VAT on construction services to BOI-registered enterprises

Services rendered by a VAT-registered construction company for the construction and expansion of the export facility of an export enterprise registered with the Board of Investments (BOI) does not qualify for VAT zero-rating; hence, it is subject to 12% VAT.

The BIR held that the sale of construction service to the BOI-registered enterprise is not among the services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed 70% of the total annual production, which is qualified for VAT zero-rating under Section 108(B) of the Tax Code.

The BIR further ruled that the construction service also does not qualify for VAT zero-rating under Section 4.106-5 of RR 16-05 because the construction service rendered for the BOI-registered enterprise does not directly form part or does not contribute to the goods or final products that are exported, i.e., they are not “supplies”, “raw materials”, and “semi-manufactured products” that are used in the manufacture, processing or production of the BOI-registered enterprise’s export products.

(BIR Ruling No. 610-2012, November 8, 2012)

Tax Brief – December 2012

Punongbayan and Araullo