VAT Ruling No. 005-03

January 9, 2003 VAT RULING NO. 005-03 Sec. 114 VAT Ruling 095-99 Sakamoto Orient Chemicals Corp . Room 903 Liberty Building 104 De La Costa St., Salcedo Village Makati City Attention: Mr. Cesar F. Cabanas Acctg. & Adm. Manager Gentlemen : This refers to your letter, dated August 19, 2002, requesting for a clarification, in relation to Revenue Regulations No. 8-2002, on the following issues: (a) Whether Philippine Economic Zone Authority (PEZA)-registered enterprises, such as your company, are required to withhold the ten percent (10%) value added tax (VAT) on payment for services rendered by non-residents; and (b) If the answer is in the negative, whether PEZA-registered enterprises are still required to submit BIR Form No. 1600 ( i . e ., Monthly Remittance Return of VAT and other percentage taxes withheld) with respect to VAT withheld from non-resident providers of services. In VAT RULING NO. 094-99, 1 September 14, 1999, it was ruled that a PEZA-registered enterprise may not legally be passed on with the 10% VAT; that, while payment for lease or use of property or property right to a non-resident owner-lessor is, in general, subject to the 10% creditable VAT withholding, which the lessee shall withhold and remit to the BIR, however, this rule shall not apply to a PEZA-registered lessee because, as a PEZA-registered person, the said lessee may not legally be passed on with the 10% VAT. The dispositive portion of this ruling reads: "The same principle is applicable to the case at hand. It should be noted that the leased equipment will be used or is being used for the production of JAE's PEZA-registered export activities. However, instead of zero-rating which the non-resident supplier cannot avail of, the provision for exempt transactions under Section 109 of the Code which provides VAT exemptions for transactions which are exempt under special laws, e . g ., R.A. 7916 or PEZA Law, is particularly applicable to the instant case. In the case of payment for lease or royalties to a non-resident owner the responsibility for withholding the VAT and paying the same rest on the payor. However, since PEZA-registered export enterprise may not be passed on with nor claim input VAT, then its payment of royalties to non-resident lessor, such as SB Leasing (Singapore) Pte . Ltd . , should be, as it is, hereby confirmed to be, exempt from VAT. xxx xxx xxx " This ruling revokes and/or modifies VAT Ruling No. 061-98 dated December 15, 1998 and all other rulings inconsistent herewith . . . ." In view thereof, please be informed that the provisions of Revenue Regulations No. 8-2002 notwithstanding, as a PEZA-registered enterprise, your payments for the services of the said non-resident person is exempt from VAT, hence, also exempt from the creditable VAT withholding otherwise prescribed under Section 114 (C), NIRC of 1997. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group Footnotes 1. See also VAT RULING NO. 095-99, September 14, 1999; and VAT RULING NO. 100-99, September 16, 1999.