BIR Ruling [DA-541-04]

October 29, 2004 BIR RULING [DA-541-04] RA 7916 DA-349-99 Ftech Philippines Manufacturing, Inc . 118 North Science Avenue, Laguna Technopark Bian, Laguna Attention: Ms. Imelda A. Dyangko Asst. Manager Finance & Accounting Gentlemen : This refers to your letter dated November 07, 2003 requesting for a Certificate of Exemption from the payment of creditable withholding tax prescribed under Revenue Regulations No. 2-98, as amended on account of your registration with the Philippine Economic Zone Authority (PEZA). It is represented that Ftech Philippines Manufacturing, Inc. (Ftech) is registered with the PEZA under PEZA Registration No. 94-42 dated June 17, 1994; that sometime on September 27, 1999, the Bureau of Internal Revenue granted you an exemption from the payment of the 1% creditable withholding tax on the basis of Income Tax Holiday for the period covering six (6) years from May 02, 1995 until the year May 02, 2001; and that although the given Income Tax Holiday expires in the year 2001, your company continues to enjoy the tax preferential rate of 5% of the gross income earned pursuant to Section 24 of Republic Act No. 7916. In reply, please be informed that Section 2.57.5(B)(2) of Revenue Regulations No. 2-98, as amended, is explicit in its provisions that the expanded withholding tax does not apply to income payments to persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special. PEZA-registered enterprises are granted certain preferential tax treatment under Section 24 of Republic Act No. 7916 which provides that "any provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national shall be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the national government. EACIaT Accordingly, since Ftech is a PEZA-registered enterprise enjoying preferential tax rate, income payments made to it with respect to its registered activity shall not be subject to 2% expanded creditable withholding tax prescribed in Revenue Regulations No. 2-98, as amended (BIR Ruling No. DA-349-99 dated June 16, 1999) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group