VAT Ruling No. 031-90

February 14, 1990 VAT RULING NO. 031-90 102 (a)-000-00-031-90 Mr. Carlos J. Reyes Lot 31, Block V Metroville Subdivision Cainta, Rizal S i r : This refers to your letter dated May 15, 1989 stating that a company in the U.S.A. engaged the services of a VAT-registered Philippine contractor to perform data encoding services; that the foreign company sent the documents to the Philippines for the job and that due to the limited capacity of the Philippine main contractor it engaged the services of a VAT-registered subcontractor to perform some of the said services. Based on the foregoing, you now request for a ruling on the value-added tax liability of the subcontractor under the following situations: 1. Where the foreign principal remits the payment directly to the subcontractor corresponding to the job done the consideration for which is paid for in US dollars which are accounted for in accordance with Central Bank rules and regulations. 2. Where the subcontractor is paid for in Philippine peso by the Philippine main contractor. In reply, please be informed as follows: 1. The encoding service performed by a subcontractor is not actually made for the foreign principal but for the main contractor. For this, any remittances made by the foreign principal to the subcontractor are payments for and in behalf of the main contractor who is the actual recipient of the foreign currency denominated payments; hence the subcontractor is not qualified for zero-rating. It is the main contractor that is subject to 0% VAT on the entire proceeds of the contract, provided that the proceeds thereof, in foreign currency, had been inwardly remitted and accounted for in accordance with the rules and regulations of the Central Bank. [Section 102(a)(2) of the Tax Code, as amended.] 2. Where the sub-contractor is paid for in Philippine peso, he shall likewise be subject to 10% VAT pursuant to Section 102 (a) of the same Code. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue