Payment of Service Fees in Foreign Currency Accounted for under BSP Rules Subject to 0% VAT

May 3, 1999 BIR RULING NO. 060-99 060-99 Software Ventures International 6/F, The JMT Corporate Condominium ADB Avenue, Ortigas Center Pasig City Attention: Ms . Joan Christie A . Rubinas Manager Gentlemen : This refers to your letter dated April 27, 1999 stating that you are a VAT registered corporation; that you are also a BOI registered non-pioneer expanding producer of computer software enterprise under Certificate of Registration No. EP-98-158; that your main sources of income are from services, the consideration for which is paid for in acceptable foreign currency which are accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); and that the primary purposes for which you are formed are as follows: (a) to market, sell, render, cater and furnish to clients, whether corporations, partnerships, organizations, institutions, public and private, domestic or foreign, and/or individuals, electronic data processing, or computer services, such as but not limited to the translation and transfer of source or paper data into computer media; (b) to offer or render technical consultation and/or management services in connection with electronic data processing problems, needs and requirements, computer programming procedures, systems, analyses and designs, and other related computer use problems; and (c) to do and perform any and all such acts and things that are associated with or required in the general electronic data processing or computer business. In connection therewith, you are requesting a ruling to the effect that your sale of services are subjected to zero percent (0%) VAT. In reply thereto, please be informed that under Section 108(B)(2) of the Tax Code of 1997, services other than the processing, manufacturing or repacking of goods for other persons doing business outside the Philippines, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rule and regulations of the Bangko Sentral ng Pilipinas, shall be subject to the value-added tax at zero percent (0%). On the other hand, Section 1 of BSP circular No. 1389, as amended, provides as follows: "SEC. 1. Disposition of Foreign Exchange receipts . Foreign exchange receipts, acquisitions or earnings of residents from non-trade sources may, at the option of said residents, be sold for pesos to Authorized Agent Bank (AABs) or outside the banking system, retained or deposited in foreign currency accounts, whether in the Philippines or abroad. . . ." Accordingly, since the payment of your service fees shall be in acceptable foreign exchanged and accounted for in accordance with Section 1 of BSP Circular No. 1389, as amended, the said service fees shall be subject to VAT at 0%. It shall be understood that you shall apply with the Revenue District Officer concerned having jurisdiction over your principal place of business for the effective zero rating of your sales pursuant to Revenue Regulations No. 7-95. Without an approved application for zero rating, the transactions otherwise entitled to zero rating shall be considered exempt. cdll Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue