[Ask The Tax Whiz] Are there updates for VAT zero-rated transactions?

I am a local supplier to a registered export enterprise (REE). Do I still need to secure BIR’s approval for the VAT zero-rating?

If the goods and services are “directly and exclusively used” in the registered project of the REE, then they will be subject to zero-rated VAT for a maximum period of 17 years from registration. 

To avail this, you are no longer required to apply for BIR approval. Instead, you need to get VAT zero-rating certification from the investment promotion agencies such as the Board of Investments, PEZA, BCDA, TIEZA, etc. However, note that the BIR can still conduct post-audit investigation/verification to ensure that the goods are indeed directly and exclusively used in the registered project or activity.

How can I tell if the purchases are ‘directly and exclusively used’ in the registered project? What are the expenses that are not considered as “directly and exclusively” used in the registered project?

Under Revenue Regulations No. 21-2021, “directly and exclusively used in the registered project” refers to those expenditures that are directly attributable to the registered project or activity without which the registered project or activity cannot be carried out.

Recently, BIR released Revenue Regulations No. 3-2023, which provided a non-exhaustive list of expenses that are not considered “directly and exclusively used.” These are: 

• janitorial services
• security services
• financial services
• consultancy services
• marketing and promotion
• services rendered for administrative operations such as human resources, legal, and accounting

However, if the taxpayer can prove that the purchase is “directly and exclusively used” in the registered project, then they can do so. To reiterate, “directly and exclusively used” means that those expenses are indispensable to the project or activity.

Are health maintenance organization (HMO) plans provided to employees of REEs considered ‘directly and exclusively used’ in the registered project?

That depends on the tasks that the employee is performing. If the employee is performing tasks that are “directly and exclusively” involved in the operation of the company’s registered project or activity and the HMO plan is part of their compensation package, then it can be considered “directly and exclusively used” which is zero-rated.

I already filed an application for VAT zero-rating, but the BIR still has not yet acted on my applications. Are my transactions already subject to zero-rated VAT?

All applications for VAT zero-rating shall be treated as VAT zero-rated from the date of filing of such application. However, a post-audit will be conducted by the BIR to prove that purchases of goods and services are directly and exclusively used in the registered project.

In case the purchase of goods and services are used in the registered project and in administrative operations, what should be the treatment if a proper allocation cannot be determined?

The suppliers can only be able to rely on the VAT zero-rating certificate provided by the REE, however, if a proper allocation could not be determined by the REE, the purchase of goods and services shall be subject to 12% VAT.

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