VAT Ruling No. 014-02

March 6, 2002 VAT RULING NO. 014-02 Sec. 3 (b) (2) 000-00 Forssman Pacific Corporation 2/F Prince Building 117 Rada Street, Legaspi Village Makati City Attention: Mr. Philip J. Thoburn President Gentlemen : This refers to your letter dated August 28, 2001 requesting for VAT zero-rating of your income derived overseas the payment of which is in Hongkong-dollars and made through direct transfer from Hongkong-based bank to Philippine-based bank. It is represented that your company is generally subjected to VAT on its income derived locally; that it entered into a contract with a Hongkong-based company that requires it to do an "engineering and drawing production" here in the Philippines; that the finished product is being sent back to Hongkong through email; that the Hongkong-based company pays in Hongkong dollars through direct transfer, i.e., the Hongkong-based bank credits the Philippine-based bank; and that you believe that such sale of services qualifies for VAT zero rating under Section 108(B)(2) of the 1997 Tax Code. In reply, please be informed that pursuant to Section 3(b)(2) of Rev. Regs. 6-97, amending Sec. 4.102-2(b) of Rev. Regs. No. 7-95, and implementing then Section 102 [now Sec. 108(b)(2)] of the Tax Code, which reads as follows: "( b ) Transactions Subject to Zero Percent (0%) Rate . The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: "xxx xxx xxx "(2) Services other than processing, manufacturing or repacking for other persons doing business outside the Philippines, which goods are subsequently exported, as well as services by resident to a non resident foreign client, such as project studies, information services, engineering and architectural designs and other similar services, the consideration of which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP;" services rendered by resident to a non resident foreign client, such as project studies, information services, engineering and architectural designs, the consideration of which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP shall be subject to zero percent (0%) VAT. Accordingly, the "engineering and drawing production" services which you rendered to a Hongkong-based company and which are being paid for in Hongkong dollars and remitted through direct transfer system by a Hongkong-based bank to a Philippine-based bank shall be subject to zero percent (0%) rate. As regards income derived for services rendered to resident clients even if the same is paid for in foreign currency, the same shall remain subject to the ten percent (10%) value-added tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group