The BIR has released Revenue Regulations (RR) No. 16-2011 (posted at the BIR Website) dated October 27, 2011 which increased the threshold amounts for VAT.
This affects residential lots and house and lots and the lease of residential units, as well as the threshold amount for the sale of goods and services subject to VAT.
The effectivity of the increased threshold amounts is on January 1, 2012. This adjustment is pursuant to the changes in the Consumer Price Index (CPI) released by the National Statistics Office (NSO).
Below is the summary of the changes:
| Section in the Tax Code | Type of income | Updated threshold for VAT exemption effective January 1, 2012 | Old threshold for VAT exemption | Difference | Affected price ranges |
|---|---|---|---|---|---|
| 109 (P) | Sale of residential lot | 1,919,500 | 1,500,000 | 419,500 | 1,500,000.01-1,919,500.00 |
| 109 (P) | Sale of residential house and lot | 3,199,200 | 2,500,000 | 699,200 | 2,500,000.01-3,199,200.00 |
| 109 (Q) | Lease of residential units | 12,800 | 10,000 | 2,800 | 10,000.01-12,800.00 |
| 109 (V) | Gross annual receipts/sales on the sale or lease of goods or properties or performance of services other than those mentioned in Sec. 109 | 1,919,500 | 1,500,000 | 419,500 | 1,500,000.01-1,919,500 |
Thus, effective January 1, 2012, the sale of a residential lot which is PHP1,919,500.00 and below, and the sale of a residential house and lot which is PHP3,199,200.00 and below are exempt from VAT.
The lease of a residential units which is PHP12,800 and below shall also be exempt from VAT effective January 1, 2012.
If a person’s gross annual receipts/sales on the sale or lease of goods or properties or performance of services other than those mentioned in Sec. 109 of the Tax Code does not exceed PHP1,919,500.00, he shall be subject to 3% percentage tax instead of the 12% VAT.
What does this mean to the ordinary person?
Effectively, with the thresholds for VAT-exempt sales now being higher, people can purchase real estate at a price lower by 12% for the affected price ranges.
For example, a residential house and lot which is sold for PHP2,600,000.00 now will have a 12% VAT of PHP312,000.00. But when the same property is sold for the same price, PHP2,600,000.00 on January 1, 2012, it will not be subject to the 12% VAT, so the effective savings is PHP312,000.00.
I think though that this may have the effect of pushing sales to January 1, 2012 onwards for those properties within the affected price ranges. For the sellers, their selling prices will be effectively lower, thus their products will become more affordable for buyers.
I would like to thank my good friend, Atty. Bobby Lock, Partner of Santiago & Vidad Law Office, who gave me the heads up on this new development. For your real estate-related legal needs, you may reach him at 0917-891-9125 or e-mail him at bishopblue(at)gmail(dot)com.
~~~
To our success and financial freedom!
Cherry Vi M. Saldua-Castillo
Real Estate Broker, Lawyer, and CPA
PRC Real Estate Broker License No. 3187
PRC CPA License No. 0102054
Roll of Attorneys No. 55239
Websites:
Text by Jay Castillo and Cherry Castillo. Copyright © 2011 All rights reserved.
Full disclosure: Nothing to disclose.
Photo Credit: Tax cuts by upside of inertia, on Flickr
Hi, What is the current cut off for VAT to apply on a Condo purchase? Is it still P2,995,000? Thx Matt
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Hi. Pag po ba nag exceed sa 1,919,500 yung sales, for example nagging 2,000,000 pesos, san po papasok yung VAT don sa buong 2M po? Or dun lang sa nag exceed na money which is 80,500 pesos?
I just want to ask if a real estate company which is a vat registered entity sold a residential lot of P1.2 Million, will it be exempted even if they are registered in BIR as vat accredited. Thank you atty
Thanks for the info.
Hi Atty Cherry,
Good day po!
I have 3 units/room for rent in a residential area. However one of my tenant will use the unit us bahay-ofis, since she has Company and want to adress in her unit…The rental fee is only 6,000/month. I dont know what is the take-up for this, is this still residential or business? is it subject for expanded witholding tax of 5% and VAT of 12%?
Thank you Atty.
Ms. Cherry, good am..I just want to ask about the sale of agricultural land, the cooperative where I am working had bought a land amounting P3,836,000. The seller already paid the Capital Gains Tax and Documentary stamp tax. Later, the BIR informed the seller that the CAR cannot be released because the VAT has not paid. I am confused about this matter because I thought that when the property is a capital asset, it is not subject to VAT.
Good evening Atty. I would like to ask if within the taxable year, the gross sales exceed the 1919500 limit, when do i have to apply for vat or what is the grace period from the knowledge of the excess. Thanks a lot.
Good morning,
Sir, please clarify, is the brokers commission vatable?
Thank you and God bless!
Good day!
I am starting a property management company and would like to know who should shoulder the VAT and since I am prop mgmt company can I shoulder the VAT when I bill and report it to BIR so the real owner doesn’t have to deal with paying taxes.
Hello sir just a question… does this law has a retroactive effect? I mean I bought a 450 sqmtrs of lot back in 2010 the price was 3700/sqmtr for a total price of P1,665,000 which was subjected to 12% vat, the Vat was included on our total contract price, so the total of which became P1,864,800 payable in 5 years that would end by 2015, Luckily, I was able to pay for it all this February 2013, when I asked Sta Lucia how much would be the transfer fee they told me that it would be 7% of the total contract price of P1,864,800. So should it really be based on the total contract price w/ 12% vat or should they compute it on the original contract price w/o vat which was 1,665,000? I hope I manage to state my situation clearly… God Bless you more Sir!!!
Hi guys,
Happy new year! i just have few questions. There are some condo companies stated that VAT are inclusive in pricelist but if you compute it, it should be VAT exempt. Lets make a sample computation:
Condo TCP: 3,700,000 (VAT inclusive)
Less 10%: 370,000
Total: 3, 330,000 (VAT inclusive)
If VAT is exempted:
3,330,000 / 1.12 = 2,973,214 (It should be VAT Exempt, right?)
There are other computation:
TCP withouth discount: 3,500,000 (VAT inclusive) / 12 = 3,125,000 (VAT exempted)
Some other companies dont want to show the VAT breakdown in there computation
May i ask for your suggestions or any recommendation?
Thank you.
Does the threshold amount applies to the principal value only (exclusive of interest)?
Hi I just want to ask if a company is selling his property Is this subject to vat it is an idle lot. plase help thanks
I would like to verify if where will condominium place in this BIR ruling?
Are condominiums treated the same as sale of residential lot?
Thanks
Hello Jay & Cherry,
Good Evening!
I’m about to sell a huge chunk of property in Batangas & I am VAT-registered very small company and I know nothing about taxes. I consulted a few brokers but they came out with different computations.
The total selling price of the said property is 200,000,000.00. What taxes do I need to pay? One broker said 6% CGT + 3% withholding tax. One said 12% VAT+5% withholding.
Can you please help?
Can you recommend an honest to goodness tax person?
How much do I need to pay the tax person for this kind of service?
Thank you.
Regard,
Alvin
P.S. May you be blessed for the free online advises.
Hi Alvin,
I’m sorry my reply is very late. As you may know, we encountered a family tragedy and it’s only now that I have been able to function relatively normally. First thing to determine is whether the property is a capital or ordinary asset. The property is registered under whose name? Check out RR No. 7-2003 to determine if it is a capital or ordinary asset. If a capital asset, you need to pay CGT. Usually the DST and transfer fees are for the buyer’s account. If the property is an ordinary asset, the sale shall be subject to VAT, and CWT. You may refer to my article on CWT. I have just drafted an article on VAT, hope to post it soon.
Best regards,
Cherry
i am paying down payment for a real estate that is worth below P3MM which should have been VAt exempt. The Contract to Sell however was made in August 2011 and DP is payable till Jan 2013 . Under RR 3-2012 the new threshold amounts shall be made effective for instrument of sale (whether the instrument is nominated as a deed of absolute sale, deed of conditional sale or otherwise) is executed and notarized on or after January 1, 2012. Thus, am I entitled to VAT exemption? Is Contract to sell the same as Deed of conditional sale. Thanks!
Hi Cris,
I think it may be considered under “otherwise”. The seller would be in a conservative position if it will pass the VAT on to you. If they agree that it will be considered as VAT-exempt, they shall be liable for deficiency VAT in case they are assessed by the BIR.
Best regards,
Cherry
Hello,
1. As a condo buyer is it in my best interest to buy a condo as close to the VAT threshold as possible without going over, in this case P3,150,000?
2. As a seller, do I want to sell my condo above the VAT threshold amount of P3,199,000?
3. Do I get the VAT from the seller for the sell of my condo and do I have to pay the government that money?
Thanks.
Hi Steve,
1. Yes, if the value of the condo is near the threshold. If you are a VAT taxpayer and will be able to use the input VAT to offset your output VAT, then it should even out even if you pay the VAT.
2. It depends. If the value is way above the threshold, then you have to price it properly. You can pass on the VAT to the buyer. If the value is not that much compared to the threshold, then it may be better to have the net amount just below the threshold. Just give discounts for cash payment, etc. to encourage the buyer to pay you faster. Of course all these assumes that you are a VAT taxpayer.
3. Sorry, I do not understand the question. If you mean that the seller includes VAT in the selling price, it is the seller who will pay the output VAT to the government, not the buyer.
Best regards,
Cherry
Hi,
I need your help regarding this VAT on real estate. My commercial condo unit is being used for my professional services and I used its depreciation expense as a deduction in the computation of my income tax. I plan to sell it, I am VAT registered, so I am also subject to VAT if selling price of my condo is over the treshhold?
Hi Grace,
Based on your description, your condo is used in business and may thus be considered as an ordinary asset. Since you are VAT-registered, I believe the sale of your condo will be subject to VAT if the selling price is over the threshold. I believe you were also able to claim the VAT you paid when you purchased the condo so effectively it will just even out.
Best regards,
Cherry
hi! i just passed the broker’s exam given last march. i’ve been contemplating whether to register as non vat or be vat registered. if i were non vat registered, would this mean i am not eligible to sell properties whose price range exceed the vat threshold? what are the downside of being non vat in real estate? and lastly, do you really have to file with the bir every month even if yo did not have income for the month? thanks
Hi Kit, even if you are not VAT registered, you can still sell properties whose price range exceed the vat threshhold. The only downside with being non-vat as far as I know is some developers require their brokers to be vat-registered, so you cannot become accredited with them if you are non-vat. Yes, you have to file your monthly/quarterly vat returns even without income for that particular month/quarter.
Hi Cherry & Jay,
For real estate transaction involving installment payment, there’s principal and interest components. Is the whole payment subject to VAT or just the principal?
Hi Sir,
The VAT threshold discussed is applicable to the selling price of the real properties. If the taxpayer is a VAT taxpayer (and not a bank), the interest shall be subject to VAT. It is possible that the payment for the property is exempt from VAT for being below the threshold but the interest is subject to VAT since the taxpayer is VAT-registered. It may be argued that the taxpayer is not engaged in the business of lending but still the income from interest may be considered as incidental income subject to VAT.
Best regards,
Cherry
Thanks for the post.
Question about the contract price – does it include the ‘MISCELLENEOUS FEES’?
Hi Hanez, in my opinion, it is not included. I could be wrong as it would really depend on the seller. A buyer should confirm this as part of due diligence. Cheers!
good noon mam cherry i’v been one of your participant on several taxation seminar…mam we’re in real estate business for 5 years now and we are VAt registered taxpayer, we will be selling house and lots but the cost of 1 house and lot is less than the latest threshold, do we really have to pay VAT?
ann
Update: Clarification on the effectivity date –
ftp://ftp.bir.gov.ph/webadmin1/pdf/62308RR%203-2012.pdf
hi atty cherry and sir jay,
hi good day! can you help me? the situation is this, I purchased a lot under the name of a corporation and the contract price is 248k, I’m already in the process of transferring it to my name, Am I already exempted from paying VAT? or do I have to pay for the VAT? How much?
thanks,
che2
Hello. I was checking on VAT for real estate when I chanced upon your website. Was under the impression before that private individuals selling their lot are not subject to the VAT. I am in the process of selling my lot (residential) for roughly P3.5M and would be paying the capital gains tax. Am I supposed to pay the VAT on top of this capital gains tax, and if so, how much would that be?
Thanks a lot!
Al
Atty. Cherry thanks much for your answer to my previous question. As a VAT-registered person, I am required to file even though I have no transactions. Does this mean each and every commission income I make will be subject to VAT? So for example I was able to successfully close a sale of a VAT-inclusive property and made 100,000 in commission income last month, does that mean I have to pay (100,000/1.12)*12% or 10,714.30 this month?
Hi Jon,
The VAT will be based on your commission, it doesn’t matter if the property you sold is VAT-inclusive or not. If you were not able to pass the VAT to your client (i.e., 100,000 commission + 12% VAT of P12,000), then yes you divide the P100k by 1.12 and multiply by 12% to get the output VAT. Note that the VAT payable is the net output VAT, meaning output VAT less input VAT.
Best regards,
Cherry
So what this means is for every commission income I make, whether or not I pass on the tax, and whether or not my gross annual income exceeds 1,919,500, I will pay VAT? Now I’m wondering if it’s a better idea to just be a Non-VAT registered professional *^^*
Good day, is the increase in VAT threshold applies also to sale of condominiums? If I reserve this Nov 2011 for condo unit amounting to 2.6M meaning 12% VAT shall be added. Can I claim condo seller to take out 12% VAT in the DP and balance computation and require recomputation from condo seller starting Jan 1, 2012? Kindly advise. Thanks!
it does also apply to condominiums (residential dwellings).
Hi po,
Same po as my answer above. It depends on the condo seller actually if he/she is willing to take the aggressive position. He/she may take the risk of being assessed by the BIR for deficiency VAT. If I were the seller, though, I would take the conservative position and still pass on the VAT to the buyer.
Best regards,
Cherry
Atty. Cherry are house and lot bought but still on the down payment stage affected by this circular?
Hi Noel,
For some reason the reply I typed was not reflected here. Anyway, since the regulations have no transitory provision, the conservative position would be to subject all the payments to VAT if at the time of the signing of the contract, the sale is subject to VAT. While I do agree that it is reasonable and fair for those installments from Jan. 2012 and onwards to be exempt from VAT if the price falls within the increased thresholds, in the absence of a clear pronouncement on this matter from the BIR, this may be an aggressive position as exemptions are construed strictly against the taxpayer and liberally in favor of the government.
Best regards,
Cherry
We have the same situation.
So if I’m the seller of a property amounting to P1.7M house and lot, 3% tax lang babayaran ko kung next year ko ibenta? Am I right?
Hi Techpoint, I hope you won’t mind if I answer on behalf of my wife. 🙂
Since it is a house and lot, and you plan to sell it at Php1.7M, it is VAT exempt whether you sell it now or after January 1, 2012.
However, you still need to pay either Capital Gains Tax, or Creditable Withholding Tax, whichever is applicable (this would depend on whether your property is classified as a capital asset or ordinary asset).
Hi Jay and Cherry,
Just got to see this post. Buti na lang, I was scrolling thru my FB messages and saw Jay’s update on the “problem guru”. These changes have major impact on transaction values we are negotiating on now. Hmm….now it is a toss-up for us to close the sale or postpone the sale til 2012.
Thanks to you both for your efforts and openness in providing information to those who may have need of it. More power and God bless!
Gemma
You’re welcome po Ms. Gemma! God bless.
Ay si Ms. Cherry pala may post nito. Thanks Ms. Cherry 🙂
Welcome po Mr. DJ!
Nice info Jay!
Thanks for this! This means a lot to SMEs too! 🙂
Hi Atty. Cherry and sir Jay!
Thank you very much for this highly valuable info for all Filipinos….most especially for all of us in the real estate service practice and of course for our clients…
More power!
Rose
Hi Rose,
You’re welcome po.
Best regards,
Cherry
On the VAT for the lease of residential units – if you have three properties located in different areas being rented at P10,000 each, are you subject to VAT because total rental income is P30,000 or not, since the lease is less than P12,800.00 each?
Hi Willeus,
You are not subject to VAT, even now, because the threshold is at P10,000.00. Note that the P12,800 threshold will be effective on January 1, 2012.
Best regards,
Cherry
Hi atty! As a VAT-registered person (licensed broker), does this affect me too? Would appreciate the heads-up, thanks!
Hi Jon,
VAT-registered ka na e, so mukhang hindi na. Unless you feel na di ka lalampas ng P1,919,500.00 per year and gusto mo mag-percentage tax na lang.
Best regards,
Cherry