BIR Ruling [DA-605-06]

October 10, 2006 BIR RULING [DA-605-06] RR 12-94; RR6-2001; DA-075-04; 027-2002 Wil-Vic Construction & Development Corporation #96 V. Luna Road Extension, Quezon City Attention: Ms. Rebecca G. Genato General Manager Gentlemen : This refers to your letter dated August 31, 2006 requesting for a ruling that registration with Chamber of Real Estate Builders Association, Inc. (CREBA) is sufficient proof that Will-Vic Construction & Dev't Corp . is engaged in the real estate business and that it is entitled to graduated withholding tax under Revenue Regulations No. 6-2001. It is represented that Wil-Vic Construction & Dev't Corp . is a corporation duly organized and existing under and by virtue of the laws of the Philippines; that the primary purpose of the corporation is to acquire by purchase, lease, donation or otherwise and to own, use, improve, develop, subdivide, sell, mortgage exchange, lease, develop, and hold for investment or otherwise, real estate of all kinds, whether improve, manage or otherwise dispose of buildings, houses, apartment and other structures of whatever kind, together with their appurtenances; that it is registered with the Bureau of Internal Revenue being habitually engaged in real estate; and that it is a member of the Chamber of Real Estate & Builders' Association, Inc. (CREBA) In reply, please be informed that pursuant to Revenue Regulations No. 12-94, the seller shall automatically be considered engaged in the real estate business upon submission of a certificate of accreditation issued by the Chamber of Real Estate & Builders' Association, Inc. (CREBA); the National Real Estate Association (NREA); or the Subdivision and Housing Developers Association, Inc. (SHDA). Otherwise, the seller shall submit evidence showing that he is in fact habitually engaged in the real estate business. Since Wil-Vic Construction & Dev't Corp . is certified as a member in good standing of the Chamber of Real Estate & Builders' Association, Inc. (CREBA), hence, it is considered engaged in the real estate business. Moreover, Section 2.57.2 (J) of Revenue Regulations No. 6-2001, to wit: "Section 2.57.2. Income Payment Subject to Creditable Withholding Tax and Rates Prescribed Thereon . Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines. xxx xxx xxx (J) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange, or transfer of real property classified as ordinary asset . A creditable Withholding Tax on the Sale, Transfer or Exchange of Real Property Classified as Ordinary Asset. A creditable withholding tax based on the gross selling price/total amount of consideration or the fair market value determined in accordance with Section 6(E) of the Code, whichever is higher, paid to the seller/owner for the sale, transfer or exchange of real property, other than capital asset, shall be imposed upon the withholding agent/buyer, in accordance with the following schedule: DTCSHA A. Where the seller/transferor is exempt from Creditable withholding tax in accordance With Sec. 2.57.5 of these regulations Exempt B. Upon the following values of real property, where the seller/transferor is habitually engaged in the real estate business: With a selling price of Five Hundred Thousand Pesos (P500,000.00) or less 1.5% With a selling price of more than Five Hundred Thousand Pesos (P500,000.00) but not more than Two Million Pesos (P2,000,000.00) 3.0% With a selling price of more than Two Million Pesos (P2,000,000.00) 5.0% C. Where the seller/transferor is not habitually engaged in the real estate business 6.0% If the buyer is an individual not engaged in trade or business, the following rules shall apply: (i) If the sale is a sale of property on the installment plan (that is, payments in the year of sale do not exceed 25% of the selling price), no withholding of tax is required to be made on the periodic installment payments. In such a case, the applicable rate of tax based on the gross selling price or fair market value of the property, whichever is higher, shall be withheld on the last installment to be paid to the seller until the tax is fully paid. (ii) If, on the other hand, the sale is on a "cash basis" or is a "deferred-payment sale not on the installment plan" (that is, payments in the year of sale exceed 25% of the selling price), the buyer shall withhold the tax based on the gross selling price or fair market value of the property, whichever is higher, on the first installment. However, if the buyer is engaged in trade or business, whether a corporation or otherwise, these rules shall apply: (i) If the sale is a sale of property on the installment plan (than is, payments in the year of sale do not exceed 25% of the selling price), the tax shall be deducted and withheld by the buyer of every installment. (ii) If, on the other hand, the sale is on a "cash basis" or is a "deferred-payment sale not on the installment plan" (that is, payments in the year of sale exceed 25% of the selling price), the buyer shall withhold the tax based on the gross selling or fair market value of the property, whichever is higher, on the first installment. For purposes of applying the foregoing rules, "gross selling price" shall mean the consideration stated in the sales document or the fair market value determined in accordance with Section 6(E) of the Tax Code of 1997, as amended, whichever is higher. In any case, no Certificate Authorizing Registration (CAR) shall be issued to the buyer unless the creditable withholding tax due on the sale, transfer or exchange of real property other than capital asset has been fully paid. 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. CIHAED Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service