Added Tax (VAT) zero-rate transactions on local purchases of the Registered Export Enterprises (REEs) and other entities granted with VAT zero-rate incentives under special laws and international agreements

The Commissioner of Internal Revenue has issued RMC No. 80-2023 clarifying the issues relative to the implementation of RR No. 3-2023 and and other related concerns on Value-Added Tax (VAT) zero-rate transactions on local purchases of the REEs and other entities granted with VAT zero-rate incentives under special laws and international agreements. The salient points are as follows:

    A. On transactions with REEs:

• Upon effectivity of RR No. 3-2023 on 28 April 2023, local suppliers of goods and services of REEs shall no longer be required to secure prior approval for VAT zero-rate with the BIR.
• VAT zero-rating on local purchases of goods and/or services shall be availed of based on the VAT Zero-Rate Certification issued by the concerned Investment Promotion Agency (IPA) subject to the submission of certified copy of the relevant documents to the local supplier for its documentation in case of post-audit by the BIR.
• To qualify for VAT zero-rating, the local purchases of the REE must be directly and exclusively used in the registered project or activity, and not included in the negative list provided in RR No. 3-2023. If falling within the negative list, the REE is not precluded from further proving, with supporting evidence, to the concerned IPA that such goods and/or services are indeed directly and exclusively used in the registered project or activity.
• Applications filed prior to the effectivity of RR 3-2023 and accompanied by VAT Zero-Rate Certificate issued by the concerned IPA, as prescribed in RMC No. 36-2022, shall be accorded VAT zero-rating treatment from the date of filing of such application subject to post-audit by the BIR that the services are directly and exclusively used by the REE in its registered project or activity.
• Without an approved Application for VAT Zero-Rate, the sale of goods and services entitled for VAT zero-rating purposes and consummated prior to the effectivity of RR 3-2023, even if the REE was duly endorsed by concerned IPA, shall be subject to 12% VAT.
• For transactions subject to VAT due to BIR-disapproved applications for VAT zero-rate, the VAT-registered REE enjoying 5% Gross Income Tax or Special Corporate Income Tax may: (a) claim the corresponding input VAT from the said purchase, which can be utilized as a deduction against future output VAT after the incentive period; or (b) may be claimed as VAT refund.
• To reiterate the clarifications made in RMC No. 137-2022, the VAT zero-rating shall not extend to Health Maintenance Organization plans for employees not directly involved in the operations of the registered activities of the REE.

    B. On transactions with entities granted with VAT zero-rate incentives under special laws and international agreements

• Local suppliers of goods and services for entities granted with VAT zero-rate incentives under special laws and international agreements are no longer required to submit an application for VAT zero-rate. Alternatively, such local suppliers shall require from the aforementioned entities the relevant documentary requirements prescribed in RMC 80-2023.
• VAT zero-rating shall only apply on the sale of goods, properties and services for the development, construction and installation of the Renewable Energy (RE) Developer’s power plant facilities which includes the whole process of exploring and developing RE sources up to its conversion into power, including but not limited to, services performed by subcontractors and/or contractors.

    C. VAT Zero-Rate Certification/Endorsement by appropriate government  agency

• The template for VAT Zero-Rate Certificate to be issued by the IPA to its compliant REEs is prescribed under RMC No. 36-2022.
• All concerned IPAs are required to furnish the BIR a masterlist of REEs with issued VAT Zero-Rate Certificates issued by the concerned IPA within 20 days following the close of each taxable quarter.

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

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