RR No. 11-2005: Defines “Gross Income Earned” to implement the tax incentive provision of Republic Act No. 7916, otherwise known as “The Special Economic Zone Act of 1995”

Key points

1. Meaning of gross income earned. It means gross sales or gross revenues from business activity within the ECOZONE, net of sales discounts, sales returns and allowances, and minus costs of sales or direct costs. No deduction is made for administrative, marketing, selling or operating expenses or incidental losses in the taxable period.
2. Purpose of the definition. The definition is used to compute the total five percent (5%) tax rate.
3. Direct costs: export and trade enterprises. Allowed direct costs include direct labor, production supervision salaries, raw materials, decrease in Goods in Process and Finished Goods accounts, production supplies and fuels, depreciation of production machinery and equipment, rent and utilities for production facilities, and financing charges on production fixed assets not previously capitalized.
4. Direct costs: developers and service enterprises. Allowed direct costs include direct labor, service supervision salaries, direct materials and supplies, depreciation of equipment and of the building portion used exclusively for registered services, rent and utilities for those services, and financing charges on service fixed assets not previously capitalized.
5. Suspension of RR No. 2-2005 sections. Sections 3, 4, and 6 of Revenue Regulations No. 2-2005 are suspended for enterprises registered under R.A. 7916. The suspension lasts until new regulations are issued.

Who is affected

• ECOZONE export enterprises, free trade enterprises and domestic market enterprises
• ECOZONE developers/operators, facilities, utilities and tourism enterprises
• Enterprises registered under R.A. 7916

Deadlines and effectivity

• Issued June 23, 2005
• Suspension of Sections 3, 4, and 6 of RR No. 2-2005 lasts pending new regulations