BIR clarifies enterprises needing VAT to non-VAT status change

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VAT to non-VAT status change
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  • The Bureau of Internal Revenue clarified what types of registered export enterprises are required to change their status from value-added tax-registered entity to non-VAT-registered entity
  • Revenue Memorandum Circular No. 21-2024 says REEs whose sales are generated only from the registered activity and have shifted from income tax holiday (ITH) to 5% gross income tax (GIT) or special corporate income tax (SCIT) regime should change their status within two months from the expiration of their ITH
  • REEs enjoying 5% GIT regime but are still VAT-registered at the time RA 11534 took effect should change their status within two months from the effectivity of RMC No. 49-2022
  • REEs enjoying the 5% GIT or SCIT located within freeport zones or special economic zones, which directly import petroleum products and do not have other activities subject to VAT, will be permitted to register as a VAT taxpayer to allow them to file for refund of input VAT incurred from importation of petroleum attributable to zero-rated sales

The Bureau of Internal Revenue (BIR) has clarified what types of registered export enterprises (REE) are required to change their status from value-added tax (VAT)-registered entity to non-VAT-registered entity.

Revenue Memorandum Circular (RMC) No. 21-2024 issued on February 7, 2024 clarifies the answer to Question No. 31 under RMC No. 49-2022 in relation to Revenue Regulations (RR) No. 4-2022. The latter implements Section 295(F) of the Tax Code of 1997, as amended by Republic Act No. 11534 (Corporate Recovery and Tax Incentives for Enterprises Act).

Question No. 31 asks what is required from existing REEs that have completed their income tax holiday (ITH) and already under the 5% gross income tax (GIT) or special corporate income tax (SCIT) regime but remained as VAT-registered entity.

RMC No. 21-2024 states the following types of REEs are required to change their registration status from VAT-registered entity to non-VAT:

  • Within two months from the expiration of their ITH: REEs whose sales are generated only from the registered activity and have shifted from ITH to 5% GIT or SCIT regime
  • Within two months from the effectivity of RMC No. 49-2022: REEs enjoying 5% GIT regime but are still VAT-registered at the time RA 11534 took effect. RMC 49-2022 was issued on April 20, 2022 and took immediate effect.

An REE refers to any Philippine entity registered with an investment promotion agency (IPA) to engage in manufacturing, assembling or processing activity, and services such as information technology (IT) activities and business process outsourcing (BPO) that result in direct exportation, or the sale of the product or IT/BPO services to another REE.

RMC 21-2024 likewise provides that if the taxpayer has other activities other than those registered with the IPA that are subject to VAT, it should remain as a VAT taxpayer and should report the sales in the VAT returns as VAT-able, zero-rated and/or VAT-exempt, as the case may be.

In addition, RMC 21-2024 said REE petroleum importers, including those located inside the freeport zones or special economic zones, who were required to pay the applicable duties and taxes in their import transactions, including VAT, may be refunded of the duties and taxes for the direct or indirect export of petroleum products, and/or tax-exempt sales pursuant to Revenue Regulations (RR) No. 4-2022.

The BIR also clarifies that REEs enjoying the 5% GIT or SCIT located within freeport zones or special economic zones, which directly import petroleum products and do not have other activities subject to VAT, will be allowed to register as a VAT taxpayer to allow them to file for refund of input VAT incurred from importation of petroleum attributable to zero-rated sales pursuant to RR No. 4-2022.

The BIR said RMC No. 21-2024 is applied prospectively and does not cover previous transactions of petroleum products importers located in freeport zones or special economic zones which changed their status from VAT to non-VAT pursuant to RMC No. 49-2022.

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