Interpretation of "Habitually Engaged in the Sale of Realty" for Creditable Expanded Withholding Tax Purposes

April 30, 1999 BIR RULING NO. 059-99 059-99 ACL Development Corporation (ACL) Suite 1801 Tytana Centre Condominium Plaza Lorenzo Ruiz, Binondo, M a n i l a Attention: Mr . Glenn Nelson Macavinta Legal Counsel Gentlemen : This refers to your letter dated 26 April 1999 concerning your request for clarification on the meaning of "habitually engaged in the sale of realty" for purposes of the creditable expanded withholding tax, pursuant to Revenue Regulation No. 2-98. It is represented that ACL is an entity with a Joint Venture Agreement with Sta. Lucia Realty & Development Inc.; that it was agreed however in the Joint Venture Agreement that Sta. Lucia Realty & Development Inc. will develop the subdivisions, secure under its name the necessary permits including Certificate of Registration and License to Sell for various subdivisions; that, thereafter, both entities will divide accordingly the saleable lots pursuant to the agreement and sell the same to the public; that, in this regard, while the license to Sell is only under the same of Sta. Lucia Realty & Development, Inc., the truth being that the owners thereof are ACL Development Corporation and Sta. Lucia Realty & Development Inc.; that ACL Development Corporation's only business is to acquire and sell real properties which business has been going for more than ten (10) years now; that, the various subdivisions have long been developed and now ACL Development Corporation can no longer acquire said License to Sell under its name precisely because it is not the developer and said License to Sell has long been issued to Sta. Lucia Realty & Development Inc. In reply thereto, please be informed that the pertinent portion of Section 2.57.2(J) of Revenue Regulations No. 2-98 provides: " 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, other than capital assets, sold by an individual, corporation, estate, trust, trust fund or pension fund and the seller/transferor is habitually engaged in the real estate business in accordance with the following schedule Those which are exempt from a withholding tax at source as prescribed in Sec. 2.57.5 of these regulations Exempt 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 selling price of more than two million Pesos (P2,000,000.00) 5.00% A seller/transferor must show proof of registration with HLURB or HUDCC to be considered as habitually engaged in the real estate business. . . . " For purpose of these regulations, the term habitually, engaged in the real estate business is not limited or restricted only to persons duly registered with the Housing and Land Use Regulatory Board (HLURB) or Housing & Urban Development Coordinating Council (HUDCC). This proviso simply means that any person duly accredited by the said government agencies shall be deemed habitually engaged in the real estate business. However, even in the absence of registration therewith, a person may also be treated habitually engaged in the real estate business upon a showing that he is in fact actually engaged in the said business. For example, a lessor of real properties may not be registered with the HLURB or the HUDCC. Nevertheless, such person is engaged in business as a lessor of real properties, hence, embraced by the proviso "habitually engaged in the real estate business." LibLex As per your above representation, there is no doubt your are habitually engaged in the real estate business for purposes of Section 2.57.2 (J) of Revenue Regulations No. 2-98. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue