BIR Ruling [DA-031-06]

February 6, 2006 BIR RULING [DA-031-06] Salonga Hernandez & Mendoza 3/F Tower B. Gold Loop Towers 1 Gold Loop, Square, Ortigas Center Pasig City Attention: Atty. Roberto L. Mendoza Gentlemen : This refers to your letter dated March 4, 2004 stating that your client, L.V. Locsin Condominium Corporation (Corporation), is a non-stock, non-profit corporation formed exclusively for the purpose of (i) holding title to the common areas in the condominium project known as the L.V. Locsin Condominium Project (Project) which has been constituted pursuant to the provisions of Republic Act No. 4726, otherwise known as the Condominium Act, on the property described in and brought under the operation of said Act by their Master Deed with Declaration of Restrictions executed by Yntalco Realty Investment Co., Inc., as Developer, on April 12, 1985 and (ii) managing the Project pursuant to and in accordance with the provisions of the Condominium Act and the said Master Deed with Declaration of Restrictions, "Article 1 of the Corporation's By-Laws provides that: "Any and all monies and assets of the Corporation shall be used and devoted exclusively to the furtherance of its corporate purposes and no dividends of any kind whatsoever shall be declared and no profit shall inure to the benefit of any person by virtue of his membership in the Corporation." that the condominium corporation does not render any service for a fee but merely implements the administration of the required services to collect the association dues from the unit owners pursuant to its corporate purpose/s as trustee of the fund thereof; and that the receipts of the association dues, membership fees, power and water collections and other assessments/charges that are collected from its members, are used solely for administrative expenses in implementing its purpose/s and which the association does not realize any gain or profit as a result of its receipt thereof. In connection therewith, you now request for an opinion that "1. the association dues, membership fees, and assessment/charges for power, water and maintenance that will be collected from its members are not includible in its gross income and not subject to income tax; and "2. The condominium corporation is not subject to value-added tax." In reply thereto, please be informed of the following 1. The association dues, membership fees and other assessment/charges collected from the members, which are merely held in trust and which are to be used solely for administrative expenses in implementing its purpose/s i.e., to protect and safeguard the welfare of the owners, lessees and occupants; provide utilities and amenities for its members, and which the Corporation could not realize any gain or profit as a result of its receipt thereof are not includible in said corporation's gross income. Hence, the same is not subject to income tax and consequently to the expanded withholding tax. ( BIR Ruling Nos. 103-94 dated May 16, 1994; DA470-98 dated November 3, 1998 ) 2. Pursuant to Section 105 of the Tax Code of 1997, value-added tax (VAT) is collected upon any person, who in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. Considering that the Corporation does not sell, barter, exchange, nor lease any goods or property and neither does it render service for a fee but merely implements the administration of the required services to collect the association dues from the unit owners pursuant to its corporate purpose/s as "trustee" of the fund thereof, it is not subject to the value-added tax (VAT) on such activity. ( BIR VAT Ruling No. 026-97 dated April 1, 1997 ) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service