Philippines Clarifies VAT Refund Process for Export Firms Under CREATE MORE Act

The Philippines' Republic Act No. 12066, also known as the CREATE MORE Act, which took effect on November 28, 2024, has introduced significant changes to Value Added Tax (VAT) treatment for export-oriented enterprises (EOEs). The new law mandates VAT zero-rating on qualified local purchases and VAT exemption on qualified importations for EOEs, subject to specific conditions. To qualify for this preferential VAT treatment, an enterprise must generally derive at least 70% of its total annual production or gross sales from exports in the preceding taxable year. Furthermore, qualified EOEs are required to obtain a VAT zero-rating certification from the Department of Trade and Industry’s Export Marketing Bureau (EMB). During the transition to this new certification system, some EOEs continued to incur VAT on their local purchases and imports while awaiting the issuance of their certifications. To address this practical issue, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 96-2026, clarifying the rules regarding passed-on VAT during this interim period. This circular clarifies that EOEs can claim a refund for VAT paid on local purchases and imports attributable to zero-rated sales, covering the period from November 28, 2024, up to the issuance of their EMB VAT zero-rating certifications, provided these certifications were issued during the transitory period ending December 31, 2025. However, this refund is not automatic. EOEs must still comply with the requirements for claiming a VAT refund under Section 112 of the Tax Code. This includes establishing that the input VAT is allowable and directly attributable to qualified zero-rated sales. The prohibition against double recovery also applies, meaning VAT that has already been reimbursed, credited, adjusted, or otherwise utilized cannot be refunded. Taxpayers are therefore required to maintain comprehensive records, including invoices, import documents, accounting records, and other supporting documents that establish the purchases or importations, the VAT passed on, and their direct connection to qualified zero-rated sales. For EOEs that meet the 70% export threshold but fail to secure the required EMB certification, even during the transitory period, immediate VAT refunds are not permitted. Instead, their unutilized input VAT may be carried forward to subsequent taxable quarters and applied against future VAT liabilities. This distinction has practical implications for an EOE's cash flow, determining whether VAT can be recovered directly or must be deferred. EOEs considering a refund claim should meticulously review the relevant dates, the VAT amounts involved, the validity of their certifications, and the direct attribution to zero-rated sales. Proper reconciliation of records and ensuring that the VAT has not been previously recovered or utilized are crucial steps. EOEs that did not obtain an EMB certification are also advised to carefully assess the implications for their unutilized input VAT under existing VAT rules and the potential financial impact of any unrecoverable VAT. Information Source: BusinessWorld Economy