BIR issues new VAT rules on exporters

On June 9 2021, the BIR issued RR 9-2021, implementing the imposition of the 12% VAT on transactions previously taxed at zero percent (0%) VAT after having met the conditions provided in the TRAIN Law, which include (1) the successful establishment and implementation of an enhanced VAT refund system that grants refunds of creditable input tax within ninety (90) days from the filing of the VAT refund application with the Bureau, and (2) the payment in cash of all pending VAT refund claims as of December 21, 2017 by December 31, 2019. These transactions include:

Transactions considered as export sales pursuant to Section 106 (A)(2)(a) of the Tax Code:

1. Sale of raw materials or packaging materials to a nonresident 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 and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP) (Section 106(A)(2)(a)(3))
2. Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production [Section 106(A)(2)(a)(4)]
3. Those considered export sales under Executive Order No. 226, otherwise known as the “Omnibus Investment Code of 1987”, and other special laws [Section 106(A)(2)(a)(5)]

Sale of services performed in the Philippines by VAT-registered persons pursuant to Section 108(B) of the Tax Code:

4. 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 Bangko Sentral ng Pilipinas (BSP) [Section 108(B)(1)]
5. Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production [Section 108(B)(5)]

As a result of such changes, subparagraphs of Sections 4.106-5 and 4.108-5 of RR No. 16-2005 as further amended by RR No. 13-2018 and RR No. 26-2018 shall be renumbered and read in the following order:

Section 4.106-5 on the Zero-Rated Sales of Good or Properties: The following sales by VAT-registered persons shall be subject to zero-percent (0%) rate:

(a) “Export Sales” shall mean:
1. The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)
2. The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations: Provided, That the goods, supplies, equipment and fuel shall be used for international shipping or air transport operations.

The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations is limited to goods, supplies, equipment and fuel that shall be used in the transport of goods and passengers from a port in the Philippines directly to a foreign port, or vice versa, without docking or stopping at any other port in the Philippines unless the docking or stopping at any other Philippine port is for the purpose of unloading passengers and/or cargoes that originated from abroad, or to load passengers and/or cargoes bound for abroad: Provided, further, that if any portion of such fuel, goods, supplies or equipment is used for purposes other than that mentioned in this paragraph, such portion of fuel, goods, supplies, and equipment shall be subject to 12% VAT.

(b) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate.

Section 4.108-5 on the Zero-Rated Sale of Services: (b) The following services performed in the Philippines by VAT- registered persons shall be subject to zero percent (0%) rate.

1. Services other than those mentioned in the preceding paragraph, rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is 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 Bangko Sentral ng Pilipinas (BSP);
2. Services rendered to persons or entities whose exemption 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. Services rendered to persons engaged in international shipping or international air transport operations, including leases of property for use thereof: Provided, that these services shall be exclusive for international shipping or air transport operations;
4. Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country; and
5. Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels.