VAT Ruling No. 039-00

October 23, 2000 VAT RULING NO. 039-00 Sec. 5 (2) 000-00 SGV & CO . 6760 Ayala Avenue 1226 Makati City Attention: Atty . J . A . Osana Tax Division Gentlemen : This refers to your letter dated May 15, 2000 requesting confirmation that your client, Lufthansa Technik Phils., Inc. (LTP), being a PEZA registered export enterprise, shall be subject to the 5% special tax on gross income earned from its registered activity performed within the ECOZONE which is in lieu of all taxes, local or national. It is represented that LTP, a domestic corporation, has an approved application for registration as an ECOZONE export enterprise with the Philippine Economic Zone Authority (PEZA) pursuant to the provisions of R.A. 7916; that as an export enterprise LTP shall render repair and maintenance services for international carriers, which services shall be paid for in foreign currency; that all repairs and maintenance services shall be performed within the ECOZONE; that in accordance with its approved PEZA application, LTP is required to maintain export sales of seventy percent (70%) of its total sales and allowed to have local sales not exceeding thirty percent (30%) of its total sales ; and that local sales of LTP, as approved by the PEZA Board, shall consist of revenues derived from services performed within the ECOZONE on aircraft used for domestic flights by airlines. In reply, please be informed that Section 5(2) of Revenue Memorandum Circular No. 74-99, dated October 15, 1999, provides: "(2) Sales of Services By A PEZA Registered Enterprise to A Buyer From the Customs Territory . This type of transaction is not embraced by the 5% special tax regime governing PEZA-registered enterprises pursuant to R.A. No. 7916, as implemented by the PEZA rules and regulations hence, such seller shall be subject to the ten percent (10%) VAT, pursuant to Sec. 108 or to the percentage tax, pursuant to Title V, whichever is applicable, and to the normal income tax on income derived therefrom, pursuant to Title II, NIRC. Such income tax shall be computed in accordance with the method of general apportionment provided in the immediately preceding paragraph." Accordingly, LTP's gross income earned from the aforementioned export sales revenues shall be subject to the 5% special tax regime, in lieu of all taxes, national and local. However, its aforesaid local sales of services, not being embraced by the said special tax regime, shall be subject to the 10% value added tax (VAT) and the corporate income tax, hence, to this extent, LTP is required to register with the BIR as a person subject to the provisions of the VAT law and to issue VAT-registered invoice on the aforesaid local sales of services. DHaECI 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.) DAKILA B. FONACIER Commissioner of Internal Revenue