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REPUBLIC OF THE PHILIPPINES
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DEPARTMENT OF FINANCE
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BUREAU OF INTERNAL REVENUE
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23 February 2022

REVENUE MBMORANDUM CTRCULAR NO. g- ZLZZ

SUBJECT: Clarifying Issues Relative to Revenue Regulations (RR) No. 2l-2021

Implementing the Amendments to the Value-Added Tax (VAT) Zero-
Rating Provisions Under Sections 106 and 108 of the National Internal
Revenue Code of 1997 (Tax Code), in Relation to Sections 294(E) and
295(D), Title XIII of the Tax Code, Introduced by Republic Act (R.A.) No.
11534 (CREATE Act), and Section 5, Rule 2 and Section 5, Rule 18 of the
CREATE Act Implementing Rules and Regulations (CREATE IRR)

TO: All Internal Revenue Officers and Others Concerned

This Circular is issued to clarifo the transitory provisions under RR No. 2l-2021 and
certain issues pertaining to the effectivity and VAT treatment of transactions by registered
business enterprises (RBEs) particularly the registered export enterprises.

r. CLARIFICATION OF APPLICABLE RULES

Ql: Prior to the CREATE Act, for VAT purposeso what rule governs the sale of goods
and services by a VAT-registered seller from the customs territory to enterprises
located and registered within the economic zones (Ecozone) or a Freeport?

A1: Before the CREATE Act, Ecozones and Freepoftzones were, by legal fiction, regarded
as foreign territories under RMC No. 74-99 and RMC No. 7-2007. Thus, following the
o'cross
border doctrine", the sale of goods and services by a VAT-registered seller to
registered enterprises in these economic and freeport zones were treated as constructive
export subject to zero-percent (0%) VAT.

Q2: With the passage of CREATE Act, is the "cross border doctrine" still applicable
for purposes of VAT as laid down in RMC No.74-99 and RMC No.50-2007?

A2: No. The "cross border doctrine" as applied to Ecozones or Freeport zones has been
rendered ineffectual and inoperative for VAT purposes because of the following:
(i) Passage of RA No. 11534, or the CREATE Act, expressly providing that only those
goods and services that are directly and exclusively used in the registered project or
actlvity of RBEs qualify as VAT 0% local purchases;
(ii) Sections 294(E) and 295(D), Title XIII of the Tax Code, as amended by the
CREATE Act, and as implemented under Rule 2, Section 5, and Rule 18. Section
5, respectively, of the CREATE IRR, stating certain parameters for the availment
of VAT zero-rating on local purchases of registered export enterprises, regardless
of location; and
(iii) Issuance of RR No. 2l-2021, amending Sections 4.106-5(b) and 4.108-5(bX2) of
RR No. 16-2005, as amended, to harmonize the VAT zero-rate provisions of the

Page I of13
 Tax Code, as amended by TRAIN and CREATE laws, which now provide that the
effectively zero-rated sales shall only apply to sales of goods and services rendered
to persons or entities who have direct and indirect tax-exemption granted pursuant
to special laws or international agreements to which the Philippines is a signatory.

e3: What rules govern the enjoyment of VAT exemptions and VAT 07o incentives for
registered business enterprises (RBEs) with the passage of the CREATE Act?

43: Business enterprises duly registered with the concerned Investment Promotion Agencies
(lPAs) underthe CREATE Act shall now be governed by the CREATE provisions with
respect to their availment of tax incentives, including VAT exemption of RBEs enjoying
the 5Yo gross income earned (CIE) or special corporate income tax (SCIT). VAT
exemption on importation and VAT zero-rating on local purchases of goods and services
by registered export enterprises. 1,

In addition, enterprises registered prior to the effectivity of the CREATE Act shall
continue to enjoy the foregoing VAT exemptions and VAT zero-rating on local
purchases of goods and services subject to the rules as provided in Rule 18, Section 5
of the CREATE IRR, that is: "VAT-exemption on importation, and VAT zero-rating on
local purchases shall only opply to goods and services directly attributable to and
exclusively used in the registered project or activity of the export enterprises clttring the
period of registration of the said registered project or activity o/'the export enterprise.s"
until the expiration of the transitory period under Section 3l I of the Code.

Q4: Can enterprises located within the Ecozones or FreeportZones still invoke Sections
106(AX2Xb) and 108(8)(3) the Tax Code, as amended, after the effectivify of
CREATE Act to claim VAT zero-rating on their local purchases of goods and
services?

A4: No. With the CREATE Act already in place. business enterprises duly registered with
the concerned IPA pursuant to the CREATE Act shall only be accorded VAT zero-rating
on their local purchases of goods and/or services that are directly and exclusively used
in the registered project or activity of the registered export enterprise's.

II. EFFECTIVITY AND TRANSITORY PROVISIONS

Q5: When is the effectivity date of RR No.21-2021?

A5: As stated in RRNo.2l-2021, the Regulations shall take ffict immediatelyfollowing its
publication in a leading newspaper of general circulation, and shall cover transactions
entered into the third quarter of taxable year (IY) 202I and onwards. RR No. 2l-2021
was published in a newspaper of general circulation on December 10, 2021, thus, took
effect on said date.

Q6: Why does RR No. 2l-2021cover transactions entered into prior to its effectivity or
beginning third quarter of 2021?

,46: Considering that the taxpayers affected will be able to reclassify their sales from
VATable to zero-rated by virtue of the retroactive application of RR No.2l-2021, the
retroactiveapplicationisjustifiedasitwillbebeneficialtothet@
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Q7: What will be the VAT treatment for sale of goods and services that transpired
during the effectivity of RR No.9-2021 or from June 27,2021 to June 30,2021?

A7: For sale of goods and services that transpired within the four-day period, the seller
should declare the same as subject to l2% Y AT. Consequently, the purchaser, if VAT-
registered, can utilize the passed on VAT as input tax and shall be deducted from the
output tax, if any, or should the purchaser be engaged in zero-rated activities, the same
can be recovered through VAT refund pursuant to Section 112(A) of the Tax Code, as
amended. If the purchaser is not a VAT-registered taxpayer, the VAT paid may be
claimed as part of the cost of sales or expenses.

Q8: What will be the VAT treatment for sale of goods and services that transpired
during the effectivity of RR No. 9-2021 from July 1,2021to July 27,2021, which is
covered by the retroactive application of RR No. 2l-2021?

A8: For sale of goods and services where the VAT has already been billed and/or collected
duringthe effectivity of RRNo.9-2021 from July 1,2021 to July 27,2021, the seller
and the buyer have the following options:
l. Retain the transaction as subiect to VAT. The seller can opt to still declare the
sales as subject to l2% V AT. Consequently, the purchaser, if VAT-registered, can
utilize the passed on VAT as input tax and shall be credited against the output tax,
if any, or should the purchaser be engaged in zero-rated activities, the same can be
recovered through VAT refund pursuant to Section I l2(A) of the Tax Code, as
amended. If the purchaser is not a VAT-registered taxpayer, the VAT paid shall be
claimed as part of the cost of sales or expenses.
2. Revert the transaction from VATable to zero-rated. Where the transactions have
already been declared in the VAT return/s, the seller may amend the VAT return
filed after reimbursing/returning the VAT paid by the buyer that is a registered
export enterprise subject to the rule that no Letter of Authority (LOA) has been
issued yet. The adiustment to sales shall only be to the extent of the reimbursed VAT
to the registered export enterprise. The resulting overpayment due to unutilized input
tax credits, if any, may be recovered through VAT refund pgrsuant to Section
I l2(A) of the Tax Code, as amended, inasmuch as the corresponding sale is revefted
to VAT zero-rated.

Q9: Should the seller revert the transactions from VATable to zero-rated, what will
happen to the sales invoices/official receipts (SIs/ORs) previously issued?

49: The seller shall retrieve the VAT SI/OR originally issued to the registered export
enterprise buyer for cancellation and replacement with a zero-rated SI/OR. The seller
shall prepare a list of VAT SI/OR cun..[I.d, together with the corresponding zero-rated
SI/OR replacement subject to validation of the BIR.

Q10: RR No. 2l-2021was issued few months after the issuance of RR No. 15-2021, which
deferred the implementation of RR No. 9-2021. There is a possibilify that affected
taxpayers may have declared their sales to registered export enterprises as VAT
zero'rated and domestic market enterprises (DMEs) within Ecozones and Freeport
zones for the period July l, 2021 up to the effectivity of RR No. 2l-2021 on
December 10,2021. What happens if these are not qualified for VAT zero-rating
based on the provisions of the CREATE Act?
BTJREAU OF INTERN

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.oLCORDS MG I
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Al0: This is an instance where the non-retroactivity rule under Section 246 of the Tax Code,
as amended, can be applied inasmuch as this will be prejudicial to the taxpayers affected.
Hence, the said transactions that have been considered by the seller as VAT zero-rated
shall still remain as VAT zero-rated for the period July 1,2021 to December 9,2021 .

However, for those taxpayers that declared their transactions to qualified registered
export enterprises and DME,s within the Ecozones and Freeport zones as subject to VAT,
the options laid down in Q&A No. 7 and 8 may be followed.

III. VAT TREATMENT OF SALE TO REGISTERED EXPORT ENTERPRISES

UPON THE EFFECTIVITY OF CREATE ACT

Ql1: What is the treatment on the sale of goods and/or services by a VAT-registered
seller to registered export enterprises, regardless of the location, enjoying fiscal
incentives under the CREATE Act?

Al l: Sale of VAT-registered suppliers to registered export enterprises enjoying fiscal

incentives under the CREATE Act shall be treated as VAT zero-rated. However, it shall
only apply to goods and/or services directly and exclusively used in the registered
project or activity of said registered export enterprise, for a maximum period of
seventeen (17) years from the date of registration, unless otherwise extended underthe
Strategic Investment Priority Plan (SIPP).

The enjoyment of VAT and duty incentives is reckoned from the registered export
enterprise's date of registration and throughout the period as indicated in its Certificate
of Registration.

The term "date of registration" mentioned herein where the 1 7-year maximurn period
shall be reckoned from shall referto the date of registration of the registered project or
activity of the registered export enterprise as reflected in the Certificate of Registration
issued by the concerned IPA.

Q12: What is a registered export enterprise?

Al2: As defined under Section 4(M), Rule I of the CREATE IRR, an export enterprise refers
to any individual, partnership, corporation, Philippine branch of a foreign corporation,
or other entity organized and existing under Philippine laws and registered with an IPA
to engage in manufacturing, assembling or processing activity, and services such as
information technology (lT) activities and business process outsourcing (BpO), and
resulting in the direct exportation, and/or sale of its manufactured, assernbled or
processed product or ITIBPO services to another registered export enterprise that will
form part of the final export product or export service of the latter, of at least seventy
(70%) of its total production or output.

Provided, however, that the export enterprise is also a registered business enterprise as
defined in Section a(W) of the same IRR.

BUREALJ OF INTERh

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 Q13: What is meant by direct and exclusive use in the registered project or activity?

Al3: Direct and exclusive use in the registered project or activity refers to raw materials,
supplies, equipment, goods. packaging materials, services, including provision of basic
infrastructure, utilities, and maintenance, repair and overhauI of equipment, and other
expenditures directly attributable to the registered project or activity without which the
registered project or activity cannot be carried out.

Only the portion of the expense directly and exclusively used by a registered export
enterprise for its registered project or activity shall qualify for VAT zero-rating on local
purchases, excluding those used for administrative purposes. The registered expor-t
enterprise concerned should adopt a method to best allocate goods or services
purchased, e.g. for utilities, use of separate water and power meters for its registered
project or activity or any method that may determine the allocation such as area usage
or ratio of utility expenses between cost of sales and administrative expenses as reflected
in the prior year Audited Financial Statements. If the goods or services are used in both
the registered project or activity and administration purposes and the proper allocation
could not be determined, the purchase of such goods and services shall be subject to
t2% v AT.

For this purpose, services for administrative purposes, such as legal, accounting. and
such other similar services, are not considered expenses directly attributable to and
exclusively used in the registered project or activity.

Q14: What cost items fall under the "other expenditures" in the preceding question?

Al4: These are costs that are indispensable to the project or activity, i.e., without which. the
DIRECT & EXCLUSIVE - Check
project or activity cannot proceed, and these include expenses that are necessary or
required to be incurred depending on the nature of the registered project or activity of
INDISPENSABLE - Check
the export enterprise.
NEITHER DIRECT
NOR INDISPENSABLE - Ex Examples:
l. Insurance costs required to be paid by the IPA before the facility cin start operations.
2. Freight costs necessary to bring the raw materials or equipment to be used in the
production area.
3. Telecommunication expenses of registered export enterprises engaged in lT/BPO
services or other registered project or activity, without the telecommunication
services, such registered project or activity cannot be carried out. This, however,
does not include telecommunication expenses incurred for administration purposes.

Any costs incurred prior to the registration of a project or activity with the IPA shall not
be allowed for this purpose.

Ql5: Are the purchases of registered export enterprises not directly and exclusively used
in its registered project or activity subject to VAT at zero-rate?

Al5: No. Only the purchases of goods and services that are directly and exclusively used in
the registered project or activity of the registered export enterprise shall be allowed for
VAT zero-rating. Hence, not all goods coming into, or services rendered within the
Ecozones or Freeport shall be accorded VAT zero-rating.

EAU OF INTERh;
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el6: Are there RBEs not entitled to avail the VAT zero-rating on their purchases of
goods and/or services?

A16: yes. RBEs which are categorized as Domestic Market Enterprises are not entitled to
VAT zero-rating on local purchases. Sale of goods or services to a registered domestic
market enterprise shall be subject to VAT at 12o/o.

In addition, the following service enterprises, though duly accredited or licensed by any
of the IpAs, are not entitled to VAT zero-rating on their local purchases of goods and/or
services:
l. Customs brokerage;
2. Trucking services;
3. Forwarding services;
4. Janitorial services;
5. Security services;
6. Insurance;
7. Banking and other financial services;
8. Consumers' cooperatives;
9. Credit unions;
I 0. Consultancy services;
I l. Retail enterprises;
12. Restaurants; and
13. Such other similar services as may be determined by the Fiscal Incentives Review
Board (FIRB).

Q17: What is the treatment on the sales by registered non-export enterprises or DMEs
located in Ecozones and Freeport Zones to registered export enterprises and non-
RBEs?

Al7: The DME under the 5oh Gross Income Tax (GIT) or Special Corporate Income Tax
(SCIT) regime, registered as a VAT exempt entity, shall treat its revenues as VAT
exempt. The VAT passed on to it by its VAT-registered local suppliers shall form part
of its cost or expenses.

Q18: What is the treatment on the sale made by registered export enterprise to another
registered export enterprise? Applicable to Benri

Al8: The following rules shall apply:

a. If the seller is VAT-registered while enjoying ITH, the sale of goods and services to
another registered export enterprise is subject to VAT at zero-rate, provided, the
goods and services are directly and exclusively used in the latter's registered project
or activity.

b. If the seller is enjoying the 5%GlE incentive, the sale of goods and services, such
as manufactured, assembled or processed product or ITIBPO services to another
registered export enterprise that will form part of the final export product or export
service of the latter, of at least seventy (70%) of its total production or output, shall
be VAT-exempt.

Same rule applies to the sale of a DME to a registered export enterprise.

BTJREAU OF INTII
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Q19: Are non-RBE export-oriented enterprises also accorded with the benefits under
Title XIII of the Tax Code, as introduced in the CREATE Act?

Al9: No. Incentives of non-RBE expofters shall be limited only to VAT' atzeto rate on its
direct export sale of goods or services pursuant to Sections 106(AX2)(aXl) and
108(8)(2) of the Tax Code, as amended. However, if the non-RBE exporter is VAT-
registered and sells goods and services to a registered export enterprise, the rule under
the Q&A No. 18(a) shall apply.

Q20: What will be the VAT treatment should the RBE sell, transfer, or dispose the
previously VAT-exempt imported capital equipment, raw materials, spare parts,
and accessories?

A20: The VAT treatments on the sale, transfer, or disposition of the imported capital
equipment, raw materials, spare parts, or accessories are as follows:

l. If the purchaser is a registered export enterprise, regardless of location, the

transaction is subject to VAT at zero-rate; provided that the same shall be directly
and exclusively used in the registered project or activity of the registered export
enterprise.

2. If seller is non-registered export enterprise or a domestic market enterprise,

regardless of location and is under the following regimes:
a. Under Special Corporate Income Tax (5% GIT), transaction is VAT- exempt.
b. Not under the 5% SCIT, transaction is generally subject to VAT at l2oh based
on the net book value of the capital equipment, raw materials, spare parts, or
accessories, unless purchaser is a registered export enterprise, in which case, the
rule in number I above shall apply.

Q21: What will VAT treatment if the imported capital equipment, raw materials,
be the
spare parts, and accessories were utilized in the non-registered project or activity?

A2l:. In case the aforementioned imported items will be used for a non-registered project or
activity of the RBE, the corresponding VAT on importation should be paid accordingly.

For partial utilization in a non-registered project or activity, the amount corresponding

to the VAT on a specific capital equipment, raw materials, spare parts, or accessories
shall be paid in proportion to its utilization for the non-registered project or activity.

Q22z It appears that enterprises registered with the Board of Investments (BOI) and
those that are located in the Ecozones and Freeport zones are covered under Title
XIII of the Tax Code, as amended by CREATE Act, how about sales to enterprises
covered by special laws other than those mentioned?

A22: Sales to enterprises covered by special laws such as renewable energy developers under
R.A. No. 9513 (Renewable Energy Act of 2008, International Rice Research Institute
(IRRI), Asian Development Bank (ADB), etc. are still subject to VAT at zero percent
rate (0o/o) pursuant to Sec.4.l06-5(b) for goods and Sec.4.l08-5(b)(2) for services, of
RR No. 16-2005, as amended by RR No. 2l-2021.

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ry. TAXABILITY OF EXISTING EXPORT ENTERPRISES REGISTERED PRIOR
TO CREATE

Q23: Are sales of suppliers from the customs territory to existing registered export
enterprises located inside the Ecozones or Freeport zones also qualified for VAT
zero-rating?

A23: Yes. Sales to existing registered export enterprises located inside Ecozones or Freeport
zones shall also be qualified for VAT zero-rating under Sec. 4.106-5(c) and Sec. 4.108-
5(bX3) of RR No. I 6-2005, as amended by RR No. 2l-2021 until the expiration of the
transitory period or the remaining period of their incentives as specified in Rule l8 of
the CREATE IRR.

However, it shall only apply to goods and/or services directly and exclusively used in
the registered project or activity of a registered export enterprise. Or Indispensable considered as other
expenditure

Q24 Are sales of suppliers located inside the customs territory to existing registered
non-export enterprises located inside the Ecozones or Freeport zones also qualified
for VAT zero-rating?

A24: No. Sale of goods or services to existing registered non-export enterprises located inside
the Ecozones or Freeport Zones shall be subject to VAT at l2o/o. On the other hand, the
sale of goods or services by existing registered non-export enterprises located in
Ecozones and Freeport Zones shall be subject to the rules under Q&A No. 17.

Q25: How about the sale by VAT-registered sellers to registered export enterprises
registered with the BOI and IPAs other than PEZA or Freeport Zones? Mayexport and others

A25: Sales by VAT-registered sellers to export enterprises registered with the BOI and IPAs
other than PEZA or Freepofts are also subject to VAT at zero-rate but shall only apply
to goods andlor services directly and exclusively used in the registered project or activity
of the registered export enterprise until the expiration of the transitory period or the
remaining period of their incentives as specified in Rule l8 of the CREATE IRR.

Q26: What will be the VAT treatment for the local purchases of the registered export
enterprise on its previously registered project or activity that is qualified for VAT
zero-rating in case its registration has already expired and is not anymore available
for renewal?

A26: A VAT-registered RBE whose registration with an IPA has already expired, shall be
subject to VAT in accordance with Sections 106, 107, and 108 of the Tax Code, as
amended.

Q27: Are the sale of goods or services to non-resident foreign buyers by non-RBEs, not
enjoying incentives, but were delivered or rendered to export-oriented companies
in the Philippines, still considered zero-rated under Sections 106(AX2)(a)(3) and
108(BXl) of the Tax Code, as amended?

A27: No. Transactions under Sections 106(AX2)(a)(3) and I 08(BX I ) of the Tax Code, as
amended, have already been considered subject to VAT in compliance with the
provisions of the TRAIN Law.
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e2g: What is the VAT treatment on the sale of processing, manufacturing or repacking
of goods by aPflZA-registered business enterprises (RBEs) for other persons doing
business outside the Philippines which goods are subsequently exported, where the
services are paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP)?

A2B: The sale of processing, manufacturing or repacking services by PEZA RBEs entitled to
5% GIT or SCIT to persons doing business outside the Philippines which goods are
subsequently exported, where the services are paid for in acceptable fbreign currency
and accounted for in accordance with the rules and regulations of the BSP, shall be
exempt from VAT. In this case, the service fee shall be indicated in the Official Receipt
and VAT returns as a VAT exempt sale.

Q29: What is theVAT treatment on the sale of raw materials or packaging materials by
aPEZARBE to a nonresident buyer for delivery to a resident local export-oriented
enterprise to be used in manufacturing, processing, packing or repacking in the
Philippines of the said buyer's goods and paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the BSP?

A29: If the sale is made by a PEZA RBE entitled to 5o/o GIT or SCIT, such sale shall be
exempt from VAT.

Q30: What rule applies to registered export enterprises with multiple incentives regime
as they have more than one registered activity, i.e. ITH for one registered activity
and 5o/o GIT or SCIT regime for another registered activity?

A30: The registered export enterprise shall remain VAT-registered until the expiration of the
ITH for all its registered activities and all its activities are covered by the 5o/o GIT or
SCIT regime. The registered export enterprise shall report as VAT exempt the sales
under the 5Yo GIT or SCIT regime as provided in Q&A No. I8(b), while the sales under
the ITH shall be reported in the VAT return as 0o/o VAT.

Q31: What is required from the existing registered export enterprises that have already
completed their ITH and already under the 5% GIT or SCIT regime but remained
as VAT-registered entity?

,{3l : The registered export enterprise is required within two (2) months from the expiration
of its ITH to change its registration status from a VAT-registered entity to Non-VAT.

Registered export enterprises enjoying GIT or SCIT regime but are still VAT-registered
at the time the CREATE Act took effect are required within two (2) months fiom the
effectivity of this Circular to change its registration status as provided in the preceding
paragraph.

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 NOT APPLICABLE ANYMORE IN THE
V. APPLICATION FOR VAT ZERO-RATING LATEST RR. RR NO. 3-2023

e32: Will previously approved applications for VAT zero-rating remain effective due to
the retroactive application of RR No. 2l-2021?

A32: yes. All approved applications and applications for VAT zero-rating that were
suspended due to the effectivity of RR No. 9-2021 shall remain effective as if RR No.
g-2OZl was not implemented should the taxpayers involved in the transaction opt to
reveft the same as VAT zero-rated, except for the four (4)-day period covering June 27,
2021to June 30,2021. Provided, however, that Title XIII of the Tax Code, as amended
by the R.A. No. I 1534 (CREATE), shall, henceforth, be strictly complied with,
particularly the requisite that it shall only apply to goods and/or services directly and
exclusively used in the registered project or activity of a registered export enterprise.

Q33: Is prior approval from the BIR needed to be secured by the local suppliers of
goods/services of registered export enterprises in order for their sales to be
accorded VAT zero-rating, as provided for under the CREATE?

,{33. Yes. Sections 294(E) and295(D), Title XIII ofthe Tax Code, as implemented by Section
5, Rule 2 of the amended CREATE IRR emphasize that VAT zero-rating on local
purchases shall only apply to goods and services directly and exclusively used in the
registered project or activity of a registered export enterprise upon the endorsement of
the concerned IPA, in addition to the documentary requirements of the BIR.

It is therefore of paramount importance to validate whetherthe said requisites are duly'

complied with before availment of the VAT zero-rate incentive by the supplier of the
registered export enterprise. Absence of prior approval from the BIR may result in the
disallowance of the VAT zero-rated sale of the supplier.

Q34: What certification shall the IPA issue to a registered export enterprise? What
should the IPA certification contain?

A34: For this purpose, the IPA concerned shall issue annually a VAT iero percent (0%)
certification only to registered export enterprises. The same certification shall indicate
the registered export enterprise's (i) registered export activity i.e., manufacturing, IT
BPO; (ii) tax incentives entitlement under agreed terms and conditions with the validity
period; and (iii) the applicable goods and services (or category thereof), i.e., raw
materials, 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.

Q35: Shall IPAs be required to provide the BIR an endorsement for purposes of VAT
zero-rating on local purchases?

A35: Yes. All IPAs are required to submit to BIR the list of RBEs which are categorized as
export enterprise, for purposes of VAT zero-rating.

Page l0 of t3
e36: What are the documents that must be provided by the registered export enterprise
buyers to their local suppliers prior to the sale transaction to avail of the VAT zero'
rate incentives?

436: Prior to the transaction, the registered export enterprise buyers shall provide their
suppliers with a photocopy of the BIR - Certificate of Registration (BIR Form No.
ZlOt1, Certificate of Registration and VAT certification issued by the concerned IPA
containing the information or specifications required under Q&A No. 34.

In addition, the registered export enterprises shall provide their suppliers a sworn
declaration stating that the goods and/or services being purchased shall be used directly
and exclusively in the registered project.

Q37: What will govern the processing of the applications for VAT zero-rating upon the
effectivity of RR No. 15-2021?

A37: Processing of applications for VAT zero-rating shall be governed by Revenue

Memorandum Order (RMO) No. 7-2006. However, provisions of Sections 294(E) and
295(D), Title XIII of the Tax Code, as amended by CREATE and Section 5, Rule 2 and
Section 5, Rule l8 of the CREATE IRR, as amended, shall be strictly complied with.
Relative hereto, the following must be included in the aftachments to the application for
VAT zero-rating:

1. Certificate of Registration and VAT Cer-tification issued by concerned IPA as

submitted to them by their registered export enterprise buyers;

7. 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 fbr 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

3. Other documents to corroborate entitlement to VAT zero-rating such as but not

limited to duly certified copies of purchase order, job order or service agreement.
sales invoices and/or official receipts, delivery receipts, or similar documents to
prove existence and legitimacy of the transaction.

VI. REFUND BY LOCAL SUPPLIERS AND RECOVERY OF INPUT VAT PASSED

ON TO REGISTERED EXPORT ENTERPRISES

Q38: What are the documentary requirements if the local suppliers will claim for VAT
refund under Section 112(A) of the Tax Code, as amended?

,A38: In addition to the documentary requirements provided under existing revenue issuances,
the supplier-applicant of the RBE-buyer shall be required to submit Llpon filing of the
claim for VAT credit or refund the approved application for VAT zero-rating.

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Page ll of 13 .[.\\Jlzi.
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1. VAT ERRONEOUSLY PAID TO SUPPLIER OF DIRECTLY AND EXCLUSIVELY- The PEZA will apply for a refund to the BIR, if denied and the
BIR Quoted the Q39 in RMC 24-2022 and the SC case of Coral Bay Nickel Corp vs CIR GR 190506, the denial could be the strongest evidence to
claim the vat directly from the supplier itself, and the supplier will be the to claim the refund from the BIR.
2022 Vat
Paid to
supplier
Q39: What will be the recourse of the registered export enterprise if VAT is passed on of D&E
2.VAT by its suppliers of goods and services directly and exclusively used in the registered
ERRONEOUSLY project or activity? Purefoods
PAID TO "NOT" 2,200,000
SUPPLIER OF
DIRECTLY AND A39: Since the transaction is already considered VAT zero-rated under the provisions of JBC
EXCLUSIVELY- CREATE, no VAT shall be passed on to the registered export enterprise on its purchases 965,000
Claim as an
outright
of goods and services directly and exclusively used in the registered project or activity. Goldilocks
expense. 594,000
Should the local supplier inadvertently passed on VAT to the registered export
ultramega
enterprise, the latter may contest the same and/or resolve with the former the
reimbursement of VAT paid, if any. The previously issued SI/OR to the registered
export enterprise having VAT imposed must be surrendered/returned to the local
supplier for cancellation and replacement.

Q40: What will for the VAT passed on

be the recourse of registered export enterprises
by its suppliers for purchases of goods and/or services not directly and exclusively
used in the registered project or activity?

A40: Section ll2(A) of the Tax Code, as amended, prescribes that "any VAT-registered
person, whose sales are zero-rated or ffictively zero-rated may, within two (2) years
OLD after the close of the taxable quarter when the sales were made, applyfor the issuance
of a tax credit cefiirtcate or refund of creditable input tax due or paid attributuble to
such sales " In this regard, the CREATE Act has prescribed that the purchases, to be
NEW
considered VAT zero-rated, shall only apply to goods andior services directly and
exclusively used in the registered project or activity, during the period of registration of
the said registered project or activity with the concerned IPA.

Reconciling both provisions, VAT paid or incurred for purchases not directly and
exclusively used in the registered project or activity of the registered export enterprise
It is not indicated in are not allowed for VAT refund under Section ll2(A) of the Tax Code, as amended.
RR 21-2021 and However, the following options may be availed of:
RMC 24-2022, that
vat paid for
purchases not directly l. If VAT registered and enjoying ITH, claim the passed on VAT is input tax credit
and exclusively used under Section 1 l0 of the Tax Code, as amended, and apply against future output
in the registered VAT Iiabilities; or
project or activity can
be declared as
allowable expense.
2. Should there be no sales subject to VAT, accumulate the input tax credits and claim
asVAT refund upon expiration of VAT registration (i.e., end of ITH period and the
5% SCIT incentive commences) pursuant to Section ll2(B) of the Tax Codeo as
amended, and implemented in Section 1.112-l (b) of RR No. 13-2018; or
3. If non-VAT registered, charge to cost or expense account.

NOTE IN Q.39
In the landmark case of Coral Bay Nickel Corp. vs CIR (GR 190506, June
13, 2016), the Supreme Court held that the reporting and remittance of VAT
paid to the BIR is the obligation of the seller or supplier. Hence, the proper
party to seek the tax refund or credit should be the suppliers, not the
taxpayer to whom the VAT was erroneously passed on and the taxpayer’s
recourse is to seek refund from its suppliers, not from the BIR.

Adopting the same position, the BIR stated in RMC 24-2022 that should a
local supplier inadvertently pass on VAT to an RBE, the supplier may seek
reimbursement of the VAT paid, if any, from the BIR. Its claim will be
pursuant to Section 229 of the Tax Code. However, the RBE itself cannot
seek the refund of such input VAT, whether under Section 112(A) or under ,r rri$lC)N
Section 229 of the Tax Code.
Page l2 of l3
 All revenue issuances and BIR Rulings inconsistent herewith are hereby considered
amended, modified or revoked accordingly.

AII revenue officials concerned are enjoined to give this Circular as wide a publicity as
possible.

This Circular takes effect immediately.

CAESAR R. DULAY
Commissioner of Internal Revenue
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