VAT Ruling No. 018-04

June 8, 2004 VAT RULING NO. 018-04 R.R. 8-02 VAT Ruling No. 047-02 Association of MEPZ Controllers and Accountants Mactan Export Processing Zone Lapu-Lapu City, Philippines Attention: Ms. Edna B. Nagasaka President M a d a m : This refers to your letter dated February 5, 2004 seeking clarification as to whether zone-registered companies are still required to submit the reports mandated to be submitted under the RELIEF Program pursuant to Revenue Regulations (RR) No. 8-2002, considering that these companies are exempt from national taxes, like the value added tax, and in lieu of which, they are subject to 5% gross income tax. In reply, please be informed that, as a rule, enterprises registered pursuant to the provisions of Republic Act (RA) No. 7916 are covered by a tax regime separate and distinct from those subject to the VAT regime under Title IV of the Tax Code of 1997, as amended. Pursuant to Sec. 24, RA No. 7916, as amended by RA No. 8748, it is provided that: "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." However, certain PEZA-registered enterprises are allowed, at their option, to avail of the Income Tax Holiday (ITH) incentive and, as such, they are entitled to income tax exemption only but not from the other internal revenue taxes, like the value added tax ( VAT Ruling No. 047-02, citing VAT Ruling No. 037-98 ). Moreover, some enterprises doing business within the ECOZONE which derive income from their unregistered activities are not entitled to the tax incentives under the PEZA law, and are therefore governed by the provisions of the National Internal Revenue Code. Hence, they are ordinarily subject to the VAT. Based from the foregoing, enterprises registered in accordance with the PEZA law which are not under the ITH are not covered by the VAT regime and, therefore, not covered by the procedural requirements mandated by RR No. 8-2002. Their registration with the Bureau should be those of Non-VAT taxpayers. Accordingly, zone-registered companies liable to the 5% gross income tax are not required to submit the RELIEF data mandated under RR No. 8-2002. On the other hand, zone-registered enterprises still enjoying income tax holiday, and those deriving income from unregistered activities are covered by the provisions of RR No. 8-2002. It is to be emphasized, however, that zone-registered enterprises are nonetheless required to be registered as withholding agents and, as such, they are mandated to submit on an annual basis the alphabetical list of payees subject to withholding taxes, as well as those not subject thereto in certain cases. TaEIAS Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group