Insurance Policies Sold by Insurance Companies Outside the Subic and Clark Freeport Zones are Subject to 10% VAT Based on Gross Premiums Received, and to Documentary Stamp Tax at the Rate of P0.50 each Four Pesos, or Fractional Part thereof, of the Amount of Premium Charged

January 16, 1996 BIR RULING NO. 006-96 102 (a) 184 000-00 006-96 Association of Insurance Brokers of the Philippines 8th Floor, Salamin Building 197 Salvador Street, Legaspi Village Makati, Metro Manila Attention: Mr . Salvador L . Lacson President Gentlemen : This refers to your letter dated December 5, 1995 in effect, requesting for a ruling whether non-life insurance policies sold by insurance companies located outside the Subic and Clark Freeports to enterprises registered therein are subject to VAT and documentary stamp tax. In reply, please be informed that pursuant to Section 102(a) of the Tax Code, as amended by R.A. No. 7716, non-life insurance companies (except crop insurance) including surety, fidelity, indemnity and bonding companies are now subject to 10% VAT based on gross receipts/total premiums collected, whether paid in money, notes, credits or any substitute for money. Enterprises registered within the Subic and Clark Freeports are subject to the 5% preferential tax rate in lieu of local and national taxes, i.e., VAT on their sale of goods or services, pursuant to Sec. 12(c) of R.A. No. 7227, otherwise known as the Bases Conversion and Development Act of 1992. Said tax exemption privilege, however, exempts the registered enterprises only from their direct tax liability, or taxes for which they would otherwise be liable, if it were not for their tax exemption privilege. It does not include exemption from indirect tax, i.e., VAT on their purchase of goods or services, which is a direct liability of the seller. Thus, in the instant case, the insurance policy for the enterprises registered within the Freeport Zone shall be subject to the value-added tax and may be passed on as part of cost to the insured located within the Freeport Zone. By virtue of their direct tax exemption, the enterprises registered within said Freeports are exempted from the documentary stamp tax on their insurance policy. However, under Section 173 of the Tax Code, as amended, whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax. Hence, the obligation to pay the same is shifted to the other party, which in the instant case, are the insurance companies located outside the Freeport Zone. In view thereof, this Office is of the opinion as it hereby holds that insurance policies sold by insurance companies outside the Subic and Clark Freeport Zones are subject to 10% VAT based on gross premiums received, and to the documentary stamp tax at the rate of P0.50 each four pesos, or fractional part thereof, of the amount of premium charged: Provided, however, that no documentary stamp tax shall be collected on reinsurance contract or on any instrument by which cession or acceptance of insurance risks under any reinsurance agreement is affected or recorded, pursuant to Sections 102(a) and 184 of the Tax Code, as amended. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue