RR 16-2005 RR 13-2018 (In
Accordance with Train
SEC. 4.108-5. Zero-Rated
Sale of Services. -
(a) In general. - A zero-
rated sale of service (by a
VAT-registered person) is
a taxable transaction for
VAT purposes, but shall
not result in any output
tax. However, the input
tax on purchases of goods,
properties or services
related to such zero-rated
sale shall be available as
tax credit or refund in
accordance with these
Regulations.
(b) Transactions Subject to
Zero Percent (0%) VAT
Rate. - The following
services performed in the
Philippines by a VAT-
registered person shall be
subject to zero percent
(0%) VAT rate:
(1) Processing,
manufacturing or
repacking goods for other
persons doing business
outside the Philippines,
which goods are
subsequently exported,
where the services are paid
for in acceptable foreign
currency and accounted
for in accordance with the
rules and regulations of
the BSP;
(2) Services other than
processing, manufacturing
or repacking rendered to a
person engaged in
business conducted
outside the Philippines or
REMARKS
law)
SEC. 4.108-5. Zero Rated
Sale of Services. –
(a) In general. – A zero-
rated sale of service (by a
VAT-registered person) is [RETAINED]
a taxable transaction for
VAT purposes, but shall
not result in any output
tax. However, the input
tax on purchases of goods,
properties or services
related to such zero-rated
sale shall be available as
tax credit or refund in
accordance with these
Regulations.
(b) Transactions Subject to
Zero Percent (0%) VAT
Rate. – The following
services performed in the
Philippines by a VAT-
registered person shall be
subject to zero percent
(0%) VAT rate:
(1) Processing,
manufacturing or [ Retained ]
repacking goods for other
persons doing business
outside the Philippines,
which goods are
subsequently exported,
where the services are paid
for in acceptable foreign
currency and accounted
for in accordance with the
rules and regulations of
the BSP;
(2) Services other than
processing, manufacturing
or repacking rendered to a
person engaged in
business conducted
outside the Philippines or
 A comparison of the VAT Revenue Regulation [RR 16-2005] (pre-Train Law) and the
current VAT Revenue Regulation [RR 13-2018] (after Train Law), shows that “Sec. 4.108-5b.2 [(2)
Services other than processing, manufacturing or repacking rendered to a person engaged in
business conducted outside the Philippines or to a non- resident person not engaged in business
who is outside the Philippines when the services are performed, the consideration for which is
paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the BSP” was retained.

As per the revenue regulations, our current contracts with our US Clients fall under
Sec.4.108-b5.2, as the type of service is data processing, which can be categorized as “services
other than processing etc. of goods xxx”. Hence, as long as the conditions set by the
regulations and law are complied with the services are considered zero-rated. The conditions
under the regulations are: (a) the consideration must be paid for in acceptable foreign
currency; (b) consideration is accounted for in accordance with BSP Rules.

As our company’s services yield a zero output VAT liability, the input VAT, which are
attributable to such services can be the subject of a claim for tax credit or refund. And in
claiming a tax credit or refund, we must prove, among others, that the sale of services is VAT
zero-rated.

To prove that the supply of services is subject to VAT at a rate of zero percent, the
Supreme Court held in the case of Commissioner of Internal Revenue (CIR) v. Burmeister and
Wain Scandinavian, GR 153205, January 22, 2007; and CIR v. American Express International,
Inc. (Philippines), G.R. No. 152609.

 The services must be other than processing, manufacturing or repacking of goods;

 The payment for such services must be in acceptable foreign currency accounted for in
accordance with the Bangko Sentral ng Pilipinas rules and regulations1; and,
 The recipient of such services must be doing business outside the Philippines.

**** Thus, as long as the other contracting party ADEC is transacting with is not doing
business in the Philippines, and the services are other than the processing etc. of goods, and
the consideration is an acceptable foreign currency by the BSP, the services we are rendering
to the foreign client will be zero-rated.

Being a zero-rated transaction, we can then claim for input tax credit or refund, but we
must prove the presence of the foregoing requisites. In proving the foregoing requisites, the CTA
in the case of General Motors Automobiles Philippines Inc. v. CIR, CTA Case 8976, December 2,
2016, the Court of Tax Appeals (CTA) held that:

1 Under BSP Rules, only those entities doing business outside the Philippines can be required by
the BSP to pay in acceptable foreign currency for their purchase of goods and services from the
Philippines. (Chapter II (B) on Export Trade Transactions, BSP Circular No. 1389 dated 13 April
1993, otherwise known as the Consolidated Foreign Exchange Rules and Regulations.)
“the first requisite can be complied by presenting the service agreements between
the domestic corporation and the nonresident foreign corporation, which reflects the
nature of the services to be rendered by the domestic corporation.

With regard to the second requisite, the domestic corporation must present the Funds
Transfer Credit Advice and Certificate of Inward Remittances issued by the bank which
facilitated the payment, and the VAT zero-rated official receipts. Corollary to this
requisite, the VAT official receipts must comply with the invoicing and accounting
requirements for VAT-registered persons, otherwise, the amounts reflected in the
noncompliant VAT official receipts shall be deemed as not supported by VAT zero-rated
official receipts, and shall be denied zero-rating.

Anent the third requisite, the CTA appreciated the following documentary evidences to
prove that the recipient of the services is doing business outside the Philippines: (a) the
certification of nonregistration of company issued by the Securities and Exchange
Commission (SEC); (b) the consularized certificate of residence of the nonresident
foreign corporation authenticated by the Philippine Embassy, or the original
certificate of residence issued by the appropriate department of the foreign
government; and (c) the consularized certificate of
registration/incorporation/formation of the nonresident foreign corporation
authenticated by the Philippine Embassy.”