Rates of Creditable Withholding Tax on Sales, Exchanges or Transfers of Real Properties

January 14, 1992 BIR RULING NO. 023-92 50 (b) 204-90 023-92 Mr. Ronnie David 1914 Felix Huertas Sta. Cruz, Manila S i r : This refers to your letter with enclosures dated July 2, 1991, stating that on May 7, 1983, you applied for a reservation with VC Development Corporation for a lot No. 1-M, Block No. 2, consisting of 405 square meters, situated at Violago Homes Phase I, Congressional Road, Tandang Sora, Quezon City wherein you deposited P30,000.00; that on January 14, 1986, a Reservation Agreement was entered into between you and VC Development Corporation; that on November 25, 1986, a Contract to Sell was made and entered by the same parties; that on May 20, 1991, a Deed of Redemption was executed by the AFP Retirement and Separation Benefits System by virtue of the Real Estate Mortgage executed by VMA Construction and Development Corporation in favor of the former; that on June 21, 1991, a Deed of Absolute Sale was executed by VC Development Corporation in your favor for and in consideration of the sum of Two Hundred Seventy-Five Thousand Four Hundred Pesos (P275,400.00). Based on the foregoing representation, you now in effect request for a ruling on the 2.5% Capital Gains Tax imposed by BIR, Delta Branch on the Zonal Valuation which is P1,500.00 per square meter or a total of P607,500.00. In reply, please be informed that as provided for in Revenue Regulations No. 1-90, and implemented by Revenue Memorandum Circular No. 7-90, the rates of creditable withholding tax on sales, exchanges or transfers of real properties have been reduced to 0%, 2.5%, or 5%, for real estate transactions, the deed of sale or transfer of which have been filed with the BIR on or after February 1, 1990 . Under said issuances, the vendor of real property becomes entitled to zero (0%) percent only if the consideration for the sale of the lot or house and lot per transaction does not exceed P500,000.00 and he is registered with and certified to as engaged in low-cost housing projects under Batas Pambansa Blg. 220 (socialized housing law) by the Housing and Urban Development Coordinating Council (HUDCC) or the Housing and Land Use Regulatory Board (HLURB). And when the vendor's housing project is registered with the above-mentioned government agency under Presidential Decree No. 957 (open market housing law), the transaction will be subject to either 2.5% or 5% withholding tax, notwithstanding the fact that the consideration is not more than P500,000.00. However, in order to remove the bias against low-cost housing projects registered under P.D. 957 and to simplify tax administration, all sales, exchanges or transfers of real property on or after March 1, 1990 shall be subject to the (0%) percent regardless of the law under which the project is registered, provided that the consideration does not exceed P500,000.00 .In other words, it is the selling price or consideration (and not the law under which a project was approved) that determines whether or not a transaction is socialized/low-cost in nature .This is also in conformity with the prevailing ceiling for low-income housing as set by government housing facilities like the Pag-ibig. To be entitled to the lower withholding tax rates of 0% or 2.5%,the presentation of the copies of the Certificate of Registration and License to Sell for a subdivision or condominium project issued by HLURB shall be sufficient proof for the purposes of the required HUDCC/HLURB certification. (Revenue Memorandum Circular No. 16-90 dated February 16, 1990). Such being the case, since as a seller of housing lots, VC Development Corporation is registered with and certified to as engaged in housing projects by the HLURB under P.D. No. 957 (open market housing law) its deed of sales which have been filed with the BIR on or after February 1, 1990 (but before March 1, 1990) shall be subject to either 2.5% or 5% withholding tax, notwithstanding the fact that the consideration is not more than P500,000.00, pursuant to Revenue Regulations No. 1-90. On the other hand, subject to the same conditions abovementioned and regardless of the law under which the project is registered/approved ,the sale of its lots on or after March 1, 1990 where the consideration does not exceed P500,000.00 shall be subject to zero (0%) percent pursuant to Revenue Memorandum Circular No. 16-90. It is understood, however, that VC Development Corporation shall be subject to the regular income tax on the gain derived from such sale, which should be reported in its income tax return filed on or before April 15, 1992, with its expanded withholding taxes under Revenue Regulations No. 12-89 as amended by Revenue Regulations No. 1-90 credited against its regular corporate income tax due. (Emphasis supplied). Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue