Sub-contracting fees and local sales rules

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PEZA MEMORANDUM CIRCULAR NO. 2000-003, NOVEMBER 13, 2000: Sub-contracting fees and local sales rules

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Title Source: Supreme Court: Sub-contracting fees and local sales rules

Law: Peza Memorandum Circular No. 2000-003, November 13, 2000

Decision Date: Nov 13, 2000

Economic zone export-producer enterprises must include revenues from sub-contracting jobs for domestic market-oriented enterprises as local sales, subject to a 2% Local Sales Processing Fee, to prevent misuse of tax-exempt machinery and equipment.

Law Summary

Definition of Sub-Contracting Revenues

Revenues to be counted include actual amounts received for the sub-contracting job or activity.
This includes cost of labor, value of production inputs owned and supplied by the economic zone export-producer enterprises, overhead, and other related costs.
Excludes cost of raw materials, semi-finished products, and other materials provided by the domestic market-oriented enterprises ("farmed-in" materials).

Inclusion in Local Sales

Sub-contracting fee revenues are included as part of local sales made by economic zone export-producer enterprises.
This inclusion aligns the regulation of such revenues with that of finished products sold locally by these enterprises.

Imposition of Local Sales Processing Fee (LSPF)

A 2% Local Sales Processing Fee is imposed on the sub-contracting fee for every sub-contracting job done for domestic market-oriented enterprises.
LSPF per transaction must not be less than PHP 1,000 and must not exceed PHP 10,000.
The fee is consistent with the parameters set forth in Memorandum Circular No. 99-0009 dated November 9, 1999, and PEZA Board Resolution No. 99-263 dated October 6, 1999.

Administrative Fee Coverage

The 2% LSPF includes the application fee previously set at PHP 1,000, which is no longer collected separately.

Legal Authority and Implementation

Adopted by PEZA Director General Lilia B. De Lima on November 13, 2000.
Governed under PEZA Memorandum Circular No. 2000-003 for guidance and regulatory compliance.

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