Guidelines released on application of VAT zero rating to ecozone logistics providers

The Bureau of Internal Revenue (BIR) has provided the guidelines on how ecozone logistics service enterprises (ELSEs) can avail themselves of value-added tax (VAT) zero rating after these enterprises were confirmed eligible for this tax incentive.

Revenue Memorandum Circular (RMC) No. 24-2023, issued on February 17, 2023, comes after the BIR issued RMC 15-2023 on February 3, 2023 to affirm these tax incentives relating to the local purchases of goods and services by ELSEs.

Earlier, the Board of Investments (BOI) in January 2023, through Memorandum Circular (MC) No. 2023-001, declared ELSEs to be an eligible industry under the Strategic Investment Priority Plan, allowing them to avail themselves of VAT zero rating incentives.

Among the questions RMC 24-2023 clarifies is the definition of ELSEs. These are defined as registered business enterprises (RBEs) supplying production-related raw materials and equipment and catering exclusively to the requirements of export manufacturing enterprises which are registered with the Philippine Economic Zone Authority (PEZA), Clark Development Corporation, Subic Bay Metropolitan Authority, Authority of the Freeport Area of Bataan or other special economic zones/freeports outside the administration of PEZA.

Moreover, ELSEs are RBEs providing critical support, particularly to export manufacturing companies on their requirements for logistics support to facilitate their import and export shipments, sourcing of raw materials, inventory management, just-in-time deliveries, localization, and process customization.

Further, ELSEs can be defined as “export enterprises” if they render at least 70% of their output/services to another RBE. Excluded from this definition are certain service enterprises, such as those engaged in mere trucking or forwarding services.

Moreover, RMC 24-2023 states that the only type of logistic service that will qualify to be registered as ELSE is that undertaking both of the following:

• Establishment of a warehouse storage facility; and

• Importation or procurement from local sources and/or from other registered enterprises of goods for resale, or for packing/covering (including marking, labeling), cutting or altering to customers’ specification, mounting and/or packaging into kits or marketable lots thereof for subsequent sale, transfer or disposition for export

Since registered ELSEs are considered export enterprises, their purchases from VAT-registered suppliers are subject to VAT at zero rate but this rating shall only apply to goods and/or services directly and exclusively used in the registered project or activity of the ELSE, states RMC 24-2023.

To use the VAT zero rating, ELSEs must submit an application along with these attachments:

Certificate of registration and VAT certification issued by the concerned investment promotion agency

1. A sworn affidavit executed by the registered export enterprise-buyer stating that the goods and/or services bought are directly and exclusively used for the production of goods and/or completion of services to be exported or for utilities and other similar costs, the percentage of allocation to be directly and exclusively used for the production of goods and/or completion of services to be exported

2. Other documents to corroborate entitlement to VAT zero rating, including certified copies of the valid purchase order, job order or service agreement, sales invoices and/or official receipts, delivery receipts, or similar documents. Philexport News and Features

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