Goldenville Realty and Development Corporation

December 22, 2009 BIR RULING [SH-(135) 804-09] S-20-028-07 Goldenville Realty and Development Corporation 3368 Harvard Street, Pinagkaisahan Makati City Attention: Ida Abendao-Guintu President/General Manager Gentlemen : This refers to your letter dated November 15, 2009 requesting for a ruling that as a project contractor of socialized housing project under Republic Act (RA) No. 7279, otherwise known as the Urban Development and Housing Act of 1992, it is exempt from the payment of project related income taxes, value-added tax (VAT) and the capital gains tax. It is represented that Goldenville Realty and Development Corporation is a domestic corporation duly registered with the Securities and Exchange Commission (SEC); that on November 23, 2009, a Deed of Absolute Sale was executed by Marcelo E. Belesina herein represented by Goldenville Realty and Development Corporation, as the Vendor/Developer, in favour of the National Housing Authority (NHA), a government owned and controlled corporation duly organized and existing under PD No. 757, as amended; that pursuant to Executive Order No. 90 dated December 17, 1986, the NHA is the sole government agency engaged in the direct shelter production to provide the housing needs of the low and marginal income families including those affected by calamities and those living in danger areas; that to ensure the timely, peaceful and orderly relocation and resettlement of families affected by the calamities and those living in danger areas, the NHA is the lead agency in the implementation of the NHAs Resettlement and Relocation Programs; that Marcelo E. Belesina is the absolute and registered owner of a parcel of land located at Barangay Langkiwa, Bian, Laguna, known as the Southville 5A Resettlement Project containing an area of 26,580 square meters and covered by TCT No. CLO-1784 issued by the Registry of Deeds for the Province of Laguna; that the said property has been developed by Goldenville Realty and Development Corporation and has generated 590 developed homelots; that the Vendor-Developer has offered to sell the developed homelots in Southville 5A Resettlement Project to the members of the Southville 5A Homeowners Association, Inc. as resettlement site of members/families affected by the calamities and those living in danger areas; that the said members of the Association have identified and selected said offered property as their permanent resettlement site; and that the Association and Landowner/Developer have entered into a separate Contract Agreement to cover the financing on the acquisition by the members/families of developed lots in Southville 4 Resettlement Site and financing the construction of completed housing units in the amount not to exceed P100,000.00 per lot per family and P75,000.00 per housing unit, respectively. HDAaIS In reply thereto, please be informed that pertinent portion of 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; (3) value-added tax for the project contractor concerned;" xxx xxx xxx Pursuant to the aforementioned provision, the owner, Marcelo E. Belesina, of the raw land is exempt from the payment of capital gains tax on the conveyance of the above-described property for use in the socialized housing project. 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 are being applied to socialized housing project pursuant to R.A. 7279. However, the sale is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997 based on the consideration or the fair market value, whichever is higher. Furthermore, under Revenue Regulations No. 11-97, as amended by Revenue Regulations No. 17-2001, within six (6) months after the issuance of tax exemption form 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 property 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. On the other hand, once the developer is registered with and certified by the HLURB as engaged in socialized housing project pursuant to R.A. No. 7279 and as developer of the property used for the aforementioned socialized housing projects, the sale of the socialized housing units (house and lots or lots only) shall be exempt from project-related income taxes, and creditable expanded withholding tax prescribed under Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001, implementing Section 57 (B) of the Tax Code of 1997. HSaIDc In this connection, it should be mentioned that any sale made by the developer to interested parties other than the principal target beneficiaries under Sections 3 (t) and 16 of R.A. No. 7279, shall not be entitled to the foregoing tax exemption as well as should there be non-compliance with any of the sine qua non terms and conditions as afore-stated, for tax exemption purposes. However, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause in Section 20 of R.A. No. 7279. Such being the case, the 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, based on the consideration contracted to be paid for such realties or on its fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. 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 selling price per sale transaction of the lots on this case does not really exceed P400,000.00, as the case may be, for each qualified beneficiary. Finally, as developer, you are exempt from the payment of value-added tax (VAT) on your gross receipts from the said project. However, your 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service