QuestionsQuestions (BIR MEMORANDUM CIRCULAR NO. 74-99)
It consolidates and harmonizes tax rules on VAT and related tax treatment for sales of goods, property, and services to and from ECOZONES/PEZA enterprises, in relation to R.A. No. 7916 as amended by R.A. No. 8748.
In general, PEZA-registered enterprises are taxed with a 5% special tax on gross income earned, in lieu of all taxes except real property tax, but only for operations within the ECOZONE.
It defines 'Customs Territory' as the national territory outside the proclaimed ECOZONE boundaries, with exceptions by other laws/proclamations. This matters because ECOZONES are treated as a separate customs territory for VAT 'cross border' treatment.
It means no VAT is imposed for goods/services destined for consumption outside the Philippines’ territorial border of the taxing authority, while sales/services destined for use within the Philippines are generally subject to VAT (10%).
The sale is treated as indirect export and qualified for 0% VAT under Sec. 106(A)(2)(a)(5) of the NIRC, in relation to Sec. 23 of R.A. 7916 and Sec. 77(2) of the Omnibus Investments Code (as referenced in the circular).
It is treated as effectively subject to 0% VAT under the cross border doctrine, consistent with VAT Ruling No. 032-98 (Nov. 5, 1998), as stated in the circular.
Any sale of goods/property/services made by a VAT-registered supplier from the Customs Territory to any PEZA-registered enterprise operating in the ecozone is considered qualified for 0% VAT, regardless of the class/type of PEZA registration.
The transaction is treated as exempt from VAT under Sec. 109 in relation to Sec. 236 of the NIRC, regardless of whether the PEZA buyer is under the 5% special tax regime or under the NIRC.
It is treated as a technical importation by the buyer, so the buyer pays the corresponding import tax(es) such as VAT (and excise tax where applicable). The PEZA seller’s gross income from such sales is subject to the 5% special tax, subject to PEZA thresholds.
The income derived from the excess sales is imposed with the normal income tax under Title II of the NIRC, and net income for such excess is determined using the method of general apportionment (Sec. 50, NIRC).
No. The circular states this type of transaction is not embraced by the 5% special tax regime, so the seller is subject to 10% VAT or percentage tax (whichever is applicable), and to normal income tax.
It is exempt from VAT under Sec. 109(q) of the NIRC in relation to Sec. 24 of R.A. 7916, as implemented by the PEZA rules.
If the PEZA seller is subject to the 5% special tax regime: exempt from VAT or percentage tax. If subject to taxes under the NIRC: subject to 0% VAT under the cross border doctrine, regardless of the class/type of PEZA registration.
Because the benefit from such services is eventually translated into export of goods—either actual exports (0% VAT) or technical exports through domestic sales which are treated as importation by the buyer and thus subject to 10% VAT against the buyer.
The circular states it serves as sufficient basis to entitle suppliers to 0% VAT and serves as sufficient compliance to the requirement for prior approval of zero-rating imposed by RR No. 7-95 as of the date of issuance.
Any existing BIR ruling inconsistent with the circular is amended, modified, or revoked accordingly.