BIR Clarifies Issues Relative to Implementation of Revenue Regulation No. 3-2023

The Bureau of Internal Revenue (“BIR”) promulgated Revenue Memorandum Circular (“Circular”) No. 8-2023, which clarified the issues with the implementation of value-added tax (“VAT”) zero-rate transactions on local purchases of the registered export enterprises (“REE”) and other entities granted with VAT zero-rate incentives under special laws and international agreements.

Pursuant to Revenue Regulation (“RR”) No. 16-2005, other cases of zero-rated sales – that is, local sale of goods and properties and/or services by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or international agreement, shall require prior application with the appropriate BIR office for effective zero-rating. This provision was amended by RR No. 3-2023. 

Under RR No. 3-2023, local suppliers of goods and/or services of REEs shall no longer be required to apply for approval of VAT zero-rating with the BIR. The VAT zero-rating on local purchases of goods and/or services shall be availed of on the basis of the VAT zero-rate Certification (“Certification”) issued by the concerned Investment Promotion Agency (“IPA”), without prejudice, however, to the conduct of post audit investigation verification by the BIR that the goods and/or services are indeed directly and exclusively used by the REE in its registered project or activity.

On Transaction with Registered Export Enterprise 

The documentary requirements needed to be secured by the local supplier from the REE-buyer for VAT zero-rating purposes are the following:

1. Certification issued by the concerned IPA;
2. Certificate of Registration (“COR”) issued by the BIR having jurisdiction over the head/office/branch/freeport/ecozone location where the goods and/or services are to be delivered;
3. COR issued by the concerned IPA stating all registered ecozone location; and
4. A sworn affidavit executed by the REE-buyer, stating that the goods and/or services are directly and exclusively used for the production of goods and/or completion of services to be exported or for utilities and other similar costs, the percentage of allocation be directly and exclusively used for the production of goods and/or completion of services to be exported.

Under the Circular, it clarified that if the transaction was entitled for purposes of VAT zero-rating, but the seller failed to secure an approved Application for VAT Zero-rate, such sale shall be subject to 12% VAT. Moreover, if there was already a prior determination by the BIR that the transaction is not qualified for VAT Zero-rate, accordingly, the same is subject to 12% VAT notwithstanding the issuance of RR No. 3-2023. 

On Transactions with Entities Granted with VAT Zero-rate Incentives under Special Laws and International Agreements

On the other hand, the documentary requirements needed to be secured by the local supplier of goods and/or services of other entities granted with VAT Zero-rate incentives under special laws and international agreements for VAT zero-rating purposes are the following: 

1. For the Supplier of RE Developer

   The local suppliers of goods, properties, and services shall require from the duly registered Renewable Energy (“RE”) Developer a certified copy of the following documents:

   1. COR issued by the BIR which has jurisdiction over the location of the RE Project;
   2. COR issued by the Board of Investments; and
   3. COR issued by the Department of Energy.

   It is emphasized that the VAT Zero-rating shall apply only on the sale of goods, properties, and services, for the development, construction and installation of the RE Developer’s power plant facilities. This includes the whole process of exploring and developing renewable energy sources up to its conversion into power, including, but not limited to, the services performed by subcontractors and/or contractors.

2. For the Supplier of Other Entities Under Special Law and International Agreements

   The buyer must provide its local supplier a certified copy of VAT Exemption Certificate/Ruling or equivalent document, issued by the appropriate office of the BIR and other documentary requirements as may be required under the special law and international agreements including its implementing rules and regulations.