BIR Ruling No. 492-11

December 14, 2011 BIR RULING NO. 492-11 RA 7279; BIR Ruling No. 025-2010 Verdantpoint Development Corporation 4/F Peaksun Bldg., 1505 Princeton St. Shaw Blvd., Mandaluyong City Attention: Ms. Imelda Cuaresma Head, ASD Gentlemen : This is refers to your letter dated August 1, 2011 stating that Verdantpoint Development Corporation (VDC with Tax Identification No. 237-765-097-000) is a corporation engaged in owning, improving, developing, subdividing, selling, exchanging, leasing and holding for investment or otherwise, real estate of all kinds, including buildings, houses, apartments and other structures. It is the owner and developer of a socialized housing project called Green Breeze Phase 2 located in Barangay San Isidro, Rodriguez, Rizal with a total area of 77,312 sq.m. under Certificate of Registration No. 22884 and License to Sell No. 24690 both issued by Housing and Land Use Regulatory Board (HLURB) Expanded National Capital Region Field Office on June 6, 2011. The afore-stated socialized housing project comprises 827 lots with housing components whose maximum selling price is at P400,000.00 per unit and 3 lots with no housing package. You now request for exemption from taxes on the sale of the said socialized housing units, as well as the project contractors exemption from Value-Added Tax (VAT) pursuant to Republic Act (RA) No. 7279, otherwise known as the Urban Development and Housing Act of 1992. 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;" HSaCcE Pursuant to the aforementioned provision and considering that Green Breeze Phase 2 is duly registered with the HLURB, the sale of the socialized housing units shall be exempt from project-related income taxes and creditable withholding tax prescribed under Revenue Regulations (RR) No. 2-98, as amended. Upon application for exemption, a lien on the title of the land shall be annotated by the Register of Deeds having jurisdiction over the properties, to the effect that the same are to be applied or being applied to socialized housing project pursuant to RA 7279. However, the sale is subject to documentary stamp tax on the documents conveying the property imposed under Section 196 of the National Internal Revenue Code (NIRC) of 1997, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. (BIR Ruling No. 025-2010 dated August 4, 2010) Furthermore, under RR No. 11-97, within six (6) months after this issuance of tax exemption from the capital gains tax or creditable withholding tax, the buyer/developer of raw land shall apply with the HLURB or Local Government Unit (LGU) concerned for a permit to develop the properties and shall start the development of the socialized housing project within one (1) year after the approval of the Development Permit and issuance of permit. Otherwise, the exemption from the capital gains tax or creditable withholding tax becomes automatically null and void, and the buyer/developer shall be held liable for the payment of taxes that should otherwise have been paid, plus the penalties incident to late payment. Provided, further, that in case of misrepresentation, an additional penalty equivalent to one hundred percent (100%) of the capital gains tax or creditable withholding tax due shall be imposed and paid by the buyer/developer. 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 under the Act. 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 afore-stated sine qua non terms and conditions. ETDSAc In addition, Section 109 (P) of the NIRC, as amended, provides thus: "Section 109. Exempt Transactions. (1) Subject to the provisions of subsection (2) hereof the following transactions shall be exempt from the value-added tax: xxx xxx xxx (P) 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 by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws . . ." Implementing the above provision of the NIRC of 1997, as amended by RA 9337, Section 4.109-1 (B) (1) (p) (2) (3) (4) of RR 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 (2) Sale of real properties utilized for low-cost housing as defined by RA No. 7279, otherwise known as the "Urban Development and Housing Act of 1992" and other related laws, such as RA 7835 and RA No. 8763 . . . (3) Sale of real properties utilized for socialized housing as defined under RA No. 7279, and other related laws, such as RA No. 7825 and RA No. 8763, wherein the price ceiling per unit is P225,000.00 (now P400,000.00 pursuant to HUDCC and the NEDA and other related laws . . . (4) Sale of residential lot valued at One Million Five Hundred Thousand Pesos (P1,500,000.00) and below, or house & lot and other residential dwellings valued at Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below where the instrument of sale/transfer/disposition was executed on or after July 1, 2005;" DHAcET Clearly, the above-quoted provision of the NIRC of 1997, as amended, and as implemented by RR No. 16-2005, allows for the VAT-exempt sale of socialized housing units, (lots and/or houses and lots). Considering that Green Breeze Phase 2 is duly registered with the HLURB, the sale of the socialized units are VAT-exempt, provided that the selling price per unit does not exceed the aforementioned price ceiling. VDC shall only issue Non-VAT invoice for its VAT-exempt sales, but its purchases of goods/articles 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. 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