R-II Builders, Inc.

April 12, 2010 BIR RULING [SH-(004) 013-10] RA 7279; Sec. 109 (P); RR 9-93, 11-97, 2-98 & 16-2005; RMC 42-01 & 30-2009; VAT Ruling No. 038-03; BIR Ruling Nos. 132-94, 091-95, UN-231-95, DA-364-99, S-20-007-2004, S-20-013-2004 & SH (136) 805-2009 R-II Builders, Inc. R-II Building, 136 Malakas Street Diliman, Quezon City Attention: Mr. Leopoldo T. Sanchez President Gentlemen : This refers to your letter dated January 8, 2010 requesting for confirmation of your opinion that as a socialized housing project contractor, R-II Builders, Inc. is exempt from project related income taxes, expanded withholding tax and value-added tax (VAT) on its contract with the Province of Cavite to undertake the development and construction of the "Cavite Mass Housing Project", also known as "Pamayanang Maliksi Mass Housing Project", and likewise, it is exempt from the payment of income tax, withholding tax and VAT on the subsequent sale of the completed or developed housing units pursuant to the provisions of Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992", as implemented by Revenue Regulations (RR) No. 11-97, and as amplified by Revenue Memorandum Circular No. 42-2001. ScTIAH It is represented that R-II Builders, Inc.,with Taxpayers Identification No 000-725-926-000, is a corporation duly organized and existing under Philippine Laws and is engaged in the construction business, including the construction of socialized housing projects; that R-II Builders, Inc. entered into a Memorandum of Agreement on November 26, 2007 and Joint Venture Agreement on June 24, 2008 with the Province of Cavite, to undertake the construction and development of a 32.68 hectares socialized housing project out of the 53.79 hectares property owned by the Province of Cavite located at Pasong Kawayan II, General Trias, Cavite, covered by Transfer Certificate of Title No. T-29741, particularly known as the "Pamayanang Maliksi Mass Housing Project";that said project will resolve the housing/squatting problem in the Province of Cavite by commencing a mass/socialized housing project to meet the needs of the homeless and underprivileged Caviteo families for decent dwellings and also in the process, provide immediate relocation/permanent resettlement of squatter families affected by the on-going clearing/demolition activities being undertaken by the Province of Cavite; that the Province of Cavite has issued a certification that the project is under a partnership arrangement between the Province and R-II Builders, Inc. and is intended for socialized housing to benefit qualified families pursuant to the Urban Development and Housing Program of the Province of Cavite; that the "Pamayanang Maliksi Mass Housing Project" has been certified by the Housing and Urban Development Coordinating Council (HUDCC) to be a socialized housing project; that the price per unit is P260,000.00 for Row House Model and P295,000.00 for Duplex Model; and that on August 26, 2008, BIR Ruling No. SH (023) 122-2008 was issued by this Office exempting R-II Builders, Inc. from project related income taxes, expanded withholding tax and VAT on its above contract with the Province of Cavite, the said ruling, however, did not include the tax treatment of the subsequent sale by R-II Builders, Inc. of the socialized housing units to the intended beneficiaries, hence, this request for ruling. In support of your above request, you submitted the following documents: 1) Copy of the Memorandum of Agreement by and between the Province of Cavite and R-II Builders, Inc. for the development of the mass/socialized housing project known as "Pamayanang Maliksi Mass Housing Project"; 2) Copy of the Certification issued by the HUDCC certifying that the "Pamayanang Maliksi Mass Housing Project" is a socialized housing project; 3) Copy of the Development Permit issued by the Local Government concerned; 4) Copy of the Locational Clearance issued by the Zoning Administrator of the Province of Cavite; 5) Certificate of Registration identifying the above housing project as an economic/low cost housing project issued by the Housing and Land Use Regulatory Board (HLURB), in accordance with Batas Pambansa (BP) No. 220; HSaCcE 6) License to Sell No. 21228 dated January 9, 2009 covering 1,120 lots/units in Cluster-E with maximum selling price of P300,000.00 per house & lot and License to Sell No. 22940 dated November 11, 2009 covering 947 lots/units in Cluster-B with maximum selling price of P400,000.00 per house & lot, both licenses issued by the HLURB for the above lots/units located in the "Pamayanang Maliksi Housing Project";and 7) Other pertinent documents. In reply, please be informed that this Office hereby reiterates the tax exemption of R-II Builders, Inc. as mentioned in BIR Ruling No. SH (023) 122-2008 dated August 26, 2008, specifically, its exemption from the payment of project related income taxes, expanded withholding tax and value-added tax arising from its contract with the Province of Cavite in undertaking the development and construction of the "Cavite Mass Housing Project", also known as "Pamayanang Maliksi Mass Housing Project". As such, the income directly realized by R-II Builders, Inc. from the said socialized housing project is exempt from the corporate income tax and consequently, to the withholding tax imposed under Revenue Regulations No. 2-98, as amended. (BIR Ruling Nos. 132-94 dated August 31, 1994 & 091-95 dated June 15, 1995) Likewise, R-II Builders, Inc. is exempt from the payment of VAT on its gross receipts from the said socialized housing project in accordance with Section 20 of Republic Act 7279, as implemented by RR No. 9-93, as amended by RR No. 11-97. (BIR Ruling Nos. UN-231-95 dated June 26, 1995; DA-364-99 dated June 23, 1999; S-20-007-2004 dated May 6, 2004; & S-20-013-2004 dated July 29, 2004) On the other hand, this Office confirms your opinion that the subsequent sale of the completed or developed housing units by R-II Builders, Inc. to the intended beneficiaries, with a price ranging from P260,000.00 to P295,000.00, is exempt from the payment of income tax, and consequently, from the withholding tax in accordance with Section 2.57.2 (J) of Revenue Regulations No. 2-98, as amended. The selling price per lot or house and lot package as fixed by the HUDCC in Resolution No. 1, Series of 2008, dated December 11, 2008, and as circularized by Revenue Memorandum Circular No. 30-2009, to be qualified as a socialized housing, shall not exceed P400,000.00. Such being the case, 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 selling price per sale transaction of the lots/units in this case does not really exceed P400,000.00, for each qualified beneficiary. Moreover, the buyer of the socialized housing unit is hereby required to execute a sworn statement that he/she is eligible as a socialized housing beneficiary under RA No. 7279, in accordance with the requirement as laid down under Section 5 (A) of RR Nos. 9-93, as amended by RR No. 11-97. Further, the above sale of socialized housing units is not subject to VAT in accordance with Section 109 (P) of the Tax Code of 1997, as amended, as implemented by Revenue Regulations No. 16-2005, as amended. (BIR VAT Ruling No. 038-03, dated September 8, 2003) However, the sale of the above socialized housing units is subject to the DST at the rate of Fifteen pesos (P15.00) for each One thousand pesos (P1,000.00) of the consideration or value of the unit/s sold, in accordance with Section 196 of the Tax Code of 1997, as amended. The exemption of socialized housing projects under Section 20 of Republic Act No. 7279, as implemented by Revenue Regulations No. 11-97, and as amplified by Revenue Memorandum Circular No. 42-2001, does not include payment of the DST. (BIR Ruling No. SH (136) 805-2009 dated December 22, 2009) 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. EcTaSC Very truly yours, (SGD.) MARISSA O. CABREROS OIC-Assistant Commissioner Legal Service