BIR clarifies ecozone logistics service enterprises entitled to zero VAT

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BIR clarifies ecozone logistics service enterprises entitled to zero VAT
Purchases by registered ecozone logistics service enterprises (ELSEs) from VAT-registered suppliers are subject to zero VAT, but this only applies to goods and services directly and exclusively used in the registered project or activity of the ELSE, according to the Bureau of Internal Revenue. Image by Marcin from Pixabay
  • The Bureau of Internal Revenue issued additional clarification on qualifications of ecozone logistics service enterprises (ELSEs) entitled to zero VAT under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act
  • According to Revenue Memorandum Circular 24-2023, ELSEs may be registered business enterprises (RBE) not just in the Philippine Economic Zone Authority but also in other investment promotions agencies
  • ELSEs that render at least 70% of output/services to another RBE are covered by the definition of “export enterprise”
  • Excluded from this definition are companies engaged in trucking or forwarding services
  • Purchases of registered ELSEs from VAT-registered suppliers enjoy zero VAT but the incentive only applies to goods and/or services directly and exclusively used in the registered project or activity of the ELSE

THE Bureau of Internal Revenue (BIR) issued a more definitive explanation on ecozone logistics service enterprises (ELSEs) allowed to avail of zero value-added tax (VAT) on local purchases of goods and services exclusively and directly used in the registered project or activity.

Under BIR Revenue Memorandum Circular (RMC) 24-2023 issued on February 17 but dated February 7, eligible ecozone logistics providers are those engaged in activities in support of exporters.

They must also be registered business enterprises (RBE) supplying production-related raw materials and equipment catering exclusively for the requirements of export manufacturing enterprises registered with the Philippine Economic Zone Authority (PEZA), Clark Development Corp., Subic Bay Metropolitan Authority, Authority of the Freeport Area of Bataan, or other special economic zones and freeports outside PEZA administration.

RMC 24-2023 took immediate effect.

The ELSEs “provide critical support, particularly to export manufacturing companies with their requirements for logistics support to facilitate their import and export shipments, sourcing raw materials, inventory management, just-in-time deliveries, localization, and process customization,” the circular explained.

ELSEs that render at least 70% of their output or services to another registered export enterprise are covered by the definition of “export enterprise,” the tax bureau noted, under Section 293(E) of the National Internal Revenue Code (NIRC) of 1997, as amended by the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act (also known as Republic Act No. 11534), and as clarified in Board of Investment (BOI) Memorandum Circular (MC) No. 2023-001.

Certain service enterprises–such as those engaged in trucking or forwarding services–are excluded from the definition of an RBE under Section 293(M) of the NIRC of 1997, as amended, BIR said.

RMC 24-2023 also affirmed that purchases by registered ELSEs from VAT-registered suppliers are subject to zero VAT, but this only applies to goods and services directly and exclusively used in the registered project or activity of the ELSE.

Details on the availment of VAT zero-rate incentives on local purchases under the CREATE Act are provided in RMC No. 24-2022 and its subsequent amendments, BIR said.

The following documents must be included in the attachments to the application for VAT zero-rating:

  • Certificate of Registration and VAT Certification issued by the concerned Investment Promotion Agency (IPA) as submitted to it by its registered export enterprise buyers;
  • A sworn affidavit executed by the registered export enterprise-buyer stating that the goods and/or services bought 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 to directly and exclusively used for the production of goods and/or completion of services to be exported; and
  • Other documents to corroborate entitlement to VAT zero-rating, such as but not limited to duly certified copies of the valid purchase order, job order or service agreement, sales invoices and/or official receipts, delivery receipts, or similar documents to prove the existence and legitimacy of the transaction.

Through MC No. 2023-001, the BOI earlier said the 2022 Strategic Investment Priority Plan (SIPP) for logistics services covers ELSEs, defined as traders supplying production-related raw materials and equipment that cater exclusively to requirements of ecozone locators.

The SIPP—which is provided under the CREATE Act—replaces the Investment Priorities Plan, a list of investment priority sectors or preferred investment areas that may be given investment incentives.

Despite the BOI clarification, certain questions still needed to be addressed, thus the need for RMC 24-2023 to provide further clarification on incentives of ELSEs under the SIPP, BIR said.

BOI MC No. 2023-001 said the only type of logistics service allowed registration as an ELSE are those undertaking both of the following:

  • Establishment of a warehouse storage facility; and
  • Importation or procurement from local sources and/or from other registered enterprises of goods for resale, or for packing/covering (including marking, labeling), cutting, or altering to customers’ specification, mounting and/or packaging into kits or marketable lots thereof for subsequent sale, transfer or disposition for export.

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