VAT Ruling No. 038-03

September 8, 2003 VAT RULING NO. 038-03 Sec. 106 (A) (2) (b) 000-00 Mr. Florentino S. Dulalia, Jr. President CREBA, Inc. 3/F CREBA Center Don Alejandro Roces Ave., cor. South "A" St. Quezon City Dear Mr. Dulalia : This refers to your letter dated January 6, 2003 endorsed to us by Director James H. Roldan of the Department of Finance on January 15, 2003 recommending the amendment of the VAT regulations to the effect that sale of real properties by local real property sellers to non-residents be considered as foreign currency denominated sale entitled to the zero-rated privilege. In reply thereto, please be informed that the term "foreign currency denominated sale" entitled to the zero-rated privilege under Section 106(A)(2)(b) of the Tax Code of 1997 refers to the sale to non-residents of goods ASSEMBLED OR MANUFACTURED IN THE PHILIPPINES, except those mentioned in Sections 149 and 150 of the same Code, for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). Thus, Section 4.100-2(b) of Revenue Regulations No. 7-95 defined the term goods for purposes of the foreign currency denominated sale as "referring to locally manufactured or assembled goods for household and personal use sold to Filipinos abroad and other non-residents of the Philippines, as well as returning Overseas Filipinos (OFWs) under the Internal Export Program of the government paid for inconvertible foreign currency and accounted for in accordance with the rules and regulations of the BSP." Much as we want to grant your request, both the law and the regulations are very clear and could not be given a different interpretation. However, it might be worthwhile to inform you that the following sale of real properties are exempt from VAT, viz : (1) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business; (2) Sale of real properties utilized for low-cost housing under BP Blg. 220, PD No. 957 or RA No. 7279, otherwise known as the "Urban Development and Housing Act of 1992" and other related laws, wherein the price ceiling per unit is P375,000, or as may from time to time be determined by the House and Land Use Regulatory Board (HLURB) and other related laws; (3) Sale of real properties utilized for socialized housing as defined under R.A. No. 7279, wherein the price ceiling per unit is P150,000 (now P180,000) or as may from time to time be determined by the HLURB and other related laws; and (4) Sale by real estate dealers and/or lessors of house and lot and other residential dwellings valued at One Million Pesos (P1,000,000) and below: Provided, That not later than January 31, 1998 and each calendar year thereafter, the amount of One Million Pesos (P1,000,000) shall be adjusted to its present value using the Consumer Price Index, as published by the National Statistics Office (NSO). HDIaST Very truly yours, (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue