CREATE IRR amendment clears VAT issues

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  • The finance and trade departments approved an amendment to the implementing rules and regulations of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act
  • The revision resolves value-added tax issues raised by transitory registered business enterprises
    Rule 18, Section 5 of the CREATE Act IRR was amended in response to Malacañang’s directive to address VAT-related issues concerning domestic market enterprises (DMEs) and registered export enterprises (REEs)
  • Transitory registered DMEs in economic or freeport zones availing of the 5% gross income tax regime now have the option to register as VAT taxpayer
  • Transitory REEs whose income tax-based perks have lapsed may still enjoy zero VAT on local purchases until electronic sales reporting is fully operational or until their 10-year transitory status expires

The Department of Finance (DOF) and Department of Trade and Industry (DTI) have approved the amendment to implementing rules and regulations of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act to resolve value-added tax issues raised by transitory registered business enterprises (RBEs).

The amendment to Rule 18, Section 5 of the CREATE Act IRR was made in response to the Office of the President’s directive to address VAT-related issues concerning both domestic market enterprises (DMEs) and registered export enterprises (REEs).

Transitory registered DMEs inside economic or freeport zones availing of the 5% gross income tax regime will now have the option to register as VAT taxpayers.

Doing so will enable VAT-registered DMEs covered by the transitory provisions of CREATE to either charge output VAT to domestic customers or receive a refund from the Bureau of Internal Revenue for the input VAT directly attributable to their zero-rated sales.

Transitory REEs whose income tax-based incentives have expired may continue to enjoy zero VAT on local purchases until the electronic sales reporting system under Section 237-A of the Tax Code, as amended, is fully operational, or until the 10-year transitory period expires, whichever comes earlier.

“We welcome this amendment in support of our RBEs and in alignment with the national government’s efforts to establish a more conducive investment climate in the country,” Finance Secretary Benjamin Diokno said in a statement.

Before approval of the CREATE IRR amendment, the technical working group on VAT led consultations with investment promotion agencies and other relevant stakeholders. The TWG comprises representatives from the DOF, DTI and the Bureau of Internal Revenue.

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