ADMINISTRATIVE ISSUANCES ON JOINT VENTURES, CONDO DUES AND HOUSING. Atty. Vic C. Mamalateo January 31, 2013 CREBA Intercontinental Hotel

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1 ADMINISTRATIVE ISSUANCES ON JOINT VENTURES, CONDO DUES AND HOUSING Atty. Vic C. Mamalateo January 31, 2013 CREBA Intercontinental Hotel

2 SCOPE OF PRESENTATION REVENUE REGULATIONS (RR) RR (taxation of joint ventures on construction) REVENUE MEMORANDUM CIRCULAR (RMC) RMC , Aug 3, 2012 (taxability of clubs organized and operated for pleasure, recreation and other non-profit purposes) RMC , Oct 31, 2012 (taxability of association dues, membership fees and other assessments/charges of condo corps) OTHER ADMINISTRATIVE ISSUANCES RMC , July 16, 2012 (exemption of contractors for socialized housing) RMC (Co-development projects)

3 SCOPE OF PRESENTATION RR (Non-redemption of property sold thru involuntary sales) RR & RR 3-12 (VAT-exempt sales of realty) RR (Submission of SLS/SLP by VAT persons) RR (Tax-free exchange of realty for shares of stocks) RR (Reports on lease of realty) RR (Bill VAT as separate item in invoice or receipt)

4 P.D. 929 (May 4, 1976) JV CONSTRUCTION CORP 1 CORP 2 ujv OBJECTIVE: To assist local contractors in achieving competitiveness with foreign contractors by pooling resources

5 JV CONSTRUCTION INCOME TAX Unregistered JV engaged in construction is treated as a pass through entity: It is not a taxable legal entity subject to corporate income tax. It shall not register as an income taxpayer for income tax purposes, but must register as a withholding agent with the BIR. It is not required to keep books of accounts and issue invoices and receipts. It shall not file any corporate income tax return. It must withhold income taxes on payments prescribed by law. Joint Venture Partners are the ones liable to income tax and each partner shall report its share in the JV profit during the year.

6 SEC. 22(B), NIRC JV: CONSTRUCTION (Before RR 10-12) LAND DEV Raw Land ujv

7 JV CONSTRUCTION Requisites for exemption from income tax during the construction period: Unincorporated joint venture Parties to JV are landowner(s) and developer Land is contributed by landowner(s), while developer contributes money, equipment and labor Developed land or condominium building is to be divided or allocated between the landowner(s) and developer based on the JVA BIR ruling confirming the tax-free implications of the JV project is secured and CAR is issued by the RDO where the property is located Sale of land or condo unit (even during the construction period) is subject to income tax (whether the deed is CTS or DOAS). JV partners shall report their respective sales of lands or condo units. It is dangerous for the JV to report the sales of lands or condo units, and the JV partners will report only their respective shares from the JV profits. The JV may be construed by BIR as a taxable partnership.

8 JV CONSTRUCTION INCOME TAX Unregistered JV engaged in construction is treated as a pass through entity: It is not a taxable legal entity subject to corporate income tax. It shall not register as an income taxpayer for income tax purposes, but must register as a withholding agent with the BIR. It is not required to keep books of accounts and issue invoices and receipts. It shall not file any corporate income tax return. It must withhold income taxes on payments prescribed by law. Joint Venture Partners are the ones liable to income tax and each partner shall report its share in the JV profit during the year. VAT (E.O. 273, Jan 1, 1998) JV shall secure its TIN and register as a VAT taxpayer. It shall keep books of accounts and issue official receipts (VAT and NV). It shall file VAT returns and pay VAT to BIR. It must comply with administrative requirements (e.g., SLS/SLP).

9 JV CONSTRUCTION (RR 10-12) CORP 1 CORP 2 ujv

10 REV REGS NO , June 1, 2012 JOINT VENTURE, NOT TAXABLE AS CORPORATION JV or consortium is formed for the purpose of undertaking construction projects; It involves joining or pooling of resources by licensed local contractors; i.e., licensed as a general contractor by the Phil Contractors Accreditation Board (PCAB) of the DTI; Local contractors are engaged in construction business; and JV itself is likewise licensed as such by PCAB. If any requirement above is absent, JV or consortium is a taxable corporation. Tax-exempt JV shall not include those who are mere suppliers of goods, services or capital to a construction project.

11 REV REGS NO , June 1, 2012 Joint Venture (JV) involving foreign contractors may be treated as non-taxable corporation only if: Member foreign contractor is covered by a special license as contractor by PCAB; and Construction project is certified by the appropriate Tendering Agency (government office) that the project is a foreign-financed/ internationally-funded project and that international bidding is allowed under the Bilateral Agreement entered into by and between the Phil government and the foreign/international financing institution, pursuant to the rules and regulations of RA 4566 (Contractor s License Law). Each member of JV not taxable as corporation shall report and pay taxes on their respective shares to the JV profit. All licensed local contractors must enroll to BIR s EFPS at the RDO where local contractors are registered as taxpayers.

12 CO-DEVELOPMENT PROJECT A DEV CORP X Land JV Money, people Invest cash Construction

13 BUILD-TO-OWN SCHEME BIR Ruling No. DA and similar rulings were revoked by RMC Nos. 20-, 54-, & : Build-to-own, build-your-own, and similar concepts of codevelopment projects mainly consist of the developer making it appear that it merely manages the construction of the condominium project, and that the funds as contributed by individual investors are pooled in a bank with the developer, as project manager, receiving project management fee only. The assignment and delivery of the developed units to joint owners (individual investors) is claimed not a taxable event being merely a transfer of property held in-trust by the Trustee for the individual-trustors. Above schemes effectively resulted in non-payment of taxes. HLURB rejects the schemes being contrary to PD 957 (Subdiv and Condo Buyers Protective Act), as amended by PD 1216.

14 RMC , Aug 3, 2012 CLUBS FOR PLEASURE, RECREATION AND OTHER NON-PROFIT PURPOSES A. Income Tax Said clubs are not in the current list of tax-exempt corporations in the Tax Code. A person, object or thing omitted from the enumeration must be held to have been omitted intentionally; hence, their income from whatever source, including membership fees, assessment dues, rental income, and services are subject to income tax. B. VAT Even non-stock, non-profit organizations are liable to pay VAT on their sale of goods or services (COMASERCO v. CIR). Thus, the gross receipts of recreational clubs, including membership fees, assessment dues, rental income and service fees are subject to VAT.

15 RMC , Oct 31, 2012 CONDOMINIUM CORPORATIONS A. Income Tax The amounts paid in as dues or fees by members and tenants of a condo corporation form part of the gross income subject to income tax because it furnishes its members and tenants with benefits, advantages, and privileges in return for such payments. These fees and charges constitute income payments or compensation for beneficial services it provides to members and tenants. Said income payments are subject to expanded withholding tax. B. VAT Association dues, membership fees, and other assessments/ charges collected by a condominium corporation are subject to VAT since they constitute income payment or compensation for beneficial services it provides to its members and tenants. Even non-stock, non-profit organizations are liable to VAT on the sale of goods or services (COMASERCO v. CIR).

16 REV REGS NO , May 31, 2012 RR implements Sec 24(D)(1), 27(D)(5), 57, 106 and 196 of the Tax Code, and RR 2-98, as amended, and RR , as amended on non-redemption of property sold during involuntary sales; and revokes and amends all contrary issuances and rulings. If property is sold during involuntary sales, the SELLER shall be subject to (a) income tax, which could either be: Capital gains tax, if property is a capital asset; or Ordinary income tax or regular corporate income tax, if property is an ordinary asset, regardless of the type of proceedings and personality of mortgagees/selling persons; (b) VAT (if ordinary asset), and (c ) DST.

17 REV REGS NO , May 31, 2012 Above taxes shall be due counted from the date the right to redeem the property of the buyer has expired. Buyer who is deemed to have withheld the CGT or CWT due from the sale shall file CGT and remit the tax within 30 days, or file CWT return and remit the RCIT within 10 days from date of expiration of redemption period, except for the month of December, which may be filed not later than January 15 of the following year. If property sold is subject to VAT, it shall be paid by the owner/mortgagor within 20 or 25 days of the following month when the right of redemption expires. DST shall be paid within 5 days after the close of the month after the lapse of the redemption period.

18 REV REGS NO , May 31, 2012 The CGT/CWT/VAT and DST shall be based on whichever is higher of the consideration (bid price of the highest bidder) or the fair market value or the zonal value as determined in accordance with Sec 6(E) of the Tax Code. All regulations, rulings or orders inconsistent with RR are hereby revoked, repealed or amended.

19 REV REGS NO , July 1, 2011 NOT SUBJECT TO VAT: The VAT shall not apply to goods or properties which are originally intended for sale or for use in the course of business existing as of the occurrence of the following: (1) Change of control of a corporation by acquisition of the controlling interest of such corporation by another stockholder (individual or corporate) or group of stockholders. The goods or properties used in business (including those held for lease) or those comprising the stock in trade of the corporation having a change in corporate control will not be considered sold, bartered, or exchanged despite the change in the ownership in said corporation. However, the exchange of goods or properties, including the real estate properties used in business or held for sale or for lease by the transferor, for shares of stocks, whether resulting in corporate control or not, is subject to VAT.

20 REV REGS NO , Feb 20, 2012 PERSONS REQUIRED TO SUBMIT SLS All persons liable for VAT, such as manufacturers, wholesalers, service-providers, among others, are required to submit Summary List of Sales. PERSONS REQUIRED TO SUBMIT SLP All persons liable for VAT, such as manufacturers, serviceproviders, among others, are required to file Summary List of Purchases. RULES IN SUBMISSION Quarterly SLS/SLP shall be submitted thru compact-diskrecordable (CDR) medium following the format provided in subsection g hereof. The magnetic form (3.5-inch floppy diskettes) in RR shall henceforth refer to CDR. RR shall take effect on Jan 1, 2012

21 REV REGS NO , Oct 27, 2011 VAT-EXEMPT TRANSACTIONS (Sec. 109, NIRC) P. Sale of real property not primarily held for sale to customers or for lease in the ordinary course of trade or business, or real property for low-cost and socialized housing, residential lot valued at P1.5 M (P1,919,500 beginning 2012) or below, house and lot and other residential dwellings valued at P2.5 M (P3,199,200 beginning 2012) or below (as amended by RR , Oct 27, 2011) Q. Lease of a residential unit with a monthly rental not exceeding P10,000 (P12,800 beginning 2012) V. Sale or lease of goods or property or the performance of services other than transactions mentioned above, the gross sales or receipts do not exceed P1.5 M (P1,919,500)

22 REV REGS NO , Feb 20, 2012 RR , Oct 27, 2011 NIRC Section Old Amount New Amount Sec. 109(P) P1,500,000 P1,919,500 Res Lot Sec. 109(P) 2,500,000 3,199,200 Res H&L Sec. 109(Q) 10,000 12,800 Res unit Sec. 109(V) 1,500,000 1,919,500 Annual EFFECTIVITY OF ADJUSTED THRESHOLD AMOUNT If instrument of sale is executed and notarized on or after Jan 1, 2012, apply 12% VAT on new threshold amount. If instrument of sale is executed and notarized on or after Nov 1, 2005 but prior to Jan 1, 2012, threshold amount is old amount, and VAT rate is 10% up to Jan 31, 2006 or 12% beginning Feb 1, 2006.

23 REV REGS NO , July 25, 2011 Reportorial requirements for establishments leasing spaces for commercial activities It shall be the responsibility of all owners or sub-lessors of commercial establishments/buildings/ spaces to ensure that lessee is a BIR-registered taxpayer (TIN, COR, and registered invoices/receipts). Every Jan 31 st, all owners or sub-lessors of commercial establishments/buildings/spaces who are leasing or renting out such commercial space to any person doing business therein are required to submit to BIR RDO (a) building/space layout; (b) copy of lease contract; and lessee information statement. First filing of tenants profile was Sept 1, This was extended to Nov 2, 2011.

24 REV REGS NO , Nov 21, 2011 All VAT-registered taxpayers who are required under Section 237 of the Tax Code to issue sales or commercial invoices or official receipts should separately bill the VAT corresponding thereto. The amount of the tax shall be shown as a separate item in the invoice or receipt.

25 END OF PRESENTATION Atty. Vic C. Mamalateo Mobile No.: ; Tel. No.: Fax No.: