BIR Ruling No. 267-2016

REPUBLIC CF THE PHILIPPINES

DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE

QUEZON CITY

E.O.226:RR 16-2011

Secs.57(B);106(A)(1)(a);196 NIRC

BIR Ruling No.334-11

#267-2016

6-22-2016

KENRICH DEVELOPMENT CORPORATION

G/F Un Heng Building M.L.Quezon Street Casuntingan, Mandaue City

Attention : Mr.Glenn N. Lim Vice President

Gentlemen:

This refers to your letter dated October 16, 2015 stating that Kenrich Development

Corporation,Kenrich for brevity) with Tax Identification No. is a

domestic corporation duly registered with the Securities and Exchange Commission (SEC) under

Expanding Developer of a Low-Cost Mass Housing Project (Villa Lara 2A Subdivision - Company Reg No. It is registered with the Board of Investments (BOI as

Jubay, Liloan) on a Non-Pioneer status under Certificate of Registration No. dated

June 04,2015 in accordance with the Omnibus Investments Code of 1987 of Executive Order

(EO) No. 226. Kenrich has been granted Inicome Tax Holiday (ITH) by the BOI for a period of

three (3) years from June 2015 or actual start of commercial operations/selling, whichever is

earlier but in no case earlier than the date of registration. Kenrich's Villa Lara 2A Subdivision

-- Jubay, Liloan Project is registered with Housing and Land Use Regulatory Board (HLURB)

under Certificate of Registration No and holds HLURB License to Sell No. I; and

under the Specific Terms and Conditions of its BOI Registration, Kenrich shall construct and sell

forty-eight (48) units of low-cost mass housing for Kenrich's Villa Lara 2A Subdivision

Jubay, Liloan Project based on the following schedule:

Year Volume (No. of Units) Value (Php)

1 10

2 30

3 8

Total 48

On the basis of the foregoing, you now request for an opinion on the tax consequences of

Kenrich's Villa Lara 2A Subdivision - Jubay, Liloan Project's HLURB License to Sell No. covers Lot 5163 for a totat

of 48 units and provides for maximum selling price per House and Lot Package a

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the said ITH granted by BOI. Specifically, if Kenrich. being a BOI registered enterprise, is

exempt from the payment of the creditable withholding tax (CWT) imposed under Revenue Regulations No. 2-98 on income payments received during the aforementioned period with

respect to its registered activity.

In reply, please be informed that under Section 2.57.5 (B(2) of Revenue Regulations

RR) No.2-98, as amended by RR No. 6-2001 implementing Section 57 (B) of the Tax Code of

1997, as amended, the withholding tax prescribed in the said Regulations shall not apply to

income payments to persons enjoying exemption from income tax provided by Republic Act No.

7916 and the Omnibus Investment Code of 1987.

Accordingly, since Kenrich's Villa Lara 2A Subdivision -Jubay,Liloan Project is a

received by Kenrich in connection with its housing project, Villa Lara 2A Subdivision - Jubay, Liloan Project (on the 48 low-cost mass housing units as mentioned in the Specific Terms and Conditions of its BOI Registration), is exempt from CWT under RR No. 2-98, as amended BOI registered project, this Office is of the opinion as it hereby holds, that income payments

operations/selling, whichever is earlier but in no case earlier than the date of registration. It must by RR No. 6-2001, for a period of three (3) years from June 2015 or actual start of commercial

attributable to revenues generated from its registered activity, Kenrich's Villa Lara 2A be emphasized. however, that the above exemption from CWT covers only income directly

Subdivision - Jubay, Liloan Projectinvolving 48 low-cost mass housing units used solely for family home or dwelling purposes and not for commercial purposes such as leasing, retail stores. offices. etc. Furthermore. such exemption shall not cover revenues from units with selling price

. In the computation of ITH, interest income from in-house financing shall not be considered as revenues generated from the registered activity.

Moreover, the entitlement to ITH of Kenrich's Villa Lara 2A Subdivision - Jubay Liloan, Project is not automatic as it still has to comply with the following provisions of the Specific Terms and Conditions of its BOI Registration,viz

1. In the grant of incentives, the extent of the project's ITH entitlement shall depend on the

enterprise's compliance with the following representations/commitments under this registration. In the event that the registered enterprise fails to implement the project as represented in its project application, the Board may reduce the project's ITH entitlement proportionate to the actual performance of the enterprise, in terms of the foregoing representations/commitments, among others.

a. Net Value Added (NVA) should be at Ieast 25%

Pre-op Yr-1 Yr-2 Yr-3

NVA (%) 9 %

b. Job Generation 042241

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Number of Employees Pre-Op 60 Year I 1 8 Year 2 1 8 Year 3 18

c. Investments and Timetable

the government/training Land Acquisition Secure necessary license costs /permit/ registration from Activity October 2012 April 2011 Jaly 2014 Schedule to Pre-operating expenses Land cost Related Expenses Cost (Php)

Operations Start of Comrnercial Site preparation and development Building/House construction November 2014 November 2013 January 2014 March 2014 June 2015 to to Working Capital development Cost Building/House construction Cost Land/Site

TOTAL PROJECT COST

d. Sales Revenues

Tota Year 3 2 1 Volume (No.of Units) 48 30 10 8 Value (Php)

Net income qualified for ITH entitlement shall not result of gross revenues exceeding 10% of the projected gross revenue represented by the firm in its application.

Request/s fo: adjustments of projected revenue must be filed before the filing of application due to, e.g.new markets/orders additional employment/shifts, additional investments, the Board may increase the project's ITH availment proportionately. application for ITH. In cases where the project's actual revenues exceed the projections in its

3. Secure from the HLURB an endorsement that it has faithfully complied with the 2. The enterprise shall submit a list of common cost items and cost allocation methodology approved development plan and a "Certiricave of Good Housekeeping" for its other p:ejeets/activities (whether BOI-registered or non-registered).

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4. File an application with the BOI Incentives Department within one (1) month from filing

of the final Inccme Tax Return (ITR) with the Bureau of Internal Revenue (BIR in order

to validate the claim for income tax exemptien.The application shall be accompanied by

a certification from the Social Security System (SSS) that the enterprise is in good

standing in the remittance of Sss contributions of its emoloyees.

Secure a Certificate of ITH Entitlement (CoE from the BOI Supervision and Monitoring

Department prior to filing of ITR with the BIR:otherwise,ITH for that particular year

without CoE shail be forfieted.

6. In the event the enterprise fails to maintain the 75:25 aebi-eqty ratio requirement, it shall

show proof that ne construction of housing unts have been completed and delivered to

buyers prior wo availment of ITH: otherwise, the enterprise shall not be entitled to ITH

and shail be required to refund any capital equipment incentives availed of.

7. Submit proof of compliance that at least twenty percent of the total subdivision area has

been deveiopea and aliocated for socialized housing within one year from date of

registration or prior to availment of ITH; otherwise, ITH for that particular year shall be

deemed forfeited

Furthermore. BOl-registered enterprises enioy no tax exemption/privileges other than

those granted under E.0 226.In this regard. under the terms and conditions of its BOI

registration,Kenrich's Villa Lara ZA Subdivision --Jubav,Lioan Project was clearly granted

a 3-vear ITH but such terms and condinions do not vide for any exemption from other taxes

that Kenrich may be subject to on its busines transactions. Thus, Kenrich's Villa Lara 2A

Subdivision - Jubav, Liloan Project w remain subiect o Value Added Tax (VAT and

Documentary Starmp Tax (DST) on irs sales of hose and lot units pursuant to Sections 106

(A(1)a) and 196 of tie Tax Code of i997,as amended.(BIR Ruling No.334-11 dated

September 7. 201

Project of housing lits with selling price of not more than the aforementioned price ceilings residential lot valued at One Milion Nire Hundred Ninetee Thousand Five Hundred Pesos (P1,919,500.00) and below, or housa and tot and +ther resicental dwellings valued at Three Million One Hundred Ninety Nine Thousard Two Hundred Peses (P3.199.200.00) and below is VAT-exempt. Thus. oniy the sales by Kenrich's Villa Lara 2A Subdivision - Jubay, Liloan shall be exempt from VT. In relation thcreto, Seetion 109(1)(P) of thcTax Code of 1997 provides, that the sale of

returns and pay its tax ti.bilities. on or before the dedlinc as provided under the 1997 Tax Code. Pursuant to Section 4 of Republic Act (RA) No. 10708, Kenrich is required to file its tax

as amended,using the cleotronic system for filing and payment ortaxes of the BIR.Furthermore Kenrich shall fie with BOi a complete annual tax incemive report of its income-based tax incentivesvalue-dda tax VAT) and duty exempnsdections.credits or exclusions from the tax base.as may be provided under E.0.226.witnn thirry (30 days from the deadline for

filing of tax returns ard pavment of taxes.

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It should be understood that Kenrich's shall be constituted as a withholding agent for the

government if it acts as employer and any of its enplovees received compensation income

subject to compensation withholding tax.or if it makes payments to individuals or corporations

subject to the withholding taxes at source as required under Chapter XIII and Section 57 of the

Tax Code of 1997.as amended and implemented by Revenue Regulations No.2-98,as amended.

Likewise. Kenrich is required to file on or before the 15th day of the fourth month

the Annual Information Return under oath, stating its gross income and expenses incurred during following the close of its accounting period a Profit and Loss Statement and Balance Sheet with

the taxable year.

Finally. Kenricn's bcoks of accounts and other pertinent records shall be subject to periodic examination by revenuc eniorcement oiicers of this Bureau for the purpose of ascertaining whetner it has been complying witn the condiuons under which it has been granted

tax exemption or tax incentives and its tax liability, if any. pursuant to Section 235 of the Tax Code of 1997.as amended.

This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disciosed that the facts are different. then this ruling shall be

considered null and voic

Very truly yours.

KIM S. JACWNTO-HENARES

Commisioner of Internal Revenue

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