Tax Alerts

VAT zero-rated transactions now subject to 12% VAT

(Revenue Regulations No. 09-2021 issued on June 11, 2021)

This Tax Alert is issued to inform all concerned on the amendments to Revenue Regulations (RR) No. 16-05, as amended by RR No. 13-18 and RR 26-18, imposing 12% VAT on certain transactions previously subject to 0% VAT upon satisfaction of certain conditions provided under Republic Act No. 10963, also known as the TRAIN Law.

The Bureau of Internal Revenue (BIR) announced that the conditions provided under the TRAIN Law (i.e., (1) successful establishment and implementation of an enhanced VAT refund system that grants refunds of creditable input tax within 90 days from the filing of the VAT refund application with the Bureau of Internal Revenue, (2) payment in cash of all pending VAT refund claims as of December 31, 2017, and (3) establishment of VAT refund centers) have already been satisfied.

Hence, the following transactions which used to be zero-rated shall now be subject to 12% VAT:

Sale of goods or properties:

  1. The sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods, paid for in acceptable foreign currency, and accounted for in accordance with the rules and regulations of the BSP.
  2. The sale of raw materials or packaging materials to an export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production.
  3. Transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws.

Sale of services and use or lease of properties:

  1. Processing, manufacturing or repacking goods for other persons doing business outside the Philippines, which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP.
  2. Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of the total annual production.

RR No. 09-2021 shall take effect fifteen (15) days following its publication in the Philippine Star on June 12, 2021.