BIR Clarifies the Entitlement of Economic Zone Developers and Operators to VAT Zero-Rating

On 11 May 2023, the Bureau of Internal Revenue (“BIR”) issued Revenue Memorandum Circular (“RMC”) No. 53-2023 providing clarifications on the entitlement of economic zone developers and operators to the value-added tax (“VAT”) zero-rating on local purchases of goods and services directly and exclusively used in its registered project or activity. 

Under BIR RMC No. 53-2023, ecozone developers and operators may now be classified as export enterprises and consequently, be entitled to the VAT incentives under Republic Act No. 11534 or the CREATE Act, as long as these entities meet the qualifications provided for in Board of Investments (“BOI”) Memorandum Circular (“MC”) No. 2022-003. However, if the enterprise is not qualified under the BOI MC, the ecozone developer or operator will be classified as a domestic market enterprise under Item D(I)(8)(j) of the General Policies and Specific Guidelines to Implement the 2020 Investment Priorities Plan. Thus, it shall not be entitled to the VAT incentives under the CREATE Act. 

As to what these qualifications are, among others, ecozone developers and operators must fall under the classification “Activities in Support of Exporters” as per BOI MC No. 2022-003. Under the issuance, the “development and operation of economic zones; and industrial parks and buildings for exporters” is now included as “Activities in Support of Exporters.” The category covers the development and operation of economic zones and industrial parks within export or freeport zones with integrated facilities for export-oriented enterprises (i.e., paved roads, power system, water supply, drainage system, sewerage treatment facilities, pollution control systems, communication facilities). 

It also covers the development and management of new buildings located outside the National Capital Region, which are designated as economic zones or within export or freeport zones, with a minimum contiguous land area of 10,000 square meters. These buildings must have high-speed data telecommunication system, clean, uninterruptible power supply, computer security and building monitoring and maintenance systems and any other requirements as may be determined by the Board of the concerned Investment Promotion Agencies. Further, at least 70% of the leasable/saleable areas must be dedicated to exporters.