BIR Ruling No. 291-15

August 27, 2015 BIR RULING NO. 291-15 RA 7279; RR 11-97; RR 16-05; Section 4.109-1 (B) (1) (p) (3); RMC 35-2014; Section 109 (1) (P) of NIRC; BIR Ruling No. 129-12; BIR Ruling No. 223-13 Verdantpoint Development Corporation 7th Floor Summit One Tower, 530 Shaw Boulevard Mandaluyong City Attention: Johnny L. Corpuz Vice President Gentlemen : This refers to your letter dated May 11, 2015, requesting for tax exemption on the sale of socialized housing units in Centella Homes Extension located in Brgy. San Isidro, Rodriguez, Rizal pursuant to Republic Act (R.A.) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted show that Verdantpoint Development Corporation with Taxpayer's Identification No. 237-765-097-000 is corporation duly organized and existing under Philippine laws; that it is registered with the Securities and Exchange Commission (SEC) under Registration No. CS200506138; that it is the owner and developer of a housing project known as Centella Homes Extension located in Brgy. San Isidro, Rodriguez, Rizal with a total land area of 3,012 sq.m.; and that the project is duly registered with the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 26132 1 and License to Sell No. 029932 2 both issued by the HLURB Expanded National Capital Region Field Office, dated April 27, 2015 for socialized housing project which covers 61 lots with Housing Components. 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 ;" 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; (b) must be an underprivileged and homeless citizen, as defined in Section 3(t) of the Act and Section 2(r) of these Regulations; AScHCD (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 Section 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 aforestated sine qua non terms and conditions. (BIR Ruling No. 223-13 dated June 20, 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 P450,000.00. Thus, sale of a house and lot 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. 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 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: "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." This, 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". AcICHD 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 homelots only, the price shall not exceed forty percent (40%) of the maximum limit prescribed for the house and lot package." (Emphasis supplied) 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 protect. In relation thereto, Section 109 (1) (P) of the Tax Code of 1997, as amended, provides that the sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, or real property utilized for low-cost and socialized housing as defined under RA 7279, and other related laws, is exempt from VAT, thus, only the sales by Centella Homes Extension Project of housing units with selling price of not more than the aforementioned price ceilings shall be exempt from VAT. Accordingly, the sale of the House and Lot in the housing project known as Centella Homes Extension covered by HLURB License to Sell No. 029932 (for 61 socialized lots/units), wherein the maximum price of the House and Lot is P450,000.00) to qualified beneficiaries are exempt from income taxes and, consequently, from creditable expanded withholding tax and from VAT under Section 109 (1) (P) 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 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. Issued on April 27, 2015. 2. License to Sell No. 029932 covers 61 lots with housing components.