BIR Clarifies Zero-Rating Rules for Registered Export Enterprises

On 20 April 2023, the Bureau of Internal Revenue (“BIR”) issued Revenue Regulations (“RR”) No. 03-2023 which amends certain provisions of RR No. 16-2005 as amended by RR No. 21-2021. RR No. 03-2023 explains the zero-rating rules for registered export enterprises in relation to the rule that purchases of goods and services must be “directly and exclusively used” in the registered project or activity of a registered export enterprise.

Specifically, RR No. 03-2023 stipulates that local purchases of goods or services relating to the following services shall not be considered as “directly and exclusively used” in the registered project or activity of a registered export enterprise, to wit:

1. Janitorial services;
2. Security services;
3. Financial services;
4. Consultancy services;
5. Marketing and promotion; and
6. Services rendered for administrative operations such as Human Resources, legal and accounting.

The above rule does not preclude registered export enterprises from further proving, with supporting evidence, to the concerned Investment Promotion Agency (“IPA”) that any of the local purchase of goods or services relating to the above-listed services are indeed directly and exclusively used in its registered project or activity.

If the purchased goods or services are used in both the registered project or activity and administrative operations, the registered export enterprise shall adopt a method to best allocate the same. If a proper allocation cannot be determined, the purchase of such goods or services shall be subject to 12% value-added tax (“VAT”).

RR No. 03-2023 also explains the rules on zero-rating sale of services. Specifically, Health Maintenance Organization plans acquired by registered export enterprise for its employees who are directly and exclusively involved in the operations of their registered projects or activities and forming part of their compensation package shall be considered as “directly and exclusively used” in the registered project or activity of a registered export enterprise subject to the conditions provided under the existing laws, rules and regulations regarding availment thereof.

For both local purchases of goods and services above listed, the VAT zero-rating shall be availed of on the basis of the VAT zero-rating certification issued by the concerned IPA, without prejudice, however, to the conduct of post audit investigation/verification by the BIR that the goods or services are indeed directly and exclusively used by the registered export enterprise in its registered project or activity.

For this purpose, upon the effectivity of RR No. 03-2023, local suppliers of goods and services of registered export enterprise shall no longer be required to apply for approval of VAT zero-rating with the BIR. All applications with accompanying VAT zero-rating certification issued by the concerned IPA which have been received but have not yet been acted upon by the concerned office of the BIR upon the effectivity of RR No. 03-2023 shall be accorded VAT zero-rating treatment from the date of filing of such application subject to the conduct of post audit by the BIR that the goods or services are indeed directly and exclusively used by the registered export enterprise in its registered project or activity.
The full text of BIR Revenue Regulations No. 03 -2023 can be accessed here.