REVENUE REGULATIONS NO. 3-2023 issued on April 26, 2023 amends certain
provisions of Revenue Regulations (RR) No. 16-2005, as amended by RR No. 21-
2021, to implement Sections 294 (E) and 295 (D), Title Xlll of the National Internal
Revenue Code of 1997, as amended by Republic Act (RA) No. 11534 (Corporate
Recovery and Tax Incentives for Enterprise Act or CREATE Act), and Section 5,
Rule 2 and Section 5, Rule 18 of the CREATE Act Implementing Rules and
Regulations (IRR), as amended.
Section 4.106-5 of RR No. 16-2005, as amended by RR No. 21-2021, is
hereby further amended and shall now be read as follows:
“SEC. 4.106-5. Zero-Rated Sales of Goods or Properties. — A zerorated sale of goods or properties by a VAT-registered person is a taxable
transaction for VAT purposes but shall not result in any output tax.
However, the input tax on purchases of goods, properties, or services,
attributable to such zero-rated sale, shall be available as tax credit or
refund in accordance with these Regulations.
The following sales by VAT-registered persons shall be subject to zeropercent (0%) rate:
(a) Export sales — xxx xxx xxx
xxx xxx xxx

(c) Sale of raw materials, inventories, supplies, equipment, packaging
materials, and goods, to a registered export enterprise, to be used
directly and exclusively in its registered project or activity pursuant to
Sections 294 (E) and 295 (D) of Republic Act No. 11534 or the
“Corporate Recovery and Tax Incentives for Enterprise Act” (“CREATE
Act”), and Section 5, Rule 2 of its IRR for a maximum period of seventeen
(17) years from the date of registration, unless otherwise extended under
the SIPP; Provided, That the term “registered export enterprise” shall
refer to an export enterprise as defined under Section 4 (M), Rule 1 of
the CREATE Act IRR, that is also a registered business enterprise as
defined in Section 4 (W) of the same IRR: Provided further, That the
above-described sales to existing registered export enterprises located
inside ecozones and freeport zones shall also be qualified for VAT zerorating under this sub-item until the expiration of the transitory period.
Local purchases of goods relating to the following services shall
not be considered as “directly and exclusively used” in the
registered project or activity of a registered export enterprise, to
wit:
1. janitorial services;
2. security services;
3. financial services;
4. consultancy services;
5. marketing and promotion; and

6. services rendered for administrative operations such as
Human Resources (HR), legal, and accounting.
This notwithstanding, the registered export enterprise is not
precluded from further proving, with supporting evidence, to the
concerned Investment Promotion Agency (IPA) that any of the local
purchase of goods relating to the above-listed services are indeed
directly and exclusively used in its registered project or activity. In
all instances, in issuing the VAT zero-rating certification, the
concerned IPA shall be guided by the rule that such local
purchases of goods are directly attributable to the registered
project or activity without which such registered project or activity
cannot be carried out. These are costs that are indispensable to the
project or activity, i.e., without which the project or activity cannot
proceed, and these include expenses that are necessary or
required depending on the nature of the registered project or
activity of the export enterprise.
If the purchased goods are used in both the registered project or
activity and administrative operations, the registered export
enterprise shall adopt a method to best allocate the same. If a
proper allocation could not be determined, the purchase of such
goods shall be subject to twelve percent (12%) VAT.
The VAT zero-rating on local purchases of goods shall be availed
of on the basis of the VAT zero-rating certification issued by the
concerned IPA, without prejudice, however, to the conduct of post
audit investigation/verification by the Bureau of Internal Revenue
(BIR) that the goods are indeed directly and exclusively used by the
registered export enterprise in its registered project or activity.
For this purpose, upon the effectivity of these Regulations, local
suppliers of goods of registered export enterprise shall no longer
be required to apply for approval of VAT zero-rating with the BIR.
All applications with accompanying VAT zero-rating certification
issued by the concerned IPA which have been received but have
not yet acted upon by the concerned office of the BIR upon the
effectivity of these Regulations shall be accorded VAT zero-rating
treatment from the date of filing of such application subject to the
conduct of post audit by the BIR that the goods are indeed directly
and exclusively used by the registered export enterprise in its
registered project or activity.
The concerned IPA shall furnish the BIR through the Assessment
Service Attention: Audit Information, Tax Exemption and Incentives
Division (AITEID) within twenty (20) days following the close of
each taxable quarter a list of registered export enterprise issued
with VAT zero-rating certification. In order to obtain relevant
information, for audit purposes, the Commissioner of Internal
Revenue may prescribe a report template in a separate revenue
issuance.”
Section 4.108-5 of RR No. 16-2005, as amended by RR No. 21-2021, is
hereby amended and shall now be read as follows:

“SEC. 4.108-5. Zero-Rated Sale of Services. —
xxx xxx xxx
(b) Transactions Subject to Zero Percent (0%) VAT Rate. — The
following services performed in the Philippines by a VAT-registered
person shall be subject to zero percent (0%) VAT rate:
xxx xxx xxx
(3) Sale of services, including provision of basic infrastructure, utilities,
and maintenance, repair and overhaul of equipment, to a registered
export enterprise, to be used directly and exclusively in its registered
project or activity pursuant to Sections 294 (E) and 295 (D) of CREATE
Act, and Section 5, Rule 2 of its amended IRR for a maximum period of
seventeen (17) years from the date of registration, unless otherwise
extended under the SIPP; Provided, That the term “registered export
enterprise” shall refer to an export enterprise as defined under Section 4
(M), Rule 1 of the CREATE IRR, that is also a registered business
enterprise as defined in Section 4 (W) of the same IRR: Provided further,
That the above-described sales to existing registered export enterprises
located inside ecozones and freeport zones shall also be qualified for
VAT zero-rating under this sub-item until the expiration of the transitory
period.
Health maintenance organization (HMO) plans acquired by
registered export enterprise for its employees who are directly and
exclusively involved in the operations of their registered projects or
activities and forming part of their compensation package shall be
considered as “directly and exclusively used” in the registered
project or activity of a registered export enterprise subject to the
conditions provided under the existing laws, rules and regulations
regarding the availment thereof.
The following local services shall not be considered as “directly and
exclusively used” in the registered project or activity of a registered
export enterprise, to wit:
1. janitorial services;
2. security services;
3. financial services;
4. consultancy services;
5. marketing and promotion; and
6. services rendered for administrative operations such as
Human Resources (HR), legal, and accounting.
This notwithstanding, the registered export enterprise is not
precluded from further proving, with supporting evidence, to the
concerned IPA that any of the above-listed local purchases of
services are indeed directly and exclusively used in its registered
project or activity. In all instances, in issuing the VAT zero-rating

certification, the concerned IPA shall be guided by the rule that such
local purchases of services are directly attributable to the registered
project or activity without which such registered project or activity
cannot be carried out. These are costs that are indispensable to the
project or activity, i.e., without which the project or activity cannot
proceed, and these include expenses that are necessary or required
depending on the nature of the registered project or activity of the
export enterprise.
If the purchased services are used in both the registered project or
activity and administrative operations, the registered export
enterprise shall adopt a method to best allocate the same. If a proper
allocation could not be determined, said services shall be subject to
twelve percent (12%) VAT.
The VAT zero-rating on local purchase of services shall be availed
of on the basis of the VAT zero-rating certification issued by the
concerned IPA, without prejudice, however, to the conduct of post
audit investigation/verification by the BIR that the services are
indeed directly and exclusively used by the registered export
enterprise in its registered project or activity.
For this purpose, upon the effectivity of these Regulations, local
suppliers of services of registered export enterprise shall no longer
be required to apply for approval of VAT zero-rating with the BIR. All
applications with accompanying VAT zero-rating certification
issued by the concerned IPA which have been received but have not
yet acted upon by the concerned office of the BIR upon the
effectivity of these Regulations shall be accorded VAT zero-rating
treatment from the date of filing of such application subject to the
conduct of post audit by the BIR that the services are indeed directly
and exclusively used by the registered export enterprise in its
registered project or activity.
The concerned IPA shall furnish the BIR through the Assessment
Service Attention: Audit Information, Tax Exemption and Incentives
Division (AITEID) within twenty (20) days following the close of each
taxable quarter a list of registered export enterprise issued with VAT
zero-rating certification. In order to obtain relevant information, for
audit purposes, the Commissioner of Internal Revenue may
prescribe a report template in a separate revenue issuance.”