e. Zero-Rated Transactions

Zero-Rated and Effectively Zero-Rated Sales of Goods or Properties

Refer to sale of goods or properties and/or services that are subject to VAT at the rate of 0%, and the seller is allowed to claim a tax credit (input tax) on purchases.

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

For Goods:

• The sale and actual shipment of goods from the Philippines to a foreign country
• Irrespective of any shipping arrangement;
• 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 BSP,
• Sale of raw materials or packaging materials by a VAT registered entity to a nonresident buyer
• For delivery to a resident local export-oriented enterprise;
• Used in the manufacturing, processing, packing, 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
• Sale of goods by a VAT-registered supplier to a registered export enterprise is zero-rated only when the purchase is directly attributable to the enterprise’s registered project or activity and meets the applicable registration requirements under NIRC Sec. 106(A)(2), as amended by RA 11534 and RA 12066; the buyer’s 70% export ratio alone is insufficient.
• Those considered export sales under the Omnibus Investment Code of 1987¹ and other special laws. Sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations.

Constructive Exports:

• Sales to bonded manufacturing warehouses of export-oriented manufacturers;
• Sales to registered export enterprises in export processing zones, only if the applicable statutory conditions are met, including direct attribution of the purchase to the registered project or activity under NIRC §§ 106(A)(2) and 108(B), as amended by RA 11534 and RA 12066
• Sale to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant to RA 7227²;
• Sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC);
• Sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not.

Note: For purposes of zero-rating export sales of registered export, traders shall include commission income.

Exportation of goods on consignment shall not be deemed export sales until the export products consigned are in fact sold by the consignee.

Provided, finally, that sales of goods, properties or services made by a VAT-registered supplier to a registered export enterprise are zero-rated only when the applicable statutory requirements are met, including direct attribution of the purchase to the buyer’s registered project or activity under NIRC §§ 106(A)(2) and 108(B), as amended by RA 11534 and RA 12066.

A certification to this effect must be issued by the Board of Investment (BOI) which shall be good for one year unless subsequently re-issued by the BOI.

The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations are zero rated provided that these are limited to goods, supplies, equipment and fuel pertaining to or attributable to the transport of goods and passengers from a port in the Philippines directly to a foreign port without docking or stopping at any other ports in the Philippines

EXEMPT PERSONS OR ENTITIES

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.

The most prominent example of this is sales to PEZA registered enterprises as the said sales are considered as being made “outside the customs territory”.

Hence, the following rules govern the VAT treatment of transactions involving PEZA-registered entities:

• A sale of goods, property or services by a VATregistered supplier from the customs-territory to an Ecozone-registered enterprise is not automatically zero-rated. Under Sections 106(A)(2) and 108(B) of the Tax Code, as amended by RA 11534 and RA 12066, zero-rating of a sale to a registered export enterprise depends on the statutory conditions, including whether the purchase is directly attributable to the buyer’s registered project or activity.
• Sales to an ecozone enterprise made by a non-VAT or unregistered supplier would only be exempt from VAT and the supplier shall not be able to claim credit/refund for its input VAT because, under Section 109(1) of the Tax Code³, transactions of persons who are not VAT-registered are exempt; a non-VAT supplier cannot make a zero-rated VAT sale.
• A VAT-registered exporter may seek a refund of qualified creditable input VAT attributable to its zero-rated sales, subject to Section 112 of the Tax Code and its applicable incentive regime; exporting alone does not entitle an enterprise to an input-VAT refund.
• Any sale of goods or property by an ecozoneregistered enterprise to a buyer in the customs territory shall be subject to 12% VAT because it shall be considered an importation. The tax is imposed on the buyer/importer.
• The VAT treatment of a sale of service or lease of properties by PEZAregistered enterprises to a customer or lessee from the customs territory is determined under Sections 108 and 109 of the Tax Code and the applicable incentive regime; performance within the ecozone or the location of the property there does not, by itself, establish VAT exemption. If the properties are located outside of the ecozone, determine the VAT treatment of the lease under Section 108 of the Tax Code; rent does not become royalties solely because of the property’s location, and final withholding VAT of 12% does not automatically apply. (RMC No. 74-99)⁴