Create More’s VAT zero-rating on indirect exports
By: Atty. Euney Marie Mata-Perez on June 19,2025
ON June 10 and 11, I conducted a lecture series, courtesy of the Center of Global Best Practices, on the various implementing rules and regulations in Republic Act (RA) 12066, or Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (Create More).
Create More, which took effect in November 2024, sought to improve the provisions of the earlier Create Act (RA 11534) in order to boost the country’s competitiveness, and make the granting and availing of incentives more equitable and efficient. The Department of Finance (DOF) and the Department of Trade and Industry (DTI), as well as the Bureau of Internal Revenue (BIR), have issued implementing rules and regulations to enforce the law.
Among Create More’s most significant amendments was the clear value-added tax (VAT) zero-rating of so-called indirect exports, or sales of goods or services to export-oriented enterprises (EOEs) and registered export enterprises (REEs). This was done through amendments introduced not just to the provisions on incentives under Title XIII of the National Internal Revenue Code (“Tax Code”), but also to the general definition of what constitutes export sales under Section 106 of the Tax Code, as well as which services are entitled to zero rating under Section 108 of the Tax Code.
This means that the zero-rating of indirect purchases would apply even if the purchasing exporter does not enjoy any tax incentives, as long as it meets the criteria set under the law and regulations.
This VAT zero-rating on purchases, or indirect exports, was also extended to high-value domestic market enterprises (HVDMEs). These are enterprises which have an investment capital exceeding P15 billion and are engaged in import-substituting sectors, or have export sales in the immediately preceding year of at least $100 million.
Export threshold and criteria
To qualify for zero-rating on their purchases, EOEs or REEs should export at least 70 percent of their annual production in the preceding year.
HVDMEs, on the other hand, should meet the investment capital and other requirements in the law.
Also, the goods purchases should be “directly attributable” to the export activity of the EOE, or the registered export activity of the REEs. This new criterion departs from the previous controversial criterion under the Create Act, which specified that only purchases which are “directly and exclusively” used in the registered activity of the REEs qualify for zero-rating.
Create More provides that goods or services are considered “directly attributable” if they are incidental to and reasonably necessary for the registered project or activity of the registered business enterprise. They include janitorial, security, financial, consultancy, marketing and promotion services, and services rendered for administrative operations such as human resources, legal and accounting. The inclusion of these other “incidental” services certainly broadens the scope of zero-rating, to the benefit of exporters.
Zero-rating certification
To qualify for zero-rating, however, EOEs are required to obtain a certificate of qualification from the Export Marketing Bureau (EMB) of the DTI. REEs or HVDMEs, on the other hand, are required to apply for a VAT zero-rating certificate with the concerned Investment Promotion Agencies (IPA).
Joint Administrative Order (JAO) 002-2025 issued by the DTI and the DOF details how EOEs may avail of a DTI-EMB Certification in relation to VAT zero-rating under Sections 106 and 108 of the Tax Code, as amended. This DTI-EMB certification is different from the VAT zero-rating certification to be issued by the IPAs on sales to REEs or HVDMEs.
Under JAO 002-2025, documents to be submitted include a certified true copy of proof of 70-percent export sales by the direct exporter and an affidavit executed by the owner, president or finance officer of the EOE certifying that the export sales for the immediately preceding taxable year is at least 70 percent of the total annual production.
For PEZA-registered enterprises, PEZA Memorandum Order 2025-006 was issued to set out in detail the procedures and documents that RBEs shall submit to obtain VAT zero-rating certificates from PEZA. The application is done through PEZA’s One Portal System, and the submission of similar proof of 70 percent of export sales.
The following should be noted in obtaining VAT zero-rating certifications, whether they be from the DTI-EMB or by the IPA, such as PEZA:
1. EOEs, REEs and HVDMEs are required to obtain their applicable VAT zero-rating certifications annually.
2. EOEs or REEs which fail to meet the 70 percent threshold or HVDMEs which fall below the investment requirement shall be disqualified in the immediately succeeding year.
3. The VAT Zero-Rating Certificate shall be sufficient proof of the qualification and shall be presented to local suppliers.
4. Local suppliers of qualified EOEs, REEs or HVDMEs shall no longer be required to apply for approval of VAT zero-rating with the BIR.
It should be noted that no refund or credit of input VAT shall be allowed on the part of the EOE, REE or HVDME, in case their local suppliers shall have erroneously passed on VAT on their local purchases of goods and services, which should have qualified for VAT zero-rating.
ln such cases, the EOE, REE or HVDME may contest the same and/or resolve with the local supplier for the reimbursement of VAT paid, if any.
Euney Marie J. Mata-Perez is a CPA lawyer and the managing partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is the chairman of the tax committee of the Management Association of the Philippines. Email her at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com.