BIR Ruling [DA-277-06]

April 24, 2006 BIR RULING [DA-277-06] R.A. 7916; RR 16-2005; DA 142-04 Loreta Realty and Development Corporation S.E. Jayme Street, Paknaan Mandaue City Attention: Mr. Oscar H. Chua President Gentlemen : This refers to your letter dated November 8, 2005 requesting for a confirmation of your opinion that Loreta Realty and Development Corporation (LRDC) can avail of the Philippine Economic and Zone Authority (PEZA) incentives for its proposed registered activity as Developer/Operator of Information Technology (IT) Building that will start construction in Cebu Business Park, Cebu City soon; and that PEZA has just approved the application of LRDC as Developer/Operator of LRDC IT Zone. In reply, please be informed that Section 1(A) of Rule XIV of the Rules and Regulations Implementing Republic Act No. 7916 provides viz: "Rule XIV Incentives to ECOZONE Developers/Operators Section 1. Incentives to ECOZONE Developers/Operators . ECOZONE Developers/Operators shall be entitled to the following incentives. A. Exemption from National and Local Taxes and Licenses. Except for real property taxes on land, an ECOZONE Developer/Operator shall be exempt from payment of all national and local taxes. In lieu thereof, the ECOZONE Developer/Operator shall pay a five percent (5%) final tax on gross income in accordance with the provisions of Rule XX of these Rules." xxx xxx xxx" Thus, PEZA registered enterprises are granted specific income tax exemption such that no taxes, local and national shall be imposed on business establishments operating within the ECOZONE in lieu of the five percent (5%) preferential tax rate on the gross income earned by all businesses and enterprises within the ECOZONE. aHSTID Corollarily, Section 4.106-5(c) of Revenue Regulations No. 16-2005 provides that sales of goods or property to persons or entities who are tax-exempt under special laws, e.g., sales to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority (SBMA) pursuant to R.A. No. 7227, sales to enterprises duly registered and accredited with the Philippine Economic Zone Authority (PEZA) or international agreements to which the Philippines is signatory, such as, Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc., shall be effectively subject to VAT at zero rate. Accordingly, since Loreta Realty and Development Corporation is a duly registered PEZA corporation, being the developer/operator of LRDC IT Zone, it is subject to the preferential tax rate of five percent (5%) in lieu of paying other taxes and likewise, the sales of LRDC suppliers qualify for VAT 0% rating, being sales to a PEZA registered enterprise. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service