BIR Ruling [DA-557-04]

November 8, 2004 BIR RULING [DA-557-04] 109 (x); VAT Ruling No. 037-01 A.M. Sison, Jr. & Associates Suite 2002-A Security Bank Centre 6776 Ayala Avenue Makati City Attention: Atty. Antonio L. Cardio Gentlemen : This refers to your letter dated September 27, 2004 stating that your client, New City Builders, Inc. (Developer/Lessee), is a corporation duly organized and existing under the laws of the Philippines with principal office address at 107 E. Rodriguez, Jr. Avenue, Libis, Quezon City; that on May 24, 2004, Developer/Lessee entered into a Build Lease and Transfer Contract (Contract) with the University of the Philippines System (University), a State Institution of higher learning created and operating pursuant to Act No. 1870, as amended, with principal office address at Second Floor, Quezon Hall, Diliman, Quezon City; that the University is the owner of a parcel of land with an area of 7,958 square meters located in front of the U.P. Chapel and bounded by Laurel and Apacible Streets, U.P. Campus, Diliman, Quezon City covered by TCT No. 192687 issued by the Registry of Deeds for Quezon City; that pursuant to the said Contract the Developer/Lessee shall construct and develop in the area reinforced concrete structure with parking spaces to function as student residences and upon its completion turn it over to the University on a lease arrangement for a fixed period, after which the ownership of all the improvements on the leased property shall be automatically transferred to the University; that the Developer/Lessee will undertake the said project in several phases consisting of three (3) buildings of several studio type or one room condominium or apartment type units with toilet and bath to be used as residences of students, faculty members and employees of the University; and that each residential unit will be leased to one or more students, employees or faculty members for a rental amount not exceeding eight thousand pesos (P8,000) a month. Based on the foregoing representations, you now request a ruling that the rental income of not exceeding eight thousand pesos (P8,000) per residential unit is exempt from value-added tax pursuant to Section 109(x) of the Tax Code of 1997. In reply thereto, please be informed that Section 109(x) of the Tax Code of 1997 provides that lease of a residential unit with a monthly rental not exceeding Eight thousand pesos (P8,000): Provided, that not later than January 31st of the calendar year subsequent to the effectivity of Republic Act No. 8421 and each calendar year thereafter, the amount of Eight thousand pesos (P8,000) shall be adjusted to its present value using the Consumer Price Index as published by the National Statistics Office (NSO) shall be exempt from value-added tax. The term "residential units" shall refer to apartments, houses and/or lands on which another's dwelling is located, used for residential purposes and shall include not only buildings, parts or units thereof used solely as dwelling places (e.g., dormitories, rooms and bed spaces) except motels, motel rooms, hotels and hotel rooms. "Residential Units" shall also include apartments, houses, buildings, parts or units thereof used for home industries, retail stores or other business purposes, if the tenant thereof and his family actually live therein and use them principally for dwelling purposes. The term "unit" shall mean an apartment unit in the case of apartments, house in the case of residential houses; per person in the case of dormitories, boarding houses and bed spaces; and per room in case of rooms for rent. HAICTD Accordingly, since the proposed lease from its residential dormitories does not exceed P8,000 per month, per individual (student, employee or faculty member), the same is exempt from the 10% VAT pursuant to Section 109(x) of the Tax Code of 1997, as implemented by Section 4 of Revenue Regulations No. 6-97. ( BIR VAT Ruling No. 037-01 dated June 13, 2001 ) 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group