Tax Rules and News 001-2025

Exploring VAT zero-rating and certification in the CREATE MORE Act “Let’s Talk Tax”
Business World / Donna Kasandra A. Dela Torre / December 23, 2024

The amendments to the VAT zero-rating and certification processes under the CREATE MORE (Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy) Act represent a bold step forward to an opportunity for our economy to evolve and reach new heights, just as Moana ventured beyond to discover her true potential.

VAT ZERO-RATING FOR EXPORTERS – One of the key features of the CREATE MORE Act is the revised criteria for VAT zero-rating for export-oriented enterprises. Under the previous CREATE Act, VAT zero-rating is applicable only to goods and services “directly and exclusively used” in registered projects or activities. For instance, PEZA (Philippine Economic Zone Authority) registered entities that use the purchased goods or services for both registered projects or activities and administrative operations needed to adopt a method to best allocate these expenses. If not properly allocated, the entire purchase price would be subject to 12% VAT. Under the new CREATE MORE Act, VAT zero-rating will be applied to goods and services that are “directly attributable” to registered activities. Further, the following services are now qualified for VAT zero-rating if used directly in registered projects or activities:

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

CONDITIONS FOR AVAILING OF VAT ZERO-RATING – To avail of VAT zero-rating on local purchases, export-oriented enterprises must meet the following conditions:

1. Export sales subject to zero-rating include sales of goods and services to export-oriented enterprises whose export sales constitute at least 70% of total annual production in the preceding taxable year. 

2. Enterprises failing to meet the threshold are disqualified from availing of VAT zero-rating on local purchases immediately in the succeeding year, provided that input tax otherwise due on VAT zero-rated local purchases attributable to VAT-exempt sales is paid and deducted from the gross income of the taxpayer.

3. VAT zero-rating applies only to goods and services directly attributable to registered projects or activities, subject to the following:

• Sale of goods or services by a VAT-registered seller to a registered export enterprise, regardless of location, is subject to zero VAT.
• Sale, transfer, or disposal of previously VAT-exempt imported capital equipment, raw materials, spare parts, or accessories are subject to the following rules:

I. Zero-rated if sold to a registered export enterprise, regardless of location.

II. Subject to 12% VAT (based on net book value) if sold to a registered domestic market enterprise.

APPLICATION PROCESS – Based on the CREATE MORE Act’s draft implementing rules and regulations, the process for applying for a VAT zero-rating certificate involves several steps:

1. All RBEs must annually apply for a VAT zero-rating certificate with their concerned IPA.
2. Applications are to be filed on a per-project basis and use the forms prescribed by the Fiscal Incentives Review Board (FIRB).
3. Prior to the purchase, the RBE must apply for a VAT zero-rating certificate, which is to be filed electronically, together with the documentary requirements, through the Fiscal Incentives Registration and Monitoring System (FIRMS) or through the system of the IPA: Upon verification of the compliance with the condition for the issuance of the VAT zero-rating certificate, the IPA is to issue the VAT zero-rating certificate. The VAT zero-rating certificate will state, among others:
    a.) The name and business address of the RBE;
    b.)The taxpayer identification number of the RBE;
    c.) A unique control number;
    d.) The registered project or activity; Implementing Rules and Regulations of RA No. 12066;
    e.) The name of the IPA having jurisdiction over the registered enterprise; and
    f.) The covered taxable year.