BIR Ruling No. 221-15

June 26, 2015 BIR RULING NO. 221-15 Republic Act No. 7279; BIR Ruling No. 462-2011; BIR Ruling No. 129-2012; BIR Ruling No. 223-2013 Azdevelopers Corporation 11-A Lusia St., Juna Subdivision, Matina, Davao City Attention: Michael O. Zurita President Gentlemen : This refers to your letter dated August 23, 2014 requesting for a ruling on the conveyance of a parcel of land by Michael O. Zurita to AZDEVELOPERS CORPORATION to be developed for socialized housing project and other incentives for the private sector participating in Socialized Housing pursuant to Republic Act (RA) No. 7279 , otherwise known as the " Urban Development and Housing Act of 1992 ", as implemented by Revenue Regulations (RR) Nos. 9-93 and 11-97 . Documents submitted show that Michael O. Zurita, with Taxpayer Identification No. 123-506-915 is the registered owner of a parcel of land, identified as Lot 5136-C-1-A of the subdivision plan Psd-11-116662, being a portion of Lot 5136-C-A, Psd-11-009313 covered by Transfer Certificate of Title (TCT) No. 142-2013001080 with an area of Forty Thousand square meters (40,000 sq. m.), issued by the Registry of Deeds for the Province of Davao Del Norte. AZDEVELOPERS CORPORATION, with BIR Certificate of Registration No. OCN2RC0000446411 and Tax Identification No. 406-903-179-000, on the other hand, is a domestic corporation registered with the Securities and Exchange Commission (SEC) under Registration No. CS201032504. It is further certified by the Housing and Land Use Regulatory Board, Southern Mindanao Region, that AZDEVELOPERS CORPORATION is engaged in the development of a socialized/low cost housing project known as Esmeralda North Subdivision, with a total land area of 9,001.00 square meters for socialized housing. On April 2, 2014, Michael O. Zurita and AZDEVELOPERS CORPORATION entered into a Joint Venture Agreement (JVA) for the formation of a joint venture to undertake the land development and construction of housing units, whereby Michael O. Zurita, shall contribute the above described property to the joint venture, and AZDEVELOPERS CORPORATION, shall contribute project development services to construct and develop the Property into a residential subdivision. Under the JVA, Michael O. Zurita transferred and conveyed above described property to AZDEVELOPERS CORPORATION at an agreed price of Twenty Million Pesos (P20,000,000.00) to be taken out through PAG-IBIG fund; that the project shall be known as ESMERALDA NORTH SUBDIVISION; that the project shall generate a total of Three Hundred Thirty Nine (339) saleable units. AZDEVELOPERS CORPORATION intends to develop the subject property into an Economic Housing and Socialized Housing Project and the project is duly registered with the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 24838, with License to Sell No. 26614 for 171 lots & units for socialized housing and 168 lots & units for economic housing, to wit: cHDAIS Economic Housing-Maximum selling price of P1,250,000.00 per house and lot package Block No. Lot No. # of Lots Area (sq. m.) 2 1 to 19 19 2,013.00 7 1 to 34 34 1,783.00 8 1 to 25 25 1,775.00 9 1 to 26 26 2,628.00 10 1 to 22 22 4,167.00 11 1 to 26 26 2,628.00 13 1 to 14 14 1,482.00 14 1 to 2 2 270.00 Total 168 16,746.00 ==== ======= Socialized Housing-Maximum selling price of P400,000.00 per house and lot package Block No. Lot No. # of Lots Area (sq. m.) 1 1 to 27 27 1,380.00 3 1 to 17 17 899.00 4 1 to 32 32 1,754.00 5 1 to 34 34 1,788.00 6 1 to 34 34 1,793.00 12 1 to 27 27 1,387.00 Total 171 9,001.00 ==== ======= In reply, please be informed that Section 20 of RA No. 7279 , reads: "Sec. 20. Incentives for the Private Sector Participating in Socialized Housing . To encourage greater private sector participation in socialized housing and further reduce the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sector: xxx xxx xxx "(d) Exemption from the payment of the following: "(1) Project-related income taxes; "(2) Capital gains tax on raw lands used, for the project; "(3) Value-added tax for the project contractor concerned." the owner of the raw land is exempt from the payment of capital gains tax or the withholding tax under Revenue Regulations No. 2-98, as amended, on the conveyance of the parcel of land for use in the aforesaid socialized housing project. (BIR Ruling No. 462-2011 dated November 24, 2011) Thus, insofar as the conveyance of 9,001 sq. m. out of 40,000 sq. m. covered by TCT No. 142-2013001080 is concerned, the same is exempt from capital gains tax or the withholding tax under Revenue Regulations No. 2-98, as amended. However, the documentary stamp tax is not one of the taxes covered by the tax exemption clause in Sec. 20 of RA 7279. Accordingly, the landowners are liable to pay the documentary stamp tax on the document conveying the afore-stated property imposed under Section 196 of the Tax Code of 1997, based on the consideration contracted to be paid for such realty or its fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. Considering that AZDEVELOPERS CORPORATION is engaged in the development of 9,001 sq. m. out of the 40,000 sq. m. covered by TCT No. 142-2013001080, with one hundred seventy one (171) developed lots for socialized housing at ESMERALDA NORTH SUBDIVISION located at Purok 3-B, Apokon, Tagum City, which was certified by the HLURB as an economic/socialized housing project pursuant to RA 7279, the income directly realized by AZDEVELOPERS CORPORATION from the development of the said socialized housing units and/or lots shall be exempt from project-related income taxes. ISHCcT Moreover, under Section 109 (1) (P) of the Tax Code of 1997, as amended by RA 9337, the sale of real properties utilized for low-cost and socialized housing as defined by R.A. No. 7279 shall be exempt from value-added tax (VAT), thus, the sale of the 9,001 sq. m. out of 40,000 sq. m. by the Michael O. Zurita to AZDEVELOPERS CORPORATION is exempt from the imposition of VAT. (BIR Ruling No. 304-2013 dated August 6, 2013) Pursuant to Section 20 of RA 7279, a project contractor of a socialized housing project shall also be exempt from the payment of value-added tax (VAT) on the project concerned. Relative thereto, Section 4.109-1 (B) (1) (p) (3) of RR No. 16-2005 states that: "Section 4.109-1. VAT-Exempt Transactions . (A) In general . "VAT-exempt transactions" refer to the sale of goods or properties and/or services and the use or lease of properties that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax) on purchases. 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 (3) Sale of real properties utilized for socialized housing as defined under RA No. 7279, and other related laws, such as RA No. 7835 and RA No. 8763, wherein the price ceiling per unit is P225,000.00 or as may from time to time be determined by the HUDCC and the NEDA and other related laws. . . . ." Moreover, only the sale of socialized housing units to qualified beneficiaries shall be exempt from income taxes, and consequently, from creditable expanded withholding tax prescribed under Revenue Regulations (R.R.) No. 2-98, as amended. Thus, a buyer of a socialized housing unit shall be required by the developer/owner/seller to execute a sworn statement that he is eligible as a socialized housing beneficiary provided under Section 5 (A) of R.R. No. 11-97 . Section 5 (A) of R.R. No. 11-97 provides that: SECTION 5. Requirements/Conditions for the Availment of Tax Incentives/Exemptions . A. To qualify for socialized housing program, a beneficiary: (a) must be a Filipino citizen; CAacTH (b) must be an underprivileged and homeless citizen, as defined in Section 3(t) of the Act and Section 2(r) of these Regulations; (c) must not own any real property, whether in the urban or rural areas; and (d) must not be a professional squatter or a member of squatting syndicates. In this connection, any sale made by the owner and developer to interested parties other than the principal target beneficiaries under Sections 3 (t) and 16 of R.A. No. 7279, shall not be entitled to the foregoing tax exemption should there be non-compliance with any of the afore-stated sine qua non terms and conditions. (BIR Ruling No. 223-13 dated June 20, 2013) Upon application for exemption, a lien on the title of the land shall be annotated by the Register of Deeds having jurisdiction over the property, to the effect that the same is to be applied or is being applied to socialized housing project pursuant to RA 7279. Please take note that this ruling is never intended and shall not be construed as giving authority to the concerned Register of Deeds to effect transfer of the land in the name of the buyer without the necessary certificate of authority to register issued by this Bureau. In this regard, this ruling shall be presented to the Revenue District Office (RDO) concerned in order for the latter to issue the Certificate Authorizing Registration (CAR) after the submission of the requirement provided under RMO 15-2003, including proof of payment of documentary stamp tax. It is, however, understood that the Certificate Authorizing Registration (CAR) shall only be issued after it is established upon proper verification by the Revenue District Officer (RDO) concerned that, considering the rules on valuation of real property, the actual selling price per sale transaction of the house and lot packages in this case does not really exceed P450,000.00 and P180,000.00 for lot only. Thus, sale of a house and lot, or lot only above the maximum amount shall be subject to the corresponding internal revenue taxes. (BIR Ruling No. 129-12 dated February 23, 2012) Nonetheless, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause in Section 20 of RA No. 7279. Such being the case, the owner/project developer/seller shall be liable to pay the documentary stamp tax on the documents conveying the properties imposed under Section 196 of the Tax Code of 1997, as amended, based on the consideration contracted to be paid for such realties or on their fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. Furthermore, pursuant to Housing and Urban Development Coordinating Council (HUDCC) Resolution No. 1, Series of 2013 dated October 16, 2013 , and as circularized by Revenue Memorandum Circular No. 35-2014 , pertinent portion of which reads: IAETDc "THEREFORE BE IT RESOLVED, AS IT IS HEREBY RESOLVED that the price ceiling for horizontal socialized housing be adjusted from P400,000.00 to P450,000.00." Thus, beginning December 18, 2013, the newly adjusted price ceiling of P450,000.00 for horizontal socialized housing shall apply to sale of real properties utilized for socialized housing, as defined under R.A. No. 7279 otherwise known as "Urban Development and Housing Act", and other related laws such as R.A. No. 7835 otherwise known as the "Comprehensive and Integrated Shelter Financing Act of 1994" and R.A. No. 8763 otherwise known as the "Home Guaranty Act of 2000". Moreover, Section 2 of Revenue Regulations No. 17-2001 provides: Section 2. Definition of Terms . As used in these Regulations, the following terms shall have the following meaning: xxx xxx xxx "A socialized housing unit shall not exceed P150,000.00 (now P450,000.00) for a house and lot package, subject to periodic adjustment or increase as the Housing and Land Use Regulatory Board (HLURB) may effect from time to time. In the case of sale of home lots only, the price shall not exceed forty percent (40%) of the maximum limit prescribed for the house and lot package ." (Emphasis supplied) Wherefore, AZDEVELOPERS CORPORATION, the developer of the socialized housing units under RA No. 7279 is exempt from the payment of value-added tax on its gross receipts in so far as the 171 socialized lots and units in Esmeralda North Subdivision are concerned pursuant to the afore cited provision. However, purchases of goods/articles by the project contractor shall be subject to vat, even if the said purchases are to be used for the socialized housing project, since VAT is an indirect tax which can be passed on by the seller of the goods/services. Moreover, it shall be understood that AZDEVELOPERS CORPORATION must issue non-VAT official receipts on its gross receipts from the said socialized housing project. Accordingly, the sale of the House and Lot covered by: Block No. Lot No. # of Lots Area (sq. m.) 1 1 to 27 27 1,380.00 3 1 to 17 17 899.00 4 1 to 32 32 1,754.00 5 1 to 34 34 1,788.00 6 1 to 34 34 1,793.00 12 1 to 27 27 1,387.00 Total 171 9,001.00 ==== ======= wherein the maximum price of the House and Lot is P450,000.00, and P180,000.00 for Lot only, to qualified beneficiaries are exempt from income taxes and, consequently, from creditable expanded withholding tax and from VAT pursuant to RA 7279. However, sale of the houses and lots covered by: Economic Housing-Maximum selling price of P1,250,000.00 per house and lot package Block No. Lot No. # of Lots Area (sq. m.) 2 1 to 19 19 2,013.00 7 1 to 34 34 1,783.00 8 1 to 25 25 1,775.00 9 1 to 26 26 2,628.00 10 1 to 22 22 4,167.00 11 1 to 26 26 2,628.00 13 1 to 14 14 1,482.00 14 1 to 2 2 270.00 Total 168 16,746.00 ==== ======= is subject to the payment of appropriate taxes because the afore-described exemptions are only applicable to socialized housing units. DcHSEa 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.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue