RR No. 2-2005: Implements relevant provisions of Republic Act Nos. 7227, 7916, 7903 and 7922 otherwise known as “Bases Conversion and Development Act of 1992,” “Special Economic Zone Act of 1995,” “Zamboanga City Special Economic Zone Act of 1995” and “Cagayan Special Economic Zone Act of 1995” respectively

Summary

RR No. 2-2005 implements relevant provisions of Republic Act Nos. 7227, 7916, 7903 and 7922, covering the tax treatment of enterprises registered in the Subic, Special Economic, Zamboanga and Cagayan ecozones.

Key points

1. Tax exemptions and incentives. Enterprises under the 5% special tax regime, and all SUBIC-ECOZONE registered enterprises doing business in the Zone, are exempt from national internal revenue taxes on imported raw materials and capital goods. They are also exempt from taxes such as VAT, ad valorem and excise taxes on their sales, except local sales, and get preferential tax treatment on income earned in the Zone or from foreign sources.
2. Limit on Customs Territory income. Zone-registered enterprises may earn income from sources within the Customs Territory of up to 30% of total income from all sources only. All such income is subject to the internal revenue laws and regular rates of the Customs Territory.
3. 5% tax and other obligations. Zone-registered enterprises pay 5% of gross income earned. They are responsible for safekeeping and accounting of articles received, and unaccounted articles are presumed transferred to the Customs Territory without permit and subject to taxes and duties.
4. Withholding and bank interest. A zone-registered enterprise is a withholding agent if it pays compensation income, expanded withholding tax income payments, or final withholding tax payments. Interest from Philippine currency bank deposits and yield from deposit substitutes and trust funds are subject to NIRC taxes.
5. Service establishments. Service establishments registered with PEZA as ECOZONE locators that export services, and those within SUBIC-ECOZONE, ZAMBO-ECOZONE and CAGAYAN-ECOZONE, pay the 5% preferential rate if paid in foreign currency inwardly remitted through the Bangko Sentral ng Pilipinas. Other income of ECOZONE Service Enterprises is subject to all internal revenue taxes under the NIRC, as amended.
6. Removal of articles to the Customs Territory. Foreign articles removed to the Customs Territory are subject to customs duties and internal revenue taxes as ordinary importations. Articles removed from the Customs Territory are presumed foreign unless evidence shows they are domestic.

Who is affected

• ECOZONE, CAGAYAN-ECOZONE and ZAMBO-ECOZONE registered enterprises under the 5% regime
• SUBIC-ECOZONE registered enterprises
• Service establishments in the Zones

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.