VAT Ruling No. 017-03

January 21, 2003 VAT RULING NO. 017-03 Sec. 24 R.A. 7916 BIR Ruling No. 033-99 Marie G. Mapa 2947 PHHC Road, Villamonte Bacolod City M a d a m : This refers to your letter dated May 28, 2002 requesting for a ruling that the lease of your property to TECHNOCLEAN PHILIPPINES, INC. (Technoclean) is subject to value-added tax (VAT) at the rate of zero percent (0%). It is represented that you are a VAT-registered lessor of a real estate property located at No. 40 Zodiac Street, Bel-Air 3, Makati City; that in April, 2002, you leased said property to Technoclean, a PEZA-registered Ecozone Export Enterprise; that while negotiating the price, you wanted to add ten percent (10%) to cover the VAT but was told that Technoclean is subject to zero percent (0%) VAT; that you are further told that you can claim the zero-rate for VAT on the said lease transaction; that as a consequence, you agreed with the price without the additional VAT component; that after the lease contract was signed and the down payment was made, you informed your accountant about the transaction; that the latter went to check with the concerned Revenue District Office about the mechanics of zero rating and was informed that zero rating is not automatic; and that a certification (Certificate No. 2002-035) dated January 8, 2002 was issued by PEZA to the effect, among others, that for the purpose of VAT zero-rating of the transactions of Technoclean with its local suppliers, the latter should be guided by Section 3.3 of Revenue Memorandum Circular No. (RMC) 74-99 dated October 15, 1999. In reply, please be informed that Section 24 of Republic Act No. (RA) 7916, as amended by R.A. 8748, provides as follows, viz : "SEC. 24. Exemption from National and Local Taxes. Except for real property taxes on land owned by developers, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu thereof five percent (5%) of the gross income earned by all business enterprises within the ECOZONE shall be paid and remitted as follows: "(a) Three percent (3%) to the National Government; "(b) Two percent (2%) which shall be directly remitted by the business establishments to the treasurer's office of the municipality or city where the enterprise is located." Furthermore, Section 2 of RMC 74-99 states that the said "tax incentive only applies in respect of the registered enterprise's operations within the ECOZONE." From the foregoing provisions, it is clear that the sale of services to PEZA-registered enterprises, for income and VAT purposes, should be rendered within the PEZA boundaries to be entitled to the benefits thereof. (BIR Ruling No. 033-99 dated March 23, 1999) aDHCEA Accordingly, and since that real estate property being leased by Technoclean is located outside the PEZA boundaries, the lease thereof is therefore subject to the ten percent (10%) VAT imposed under Section 108(A) of the National Internal Revenue Code of 1997 and not to the zero percent (0%) VAT. This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation it shall be disclosed or discovered that the facts are different, then this ruling shall be without force and effect insofar as the parties herein are concerned. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group