DOF and BIR Clarifies Rules for VAT on Local Sales of RBEs.

The Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) released Revenue Regulations (RR) No. 1-2026 on February 23, 2026, to clarify the rules on the filing and payment of Value-Added Tax (VAT) on local sales made by Registered Business Enterprises (RBEs). This regulation amends RR No. 9-2025 and provides detailed guidance on VAT registration, optional VAT registration for certain RBEs, and the scope of VAT exemptions.

The issuance was made to address concerns from both external and internal stakeholders regarding the proper VAT treatment of RBEs under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act or Republic Act No. 11534.

Clarification on VAT Filing and Payment:
- RBEs located inside economic zones or freeports that sell goods or services to local buyers (within the Philippines) are subject to VAT if the buyer is VAT-registered.
- These transactions are treated as business-to-business (B2B) sales and must follow the standard VAT rules, ensuring proper invoicing and remittance.
- The clarification ensures that VAT is properly accounted for, even when the seller operates within a tax-incentivized zone.
Optional VAT Registration for Certain RBEs:
- RBEs under the Special Corporate Income Tax (SCIT) or Gross Income Earned (GIE) regime may opt to register for VAT.
- This allows them to claim input VAT credits on local purchases directly related to their registered activities.
- The option helps RBEs manage costs and maintain competitiveness, especially when dealing with VAT-registered suppliers.
Purpose of the Regulation:
- To harmonize VAT treatment across different types of RBEs.
- To ensure compliance with the CREATE Act’s intent of promoting investment while maintaining fair tax administration.
- To provide clarity and consistency for both taxpayers and tax authorities in implementing VAT rules.

Overall, RR No. 1-2026 strengthens the VAT framework for RBEs by clarifying obligations, offering flexibility through optional registration, and aligning tax practices with the government’s investment promotion goals.