VAT on Sale of Goods and Services to Registered Export Enterprises Pursuant to CREATE ACT and its Implementing Rules
February 4, 2022
One of the amendments to the National Internal Revenue Code, as amended (the Tax Code), which was introduced by Republic Act (RA) No. 10963 (the Tax Reform for Acceleration and Inclusion (TRAIN) Law) and took effect on 1 January 2018, was the increase of value-added tax (VAT) from 0% to 12% on the sale of goods and services to export enterprises upon satisfaction of certain conditions under the TRAIN Law. On 11 April 2021, RA No. 11534 (the Corporate Recovery and Tax Incentives for Enterprises Act (the CREATE Act)), took effect. The CREATE Act rationalised the fiscal incentives that were granted by various investment promotion agencies to registered export enterprises and domestic market enterprises. In particular, the CREATE Act confined the VAT zero-rating on local purchases of goods or services by registered business enterprises only to goods and services that are directly and exclusively used in the registered project or activity of such registered business enterprise.
DOF's implementing rules
On 11 June 2021, the Department of Finance (DOF) issued Revenue Regulations (RR) No. 9-2021, which implemented the imposition of the 12% VAT on the sale of goods and services to export enterprises as a result of the satisfaction of the conditions under the TRAIN Law. The imposition of the 12% VAT on the sale of goods or services to export enterprises was further confirmed under the implementing rules and regulations (IRR) of the CREATE Act issued on 23 June 2021, which provided that the VAT zero-rating on local purchases applies to goods or services that are directly or exclusively used in the registered projects or activities of export enterprises. The CREATE Act IRR also provided that the transactions falling under the following sections of the Tax Code are subject to the 12% VAT pursuant to RR 9-2021:
- 108(B)(1); and
- 108(B)(5) (which includes the sale of goods and services to export enterprises).
The issuance of RR 9-2021 generated confusion among the registered export enterprises in economic zones and freeport zones. In response to the concerns raised by various stakeholders on the effect of RR No. 9-2021, the DOF deferred the implementation of RR No. 9-2021 on 27 July 2021, until the issuance of an amended RR.
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