BIR Ruling No. 272-15

August 27, 2015 BIR RULING NO. 272-15 R.A. 7279; BIR Ruling No. 291-13 Duraville Realty & Development Corp. MCC Commercial Center Mary Cris Complex Subd. Pasong Camachile 2 General Trias, Cavite Attention: Engr. Jefferson S. Bongat President Gentlemen : This refers to your letter dated August 5, 2013 requesting on behalf of Duraville Realty & Development Corp. , certificate of exemption from income and expanded withholding taxes, as well as from value-added tax (VAT), on its income derived from the project, Wellington Place at Mary Cris Complex Phase 12-A , on account of the projects' registration with the Housing and Land Use Regulatory Board (HLURB) as socialized housing projects under Republic Act (RA) No. 7279." Documents submitted show that Duraville Realty & Development Corp. , with Tax Identification Number (TIN) 001-160-318-000, is a domestic corporation engaged in real estate business and registered with the Securities and Exchange Commission (SEC) under SEC Registration No. ASO91-197697; that it is the owner and developer of a housing project known as Wellington Place at Mary Cris Complex Phase 12-A , consisting of Five Hundred Three (503), lots/units, located at Barangay Pasong Camachile II, General Trias, Cavite; that the aforesaid project is a duly registered socialized housing project with the Housing and Land Use Regulatory Board (HLURB), bearing HLURB Certificate of Registration No. 22664 and License to Sell No. 26051, with a condition that the maximum selling price per house and lot thereof shall be Four Hundred Thousand Pesos (PhP400,000.00) only; and that per letter dated October 27, 2014 of Arch. Jose O. Pea, Jr., Regional Officer of HLURB-Southern Tagalog Region, the maximum selling price of unsold saleable house and lot packages of the socialized housing project, Wellington Place at Mary Cris Complex Phase 12-A , shall be increased from PhP400,000.00 to PhP450,000.00, provided that such increase shall apply only to unsold house and lot packages as of December 18, 2013, the effectivity date of HUDCC Resolution No. 1, Series of 2013. In reply, please be informed that Section 20 of RA No. 7279, provides: CAIHTE "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." Based on the above provision, the sale of socialized housing units to qualified beneficiaries shall be exempt from income tax, 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 as provided under Section 5 (A) of R.R. No. 11-97. Section 5 (A) of R.R. No. 11-97 provides that: "SEC. 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; (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 RA No. 7279, shall not be entitled to the foregoing tax exemption should there be non-compliance with any of the aforestated sine qua non terms and conditions. (BIR Ruling No. 291-2013 dated July 29, 2013) 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 PhP450,000.00. Thus, the sale of a house and lot or lot only above the maximum amount shall be subject to the corresponding internal revenue taxes. DETACa Moreover, 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. (BIR Ruling No. 291-2013 dated July 29, 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. . . . ." Furthermore, pursuant to HUDCC Resolution No. 1, Series of 2013, promulgated on October 16, 2013 approving the adjustment of price ceiling for socialized housing, and as circularized by Revenue Memorandum Circular No. 35-2014, pertinent portion of which reads: "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, 1 the newly adjusted price ceiling of PhP450,000.00 for horizontal socialized housing shall apply to sale of real properties utilized for horizontal 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". aDSIHc Moreover, Section 2 of R.R. No. 17-2001 provides; "A socialized housing unit shall not exceed P150,000.00 (now P450,000.00 per HUDCC Resolution No. 1, Series of 2013, promulgated on October 16, 2013) 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 homelots only, the price shall not exceed forty percent (40%) of the maximum limit prescribed for the house and lot package." The developer of the socialized housing units under RA No. 7279 is exempt from the payment of value-added tax pursuant to the aforecited provision. However, purchases of goods/articles by the project contractor shall be subject to value-added tax, even if the said purchases are to be used for the socialized housing project. Moreover, it shall be understood that it must issue non-VAT official receipts on its gross receipts from the said socialized housing project. (BIR Ruling No. 291-2013 dated July 29, 2013) Accordingly, the sale of a house and lot for a consideration not exceeding PhP450,000.00, in Wellington Place at Mary Cris Complex Phase 12-A , consisting of Five Hundred Three (503) lots/units , located at Barangay Pasong Camachile II, General Trias, Cavite covered by HLURB License to Sell No. 26051 to qualified beneficiaries shall be exempt from income tax and, consequently, from creditable expanded withholding tax, as well as from VAT pursuant to RA 7279, provided that: 1. The price/loan ceiling shall apply only to unsold lots/units and unconstructed by developers with existing License to Sell as of December 18, 2013; and 2. The new loan ceiling shall apply to subsequent sales of lots previously subject of a contract of sale, provided that the rescission of contract thereon was done in accordance with the provisions of Republic Act No. 6552, "Realty Installment Buyer Protection Act." This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. HUDCC Resolution No. 1 Series of 2013 took effect on December 18, 2013 after having satisfied the publication requirement as circularized by HUDCC Memorandum Circular No. 01 Series of 2014.