VAT Zero Rating
Due to the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, the following are frequently asked questions relative to the revised requirements and processes for business customers with VAT zero-rating on their Meralco bill:
1. What is a VAT zero-rating certification?
A VAT zero-rating certification is granted by the Bureau of Internal Revenue (BIR) to companies who are Registered Export Enterprises (REEs), or VAT exempt by virtue of special laws or international agreements.
2. How are the VAT zero-rating rules under the CREATE Act different from the previous VAT zero-rating rules?
Before the CREATE Act, ecozones and freeport zones were regarded as foreign territories. Thus, the sale of goods and/or services by a VAT-registered service provider like Meralco to registered enterprises in these economic and freeport zones is subject to 0% VAT. A VAT zero-rating certification is submitted by eligible business enterprises to Meralco to continue enjoying VAT zero-rating.
But considering the CREATE Act:
- a. VAT zero-rating on local purchases shall only be accorded to purchases of goods and/or services of Registered Export Enterprises (REEs), which are directly and exclusively used in the registered project or activity of said registered enterprise, excluding those used for administrative purposes.
- b. Registered Business Enterprises (RBEs), which are categorized as Domestic Market Enterprises (DMEs), are not entitled to VAT zero-rating on local purchases. Sale of goods and/or services to a registered DME shall be subject to VAT at 12% beginning January 1, 2022.
3. My business/company is registered with an IPA and is considered a REE. How do I get a VAT zero-rating on my Meralco bill?
The following documents should be sent via email to VATzerorating@meralco.com.ph:
- a. BIR Certificate of Registration
- b. IPA Certificate of Registration
- c. IPA VAT Certification for the current year
- d. A sworn affidavit executed by the customer, stating that the goods and/or services bought are directly and exclusively used for the production of goods and/or completion of services to be exported or for utilities and other similar costs, the percentage of allocation to directly and exclusively used for the production of goods and/or completion of services to be exported
- e. Certified true copy of your latest Meralco bill
- f. Other documents to corroborate entitlement to VAT zero-rating such as but not limited to duly certified copies of purchase order, job order or service agreement, sales invoices and/or official receipts, delivery receipts, or similar documents to prove existence and legitimacy of the transaction.
Hard copies of the requirements should also be sent to Meralco. Kindly include 4 photocopies each for items (a), (b) and (c ) and send to:
| For Biz customers, send to: Biz Partners Group, 10/F, Lopez Building, Meralco Center, Ortigas Ave., Pasig City |
For Enterprise customers, send to: Corporate Business Group, 10/F, Lopez Building, Meralco Center, Ortigas Ave., Pasig City |
Once the required documents are provided to Meralco, we will review the completeness of the documents prior to submission to the BIR.
Once Meralco finds these to be in order, the required documents along with application for VAT zero-rating would be submitted by Meralco to the BIR. The reckoning date for the application of VAT zero-rating to Meralco bills will be the date of application to BIR.
4. My company’s allocation ratio between administrative and production changes every month. Should we submit the monthly allocation ratio to Meralco to generate billing?
You may provide allocation ratios as frequently as you like. However, please be reminded that these applications will go through the BIR approval process. If you already have an approved application and then a new application is filed because of any changes in allocation, the 12% VAT may be implemented or applied during the period where no BIR-approved VAT zero-rating is in effect. We suggest you provide an allocation that will represent the whole year.
5. The electricity usage of our business/company is not exclusively for export operations as we have other offices/units that are not directly involved in production. How will you compute how much will be subjected to 0% and 12% VAT?
For REEs, only the portion of the electricity directly and exclusively used in the registered project or activity shall qualify for VAT zero-rating, excluding those used for administrative purposes. It is important that you specify the percentage of electricity directly and exclusively used for export operations in your sworn affidavit, which shall be the basis for VAT zero-rating.
6. Can you help us determine the best allocation for our VAT-zero application? Will Meralco validate the declared ratio or should the company secure authentication/validation?
A company with a comprehensive knowledge of its business operations would be in the best position to determine the allocation for VAT zero-rating application. We will no longer validate the declared allocation ratio and will file the application with the BIR. Should there be any question from the BIR regarding your application, we will be sure to inform you.
7. What if I have multiple services under 1 account, do I need to submit requirements per service ID No.?
No, you can submit one set. However, the sworn affidavit may need to show the percentage of allocation per SIN especially if there are different allocation percentages per SIN. If one allocation percentage applies to all SIN, it is still advisable to list the SIN in the sworn affidavit so that it is clear that the allocation percentage applies to the listed SINs.
8. Can we send the requirements via delivery service (Grab, Lalamove, LBC, etc.)?
Yes, customers may send via delivery services (Grab, Lalamove, LBC, etc.). Please instruct the courier to leave the documents in the Meralco Lopez building lobby.
9. Can we submit requirements at the nearest Meralco Business Center?
No, it will be better to directly submit the requirements to Meralco as we are expediting submission to BIR.
10. What happens when our application for VAT zero-rating is approved by BIR?
Meralco will notify you that the application has been approved and will apply the VAT zero-rating to your bills.
11. If I get a VAT zero-rating, do I need to apply for renewal or is this perpetual? How often do I need to apply for renewal?
If the BIR approves the application for VAT zero-rating filed by Meralco, the approval shall only be effective from the time the application is filed until the last day of the year. A renewal of the application for VAT zero-rating would have to be filed on or before the last day of every year.
12. Does my VAT zero-rating entitlement expire? How does this apply to my business?
Yes, for REEs with projects or activities which were registered during CREATE, VAT zero-rating on local purchases shall only apply to goods and/or services directly and exclusively used in the registered project or activity of the REE, for a maximum period of seventeen (17) years from the date of registration with the Investment Promotion Agency (IPA).
For REEs with existing projects or activities registered prior to CREATE, VAT zero-rating on local purchases shall only apply to goods and/or services directly attributable and exclusively used in the registered project or activity until the expiration of the transitory period, as follows:
- a. For REEs which are granted only an Income Tax Holiday (ITH) - until the remaining period of the ITH.
- b. For REEs which are granted an ITH and/or five percent (5%) tax on gross income earned - until the expiration of the ten (10) year limit.
13. Our business/company enjoys VAT zero-rating on its purchases by virtue of special laws (i.e., other than being registered IPAs). Is my business/company affected by the changes brought by CREATE Act?
No, sales to enterprises covered by special laws such as renewable energy developers under R.A. No. 9513 (Renewable Energy Act of 2008, International Rice Research Institute, Asian Development Bank, etc.) or embassies are still subject to 0% VAT in accordance with the respective special laws.
14. What if the application for VAT zero-rating is not approved by BIR?
In case of denial by the BIR, Meralco shall promptly inform the customer. If the customer wants to appeal, they may course their concern directly to BIR.
15. Our business/company is registered with an Investment Promotion Agency (IPA) but does not engage in export. Are we entitled to VAT zero-rating on Meralco bills?
No, companies registered with IPAs (e.g., PEZA, BOI, freeport zones, ecozones) that are not engaged in export would be considered Domestic Market Enterprises (DMEs). DMEs are not entitled to VAT zero-rating on Meralco bills.
16. Can a customer who is considered a DME, avail of the VAT-zero rating if they have a tenant classified as REE and are occupying the whole warehouse?
There is no specific rule with respect to an REE as a lessee. Under the existing BIR rules on withholding tax, the tenant / lessee is allowed to withhold their expenses although service is not under their name.
17. Will PEZA-registered entities like Facilities Enterprise, and incentives granted to these entities, be subjected to the sunset provision? As a Facilities Enterprise, these entities provide lease of premises to other PEZA-registered entities, wherein provision for electricity is included. Will the electricity consumption of these Facilities Entities be VAT zero-rated?
This type of entity would qualify as an DME and will not be entitled to VAT-zero rating on its purchases. However, for instances wherein the facilities enterprise acts as a lessor and the lessee would like to invoke VAT zero-rating, kindly refer to item no. 13.
18. For DMEs, how will Meralco treat billings from January 2022 to when the Zero-VAT rating was lifted, when no VAT was charged to our bills?
Billings of affected DMEs starting January 1, 2022 onwards shall be subject to 12% VAT. For prior bills requiring adjustments on the imposition of VAT, please expect a separate notice from Meralco with the details on how it will be applied.
19. Will you be suspending the VAT zero-rating of your customers pending submission of documents/application?
Yes, as we cannot accord VAT-zero rating without BIR approval. Assuming BIR approves your application, the date of application will be the basis of effectivity of the VAT-zero rating.
20. If the switched account is under dual billing wherein the generation portion is billed by RES and the DWS is thru Meralco, will they also submit the requirements to both their RES and Meralco?
Under a dual billing scheme, a Distribution Utility (DU) becomes the direct supplier of the Contestable Customer (CC) as far as the Distribution Wheeling Service (DWS) is concerned and issues the billing to CCs. If the CC accepts a dual billing arrangement, a revised DWS agreement is signed between the DU and CC. Under dual billing, Meralco would have to apply for VAT-zero rating with BIR covering the DWS. The RES should apply for the generation and other charges.