Mr. Francisco Dela Rosa Co

July 18, 2007 VAT RULING NO. 010-07 Sec. 4.109 (Q) VAT Ruling No. 12-2003 Mr. Francisco Dela Rosa Co General Manager Francisco Dela Rosa Co Apartments Lot 7 Block 18 Radial Road 10 Tondo, Manila (1012) Dear Mr. Co : This refers to your letter dated April 23, 2007 requesting for a ruling as to whether or not the rental of your rooms in your apartment at a monthly rental of P2,500 per room per month is exempt both from the 12% value-added tax and from the 3% percentage tax. It is represented that you are a single proprietor and that you are engaged in different lines of business activities, one of which is the rental of rooms to low income earners; that you are the owner of two apartment buildings with forty-five rooms each for rent and that your tenants are mostly laborers and stevedores in Pier; that each room is being rented out for P2,500 only because your target clients would not be able to afford to rent a room higher than P2,500 a month; that you are currently registered as Non-VAT taxpayer although based on your feasibility study, you might be able to reach a gross receipt of more than P1,500,000 in one year if all the rooms would be rented, hence, there is a possibility that you could be required to register as VAT taxpayer in the future; that currently, you are being required by the RDO to file not only the quarterly income tax return but as well as the monthly percentage tax return; that in one of the seminars that you have attended, you remember that the speaker said that you are both exempt from VAT and from the percentage tax. You are now seeking confirmation of the said opinion. In reply, please be informed that Section 4.109-1 (B) (1) (q) of Revenue Regulations No. 16-2005, as amended by RR 4-2007, provides as follows: "Sec. 4.109-1. VAT-exempt Transactions . . . . "(q) Lease of residential units with a monthly rental per unit NOT exceeding P10,000, regardless of the amount of aggregate rentals received by the lessor during the year " . . . . "The foregoing notwithstanding, lease of residential units where the monthly rental per unit EXCEEDS P10,000 but the aggregate of such rentals of the lessor during the year do not exceed P1,500,000 shall likewise be exempt from VAT, however, the same shall be subjected to 3% percentage tax." IacHAE "xxx xxx xxx "The term " residential units " shall refer to apartments and houses and lots used for residential purposes, and buildings or parts or units thereof used solely as dwelling places (e.g., dormitories, rooms and bed spaces) except motels, motel rooms, hotels, hotel rooms, lodging houses, inns and pension houses. "The term " unit " shall mean an apartment unit in the case of apartments, house in the case of residential houses, per person in the case of dormitories, boarding houses and bed spaces, and per room in case of rooms for rent." In view of the foregoing, it is the opinion of this Office that when the rental per residential unit does not exceed P10,000 per unit, the said transaction shall be exempt both from the 12% VAT and the 3% percentage tax. Considering therefore that the monthly rental of your rooms for rent is only P2,500 per room since most of your tenants are poor people who work as laborers and stevedores in Pier, your said rental income from the said rooms for rent is exempt from the 12% VAT regardless of the aggregate annual gross receipts. Furthermore, your gross receipts shall likewise be exempt from the 3% percentage tax under Section 116, in relation to Section 109 (Q) of the Tax Code, the said transaction having been specifically exempted by law from both VAT and percentage tax. (VAT Ruling No. 12-2003 dated January 15, 2003) However, since you are a single proprietor, your net income from the said rental shall be subject to the income tax rates under Section 24 (A) (1) (c) of the Tax Code of 1997, as amended, after deducting from your gross income your personal and additional exemptions and the applicable allowable deductions under Section 34, also of the Tax Code. CaAIES 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 as null and void. Very truly yours, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner