Leasing of Real Property Exempt from Value-Added Tax

December 29, 1993 BIR RULING NO. 551-93 LEASING OF REAL PROPERTY EXEMPT FROM VALUE-ADDED TAX 103 (q) 000-00 551-93 Surico, Inc. Km. 2, Matina Davao City Attention: Mr . Felipe Q . Tan President This refers to your letter dated September 21, 1993 requesting for a definite ruling or opinion as to whether or not the contract of lease entered into by and between SURICO, Inc. and RFM Corporation is subject to the 10% value-added tax (VAT). It is represented that Surico, Inc. is the absolute and registered owner of a hatchery plant and machinery situated at Km. 2, Matina, Davao City; that these plant facilities are being leased to RFM Corporation for its use since the same is engaged, among others, in the sale and distribution of dressed chicken; and that the rental payments made by the lessee to the lessor are subjected to the 5% withholding tax in accordance with the Revised and Consolidated Expanded Withholding Tax Regulations. llcd In reply thereto, please be informed that pursuant to Section 103 of the Tax Code, as amended, leasing of real property is one of the transactions exempted from the payment of the 10% VAT imposed on every sale, barter or exchange of goods or services. Considering therefore that the "hatchery plant and machinery" being leased by Surico, Inc. to RFM Corporation falls within the purview of the term "immovable (real property" as contemplated under Article 415(5) of the New Civil Code, the aforementioned lease is exempt from the payment of the 10% VAT pursuant to Section 103(q) of the Tax Code, as amended by Executive Order No. 273. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue