SAWO Incorporated

July 15, 2008 BIR RULING [DA-(IL-006) 047-08] RR 16-2005 SAWO Incorporated SAWO Building, Mactan Economic Processing Zone 2 Cebu, Philippines Attention. Mr. Eugenio O. Gozon Senior Accountant Gentlemen : This refers to your letter dated August 23, 2007 requesting for issuance of a VAT zero-rate certificate to SAWO Incorporated (SAWO), being a PEZA-registered Export Enterprise. Documents submitted disclosed that SAWO, Inc. is an Ecozone Export Enterprise with Philippine Economic Zone Authority (PEZA) Certificate of Registration No. 00-023 dated March 9, 2000; that as per Certification issued by PEZA, SAWO, Inc. is engaged in the manufacture of sauna and related products, furniture, fixtures, household wares and accessories, and other household furnishings made of wood, metal or any other material or combination of materials of every class and description; and that as a PEZA registrant, SAWO, Inc. shall be entitled to all incentives granted to non-pioneer firms under Republic Act No. 7916, to wit: "1. Incentives under Book VI of E.O. 226 which include the following: a. Corporate income tax holiday (ITH) for four (4) years for original project effective on the committed date of start of commercial operations, or the actual date of state of commercial operations, whichever is earlier; ITH entitlement for the original project can also be extended for another three (3) years provided specific criteria are met for each additional year and prior PEZA approval is obtained; duly approved and registered "Expansion" and "New" projects are entitled to a three-year, and four-year ITH, respectively; b. Tax and duty free importation of merchandise which include raw materials, capital equipment, machineries and spare parts; c. Exemption from wharfage dues and export tax, impost or fees; d. VAT-zero-rating of local purchases subject to compliance with BIR and PEZA requirements; and e. Exemption from payment of any and all local government imposts, fees, licenses or taxes except real estate tax; however, machineries installed and operated in the ecozone for manufacturing, processing or for industrial purposes shall not be subject to payment of real estate taxes for the first three (3) years of operation of such machineries, production equipment not attached to real estate shall be exempt from real property taxes." DIAcTE In reply, please be informed that Section 5 of Revenue Regulations No. 4-2007 provides viz. : "Section 5. Zero Rated Sales . Sec. 4.106-5 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.106-5. Zero-Rated Sales of Goods or Properties. . . . The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. . . . (5) Transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws. "Considered export sales under Executive Order No. 226" shall mean the Philippine port F.O.B. value determined from invoices, bills of lading, inward letters of credit, landing certificates, and other commercial documents, of export products exported directly by a registered export producer, or the net selling price of export products sold by a registered export producer to another export producer, or to an export trader that subsequently exports the same . . .; Provided, further, that pursuant to E.O. 226 and other special laws, even without actual exportation, the following shall be considered constructively exported: . . .; (2) sales to export processing zones pursuant to Republic Act (R.A.) Nos. 7916, as amended, 7903, 7922 and other similar export processing zones; . . ." Thus, local purchases of SAWO Inc., being a PEZA-registered Export Enterprise shall be subject to VAT at zero rate (0%) pursuant to the aforementioned Sec. 4.106-5 of RR No. 16-2005, as amended by Revenue Regulations No. 4-2007. 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