Gencpros Systems, Inc.

December 8, 2009 BIR RULING [DA-(IL-041) 742-09] RR 14-2002; RA 7227; Sec 109 (K); DA-(IL-004) 188-09; DA-(IL-002) 186-09 Gencpros Systems, Inc. 5F Richville Corporate Tower, Madrigal Business Park 1107 Alabang Zapote Road, Muntinlupa City Attention: Mr. Josefino Matriano President Gentlemen : This refers to your letter dated November 17, 2009 requesting for a confirmation that as an SBMA Registered enterprise, it is entitled to incentive granted under Republic Act No. 7227. It is represented that GENCPROS SYSTEMS, INC. (Gencpros) located at 69 West Gate Office, Sampson Road, Subic Bay Gateway Park, Subic Bay Freeport Zone with TIN 247-123-405-000 became a duly registered Subic Bay Freeport Enterprise and the Subic Bay Metropolitan Authority (SBMA) issued a Certificate of Registration and Tax Exemption No. 229-0070 dated November 9, 2009 in accordance with R.A. 7227, thereby entitling Gencpros to certain preferred rights, privileges, and benefits indicated in the aforementioned Certificate of Registration; and that Gencpros registered activities stated in its Certificate of Registration as a Freeport Enterprise include the business of providing information technology solutions, which includes software, hardware, research and development, website, computer graphics, animation, digital creation and networking researches and improvements to current software/hardware set-up (K73300) to foreign and local companies. In reply, please be informed that Sec. 2.57.5 (B) (2) of RR 2-98, as amended by RR No. 14-2002, provides as follows: "Sec. 2.57.5. Exemption from withholding. The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income payments made to the following: EIDATc xxx xxx xxx (B) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following: xxx xxx xxx (2) Corporations duly registered with the . . . and Subic Bay Metropolitan Authority enjoying exemption from income tax pursuant to E.O. 226, as amended, R.A. 7916, the Omnibus Investment Code of 1997 and R.A. 7227, as amended, respectively;" As an SBFZ-registered enterprise, Gencpros is subject to the payment of preferential tax rate of 5%, in lieu of paying local and national taxes, based on its gross income earned within the zone and which shall be remitted in accordance with RA No. 7227, as amended. Accordingly, since Gencpros is exempt from payment of national and local taxes, and in lieu of which, it is subject to the 5% tax based on the gross income earned as defined under RR No. 2-05, this Office is of the opinion as it hereby holds that it is exempt from the CWT prescribed under Section 2.57.5 (B) of RR No. 2-98, as amended by RR 14-2002, implementing Section 57 (B) of the Tax Code of 1997 on income payments received by Gencpros. (BIR Ruling No. DA-267-08 dated April 24, 2008) Furthermore, as a duly registered SBFZ-enterprise enjoying the 5% preferential income tax rate, Gencpros is also exempt from the value-added tax on the sale of its services to clients also located inside the Freeport zone pursuant to Section 109 (K) of RA No. 9337. (VAT Ruling No. 006-2004 dated April 2, 2004) Services rendered to persons or entities like Gencpros whose exemption under special laws like Republic Act No. 7227 effectively subjects the supply of such services to zero percent (0%) rate, pursuant to Section 108 (B) (3) of the Tax Code of 1997, as amended, and Section 4.118-5 (b) (3) of Revenue Regulations No. 16-2005, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service