REVENUE MEMORANDUM CIRCULAR NO. 24-2023 issued on February 17, 2023 further clarifies the qualifications of Ecozone Logistics Service Enterprise (ELSE) to the incentives of VAT-Zero Rate on local purchases of goods and services exclusively and directly used in the registered project or activity.
ELSE is a Registered Business Enterprise (RBE) supplying production-related raw materials and equipment that caters exclusively to the requirements of export manufacturing enterprises which are registered with the Philippine Economic Zone Authority (PEZA), Clark Development Corporation (CDC), Subic Bay Metropolitan Authority (SBMA), Authority of the Freeport Area of Bataan (AFAB) or other special economic zones/freeports outside the administration of PEZA. It provides critical support, particularly to export manufacturing companies with 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.
ELSEs that render at least 70% of their output/services to another RBE are covered by the definition of “export enterprise” under Section 293(E) of the National Internal Revenue Code (NIRC) of 1997, as amended by the CREATE Act and as clarified in Board of Investment (BOI) Memorandum Circular (MC) No. 2023-001.
The definition of an RBE under Section 293(M) of the NIRC of 1997, as amended, excludes certain service enterprises, such as those engaged in trucking or forwarding services. Moreover, BOI MC No. 2023-001 provided the only type of logistic service that will qualify to be registered as ELSE are those undertaking BOTH of the following:
a. Establishment of a warehouse storage facility; and
b. 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.
Purchases of registered ELSEs from VAT-registered suppliers are subject to VAT at zero-rate but shall only apply to goods and/or services directly and exclusively used in the registered project or activity of the ELSE. Details on the availment of VAT zero-rate incentives on local purchases under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act are provided in Revenue Memorandum Circular (RMC) No. 24-2022 and its subsequent amendments.
The processing of applications for VAT zero-rating shall be governed by Revenue Memorandum Order (RMO) No. 7-2006 and its subsequent amendments, if any. However, provisions of Sections 294(E) and 295(D), Title XIII of the NIRC of 1997, as amended by the CREATE Act, and Rule 2, Section 5 and Rule 18, Section 5 of the CREATE Act Implementing Rules and Regulations, as amended, shall be strictly complied with. Relative hereto, the following must be included in the attachments to the application for VAT zero-rating:
a. Certificate of Registration and VAT Certification issued by the concerned
Investment Promotion Agency (IPA) as submitted to it by its registered export
enterprise buyers;
b. 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 directly and exclusively used for the
production of goods and/or completion of services to be exported; and
c. Other documents to corroborate entitlement to VAT zero-rating, such as but not
limited to duly certified copies of the valid purchase order, job order or service
agreement, sales invoices and/or official receipts, delivery receipts, or similar
documents to prove the existence and legitimacy of the transaction.