8990 Housing Development Corporation

July 7, 2009 BIR RULING [DA-(IL-018) 356-09] EO 226, RR 2-98; DA-586-2007, DA-578-2006 8990 Housing Development Corporation #4 Elemino Bldg., Corner Lacson Cervantes Bo. Obrero, Davao City Attention: Mary Ann T. Chua Assistant General Manager Gentlemen : This refers to your letter dated June 23, 2009, wherein you requested for a ruling on the exemption enjoyed by 8990 Housing Development Corporation which was granted an Income Tax Holiday (ITH) by the Board of Investments (BOI) in accordance with the Omnibus Investments Code of 1987, as amended and was granted a Certificate of Registration and License to Sell by the Housing and Land Use Regulatory Board (HLURB). Based on the representations, as well as from the documents submitted, the facts are as follows: 8990 Housing Development Corporation is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines. It is engaged in the business of construction and/or development of real estate more particularly the development of low cost and economic housing projects. One of its current projects is a housing project in Davao City to be known as "DECA HOMES". On February 17, 2006, Certificate of Registration No. 2006-027 was issued by the BOI in favor of 8990 housing Development Corporation as a New Developer of Mass Housing Project (Deca Homes Davao Phase 1- Barangay Cabantian, Buhangin, Davao City). Under the terms and conditions of its registration, it is entitled to an ITH for a period of four (4) years from March 2006 or actual start of commercial operations/selling, whichever is earlier. On September 18, 2007, Certificate of Registration No. 2007-169 was issued by the BOI in favor of 8990 Housing Development Corporation as an Expanding Developer of Low-Cost Mass Housing Project (Deca Homes Davao Phase 2- Cabantian, Davao City). Under the terms and conditions of its registration, it is entitled to an ITH for a period of three (3) years from date of registration. DEIHAa In addition, the HLURB issued License to Sell Nos. 11324 and 11332 dated May 11, 2005 and June 15, 2005, respectively, in favor of 8990 Housing Development Corporation granting the latter authority to sell lots/units/lots with units in Deca Homes-Phase 1 and Phase 2 at a maximum selling price of P750,000/house and lot package. In reply thereto, please be informed as follows: Income Tax and Creditable Withholding Tax 8990 Housing Development Corporation having been granted a Certificate of Registration by the BOI as a New Developer of Mass Housing Project, enjoys Income Tax Holiday (ITH) for a period of four (4) years from March 2006 or actual start of commercial operations/selling, whichever is earlier. However, the ITH shall be limited only to the revenue generated from the registered activity (Deca Homes Davao Phase 1- Barangay Cabantian, Buhangin, Davao City). As regards Deca Homes Davao Phase 2 Project, 8990 Housing Development Corporation having been granted a Certificate of Registration by the BOI, enjoys Income Tax Holiday (ITH) for a period of four (4) years from registration. However, the ITH shall be limited only to the revenue generated from the registered activity (Deca Homes Davao Phase 2- Cabantian, Davao City). However, revenues from units with selling price exceeding P3.0M shall not be covered by the ITH. Moreover, under Section 2.57.5 (B) (2) of Revenue Regulations No. 2-98, implementing Section 57 (B) of the Tax Code of 1997, the withholding tax prescribed in the said Regulations shall not apply to income payments to persons enjoying exemption from the income tax provided by Republic Act No. 7916 and the Omnibus Investments Code of 1987. (BIR Ruling No. DA-072-98 dated March 11, 1998). Accordingly, since 8990 Housing Development Corporation is a BOI-registered enterprise, enjoying exemption from payment of income taxes pursuant to the provisions of Section 39 (a) (1) of the Omnibus Investments Code of 1987 for a period of four (4) years for Deca Homes Phase 1 and three (3) years for Deca Homes Phase 2, this Office is of the opinion, as it hereby holds, that it is exempt from the payment of the creditable withholding tax imposed under Revenue Regulations No. 2-98, on income payments received by it during the aforementioned period with respect to its registered activity, subject however to the condition that both the BOI General and Specific Terms and Conditions for the grant of ITH are met during the said period. Value Added Tax (VAT) Section 4.109-1 (B) (p) (4) of Revenue Regulations No. 16-2005 provides, viz.: EDSAac "Sec. 4.109-1. VAT-Exempt Transactions . xxx xxx xxx (B) Exempt transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from VAT: xxx xxx xxx (p) The following sales of real properties are exempt from VAT, namely: xxx xxx xxx (4) Sale of residential lot valued at One Million Five Hundred Thousand Pesos (P1,500,000.00) and below, or house & lot and other residential dwellings valued at Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below where the instrument of sale/transfer/disposition was executed on or after July 1, 2005; Provided, that amounts stated herein shall be adjusted to its present value using the Consumer Price Index, as published by the National Statistics Office (NSO); Provided, further, that such adjustment shall be published through revenue regulations to be issued not later than March 31 of each year; If two or more adjacent residential lots are sold or disposed in favor of one buyer, for the purpose of utilizing the lots as one residential lot, the sale shall be exempt from VAT only if the aggregate value of the covered by separate titles and/or separate tax declarations, when sold or disposed to one and the same buyer, whether covered by one or separate Deed of Conveyance, shall be presumed as a sale of one residential lot." Inasmuch as 8990 Housing Development Corporation is primarily engaged in real estate selling, the unit price of which is at minimum of P750,000.00 for residential house & lot, the same falls within the VAT-exempt transactions provided for under Section 4.109-1 of RR 16-2005, implementing Section 109 (w) of the Tax Code of 1997, as amended by RA 9337, provided that the sale of the residential lot is valued at One Million Five Hundred Thousand (P1,500,000.00) and below, and the sale of the house and lot and other residential dwellings is valued at Two Million Five Hundred Thousand (P2,500,000.00) and below, provided further that the sale of two or more adjacent residential lots, sold or disposed in favor of one buyer, does not exceed P1,500,000.00. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service