Tax Alert No. 9 [Revenue Memorandum Circular (RMC) No. 24-2023 dated 07 February 2023]

Provides Further Clarifications on the Qualifications of Ecozones Logistics Service Enterprise (ELSE) to the Incentives of VAT- Zero Rate on Local Purchases of Goods and Services Exclusively and Directly Used in the Registered Project or Activity

RMC No. 24-2023 further clarifies the qualifications of Ecozone Logistics Service Enterprise (ELSE) to the incentives of VAT-Zero Rate on local purchases of goods and services exclusively and directly used in the registered project or activity.

The following are the salient points in the Circular:

• ELSE (formerly named “Ecozone Facilities Enterprise Engaging in Warehouse Operations) is a Registered Business Enterprise (RBE) supplying production-related raw materials and equipment that caters exclusively to the requirements of export manufacturing enterprises which are registered with the Philippine Economic Zone Authority (PEZA), Clark Development Corporation (CDC), Subic Bay Metropolitan Authority (SBMA), Authority of the Freeport Area of Bataan (AFAB) or other special economic zones/freeports outside the administration of PEZA.
  
• ELSEs that render at least 70% of their output/services to another RBE can be considered as "export enterprise" under Section 293(E) of the National Internal Revenue Code (NIRC) of 1997, as amended by the CREATE Act and as clarified in BOI MC No. 2023-001.
  
• The definition of RBE excludes certain service enterprises such as those engaged in trucking or forwarding services.
  
• The only type of logistic service that will qualify to be registered as ELSE are those undertaking both: (1) establishment of a warehouse storage facility; and (2) importation or procurement from local sources and/or from other registered enterprises of goods for resale, or for packing/covering (including marking, labeling), cutting or altering to customer’s specification, mounting and/or packaging into kits or marketable lots thereof for subsequent sale, transfer or disposition for export.
  
• Purchases of registered ELSEs from VAT-registered suppliers are subject to VAT at zero-rate but shall only apply to goods and/or services directly and exclusively used in the registered project or activity of the ELSE.
  
• Details on the availment of VAT zero-rate incentives on local purchases under the CREATE Act are provided in RMC No. 24-2022 and its subsequent amendments. On the other hand, the processing of applications for VAT zero-rating shall be governed by Revenue Memorandum Order No. 7-2006 and its subsequent amendments.
  

You may access the full version of the issuances through the BIR website.