VAT Ruling No. 037-01

June 13, 2001 VAT RULING NO. 037-01 Sec. 109, R.R.6-97 000-00 Ongkiko Kalaw Manhit & Accordia Law Offices 4th Floor, Cacho-Gonzales Building 101 Aguirre St., Legaspi Village Makati City Attention: Atty . Mariano C . Ereso Gentlemen : This refers to your letter dated 07 December 2000, requesting on behalf of your client, ERNESTO OPPEN, INC. (EOI), for confirmation that its rental income from lease of " residential dormitory " is exempt from 10% VAT, as well as to the 3% percentage tax. It is represented that your client is engaged in the business of leasing out commercial establishments and rents out stalls and office spaces to its various tenants; that, it also operates a residential dormitory, wherein the boarders are billed at a rate ranging from P800.00 to P1,000.00 per person, per month; and that its total gross receipts per annum from the operation of the said dormitory exceeds the amount of P500,000.00. In reply, please be informed that gross receipts from lease of residential units is exempt from the 10% VAT, as follows: "(x) Lease of a residential unit with a monthly rental not exceeding Eight Thousand (P8,000 . 00) Pesos : . . ." 1 "(x) Lease of residential units with a monthly rental per unit not exceeding Eight Thousand (P8,000 . 00) Pesos, regardless of the amount of aggregate rentals received by the lessor during the year , . . ." 2 " The term 'residential units' shall refer to apartments, houses and/or lands on which another's dwelling is located, used for residential purposes and shall include not only buildings, parts or units thereof used solely as dwelling places (e . g., dormitories, rooms and bed spaces) except motels, motel rooms, hotels and hotel rooms. 'Residential units' shall also include apartments, houses, building, parts or units thereof used for home industries, retail stores or other business purposes, if the tenant thereof and his family actually live therein and use them principally for dwelling purposes . " 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 ." 3 Since your client's rental from its residential dormitory operations does not exceed P8,000.00 per month, per individual, the same is exempt from the 10% VAT, pursuant to Section 109 (x), NIRC of 1997, as implemented by Section 4 of Revenue Regulations No. 6-97. On your query whether the said rentals from the lease of your client's residential dormitories may be subject to the 3% percentage tax, in lieu of the 10% VAT, please be informed that the 3% percentage tax prescribed under Section 116 of the said NIRC does not apply to persons exempt from the 10% VAT under Section 109 (a) to (y) of the Code, as follows: cECTaD "SEC. 109. Exempt Transactions . The following shall be exempt from the value-added tax : "(a) . . . "xxx xxx xxx "(z) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of Five hundred fifty thousand pesos (P550,000) : . . ." "SEC. 116. Tax on Persons Exempt from Value-added Tax (VAT) . Any person whose sales or receipts are exempt under Section 109(z) of this Code from the payment of value-added tax and who is not a VAT-registered person shall pay a tax equivalent to three percent (3%) of his gross quarterly sales or receipts : Provided, That cooperatives shall be exempt from the three percent (3%) gross receipts tax herein imposed ." It follows, your client's gross receipts from lease of its residential dormitories is likewise exempt from the 3% percentage tax. This ruling is being issued on the basis of the 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. Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue 1. Sec. 109(x), NIRC of 1997. 2. Sec. 4, Revenue Regulations No. 6-97. 3. S ec. 4, Revenue Regulations No. 6-97.