VAT Ruling No. 014-04

May 18, 2004 VAT RULING NO. 014-04 RA 7227 RMC 74-99 002-2001 Duty Free First Superstore, Inc. P. Kalaw Ave., cor Gregoria de Jesus Ave. Clark Special Economic Zone Clark Field, Pampanga Attention: Mr. Charlie C. Si General Manager Gentlemen : This refers to your undated letter which was received by this Office on August 2, 2002 requesting for VAT exemption because you are an operator of a duty free store in Clark Special Economic Zone (CSEZ). Documents submitted to this Office include certified true copies of your Permit to Operate a Duty Free Store numbered PTO 2002-139 with effective date of June 18, 2002, Certificate of Registration No. 98-45 and Certificate of Tax Exemption No. 98-45, all issued by Clark Development Corporation, as well as copies of your SEC Registration No. ASO94-008250 and By-Laws, and BIR Registration with OCN 4RC000155084 dated January 31, 1996. In reply, please be informed that Section 5, paragraph 2 of Executive Order No. 80 in relation to Section 12(c) of Republic Act No. 7227 provides that "Section 5. Investment Climate in the CSEZ . Pursuant to Section 5(m) and Section 15 of RA 7227, the BCDA shall promulgate all necessary policies, rules and regulations governing the CSEZ, including investment incentives, in consultation with the local government units and pertinent government departments for implementation by the CDC. "Among others, the CSEZ shall have the applicable incentives in Subic Special Economic and Free Port Zone under RA 7227 and those applicable incentives granted in the Export Processing Zones, the Omnibus Investments Code of 1987, the Foreign Investments Act of 1989 and new investments laws which may hereinafter be enacted. Sections 4(A)(b)) and 6(a) of Rev. Regs No. 1-95, 1 provides that a SBMA registered enterprise doing business within the Secured Area in the Zone is exempt from national internal revenue taxes, such as gross receipts tax, VAT, and excise taxes on their sales of goods and services for which they shall otherwise have been directly liable, and in lieu of which, they shall pay the five percent (5%) preferential rate based on gross income earned. Based on the foregoing, a CSEZ registered enterprise is subject only to the preferential tax rate of five percent (5%) on income earned/derived from business operations within the area in the zone, in lieu of the local and national taxes, which shall be remitted and distributed as follows: three percent (3%) to the National Government; one percent (1%) to the local government units affected by the declaration of the Zone; and one percent (1%) to the Special Development Fund to be utilized for the development of municipalities contiguous to the base area. Likewise, since the CSEZ is considered and managed as a separate customs territory 2 that is generally subject to the 5% preferential tax rate, the sale of goods and services by a VAT-registered supplier from the Customs Territory to a CSEZ-registered enterprise shall be subject to zero percent (0%) VAT pursuant to Sections 106(A)(a)(5) and 108(B)(3), both of the Tax Code of 1997. Accordingly, since Duty Free First Superstore, Inc. is a CSEZ registered enterprise, it is exempt from the payment of VAT, considering that it is enjoying the benefit of being taxed at the preferential rate of five percent (5%) on gross income earned under Section 12(c) of R.A. No. 7227, as implemented by Section 6(a) of Revenue Regulations No. 1-95. 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. IDSaAH Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group Footnotes 1. Rules and Regulations Implementing Paragraphs (b) and (c) of Section 12, Republic Act No. 7227. 2. Sec. 12(b) of R.A. No. 7227.