VAT Ruling No. 089-90

April 10, 1990 VAT RULING NO. 089-90 Mr. Alfredo Pio De Roda, Jr. Pio de Roda & Associates Law Office Penthouse, LGI Building Ortigas Avenue 1502 Greenhills, San Juan Metro Manila S i r : This refers to your letter dated January 5, 1990, requesting for a ruling on whether or not bareboat charter fees received by a non-resident owner of vessels chartered by Philippine nationals are subject to the value added tax. It is represented that vessels owned by non-residents are chartered by members of the Filipino Shipowners Association pursuant to a bareboat charter agreement which upon approval by the Maritime Industry Authority (MARINA), the vessel is issued a temporary certificate of Philippine registry by the Philippine Coast Guard, (pursuant to the provisions of P.D. No. 1711) after which it is chartered out to a non-resident company on a time-charter basis and is used for cross-country trading without touching any Philippine port. Furthermore, it is represented that with the authority from the Central Bank, the bareboat charter fee which is paid to the non-resident owner net of the 4.5% income tax (which is imposed under Section 25, (b) (3) of the Tax Code, as amended,) and the net foreign exchange earnings of the Philippine shipping company from the bareboat charter-in and the time charter-out, is inwardly remitted to the Philippines in accordance with Central Bank rules and regulations. In reply, please be informed that the value added tax is imposed on sale of goods and services in the course of trade or business in the Philippines, pursuant to the provisions of Sections 99, 100 and 102 of the Tax Code and on importation of goods pursuant to the provisions of Section 101 thereof. As a sales tax, it is not imposed on non-residents not engaged in trade or business in the Philippines. Such being the case, the bareboat charter fees received by a non-resident owner of vessels chartered by Philippine nationals are not subject to the value-added tax. However, for income tax purposes the said fees are subject to the 4-1/2% income tax pursuant to the provisions of Section 25 (b), (3) of the same Code. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue