Rules on VAT immunity under CREATE issued

MANILA  -The Bureau of Internal Revenue (BIR) has released the guidelines for companies that want to become value-added tax (VAT)-registered taxpayers in order to enjoy both the special 5-percent tax rate based on a firm’s gross income earned (GIE) and VAT exemptions under the Duterte-era Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

Revenue Regulations (RR) 13-2023 dated Nov. 1 is requiring the companies to secure from the economic or freeport zone where they are located a certification “specifically excluding VAT from the [5-percent] GIE.”

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A company must also submit to the BIR a letter stating its intention to avail of the option to register as a VAT taxpayer, as well as a notarized “deed of waiver of right to avail of the VAT exemption incentive.”

The BIR also said the firms must submit other requirements that their host ecozone may require.

“The waiver of rights to avail of the VAT exemption incentive shall be irrevocable from the time it is made and shall be binding in the remaining transitory period,” the BIR document read.

Enacted in 2021, the CREATE law instantly slashed the corporate income tax rate to 25 percent for large companies, and to 20 percent for small firms.

This, while keeping intact some tax incentives that the government deemed excessive, like income tax holiday, for a much longer period before being dismantled eventually.

It was a legislation whose intention dated back to the Ramos administration, which sought to restructure costly tax perks to improve state revenues. During the pandemic, former President Rodrigo Duterte repackaged its corporate tax reform proposal as a “stimulus package” for companies.

“It is important for them (companies) to register as VAT taxpayer so they can avail themselves of VAT refund (directly attributable to zero rated transactions) or charge the output VAT to customers so they can utilize the input VAT passed on to them by their local suppliers, which applies prospectively,” Raymond Abrea, founding chair and chief tax advisor at Asian Consulting Group, a tax management and consultancy firm, said in an emailed response to questions. INQ