BIR Ruling No. 245-12

April 10, 2012 BIR RULING NO. 245-12 E.O. 226; BIR Ruling No. 334-2011 dated September 7, 2011 Firm Builders Realty Development Corporation 88 Scout Gandia Street Corner Tomas Morato Avenue Quezon City 1103 Attention: Mr. Manuel C. Crisostomo President Gentlemen : This refers to your letter dated January 9, 2012, requesting for exemption from income and creditable withholding taxes, the income derived from the sales of a Board of Investments (BOI) registered project, particularly "New Developer of Low-Cost Mass Housing Project Stone Haven Residences Barangay Granada, Bacolod City, Negros Occidental", pursuant to Executive Order No. 226, otherwise known as the "Omnibus Investment Code of 1987". Documents submitted show that FIRM BUILDERS REALTY DEVELOPMENT CORPORATION (FBRDC),with Tax Identification Number (TIN) 001-650-003, is a domestic corporation engaged in real estate business and registered with the Securities and Exchange Commission under Reg. No. AS092-003148 dated May 18, 1992; that FBRDC is the owner of a Low-Cost Mass Housing Project at Barangay Granada, Bacolod City, Negros Occidental; that FBRDC's Low-Cost Mass Housing Project is registered with the Board of Investments (BOI) under BOI Certificate of Registration No. 2009-025 dated 26 February 2009, as a New Developer of Low-Cost Mass Housing Project on a Non-Pioneer status; that it shall sell Four Hundred Two (402) units of low-cost mass housing based on the following schedule: Year Volume (units) Value (P'000) 1 240 136,400 2 162 115,600 Total 402 252,000 === ====== that the availment period of the Income Tax Holiday (ITH) incentives shall be reckoned from April 2009 or actual start of commercial operations/selling, whichever is earlier but in no case earlier than the date of registration; and that the ITH shall be limited only to the revenue generated from its registered project ( The Low-Cost Mass Housing Project Stone Haven Residence Barangay Granada, Bacolod City, Negros Occidental ). aDcHIC In reply, please be informed that under Section 2.57.5 (B) (2) of Revenue Regulations 2-98, as amended by RR No. 6-2001 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 persons enjoying exemption from income tax provided by the Omnibus Investments Code of 1987. Accordingly, since FBRDC Low Cost Mass Housing Project Stone Haven Residence Barangay Granada, Bacolod City, Negros Occidental, is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by FBRDC Low Cost Mass Housing Project Stone Haven Residence Barangay Granada, Bacolod City, Negros Occidental, are exempt from the creditable withholding tax imposed under RR No. 2-98, as amended by RR No. 6-2001, for a period of four (4) years from April 2009. It must be emphasized, however, that the above exemption from the creditable withholding tax covers only revenues generated from the registered activity FBRDC Low Cost Mass Housing Project Stone Haven Residence Barangay Granada, Bacolod City, Negros Occidental. Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million Pesos (P3,000,000.00). Moreover, FBRDC Low Cost Mass Housing Project Stone Haven Residence Barangay Granada, Bacolod City, Negros Occidental Project's entitlement to ITH is not automatic as it has still to comply with Section 7 (a) of the Specific Terms and Conditions of the BOI Registration, viz. : (1) Secure from the Housing and Land Use Regulatory Board (HLURB) an endorsement that it has faithfully complied with the approved development plan. (2) File an application with the BOI Incentives Department within one (1) month from the filing of Income Tax Return (ITR) with the Bureau of Internal Revenue (BIR) in order to validate the claim for income tax exemption. The application shall be accompanied by a certification from the Social Security System (SSS) that the enterprise is in good standing in the remittance of SSS contributions of its employees; and (3) Secure a Certificate of ITH Entitlement (CoE) from the BOI Supervision and Monitoring Department prior to filing of ITR with the BIR; otherwise, ITH for that particular taxable year without CoE shall be forfeited. Furthermore, BOI-registered enterprises enjoy no tax exemption/privileges other than those granted under E.O. 226. In this regard, under the terms and conditions of its BOI registration, FBRDC Low Cost Mass Housing Project Stone Haven Residence Barangay Granada, Bacolod City, Negros Occidental Project will remain subject to Value-Added Tax (VAT) and Documentary Stamp Tax (DST) on its sales of housing units pursuant to Section 106 (A) (1) (a) and 196 of the Tax Code of 1997, as amended. ( BIR Ruling No. 334-2011 dated September 7, 2011 ) ECcTaS In relation thereto, Section 109 (1) (P) 1 of the Tax Code of 1997 provides, that the sale of residential lot valued at One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00) and below or house and lot, and other residential dwellings valued at Three Million One Hundred Ninety Nine Thousand Two Hundred Pesos (P3,199,200.00) and below is VAT-exempt. Thus, only the sales by FBRDC Low Cost Mass Housing Project Stone Haven Residence Barangay Granada, Bacolod City, Negros Occidental Project of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. It should be understood that FBRDC Low Cost Mass Housing Project Stone Haven Residence Barangay Granada, Bacolod City, Negros Occidental Project shall be constituted as a withholding agent for the government if it acts as employer and any of its employees receive compensation income subject to compensation withholding tax, or if it makes payments to individuals or corporations subject to the withholding taxes at source, as required under Chapter XIII and Section 57 of the Tax Code of 1997, as amended and implemented by Revenue Regulations No. 2-98, as amended. Likewise, FBRDC Low Cost Mass Housing Project Stone Haven Residence Barangay Granada, Bacolod City, Negros Occidental Project is required to file on or before the 15th day of the fourth month following the close of its accounting period a Profit and Loss Statement and Balance Sheet with the Annual Information Return under oath, stating its gross income and expenses incurred during the taxable year. Finally, FBRDC Low Cost Mass Housing Project Stone Haven Residence Barangay Granada, Bacolod City, Negros Occidental Project's books of accounts and other pertinent records shall be subject to periodic examination by revenue enforcement officer of this Bureau for the purpose of ascertaining whether it has been complying with the conditions under which it has been granted tax exemption or tax incentives and its tax liability, if any, pursuant to Section 235 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 as represented are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. As amended by Revenue Regulations 16-2011 which took effect January 1, 2012.