Skip to main content

Further clarification of issues raised in transitory provisions for the VAT Zero-rate Incentives

Posted by on January 24th, 2023

VAT treatment for the local purchases of Registered Export Enterprises (REEs) and change of its status from VAT to Non-VAT

The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 152-2022 on December 7, 2022, to further clarify some of the issues raised in previously issued Revenue Regulation (RR) No. 21-2021 as clarified by Revenue Memorandum Circular (RMC) Nos. 24-2022 and 49-2022.

I. Transactions subjected to VAT

Registered Export Enterprises (REEs) whose incentives period has already expired shall be subject to VAT, hence, should not be qualified for VAT zero-rating starting the effectivity of RR No. 21-2021 on December 10, 2021. Such was clarified and confirmed through RMC No. 24-2022.

Since the clarification was only issued on March 09, 2022, the BIR clarified through RMC No. 152-2022, that there is a retrospective provision applicable to transactions with unqualified RBEs. Thus, unqualified transactions[1], which transpired from December 10, 2022 up to March 08, 2022, remain as VAT zero-rated.

On the other hand, if the seller imposed 12% VAT to qualified VAT zero-rate purchases during the transitory provision, the buyer and seller may:

  • Retain the transaction as subject to 12% VAT; or
  • Revert the transaction from VAT at 12% to VAT zero-rated. The seller has to reimburse the VAT paid by the buyer and in cases of overpayment, it may be recovered through VAT refund pursuant to Sec. 112(A) of the Tax Code. On the other hand, the buyer also needs to amend his VAT return to reduce his input VAT previously claimed.

II. Change of status of REEs

REEs that shifted from ITH to 5% GIT or SCIT regime due to ITH expiration or who were in the 5% GIT regime at the time the CREATE Act took effect must change their registration status to Non-VAT within two (2) months from the expiration of the ITH incentive or the effectivity of RMC No 49-2022 dated April 20, 2022.

REEs which shifted their status from VAT to Non-VAT are not subject to Percentage Tax since they are only subject to GIT/SCIT in lieu of all other internal revenue taxes. In addition, as required to be registered as Non-VAT taxpayers, REEs are entitled to VAT zero-rating incentive on their local purchases until the end of their incentive period. For everyone’s guidance and perusal.

[1] including the grant of zero-rating incentives to local purchases of REEs with expired incentives.

DISCLAIMERThe advisory is not a substitute for an expert opinion and is purely a general research that may have not considered the entirety of other related topics. Any tax and/or compliance advice is not intended or written by the author to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on by the regulatory bodies, or (ii) promoting, marketing, or recommending to another party any matters addressed herein.

The opinion or advice expressed in this advisory is based on the facts and circumstances gathered. Any inaccuracy in any of the assumptions set forth above may have the effect of changing all or part of this report, and this report may not apply. The advice is based on our interpretation of the provisions of the Code, the Revenue Regulations promulgated and issued by the tax bureau, BIR positions as set forth in published Revenue Rulings, other pronouncement, orders and circulars, and judicial decisions in effect on the date of this report, any of which could be changed at any time. Any such changes may be retroactive and could significantly modify the statements and opinions/ advice expressed herein In effect, this might render the advisory obsolete or incorrect in partial or in full. We undertake no obligation to advise you of changes that may hereafter be brought to our attention.

No Comments yet!

Your Email address will not be published.