Philippines: Export-Oriented Enterprises Get VAT Zero-Rating and Exemption Under CREATE MORE Law

The CREATE MORE law allows export-oriented enterprises (EOEs) to enjoy VAT zero-rating on local purchases and VAT exemption on importations even without registration for other tax incentives, provided they meet the 70% export sales threshold from the previous year. The goods or services purchased must be directly necessary for export activities, and a wide range of services can qualify. If the enterprise fails to meet the export threshold, it loses these VAT benefits the following year. This measure helps EOEs avoid accumulating unutilized input VAT and reduces the need for difficult and time-consuming VAT refund claims.

• For goods, this is measured based on the sales value or volume of products manufactured and sold.
• For services, it refers to the total value of services rendered.

EOEs must also show that the purchased goods or services are directly attributable and necessary to export operations. Covered services include janitorial, security, financial, consultancy, marketing, and administrative support—indicating that the law provides broad coverage of service types.

However, if an EOE fails to meet the 70% export threshold in a given year, it loses VAT zero-rating and import VAT exemption for the following year.

Impact
This VAT relief can significantly reduce the accumulation of unutilized input VAT, which EOEs typically face because export sales are zero-rated and produce no output VAT to offset input VAT against. Avoiding input VAT accumulation reduces the need for refund claims, which are often slow and uncertain.
EOEs that meet the export threshold should maximize this VAT benefit to improve cash flow and avoid costly VAT refund processes.