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Exporters can now continue to avail of zero VAT on their local purchases of goods and services
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But the availment will only be for a maximum of 17 years, unless otherwise extended
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Under BIR Revenue Regulation 21-2021, the VAT exemption on importation and VAT zero-rating on local purchases will only apply to goods and services directly and exclusively used in the registered project or activity of a registered export enterprise
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The regulation covers transactions entered into the third quarter of taxable year 2021 and onwards
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Zero-rated sale of goods or properties and zero-rated sale of service by a VAT-registered person are taxable transactions for VAT purposes but should not result in any output tax
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RR 21-2021 took effect immediately following its publication on December 10
Exporters can now continue to avail of the value-added tax (VAT) zero rating on their local purchases of goods and services, but only for a maximum of 17 years, unless otherwise extended, according to Bureau of Internal Revenue (BIR) Revenue Regulations (RR) No. 21-2021.
RR 21-2021, issued on December 7 and published on December 10, amends certain provisions of RR 16-2005, as amended by RR 4-2007, 13-2018, 26-2018 and 9-2021 to implement Sections 294 (E) and 295 (D), Title XIII of the National Internal Revenue Code (NIRC) of 1997, as amended by Republic Act No. 11534 (Corporate Recovery and Tax Incentives for Enterprises Act), and its implementing rules and regulations (IRR).
RR 21-2021 was issued following deferral in July of RR 9-2021 implementation. RR 9-2021 imposed a 12% VAT on indirect exports and sale of services previously zero-rated.
READ: BIR officially suspends 12% VAT on exporters’ local purchases
Various groups earlier called on government to repeal RR 9-2021, saying it would hurt both the export community and local industries, already badly hit by the COVID-19 pandemic.
RR 21-2021 took immediate effect following its publication on December 10, and will cover transactions entered into the third quarter of taxable year 2021 and onwards.
Under RR 21-2021, the VAT exemption on importation and VAT zero-rating on local purchases will only apply to goods and services directly and exclusively used in the registered project or activity of a registered export enterprise, for a maximum period of 17 years from the date of registration, unless otherwise extended under the Strategic Investment Priority Plan (SIPP).
The direct and exclusive use for the registered project or activity refers to raw materials, inventories, supplies, equipment, goods, packaging materials, services, including provision of basic infrastructure, utilities, and maintenance, repair and overhaul of equipment, and other expenditures directly attributable to the registered project or activity without which the registered project or activity cannot be carried out.
The latest regulation added that the VAT zero-rating on local purchases should be granted upon endorsement of the concerned investment promotions agency, in addition to the BIR documentary requirements.
RR 21-2021 also states that a zero-rated sale of goods or properties by a VAT-registered person is a taxable transaction for VAT purposes but should not result in any output tax. However, the input tax on purchases of goods, properties, or services, attributable to such zero-rated sale, should be available as tax credit or refund.
Still subject to zero rate under RR 21-2021 are export sales, and sales to persons or entities whose exemption from direct and indirect taxes under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate.
Likewise included is the sale of raw materials inventories, supplies, equipment, packaging materials and goods, to a registered export enterprise, to be used directly and exclusively in its registered project or activity for a maximum period of 17 years from the date of registration, unless otherwise extended under the SIPP.
A zero-rated sale of service by a VAT-registered person is also a taxable transaction for VAT purposes, but should also not result in any output tax. However, the input tax on purchases of goods, properties or services attributable to such zero-rated sale should be available as tax credit or refund.
The following services performed in the Philippines by a VAT-registered person should be subject to 0% VAT rate:
- Services other than processing, manufacturing or repacking of goods rendered to a person engaged in business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP.
- Services rendered to persons or entities whose exemption from direct and indirect taxes under special laws or international agreements to which the Philippines is a signatory.
- Sale of services, including provision of basic infrastructure, utilities, and maintenance, repair and overhaul of equipment, to a registered export enterprise, to be used directly and exclusively in its registered project or activity for a maximum period of 17 years from the date of registration, unless otherwise extended under the SIPP
- Services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof, provided that these services will be exclusively for international shipping or air transport operations.
- Transport of passengers and cargo by domestic air or sea vessels from the Philippines to a foreign country.
- Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydro power, geothermal and steam, ocean energy, and other emerging sources using technologies such as fuel cells and hydrogen fuels. – Roumina Pablo
Updated headline title from “BIR ruling retains zero VAT on local purchases for 17 years” to “BIR ruling retains zero VAT on exporters’ local purchases for 17 years” on Dec 11, 8:01pm.
