Tax Alerts

Clarifications on the entitlement of economic zone developers and operators to VAT zero-rating

(Revenue Memorandum Circular No. 53-2023, issued on May 11, 2023)

This Tax Alert is issued to inform all concerned on the clarifications on the entitlement of economic zone developers and operators to the value added tax (VAT) zero-rating on their local purchases of goods and services directly and exclusively used in registered project or activity under the CREATE Law.

An ecozone developer and operator may be classified as an export enterprise and shall be entitled to the VAT incentives under the CREATE Act based on the following qualifications:

  • Activities of the ecozone developer and operator include the development and operation of economic zones, and industrial parks within export or freeport zones with integrated facilities for export-oriented enterprises. Economic zones and industrial parks shall have infrastructure such as paved roads, power system, water supply, drainage system, sewerage treatment facilities, pollution control systems, communication facilities, and other infrastructure/facilities needed for the operation of exporters located therein.

This shall also include the development and management of new buildings located outside the National Capital Region (NCR), declared as an economic  zone or within export or freeport zones, with a minimum contiguous land area of 10,000 square meters with the following features:

- High-speed fiber optic telecommunication backbone and high-speed international gateway facility or wide-area network (WAN); or any high-speed data telecommunication system that may become available in the future;

- 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 (IPAs).

  • At least seventy percent (70%) of the leasable/saleable areas shall be dedicated to exporters.
  • Phased development of an economic zone or industrial park may be allowed if the whole project is completed within five (5) years, unless otherwise approved by the Board of the concerned IPA.

Note that revenues of ecozone developer and operator from clients/tenants engaged in activities that are not allowed pursuant to the definition of a registered business enterprise under Section 293(M) of the CREATE Act will not be entitled to the Income Tax Holiday (ITH) incentive.

Meanwhile, an ecozone developer or operator who does not qualify as an export enterprise shall be classified as a domestic market enterprise under Item D(I)(8)(j) of the General Policies and Specific Guidelines to Implement the 2020 IPP, which covers the development of domestic industrial zones, as circularized by the BOI through Memorandum Circular (MC) No. 2021-001. Consequently, it shall not be entitled to the VAT incentives under the CREATE Act.