BIR Further Clarifies Qualifications of Ecozone Logistics Service Enterprise to VAT-Zero Rate on Local Purchases

VAT-Zero Rate on Local Pu

Following the issuance of the Revenue Memorandum Circular (“RMC”) No. 15-2023, the Bureau of Internal Revenue (“BIR”) issued RMC No. 24-2023 to further clarify the qualifications of Ecozone Logistics Service Enterprises (“ELSE”) to the incentives of valued added tax (“VAT”)-zero rate on local purchases of goods and services exclusively and directly used in the registered project or activity. 

In the said RMC, the BIR clarified the definition of ELSE as a registered business enterprise supplying production-related raw materials and equipment that caters exclusively to the requirements of export manufacturing enterprises which are registered with the Philippine Economic Zone Authority (“PEZA”), Clark Development Corporation, Subic Bay Metropolitan Authority, Authority of the Freeport Area of Bataan or other special economic zones/freeports outside the administration of PEZA. ELSE provides critical support, particularly to export manufacturing companies with their requirements for logistics support to facilitate their import and export shipments, sourcing of raw materials, inventory management, just-in-time deliveries, localization, and process customization. 

The BIR also confirmed in RMC No. 24-2023 that ELSEs which render at least 70% of their output/services to another registered export enterprise are covered by the definition of “export enterprise” under Section 293(E) of the National Internal Revenue Code of 1997, as amended by the Corporate Recovery and Tax Incentives for Enterprises Act. Accordingly, the purchases of registered ELSE from VAT-registered suppliers shall be subjected to VAT at zero rate in so far as the goods and/or services directly and exclusively used in the registered project or activity of the ELSE, are concerned. 

It was also explained by the BIR that if the enterprise only engages in trucking and delivery services, then it will not qualify to be registered as ELSE. The BIR reiterated the Board of Investments’ Memorandum Circular No. 2023-001 where it was cited that the only type of logistic service that will qualify to be registered as ELSE are those undertaking BOTH of the following: 

1. Establishment of a warehouse storage facility; and 
2. Importation or procurement from local sources and/or from other registered enterprises of goods for resale, or for packing/covering (including marking, labeling), cutting or altering to customers’ specification, mounting and/or packaging into kits or marketable lots thereof for subsequent sale, transfer or disposition for export.

Lastly, the BIR stated that the following must be included in the attachments to the application for VAT-zero rating:

1. Certificate of Registration and VAT Certification issued by the concerned investment promotion agency as submitted to it by its registered export enterprise buyers; 
2. A sworn affidavit executed by the registered export enterprise-buyer stating that the goods and/or services bought are directly and exclusively used for the production of goods and/or completion of services to be exported or for utilities and other similar costs, the percentage of allocation to directly and exclusively used for the production of goods and/or completion of services to be exported; and 
3. Other documents to corroborate entitlement to VAT zero-rating, such as but not limited to duly certified copies of the valid purchase order, job order or service agreement, sales invoices and/or official receipts, delivery receipts, or similar documents to prove the existence and legitimacy of the transaction.