With the components Comprehensive Tax Reform Package (CTRP) gradually unfolding, it can be overwhelming for taxpayers to note the changes directly affecting them. With the signing of the CREATE MORE Act (Republic Act No. 12066), the country moves closer to becoming more competitive by enhancing tax incentives to attract investors. This law aims to expand fiscal incentives, promote ease of doing business, strengthen investment regulations, support regional development, and clarify transitory rules for Registered Business Enterprises (RBEs). These measures position the country as a more attractive investment destination.
Under CREATE MORE, local sales of goods and/or services by an RBE, regardless of the income tax incentives regime and location, are subject to 12% VAT, unless otherwise exempt or zero-rated under the Tax Code. As further defined in the CREATE MORE Act, “local sales” cover sales of goods and services to domestic market enterprises (DMEs) or non-RBEs, regardless of whether the sale occurs within the freeport or economic zones.
The highlight of this amendment is the shift of the liability to the buyers in the filing and remittance of the VAT on local sales. While the effects of this change are yet to be determined, the BIR initially laid out the manner in which this shift will be implemented. To simplify matters, the transactions will first be classified into two (2):
1. Business-to-Business (B2B) transactions — transactions to natural or juridical persons engaged in business located in the Philippines; otherwise,
2. Business-to-Consumer (B2C) transactions
VAT RULES FOR LOCAL SALES OF RBEs
1. B2B Transactions
For this type of transaction, the obligation to file and pay the VAT lies with the buyer. For purchases of goods from economic zones or freeports, these are to be filed and paid per transaction using BIR Form 0605, after which it should be transmitted to the RBE seller for the release of the goods. Meanwhile, for purchases of services from economic zones or freeports and purchases of either goods or services from BoI-registered enterprises, these shall be filed and paid monthly, with a deadline set on or before the 10th day of the month following the month of transaction, using BIR Form 1600-VT. The buyer must then prepare BIR Form 2307 and issue to the RBE-seller either on the aggregated quarterly VAT on local sales payments or upon the latter’s demand.
In filing the quarterly VAT returns, non-VAT registered RBEs are not required to file as compared to VAT-registered RBEs and RBEs with mixed activities, which must declare all B2B local sales supported by BIR Form 2307 or BIR Form 0605 issued by their buyers. Further, non-VAT registered RBEs must only submit the summary list of local sales on a quarterly basis, while VAT-registered RBEs are to continue the regular submission of the same as per existing revenue rules and regulations.
2. B2C Transactions
Since the buyer in a B2C transaction is typically an individual or non-business entity, it is not practical to shift VAT liability to them. Therefore, the RBE seller remains responsible for VAT compliance.
Moreover, the income tax regime must be taken into consideration in the filing and payment of VAT. For RBE-sellers subject to tax under the 5% GIE/SCIT regime, the VAT on local sales must be filed and paid by the 10th of the month following the transaction using BIR Form 0605. For RBE sellers with mixed activities under different tax regimes, the VAT during the first two months must be paid through BIR Form 0605, which will then be reflected as VAT credit upon filing of the quarterly VAT return. If the RBE seller falls under ITH/EDR or the Regular Income Tax Rate, quarterly VAT filing is required in declaring the local sales and its corresponding VAT.
INVOICING REQUIREMENTS
On the invoicing of RBE-seller to the buyer, the invoice should contain a separate line item for the VAT, labeled as “VAT on Local Sales.” Since the buyer in a B2B transaction will file and pay the corresponding VAT, the RBE seller will only receive the purchase price. However, the buyer in a B2C transaction should remit the full amount to the seller.
Considering that the RBEs have yet to secure invoices with the line item of “VAT on Local Sales,” the following are the transitory provisions provided in relation thereof:
• For manual invoices, the term “VAT/VAT Amount” shall be stamped with “VAT on local sales” until fully consumed, with the new layout to reflect on the subsequent applications for Authority to Print Invoices. Exempt/VAT-Exempt invoices must be stamped with “VAT on Local Sales” as an additional term in the breakdown.
• RBEs using Cash Register Machines/Point-of-Sale (CRM/POS) and other registered invoicing systems/software must reconfigure these devices by changing the term “VAT/VAT Amount” to “VAT on Local Sales” or adding the term in case not applicable. The reconfiguration must be done by Dec. 31, 2025, subject to post-verification by the BIR office having jurisdiction over the RBE.
CLAIMING OF INPUT VAT BY VAT-REGISTERED BUYERS
Following the changes in the discussion above, the BIR provides the necessary documents for VAT-registered buyers claiming the input tax on their purchases:
a. Sales invoice issued by the RBE seller showing the amount of VAT on local sales; and
b. Copy of the corresponding duly filed BIR Form 1600-VT or BIR Form 2307, whichever is applicable.
Meanwhile, VAT paid by non-VAT-registered buyers for their purchases must be expensed outright.
CONCLUSION
While the CTRP aims to simplify the tax system, the shift in VAT filing and remittance responsibilities under the CREATE MORE Act adds complexity for taxpayers, who must adapt to the new regulations. The success of these changes will largely depend on how effectively the BIR oversees taxpayer compliance and supports their transition. Without clear guidance and efficient implementation from the BIR, the process could become more burdensome. Ultimately, both the BIR and taxpayers must collaborate to ensure a smooth transition and achieve the CTRP’s goal of creating a simpler, fairer, and more efficient tax system.
Let’s Talk Tax, a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
Clarita C. Afaga is a semi-senior from the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.