Atty. Rolando P. Nonato

February 9, 2010 VAT RULING NO. 003-10 RR 16-2005 & RMC 7-2006 Atty. Rolando P. Nonato Tulips Center A.S. Fortuna St. Bakilid, Mandaue City Sir : This refers to your follow-up letter dated August 18, 2009 requesting on behalf of your client, Primary Industrial Properties Corporation ("PIPC"), for confirmation of your opinion that as lessor of information technology (IT) and industrial building spaces to PEZA-registered IT and export enterprises located inside the Mactan Ecozones I and II and in Asiatown IT Park, PIPC is exempt from the registration requirements of the provisions of Revenue Memorandum Order No. 7-2006. SaICcT As represented, PIPC is a PEZA-registered zone service and facility enterprise and pays the 5% special tax rate under the provisions of the Special Economic Zone Act of 1995. As a zone service enterprise, it has been issued a Certificate of Registration No. 94-A10 and a Letter of Approval No. 05-1197 dated October 11, 2005 by the PEZA. PIPC has entered into lease contracts with a number of PEZA zone export and IT locators/enterprises and as such lessor enjoying the 5% special tax rate, you allege that its gross receipts as a lessor are subject to zero-rate. In support of your request, you have enclosed photocopies of the following documents: 1. PEZA Certificate of Registration No. 94-A10; 2. PEZA Letter of Approval No. 05-1197 dated October 11, 2005; 3. Supplemental Agreement signed with PEZA dated December 23, 2004; and 4. Supplemental Agreement with PEZA dated November 23, 2005. In reply, please be informed that pursuant to Republic Act (R.A.) No. 7916, as amended by R.A. No. 8748, otherwise known as "An Act Providing for the Legal Framework and Mechanism for the Creation, Operation, Administration, and Coordination with Special Economic Zones in the Philippines, Creating for this Purpose, the Philippine Economic Zone Authority (PEZA), and for Other Purposes", business establishments operating within the Ecozone are subject to the preferential tax rate of five percent (5%) of the gross income earned, in lieu of all taxes, national or local. Section 24 thereof provides that in lieu of paying taxes, three percent (3%) of the gross income earned by all business enterprises within the Ecozone shall be remitted to the national government and two percent (2%) to the municipality or city where the enterprise is located. Accordingly, the registered operations of PEZA registered enterprises within the Ecozone are subject to the 5% tax on gross income earned, in lieu of all other taxes, whether national or local. DcSTaC In view of the foregoing, since PIPC is a PEZA-registered enterprise subject to the 5% special tax regime, it is required to register as a non-VAT taxpayer pursuant to Sec. 25 of RR No. 4-2007. Thus, the registration requirement under RMO No. 7-2006 shall not apply to a non-VAT taxpayer like PIPC. As such, it is exempt from the payment of all national taxes (including the VAT) on the income derived from its registered activities, thus, it is our opinion, as we hereby hold, that your request for the zero-rating of PIPC's gross receipts derived from the rental of its properties within the PEZA zone are not entitled to the zero percent (0%) rate for lack of legal basis. Likewise, the registration requirement under RMO No. 7-2006 shall not apply to a non-VAT person like PIPC. Very truly yours, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner