Special InTAX: December 2021 Issue 1 | Volume 3

InTAX is an official publication of R.G. Manabat & Co.'s Tax Group

InTAX is an official publication of R.G. Manabat & Co.'s Tax Group

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special

 

Department of Finance

 

The Department of Finance (DOF) issued Revenue Regulations (RR) No. 21-2021, 03 December 2021, to implement Sections 294(E) and 295(D) of the 1997 National Internal Revenue Code, as amended by Republic Act (RA) No. 11534 or the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

RR No. 21-2021 provides the following:

  • The VAT exemption on importation and VAT zero-rating on local purchases shall only apply to goods and services directly and exclusively used* in the registered project or activity of a registered export enterprise, for a maximum period of 17 years from the date of registration, unless otherwise extended under the Strategic Investments Priority Plan (SIPP).

* The direct and exclusive use for the registered project or activity refers to the raw materials, inventories, supplies, equipment, goods, packaging materials, services, including provision of basic infrastructure, utilities, and maintenance, repair and overhaul of equipment, and other expenditures directly attributable to the registered project or activity without which the registered project or activity cannot be carried out.

  • The VAT zero-rating on local purchases shall be granted upon the endorsement of the concerned lnvestment Promotion Agency (IPA), in addition to the documentary requirements of the Bureau of lnternal Revenue (BIR).
  • Sections 4.106-5 and 4.108-5(b) of RR No. 16-05, as amended, should be read as follows:

Coverage

Amendments introduced by RR No. 21-2021

Zero-rated Sale of Goods or Properties (Section 4.106-5 of RR No. 16-05, as amended)

The following sales by VAT-registered persons shall be subject to 0% rate:

a.   Export sales;

xxx     xxx     xxx

b.  Sales to persons or entities whose exemption from direct and indirect taxes under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate;

c.  Sale of raw materials, inventories, supplies, equipment, packaging materials, and goods, to a registered export enterprise**, to be used directly and exclusively in its registered project or activity for a maximum period of 17 years from the date of registration, unless otherwise extended under the SIPP. Provided, that the above-described sales to existing registered export enterprises located inside ecozones and freeport zones shall also be qualified for VAT zero-rating under this sub-item until the expiration of the transitory period.

Zero-rated Sale of Services [Section 4.108-5(b) of RR No. 16-05, as amended]

The following services performed in the Philippines by VAT-registered persons shall be subject to 0% VAT rate:

1.  Services other than processing, manufacturing or repacking of goods rendered to a person engaged in business conducted outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP;

2.  Sales rendered to persons or entities whose exemption from direct and indirect taxes under special laws or international agreements to which the Philippines is a signatory, effectively subjects the supply of such services to zero percent (0%) rate;

3.  Sale of services, including provision of basic infrastructure, utilities, and maintenance, repair and overhaul of equipment, to a registered export enterprise**, to be used directly and exclusively in its registered project or activity for a maximum period of 17 years from the date of registration, unless otherwise extended by the SIPP. Provided, that the above-described sales to existing registered export enterprises located inside ecozones and freeport zones shall also be qualified for VAT zero-rating under this sub-item until the expiration of the transitory period;

4.  Services rendered to persons engaged in international shipping or air transport operations, including leases or property for the use thereof: Provided, that these services shall be exclusively for international shipping or air transport operations;

5.  Transport of passengers and cargos by domestic air or sea vessels from the Philippines to a foreign country. Gross receipts of international air or shipping carriers doing business in the Philippines derived from transport of passengers and cargo from the Philippines to another country shall be exempt from VAT; however, they are still liable to a percentage tax of three percent (3%) as provided for in Sec. 118 of the Tax Code; and

6.  Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal and steam, ocean energy, and other emerging sources using technologies such as fuel cells and hydrogen fuels: Provided, however that zero-rating shall apply strictly to the sale of power or fuel generated through renewable sources of energy, and shall not extend to sale of services related to the maintenance or operation of plants generating said power.

 

** The term “registered export enterprise” shall refer to an export enterprise as defined under Section 4(M), Rule 1 of the CREATE IRR, that is also a registered business enterprise as defined in Section 4(W) of the same IRR.

RR No. 21-2021 also provides that any rules or regulations, issuances or parts thereof inconsistent with this RR are hereby repealed, amended or modified.

RR No. 21-2021 will be effective upon publication..

(Note: RR No. 21-2021 is not yet uploaded in the BIR website as of date. There is also no advice from the BIR yet on when the RR will be published.)

 

Attached is the full text of the issuance.

Revenue Regulations No. 21-2021

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