Prohomes Development Incorporation

July 31, 2009 BIR RULING [DA-(IL-025) 425-09] E.O. 226; RR 2-98; DA-425-07; DA-231-02; DA-418-04; 163-94; UN 339-94; DA-231-02 Prohomes Development Incorporation Unit 203, 2nd Floor FGU Bldg., Biliran Road Cebu Business Park, Ayala, Cebu City Attention: Ms. Beverly M. Dayanan President Gentlemen : This refers to your letter dated July 17, 2009 requesting, in effect, for exemption from income and expanded withholding taxes since Prohomes Development Incorporation ("PDI" for brevity) is entitled to income tax holiday (ITH) on account of its registration with the Board of Investments (BOI) under Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987." Documents show that PDI is duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CS200430279 dated December 21, 2004. Its primary purpose is "to operate and develop residential or commercial building, acquire, buy, own, hold, sell, assign, mortgage, lease, manage, enter joint venture, operate and develop agricultural, residential, industrial, eco-tourism and plants project, plantations or any business devoted to do any and everything necessary, suitable and proper for the accomplishment, of any of the projects or for the furtherance of any of the powers herein set forth." It is also registered with the BOI as a "New Developer of Mass Housing Project", on a non-pioneer status under Certificate of Registration No. 2008-086 dated June 17, 2009 for its low-cost mass housing project, the Corinthians Subdivision, located in Sitio Suba Masulog, Basak, Lapu-lapu City, consisting of 404 housing units. PDI has been granted a four-year ITH from August 2009 or from the actual start of commercial operations/selling, whichever is earlier but in no case earlier than the date of registration. Under the terms of its BOI incentives, revenues from units with selling price exceeding Three Million Pesos (P3.0M) shall not be covered by the ITH. The above housing project of PDI is registered with the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 20662 dated March 31, 2009. In reply, please be informed that under Section 2.57.5 (B) (2) of Revenue Regulations (RR) No. 2-98, as amended, implementing Section 57 (B) of the Tax Code of 1997, as amended, the withholding tax prescribed in the said Regulations shall not apply to income payments to person enjoying exemption from the income tax provided by Republic Act No. 7916 and the Omnibus Investments Code of 1987. Accordingly, since PDI 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 reckoned from August 2009, this Office is of the opinion as its hereby holds, that PDI is exempt from the payment of the creditable withholding tax imposed under RR 2-98, as amended, on income payments received by it during the aforementioned period with respect to its sales of housing units in its low-cost mass housing project, the Corinthians Subdivision, located in Sitio Suba Masulog, Basak, Lapu-lapu City, the price of which, per unit, does not exceed the amount of Three Million Pesos (P3.0M). (BIR Ruling Nos. 163-94 dated December 2, 1994, UN 339-94 dated December 6, 1994, DA-425-2007 dated July 27, 2007, DA-418-04 dated August 8, 2004, and DA-231-02 dated December 3, 2002) On the other hand, for value-added tax (VAT) purposes, sale of real properties to be utilized for low-cost or socialized housing under Republic Act (R.A.) No. 7279 and other related laws; and sale of residential lots valued at P1,500,000.00 and below, or house and lot and other residential dwellings in the amount of P2,500,000.00, shall be exempt from VAT pursuant to Section 109 (P) of the Tax Code of 1997, as amended, as implemented by Sec. 4.109-1 (B) (p) of RR 16-2005, as amended. Accordingly, sale of housing units exceeding the threshold of P2.5M per unit shall be subject to the 12% VAT imposed under Section 106 of the Tax Code of 1997, as amended. 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