Law Allowing Tax Refunds for Foreigners

Republic Act No. 12079: Tax Refunds for Foreigners

The Philippines now joins a host of other tourist destinations in the world offering tax refunds to foreigners.

With the enactment of Republic Act No. 12079, entitled “An Act Creating a VAT Refund Mechanism for Non-Resident Tourists…”, foreign visitors will now be entitled to get a refund of the Philippines 12% Value Added Tax on locally purchased goods.

Republic Act No. 12079, which as approved by the President of the Republic of the Philippines on 6 December 2024, introduces a VAT refund mechanism for non-resident tourists in the Philippines. The law seeks to enhance the tourism sector of the Philippines by allowing foreign visitors to reclaim the Value Added Tax (VAT) on certain purchases made during their stay in the Philippines.  

Overview of Republic Act No. 12079

Republic Act No. 12079, enacted during the Nineteenth Congress of the Philippines, establishes a new section, Section 112-A, under the National Internal Revenue Code of 1997 or the Philippines’ Tax Code. This newly-minted section specifically addresses the VAT refund for tourists, outlining the eligibility criteria and the operational framework for the refund system.

Outlining the Provisions of the Law

1. Eligibility for VAT Refund: According to Section 112-A(a), a tourist is eligible for a VAT refund on locally purchased goods if the following requisites are met:

• The goods must be purchased in person by the tourist in duly accredited stores.
• The goods must be taken out of the Philippines by the tourist within sixty (60) days from the date of purchase.
• The value of goods purchased per transaction must be at least Three thousand pesos (P3,000.00). This threshold is subject to review and adjustment every three years by the Secretary of Finance, based on the Consumer Price Index (CPI) as published by the Philippine Statistics Authority (PSA).
• VAT Refund Process: The Department of Finance is tasked with engaging reputable VAT refund operators to provide end-to-end solutions for the establishment and operation of the VAT refund system for tourists (Section 112-A(b)). Refunds can be processed either electronically or in cash (Section 112-A(c)).

3. Implementation Timeline: The Secretary of Finance is required to promulgate the necessary rules and regulations within ninety (90) calendar days from the effectivity of this Act to ensure its proper implementation (Section 2).
4. Effectivity: The Act will take effect fifteen (15) days following its publication in the Official Gazette or in a newspaper of general circulation (Section 5).

How Foreigners Can Avail of the Tax Reimbursement

To avail of the VAT refund, foreign tourists must follow a specific process:

1. Purchase Requirements: Tourists must ensure that their purchases are made in accredited stores. It is advisable to inquire about the store’s accreditation status before making a purchase.
2. Documentation: Upon purchasing goods, tourists should request a VAT refund receipt from the store. This receipt is crucial for the refund process.
3. Departure from the Philippines: Tourists must retain the purchased goods and ensure they are taken out of the country within sixty (60) days from the date of purchase. It is essential to keep the goods in their original packaging to facilitate inspection by customs upon departure.
4. Claiming the Refund: Tourists can claim their VAT refund either electronically or in cash. The specific procedures for claiming the refund will be outlined in the implementing rules and regulations to be issued by the Secretary of Finance.

Implications of Non-Compliance

While the law provides a clear framework for VAT refunds, non-compliance with its provisions can lead to significant consequences:

1. Loss of Refund: If a tourist fails to meet any of the eligibility criteria outlined in Section 112-A, they will not be able to claim the VAT refund. This includes not purchasing from accredited stores, not taking the goods out of the country within the stipulated time, or not meeting the minimum purchase threshold.
2. Penalties for Non-Compliance: Although the Act does not explicitly outline penalties for non-compliance, the penal provisions under the Philippines’ Tax Code may apply. For one, there is a catch-all provision under the Tax Code, as amended, that punishes a person who violates any provision of the Tax Code or any rule or regulation promulgated by the Department of Finance, for which no specific penalty is provided by law. The penalty for such violation is a fine of not more than One thousand pesos (P1,000) or imprisonment of not more than six (6) months, or both. The penalties for non-compliance will all depend upon the implementing regulations to be issued by the Department of Finance, pursuant to the provisions of Republic Act No. 12079.

Initial Conclusions About Republic Act No. 12079

Republic Act No. 12079 represents a progressive step towards enhancing the tourism experience in the Philippines by allowing non-resident tourists to reclaim VAT on their purchases. By understanding the provisions of this law and adhering to the requirements, foreign tourists can benefit from tax reimbursements, thereby encouraging more tourism and economic activity in the country. It is crucial for tourists to stay informed about the implementation of this law and to comply with all requirements to avoid any potential penalties or loss of benefits.

Read moreKnow When to Pay Value Added Tax or Capital Gains Tax When you Sell Real Property or Land

This article provides a comprehensive overview of the newly enacted VAT refund mechanism for non-resident tourists, highlighting the key provisions, the process for availing of the refund, and the implications of non-compliance. As the law is implemented, further guidance and regulations will clarify the process and ensure that tourists can take full advantage of this beneficial legislation.

About Nicolas and De Vega Law Offices

If you need assistance in Philippine tax law, or have any concerns in local or international taxation, including tax assessment or collection disputes, tax refunds, or tax cases involving Philippine taxes, we can help you. Nicolas and de Vega Law Offices is a full-service law firm in the Philippines.  You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines.  You may also call us at +632 84706126, +632 84706130, +632 84016392 or e-mail us at [email protected]. Visit our website www.ndvlaw.com.