Tax Alert No. 7 [Revenue Regulation (RR) No. 1-2026 dated 16 February 2026]

The Bureau of Internal Revenue (BIR) has issued Revenue Regulation (RR) No. 1-2026, amending Sections 3, 4, & 7 of RR 9-2025. 

The regulation clarifies the Value Added Tax (VAT) treatment of local sales, introduces optional VAT registration for certain Registered Business Enterprises (RBEs), extends the deadline for system reconfiguration, and provides exclusions from VAT coverage under Section 295 (D) of the Tax Code, as amended by Republic Act 12066.

Please be informed that the BIR has issued RR No. 1-2026 to further amend Sections 3, 4, and 7 of RR No. 9-2025.

The key amendments are as follows:

1. Purchases of goods from economic zones or freeport -

Where goods purchased in an ecozone or freeport are shipped in bulk and covered by multiple invoices, the buyer may pay the VAT due through a single BIR Form 0605.  A consolidated list of the covered invoices must be submitted to the Bureau of Customs (BOC) prior to the release of the shipment.

2. Optional VAT registration -

An RBE under the 5% Special Corporate Income Tax (SCIT) or Gross Income Earned (GIE) regime may opt to register as a VAT taxpayer solely for its local sales, without affecting its existing fiscal and non-fiscal incentives, including VAT zero-rating on local purchases and VAT-exempt importations directly attributable to its registered activities.

Once elected, the VAT registration cannot be cancelled for three (3) years from the date of registration.

 3. Exclusion from the coverage of VAT on local sales under Section 295 (D) of the Tax Code-

VAT-registered Domestic Market Enterprises (DMEs) that do not qualify for VAT zero-rating on local purchases or VAT-exempt importations despite being registered with any of the Investment Promotion Agencies (IPA) shall remain subject to VAT on both their local purchases and importation.

The following transactions are excluded from VAT coverage on local sales under Section 295 (D) of the Tax Code:

     a. Sale of the following goods/services:

• VAT zero-rated goods under Section 106(A)(2);

• VAT zero-rated services under Section 108(B);

• VAT-exempt transactions under Section 109; and

• VAT-exempt or zero-rated transactions under Title XIII of the Tax Code

b. Entities registered with the Board of Investments by virtue of a special law and not availing of incentives under Title III of the Tax Code, and.

c. Local sales of RBEs not registered with any IPAs, including scrap sales (e.g., materials, machineries, and property plant and equipment), shall be subject to the regular 12% VAT.  The RBE-seller shall file and pay the corresponding VAT to the BIR as a regular VAT taxpayer.

4. Transitory provision -

The deadline for RBEs to update their invoicing systems to reflect “VAT on Local Sales” (in lieu of or in addition to “VAT/VAT amount” as applicable) is extended until 31 December 2026.

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

For any inquiry or request for assistance, please feel free to contact anyone from our Tax Services group. You may also reach us through this link