Amendments on the VAT zero-rating of local purchases of goods and
services by Registered Business Enterprises (RBEs) which should be used
directly and exclusively for the registered project or activity

Revenue Regulations (RR) No. 21-2021 issued on December 07, 2021

VAT zero-rating on local purchases shall be coterminous with the income tax incentives of Registered Business Enterprise (RBEs) and is subject to the endorsement of the concerned Investment Promotions Agency (IPA), in addition to the documentary requirements of the BIR.

Pursuant to Republic Act No. 11534, also known as CREATE Act, local purchases of RBEs can be considered as VAT zero-rated if the (1) goods and (2) services are used “directly and exclusively for the registered project or activity”.

For a newly registered enterprise, the VAT zero-rating shall be for a maximum of 17 years from the date of registration, unless otherwise extended under the Strategic Investment Priority Plan (SIPP). While for existing (3) registered export enterprises located inside ecozones and freeport zones, the VAT zero-rating incentive shall be until the expiration of the applicable transitory period.

In addition, 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.

The Regulations cover transactions entered into during the third quarter of taxable year 2021 and onwards

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[1] Refers to sale of raw materials, inventory, supplies, equipment, packaging materials and goods to a registered export enterprise.

[2] Refers to the sale of services, including the provision of basic infrastructure, utilities, maintenance, repair, and overhaul of equipment.

[3] A registered export enterprise shall refer to an export enterprise which is an 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 (IT) activities and business process outsourcing (BPO), and resulting in the direct exportation, and/or sale of its manufactured, assembled or processed product or IT/BPO services to another register red export enterprise that will form part of the final export product or export service of the latter, of at least seventy percent (70%) of its total production or output.