Export-oriented enterprises (EOEs) that are not registered with investment promotion agencies can still benefit from value-added tax (VAT) reliefs—such as zero-rating on local purchases and exemption on importations—under the CREATE MORE law, a tax expert said.
Fulvio Dawilan, managing partner at BDB Law (Du-Baladad and Associates), explained that CREATE MORE extends VAT privileges to EOEs that meet certain qualifications, even if they are not formally registered for other tax incentives.
Thanks to CREATE MORE, taxpayers which may not be qualified and registered for tax incentives may enjoy the same VAT treatment as the VAT incentives for registered business enterprises, provided they qualify as EOEs,” Dawilan said.
He clarified that EOEs may enjoy VAT zero-rating on sales made to them by local suppliers and VAT exemption on their importations, provided they meet the necessary conditions and export sales threshold.
However, EOEs must first comply with several conditions to qualify for VAT zero-rating on local purchases and VAT exemption on importations. Among these is meeting the export sales threshold, which requires EOEs to derive at least 70 percent of their total annual production from export sales during the preceding taxable year.
For goods, total annual production refers to the sales value or volume of manufactured and sold products, including mark-up. For services, it pertains to the total value of services rendered by the enterprise. EOEs must also ensure that the goods or services involved are directly attributable, meaning incidental to and reasonably necessary, to the export activity.
Covered services may include janitorial, security, financial, consultancy, marketing and promotion, as well as administrative support such as human resources, legal, and accounting. “The enumeration of these types of services in the law implies an inclusive coverage—that is, all types of services, including those consumed for administrative purposes, can be considered incidental and necessary,” Dawilan said.
He cautioned, however, that EOEs failing to meet the 70 percent export sales requirement in a given year will lose eligibility for VAT zero-rating on local purchases and VAT exemption on importations in the following year.
Dawilan encouraged EOEs to maximize this tax relief under CREATE MORE, which allows qualified exporters to reduce their exposure to input VAT altogether. Since EOEs are typically subject to zero percent VAT on export sales, they have no output taxes against which input VAT from purchases and importations can be offset. This often leads to the accumulation of unutilized input VAT, forcing companies to file refund claims—a process that can be time-consuming and costly, with no assurance of approval.
“Minimizing input taxes eliminates the risks and costs associated with the application process for the recovery of unutilized input taxes,” Dawilan explained. “If you are a taxpayer qualified as an export-oriented enterprise, this option is available to you.”