Sale of Housing Units Valued at P1 Million and Below by Laguna Properties Holdings Not Subject to VAT

January 18, 1999 BIR RULING NO. 005-99 000-00-005-99 Laguna Properties Holdings, Inc. 4/F Makati Stock Exchange Building Ayala Avenue Makati City Attention: Atty . Jim G . Fondevilla Gentlemen : This refers to your letter dated February 11, 1998 requesting for a ruling as to whether or not the sale of housing units only by Laguna Properties Holdings, Inc. (LPHI) valued at P1 Million and below is subject to value-added tax (VAT); and that said activity constitutes real estate development business. LexLib It is represented that LPHI is a domestic corporation duly authorized to engage in real estate development business in the Philippines; that it is the owner and developer of several mass housing projects in the provinces of Quezon, Batangas and Laguna; that LPHI sells house and lot packages or lots only to the general public; that recently, LPHI obtained from a foreign company exclusive right to sell in the Philippines housing units using the building system designed and developed by the said foreign country; that pursuant to such license, LPHI will produce and sell built-up housing units to the lot owners and/or other developers who might be interested in acquiring such housing units, some of which will be priced at P1 Million and below; that the aforesaid housing units will come in various models and specifications; that LPHI will assemble them on buyer's site, and sell the same as built-up units; and that in no case will component parts of the housing units be sold by piece to customers. In reply, please be informed that Section 109 (w) of the Tax Code of 1997 provides that sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business or real property utilized for low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws, house and lot and other residential dwellings valued at one million pesos (P1,000,000) and below: Provided, That not later than January 31 st of the calendar year subsequent to the effectivity of this Act and each calendar year thereafter, the amount of one million pesos (P1,000,000) shall be adjusted to its present value using the Consumer Price Index, as published by the National Statistics Office (NSO) shall be exempt from VAT. Such being the case, the sale of housing units by LPHI valued at P1,000,000.00 and below and which falls under the term "other residential dwellings" shall be exempt from VAT. Moreover, considering that LPHI is engaged in the real estate business and the selling of built-up housing units of a particular model constitutes the sale of real property, such activity is in the nature of real estate business and not as service contractor. 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.) BEETHOVEN L. RUALO Commissioner of Internal Revenue