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Updates on VAT Compliance
Tax Advisory: Issue No. 2023-05
The Bureau of Internal Revenue (BIR) has recently released several issuances in connection with VAT compliance of VAT-registered persons. Below are the article which may help you determine if it affects you or your Company.
BIR Removed Prior Approval for VAT Zero-Rating Sales of Local Suppliers
(RR No. 3-2023)
Great news for all local suppliers of goods and/or services of Registered Business Enterprises (RBEs) registered to a certain Investment Promotion Agency (IPA). BIR finally relaxed the requirement for prior approval for local purchases subject to VAT zero-rating. It was clarified by the BIR that VAT zero rating on local purchase of services shall be availed because of the VAT zero-rating certification issued by the concerned IPA without prejudice to the conduct of post audit/investigation of BIR to prove that such services are indeed directly and exclusively used only by the registered export enterprise on its registered project or activity.
Local purchases of goods/properties/services relating to the following shall not be considered as “Directly and Exclusively Used” in the registered project or activity of a Registered Export Enterprise (REE):
- Janitorial services
- Security services
- Financial services
- Consultancy services
- Marketing and promotion; and
- Services rendered for administrative operations such as Human Resources (HR), legal, and accounting.
However, REEs are not prohibited from proving that the aforementioned local purchases are directly and exclusively used in their registered project or activity. Furthermore, health maintenance organization (HMO) plans acquired by a duly registered export enterprise for its employees who are directly and exclusively involved in their registered projects or activities operations and forming part of their compensation package shall be deemed “directly and exclusively used” in that registered project or activity of a REEs but are still subject to conditions provided by existing laws and regulations.
If in any case, the purchased above are used in both the registered project or activity and for administrative operations, the same shall be allocated with the best method available to them. And if the proper allocation method cannot be identified, the entire purchase shall be subjected to 12% VAT.
Finally, to reiterate the good news, local suppliers of goods/services of registered export enterprise shall no longer be required to apply for approval of VAT zero rating with the BIR upon effectiveness of the regulation.
Opting To Pay Monthly Vat? Bir Says It Is Allowed
(RMC No. 52-2023)
BIR recently released a circular regarding the optional filing and payment of monthly VAT returns for VAT-Registered persons (BIR Form No. 2550M) without any penalty and deadline. Below are the summary of the content of the circular:
- VAT-registered taxpayers are no longer required to file Monthly VAT Declaration but must file the corresponding Quarterly VAT Return (BIR Form No. 2550Q).
- VAT-registered taxpayers may opt to file their VAT Returns and pay the corresponding VAT on a monthly basis and continue the use of BIR Form No 2550M if doing so is much convenient. In this regard, all the related revenue issuance regarding the use of BIR Form 2550M shall continue to apply.
- If in any case, the VAT-registered taxpayer chooses to file their VAT returns on a monthly basis, they are still required to file their Quarterly VAT return and pay corresponding VAT liabilities thereof in accordance with the Tax Code, as amended.
- Furthermore, if the VAT-registered taxpayers opt to switch from filing the VAT return and paying the tax on a monthly basis to quarterly filing, or vice versa, there should be no penalties to arise, given that such returns are filed and paid within the period prescribed under the Tax Code, as amended which is within 25 days following the close of each taxable quarter. As to the monthly filing of BIR Form 2550M, there shall be no prescribed deadline.
Clarifications on Entitlement of Ecozone Developer and Operators
(RMC No. 52-2023)
BIR issued a circular in connection with Board of Investment (BOI) Memorandum Circular (MC) No. 2022-03 which provides clarifications on the entitlement of Economic Zone developers and Operators to VAT Zero-Rating on local purchases of goods and services directly and exclusively used in the registered project or activity. Below is the content of the said circular:
Entities may be classified as export enterprise and be entitled to VAT incentives under the CREATE Act if it meets the qualifications stated under BOI – MC No. 2022-003 dated June 01, 2022, which mentioned the following:
A. Development and Operations of Economic Zones and industrial parks and Buildings for Exporters within export or Freeport zones with integrated facilities for export-oriented enterprises. Economic zones and industrial parks shall have infrastructure such as but not limited to:
i. Paved roads
ii. Power system
iii. Water supply
iv. Drainage system
v. Sewerage treatment facilities
vi. Pollution control systems, communication facilities; and
vii. Other infrastructure/facilities needed for the operation of exporters located therein.
B. Development and management of new buildings located outside NCR, declared as an economic zone or within export or Freeport zones, with a minimum contiguous land area of 10,000 square meters (sqm) with the following features:
i. High-speed fiber-optic telecommunication backbone and high-speed international gateway facility or wide-area network (WAN); or any high-speed data telecommunication system that may become available in the future;
ii. Clean, uninterruptible power supply;
iii. Computer security and building monitoring and maintenance systems
iv. Any other requirements as may be required by the Board of the concerned IPAs.
In addition, it must be noted that at least 70% of the leasable/saleable areas should be dedicated to exporters.
Revenues arising from clients engaged in activities that are not allowed pursuant to the definition of a registered business enterprise under Section 293 (M) of the CREATE Act will not be entitled to the ITH incentive and phased development of an economic zone or industrial park may be allowed, provided the whole project is completed within 5 years unless otherwise approved by the Board of the concerned IPA.
All projects qualified under CREATE Act shall be covered with the amendments thereof.
If in any case, an enterprise did not satisfy the amended guidelines above, such ecozone developer or operator will be classified as domestic market enterprise item D(I)(8)(j) of the General Policies and Specific Guidelines to Implement the 2020 IPP which covers the development of domestic industrial zones, as circularized by BOI through the issuance of MC No. 2021-001. Consequently, such enterprises shall not also be entitled to the VAT incentives under the CREATE Act.
Please be guided accordingly.
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