Why Was This Circular Issued?
In the past, VAT zero-rating rules for Registered Export Enterprises (REEs) under PEZA lacked clarity. Companies often found it difficult to determine which local transactions qualified for VAT zero-rating, resulting in confusion, compliance challenges, and inefficiencies. For instance, necessary services like janitorial or marketing were frequently disputed as to whether they qualified.
These uncertainties created operational challenges for businesses, made life harder for accountants, and added administrative strain on agencies like the Bureau of Internal Revenue (BIR).
Key Provisions: What Has Changed?
PEZA M.C. No. 2025-020, which supports the CREATE More Act (RA No. 12066), provides clearer guidelines on what goods and services qualify for VAT zero-rating:
i. Specifies services that are directly attributable to registered activities, including:
• Janitorial
• Security
• Financial consultancy
• Marketing and promotion
• Administrative services (such as HR, legal, and accounting)
ii. Requires enterprises with certifications issued before November 28, 2024, to apply for an Updated VAT Zero-Rating Certification—at no extra cost.
To illustrate: if your business uses a security service tied directly to your export operations, this expense is now clearly VAT zero-rated. That means lower costs and easier tax compliance.
Who Gains and in What Way?
a. Businesses: Clearer guidelines mean less admin work and fewer tax issues.
b. Accountants/Taxpayers: Simplified VAT processes lower error risks and improve bookkeeping.
c. BIR and Local Government: Improved clarity leads to better compliance and more predictable revenues.
d. Investors: Clear tax rules help attract more investment into export-focused sectors.
Implementation & Compliance: What Steps to Take Now
To ensure compliance:
- Review your current VAT Zero-Rating Certifications.
- If these were issued before November 28, 2024, apply to PEZA for an updated certificate.
- Use the updated certifications in transactions with local suppliers to avoid issues.
Failing to comply might cause disruptions with suppliers or draw scrutiny from the BIR, possibly leading to audits or disputes.
Final Takeaway & Action Point
PEZA’s Circular 2025-020 brings clarity and simplicity to VAT compliance, making it easier and more advantageous for export businesses and their partners.
DISCLAIMER: This article is developed by subject matter experts at Babylon2k. This is for general information only and does not constitute expert advice. It is based on current regulations and may not account for all related topics. Any tax or compliance guidance provided cannot be used to avoid penalties or promote specific actions. Laws and interpretations may change over time, which could affect the accuracy of this report. We are not obligated to update this advisory if new regulations arise.
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RESOURCES
- PEZA M.C. No. 2025-020 | View here.
