On April 27, 2023, the Revenue Regulations (RR) No. 3-2023 was issued to amend certain provisions of RR No. 16-2005 and RR No. 21-2021, which implemented Sections 294 (E) and 295 (D) of Title XIII of the Tax Code introduced in the CREATE Act, and Section 5, Rule 2 of its Implementing Rules and Regulations (IRR).
The new regulations bring changes to the zero-rated sale of goods or properties and services. One such change is that certain services like janitorial, security, financial, consultancy, marketing and promotion, and services for administrative operations will no longer be considered "directly and exclusively used" in the registered project or activity of a Registered Export Enterprise (REE). However, the REEs can apply for VAT zero-rating certification by providing justification to the Investment Promotion Agency (IPA) that these local purchases are relevant to the registered project or activity.
Additionally, local suppliers of goods of REEs are no longer required to apply for approval of VAT zero-rating with the BIR and can rely on the VAT zero-rating certification issued by the concerned IPA. HMO plans included in the compensation packages of employees who are directly involved in the operation of registered projects or activities of REEs will be considered as "directly and exclusively used."
Lastly, the concerned IPA is required to provide the BIR with a list of REEs issued with VAT zero-rating certification, and the BIR may prescribe a report template for audit purposes.
Provided below are the summary of Regulations (RR) No. 3-2023
The new regulations that amend certain provisions of Revenue Regulations No. 16-20Q5, implementing Sections 294 (E) and 295 (D) of Title Xlll of the Tax code, as introduced in Republic Act (RA) No. 11534 or the "Corporate Recovery and Tax Incentives for Enterprise Act" (CREATE), and Section 5, Rule 2 of its Implementing Rules and Regulations (IRR), as amended.
Section 4.106-5 of RR No. 2005, as amended by RR No. 21-2021, is further amended to clarify the zero-rated sales of goods or properties.
VAT-registered persons are subject to a zero percent (0%) rate on the sale of raw materials, inventories, supplies, equipment, packaging materials, and goods to a registered export enterprise.
The registered export enterprise must use these goods directly and exclusively in its registered project or activity for a maximum period of seventeen (17) years from the date of registration, unless otherwise extended under the SIPP.
Local purchases of goods relating to certain services, such as janitorial services, security services, financial services, consultancy services, marketing and promotion, and services rendered for administrative operations, are not considered "directly and exclusively used" in the registered project or activity of a registered export enterprise.
The registered export enterprise can further prove, with supporting evidence, to the concerned Investment Promotion Agency (IPA) that any of the local purchase of goods relating to the above-listed services are indeed directly and exclusively used in its registered project or activity.
If the purchased goods are used in both the registered project or activity and administrative operations, the registered export enterprise shall adopt a method to best allocate the same. If a proper allocation could not be determined, the purchase of such goods shall be subject to twelve percent (12%) VAT.
Local suppliers of goods of registered export enterprise shall no longer be required to apply for approval of VAT zero-rating with the BIR.
The concerned IPA shall furnish the BIR through the Assessment Service Audit Information, Tax Exemption and Incentives Division (AITEID) a list of registered export enterprise issued with VAT zero-rating certification.
These new regulations provide clearer guidelines for VAT-registered persons and registered export enterprises regarding zero-rated sales of goods or properties and the use of local purchases of goods in registered projects or activities.