Domestic Services Rendered by Service Contractors/Enterprises to PASAR, a PEZA Registered Entity, are Zero-Rated Transactions under R.A. No. 7716 otherwise known as the Expanded Value Added Tax Law

April 3, 1997 BIR RULING NO. 035-97 102 (b) (3) 000-00 035-97 Atty. Regulus E. Cabote 3rd Floor, Vernida IV Building Alfaro Street, Salcedo Village Makati City S i r : This refers to your letter dated January 15, 1996 stating that your client, Philippine Associated Smelting and Refining Corporation (PASAR) is registered with the Philippine Economic Zone Authority (PEZA); that PASAR is engaged in the smelling and refining of various metals, specifically copper and its by- products; that it exports most, if not all, of the copper cathodes it produces; that PASAR was originally registered with the Export Processing Zone Authority (EPZA) under Executive Order No. 110 and is presently registered with the PEZA under R.A. No. 7916; that PASAR's plant site is located at the Export Processing Zone in Isabel, Leyte which has been designated as an Ecozone under Section 5(11) of R.A. No. 7916. cdti In connection therewith, you are requesting confirmation of your opinion that domestic services rendered by service contractors/enterprises to PASAR, a PEZA registered entity, are zero-rated transactions under R.A. No. 7716 otherwise known as the Expanded Value Added Tax Law. In reply thereto, please be informed that under Section 24 of R.A. No. 7916 otherwise known as "The Special Economic Zone Act of 1995" no taxes, local and national, shall be imposed on business establishments operating within the Ecozone and that 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. Thus, PASAR which is a PEZA registered entity is exempt from local and national taxes. Services rendered by VAT registered persons to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero rate. Effectively zero rated sales of services shall refer to the sale by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws, or international agreements. Effectively zero-rated transactions shall be limited to the local sale of services to persons or entities who enjoy exemptions from indirect taxes under subparagraph (b), Nos. (3), (4) and (5) of Section 4, 102-2, Revenue Regulations No. 7-95. Such being the case, the domestic sales of services by VAT-registered service contractors/enterprises to PASAR, a PEZA registered entity, are zero-rated sale of services. The zero rated sales of services by the VAT registered service contractors/enterprises shall not result in any output tax. However, the input tax on its purchase of goods, properties or services related to such zero-rated sale shall be available as a tax credit or refund in accordance with Revenue Regulations No. 7-95. It shall be understood, however, that VAT registered service contractors/enterprises shall apply with the Revenue District Office concerned having jurisdiction over their principal place of business for the effective zero rating of their sales of services to PEZA and to Ecozones enterprises within, the Zone, pursuant to Revenue Regulations No. 5-87, as amended by Revenue Regulation No. 10-94 as amended. Without an approved application for effective zero rating, the transaction otherwise entitled to zero rating shall be considered exempt. cdta Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue