DOF Issues New Rules on Non-Income Related Tax Incentives

On 11 September 2023, the Bureau of Internal Revenue issued Revenue Memorandum Circular No. 91, series of 2023 (“Circular”). The Circular simply attaches, for the information and guidance of all internal revenue officers, employees, and other concerns, the full text of the amendment by the Department of Finance (“DOF”) to Rule 18, Section 5 of the Implementing Rules and Regulations of Republic Act No. 11534, or the Corporate Recovery and Tax Incentives for Enterprises (“CREATE”) Act.

The amendment addresses the value-added tax (“VAT”) related issues and concerns of registered business enterprises, particularly those registered prior to the CREATE Act.

RULE 18. Investments prior to the effectivity of this Act.

SECTION 5. Non-income related tax incentives. — All registered export and domestic enterprises that will continue to avail of their existing tax incentives subject to Sections 1, 2 and 3 of this Rule, may continue to enjoy the duty exemption, VAT exemption on importation, and VAT zero-rating on local purchases as provided in their respective IPA registrations; PROVIDED, THAT REGISTERED EXPORT ENTERPRISES AS DEFINED UNDER SECTION 293(E) OF THE ACT WHOSE INCOME TAX-BASED INCENTIVES HAVE EXPIRED, MAY CONTINUE TO ENJOY VAT ZERO-RATING ON LOCAL PURCHASES UNTIL THE ELECTRONIC SALES REPORTING SYSTEM OF THE BUREAU OF INTERNAL REVENUE UNDER SECTION 237-A OF THE ACT IS FULLY OPERATIONAL, OR UNTIL THE EXPIRATION OF THE TRANSITORY PERIOD REFERRED TO IN SECTION 311(C) OF THE ACT, WHICHEVER COMES EARLIER; PROVIDED, FURTHER, THAT AN RBE CLASSIFIED AS DME WHICH IS LOCATED INSIDE THE ECONOMIC OR FREEPORT ZONE DURING THE TRANSITORY PERIOD WILL BE ALLOWED TO REGISTER AS A VAT TAXPAYER; Provided, FINALLY, that the duty exemption, VAT exemption on importation, and VAT zero-rating on local purchases shall only apply to goods and services directly attributable to and exclusively used in the registered project or activity of said registered export enterprises.

The amended rule shall apply prospectively; provided that domestic market enterprises inside the economic or freeport zone that will opt to register as VAT taxpayers shall not be allowed to claim VAT refund for transactions prior to the effectivity of these rules.