The Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) have issued Revenue Regulations (RR) No. 1-2026, amending certain provisions of RR No. 9-2025 to clarify the rules governing the value-added tax (VAT) on local sales of Registered Business Enterprises (RBEs).
The amended regulations address the manner of filing and payment for VAT on local sales, provide optional VAT registration for certain RBEs, extend the deadline for system reconfiguration, and exclude certain enterprises and activities from the coverage of VAT on local sales of RBEs.
The VAT on local sales of RBEs was introduced under Section 295(D) of the National Internal Revenue Code of 1997 (Tax Code), as amended by Section 18 of Republic Act (RA) No. 12066, otherwise known as the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy Act (CREATE MORE Act).
The revenue issuance was released to address concerns raised by both external and internal stakeholders regarding the implementation of the VAT on local sales of RBEs under the CREATE MORE Act.
Among the most notable changes is the clarification on the manner of filing and payment of VAT on local sales of RBEs. For the sale of goods inside economic zones or freeports classified as business-to-business (B2B) transactions, the filing and payment of the buyer shall be on a per transaction basis.
However, the amended regulation further clarifies that in cases where the shipment of goods purchased in economic zones or freeports is in bulk—such as delivery through a single container truck—and is covered by several invoices, the buyer may opt to pay the VAT due in a single payment through BIR Form No. 0605, together with a list of all invoices covered. This list shall be presented to the Bureau of Customs (BOC) prior to the release of the goods.
The amended rules also introduce optional VAT registration for certain RBEs. An RBE availing of the 5% Special Corporate Income Tax (SCIT) or Gross Income Earned (GIE) regime, whose registered activities are all under the same income tax incentive, may opt to register as a VAT taxpayer solely for purposes of its local sales.
Such VAT registration shall not affect the RBE’s entitlement to its existing fiscal and non-fiscal incentives, including VAT zero-rating on local purchases and VAT exemption on importation, provided these are directly attributable to its registered activities.
Another key provision involves exclusions from the coverage of VAT on local sales of RBEs. The amendment to RR No. 9-2025 seeks to address the adverse tax implications arising from the application of Section 295(D) on certain RBEs, particularly Domestic Market Enterprises (DMEs) that are unable to recover input VAT due to ineligibility for VAT refund under Section 112(A) of the Tax Code, and other enterprises and transactions with similar concerns.
The DOF and BIR said the move ensures consistency with the statutory framework and promotes equitable tax administration without necessarily eroding tax collection.
The following enterprises and transactions are excluded from the coverage of Section 295(D) of the Tax Code, as amended: local sales of VAT-registered DMEs that do not qualify for VAT zero-rating on local purchases or VAT exemption on importation, despite being registered with any of the Investment Promotion Agencies (IPAs); sales subject to VAT zero-rating under Sections 106, 108, and Title XIII of the Tax Code and VAT-exempt sales under Section 109 of the Tax Code; entities that have registered with the Board of Investments by virtue of a special law and are not availing of incentives under Title XIII of the Tax Code, as amended; and local sales made by RBEs that pertain to business activities not registered with any of the IPAs, including the sales of scrap materials, machineries, and property, plant, and equipment.
For such transactions, the RBE-seller shall file and pay any corresponding VAT to the BIR.
The regulations also extend the deadline for system reconfiguration. The effectivity of the provision under Section 7 of RR No. 9-2025, which requires RBEs using registered Cash Register Machines/Point-of-Sales (CRM/POS), Computerized Accounting System (CAS), Computerized Books of Accounts with Accounting Records, or other registered invoicing system or software to reconfigure or rename their system by replacing the term “VAT/VAT Amount” in the breakdown of sales with “VAT on Local Sales,” or adding the same where “VAT/VAT Amount” is not applicable, has been extended until December 31, 2026.
As part of the BIR D.A.R.E.S. initiative, particularly “Service Excellence and Stakeholder Engagement,” BIR Commissioner Charito Martin S. Mendoza vows to improve taxpayer service by paying attention and immediately addressing the concerns of stakeholders particularly the taxpayers that are adversely affected in the implementation of newly introduced provisions of the Tax Code.
Commissioner Mendoza recognizes the major role of investors in the economic growth and addressing their concerns is one of the aspects to improve the investment climate of the country.
The CREATE MORE Act, signed into law in 2024, aims to enhance the Philippines’ competitiveness in attracting investments by rationalizing fiscal incentives and streamlining tax administration. The law amended several provisions of the Tax Code, including the introduction of VAT on local sales of RBEs, as part of broader efforts to modernize the country’s tax system while maintaining a business-friendly environment.
