Philippines: Guidance on application of VAT to registered export enterprise

The Department of Finance (DOF) issued Revenue Regulations (RR) No. 3-2023 (20 April 2023) to provide the following guidance relating to the application of value added tax (VAT) to a registered export enterprise:

• Transactions qualified for VAT zero-rating include the following sales to a registered export enterprise used directly and exclusively in its registered project or activity, for a maximum of 17 years from the date of registration, unless otherwise extended under the Strategic Investment Priority Plan:
  • Sale of raw materials, inventories, supplies, equipment, packaging materials, and goods
  • Sale of services, including provision of basic infrastructure, utilities, and maintenance, repair and overhaul of equipment
  • Above-described sales to existing registered export enterprises located inside ecozones and freeport zones (until the expiration of the transitory period)
• Health maintenance organization (HMO) plans acquired by registered export enterprise for its employees who are directly and exclusively involved in the operations of their registered projects or activities and forming part of their compensation package will be considered as “directly and exclusively used” in the registered project or activity of a registered export enterprise.
• The local purchase of the following services and goods related thereto will not be considered “directly and exclusively used” in the registered project or activity of a registered export enterprise, unless the registered export enterprise can prove to the concerned Investment Promotion Agency (IPA) that any of the listed services or any goods related to these services are directly and exclusively used in its registered project or activity:
  • Janitorial services
  • Security services
  • Financial services
  • Consultancy services
  • Marketing and promotion
  • Services rendered for administrative operations such as human resources, legal and accounting
• In issuing the VAT zero-rating certification, the local purchase of goods and services are directly attributable to the registered project or activity without which such registered project or activity cannot be carried out (i.e., costs that are indispensable to the project or activity).
• If the purchased goods and services are used in both the registered project or activity and administrative operations, the registered export enterprise will adopt a method to best allocate the same. If a proper allocation could not be determined, the purchase of such goods and services will be subject to 12% VAT.
• The VAT zero-rating on local purchase of goods and services will be availed on the basis of the VAT zero-rating certification issued by the concerned IPA, subject to the conduct of post-audit investigation/verification by the Bureau of Internal Revenue (BIR) that the goods and services are indeed directly and exclusively used by the registered export enterprise in its registered project or activity.
• Under RR No. 3-2023, the local suppliers of goods and services of a registered export enterprise will no longer be required to apply for approval of VAT zero-rating with the BIR. All applications with accompanying VAT zero-rating certification issued by the concerned IPA that have been received but not yet acted upon by the BIR will be accorded VAT zero-rating treatment from the date of filing of such application.

The RR became effective after its publication in Manila Times on 28 April 2023.

Read a May 2023 report prepared by the KPMG member firm in the Philippines