For many businesses, VAT zero-rating and VAT refunds have long felt like a promise. If you deal with foreign clients, exports, or PEZA-registered entities, you may have assumed that zero-rating naturally applies.
RR No. 10-2025 makes one thing clear:
That assumption is no longer enough.
The Bureau of Internal Revenue (BIR) is now enforcing VAT zero-rating and refund rules more strictly, with heavier emphasis on documentation, traceability, and consistency.
In short, what you claim must now be provable on paper.
What Does VAT Zero-Rating Actually Mean?
A VAT zero-rated sale means two things happen at the same time:
- You do not charge 12 percent VAT to your customer
- You may recover the VAT you paid on related expenses through a refund or tax credit
This is why VAT zero-rating is valuable.
It protects cash flow.
But under Philippine tax law, zero-rating is not automatic.
It applies only to specific transactions and only when all conditions are met.
RR 10-2025 reinforces this point.
What Changed Under RR 10-2025
The regulation does not create new VAT concepts.
Instead, it tightens how existing rules are applied.
The BIR is now looking more closely at:
- Whether a transaction truly qualifies for zero-rating
- Whether invoices are properly issued and labeled
- Whether payments can be traced through banks
- Whether VAT schedules are accurate and defensible
Intent alone is no longer persuasive.
Evidence is.
The Rules That Matter Now:
1. Not All Foreign Transactions Are Zero-Rated
A common misconception is that dealing with a foreign client automatically means zero VAT.
That is incorrect.
For services to be VAT zero-rated, the law requires that the service be used or consumed outside the Philippines, not merely paid by a foreign entity.
If the benefit of the service is enjoyed locally, the transaction may still be subject to 12% VAT.
2. Your Invoice Wording Matters More Than You Think
Even if the transaction qualifies, incorrect invoicing can still kill the claim.
Invoices or official receipts must clearly show:
- The phrase “VAT ZERO-RATED SALE”
- Complete buyer information
- Correct VAT registration details
If the VAT classification is missing or incorrect, the BIR may treat the sale as VAT-taxable and disallow any refund.
3. Foreign Currency Payment Must Be Proven
For zero-rated services, businesses must show that:
- Payment was made in acceptable foreign currency
- The funds passed through the Philippine banking system
This is usually proven through bank credit advices or inward remittance records.
Without these documents, the BIR may deny the zero-rating even if the client is foreign.
4. Input VAT Must Be Cleanly Tracked
Only input VAT that is directly related to zero-rated sales or properly allocated between taxable and zero-rated activities may be refunded.
Poorly prepared VAT schedules are one of the most common reasons for denial.
If your numbers cannot be explained clearly, they will not be accepted.
5. The Two-Year Deadline Is Absolute
VAT refund claims must be filed within two years from the close of the quarter when the zero-rated sale was made.
There are no extensions.
There are no exemptions.
Miss the deadline and the claim is lost.
What the BIR Is Commonly Disallowing in Audits
Based on recent examinations, the BIR frequently denies claims due to:
- Missing or incorrect invoice labels
- No bank proof of foreign remittance
- Treating all foreign clients as zero-rated
- Incomplete VAT schedules
- Differences between VAT returns and financial statements
Most of these issues are avoidable.
They simply require better preparation.
Why This Matters More Than Ever
RR 10-2025 signals a shift toward more aggressive VAT audits.
For businesses that depend on VAT refunds, denial can mean:
- Delayed or lost cash inflows
- Disrupted operations
- Long and costly BIR disputes
What used to be “usually accepted” is now being questioned line by line.
What Business Owners Can Do Now
Before treating a sale as VAT zero-rated or filing a refund claim, pause and ask:
- Does this transaction truly qualify under the law
- Are our invoices properly issued
- Can we prove how payment was received
- Do our VAT schedules actually reconcile
A short review today can save years of dispute later.
Need Help Navigating VAT Zero-Rating or Refunds?
VAT rules are not just technical.
They directly affect cash flow.
Our firm assists businesses with VAT reviews, refund preparation, and audit-ready documentation to ensure compliance under current BIR regulations.
If you are unsure whether your transactions will survive a BIR audit, it is better to check now than defend later.
Bong Corpuz & Co. CPAs 