For: Fro Re: Reve RSG/INS, m RLC ‘Tax Rules in Sales Involving Real Property Memorandum 18 February 2010 ex Value Added Tax A. Applicability * The sale of real properties held primarily for sale to customers or held for lease in the ordinary course of business of the seller shall be subject to the Value Added Tax vary) * Sale of residential lot with gross selling price exceeding P1,500,000.00, residential house and lot or other residential dwellings with gross selling price exceeding P2,500,000.00, where the instrument of sale (whether the instrument is nominated as a deed of absolute sale, deed of conditional sale or otherwise) is executed on or after Nov. 1, 2005, shall be subject to ten percent (10%) output VAT, and starting Feb. 1, 2006, to twelve percent (12%) output VAT? B. Basis Gross Selling Price ‘* Means the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the VAT. The excise tax, if any, on such goods or properties shall form part of the gross selling price’, * Means the consideration stated in the sales document or the fair market value whichever is higher. It is the amount of consideration in a contract of sale between the buyer and seller or the total price of the sale which may include cash or property and evidence of indebtedness issued by the buyer, excluding the VAT. © The term “fair market value” shall mean whichever is higher of: 1) the fair market value as determined by the Commissioner/zonal value; " See Section 4.106-3, Consolidated Value Added Tar Regulations of 2005 (1 September 2005), as amended by sue Regulation No. 06-17, 7 Febeuary 2007 Md, 2 id, Section 4106-4.2) the fair market value as shown in schedule of values of the Provineial and City Assessors (real property tax declaration). However, in the absence of zonal value/fair market value as determined by the ‘Commissioner, “gross selling price” refers to the market value shown in the atest real property tax declaration or the consideration, whichever is higher. If the gross selling price is based on the zonal value or market value of the property, the zonal or market value shall be deemed exclusive of VAT. Thus, the zonal value/market value, net of the output VAT, should still be higher than the consideration in the document of sale, exclusive of the VAT. If VAT is Not Billed Separately © Ifthe VAT is not billed separately in the document of sale, the selling price or the consideration stated therein shall be deemed to be inclusive of VAT. C. Installment Sales vs. Cash Sales * Sale of real property on installment plan means sale of real property by a real estate dealer, the initial payments of which in the year of sale do not exceed twenty-five (25%) of the gross selling price. © Incase of installment sale, the seller shall be subject to output VAT on the installment payments received, including the interests and penalties for late payment, actually and/or constructively received. © The buyer of the property can claim the input tax in the same period as the seller recognized the output tax. © Sale of real property by a real estate dealer on a deferred payment basis not on the installment plan means sale of real property, the initial payments of which in the year of sale exceed twenty-five percent (25%) of the gross selling price. © “Initial payments" means payment or payments which the seller receives before or upon execution of the instrument of sale and payments which he expects or is scheduled to receive in cash or property (other than evidence of indebtedness of the purchaser) during the taxable year when the sale or disposition of the real property was made. It covers any down payment made and includes all payments actually or constructively received during the year of sale, the agaregate of which determines the limit set by law. © “Initial payments” do not include the amount of mortgage on the real property sold except when such mortgage exceeds the cost or other basis of the property to the seller, in which case the excess shall be considered part of the initial payments.© Treated as cash sale which makes the entire selling price taxable in the month of sale. Output tax shall be recognized by the seller and input tax shall accrue to the buyer at the time of the execution of the instrument of sale. © Payments subsequent to "initial payments" shall no longer be subject to output VAT, in the case of sale on a deferred payment basis". Withholding Tax Applicability ‘© There shall be withheld a creditable income tax on the gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange, or transfer of real property classified as ordinary asset’. Basis Gross Selling Price Gross selling price shall mean the consideration stated in the sales document or the fair market value determined in accordance with Section 6 (B) of the Code, as amended, whichever is higher’. Excludes any interest component on the purchase pric Excludes the Value Added Tax’, Note that in BUR Ruling No. [DA-(C-073) 238-08)°, the BIR stated that the term “selling price” is not construed to be limited only to the amount so stated as consideration in the document of sale, Thus, if the in the Contract to Sell it is agreed that the buyer will assume some liabilities, i.c., taxes and other charges, the foregoing shalll be considered in the computation of the actual consideration in the sale transaction. Buyer Engaged in Trade or Business “1d * Section 2.57.2 (2) Revenue Regulation No, 2-98 (17 April 1998) as amended by Revenue Regulation No, 17-03 1 March 2003) or * BIR Ruling {D4-(C-073) 238-08). 19 September 2008.S20 also Revenue Regulation No, 1703, 3k March 2003, * BIR Ruling No, 109-97, 20 October 1997; BIR Ruling 008.98, § February 1998, *19 September 2008.Oo oO Sale on Installment Basis!” © The tax shall be deducted and withheld by the buyer from every installment which tax shall be based on the ratio of actual collection of the consideration against the agreed consideration appearing in the Contract to Sell applied to the gross selling Price or fair market value of the property at the time of the execution of the Contract to Sell, whichever is higher. Sale on Deferred Payment (Cash Basis) © The withholding tax shall be withheld from the initial payment, based on whichever is higher of the gross selling price or the fair market value of the property, determination accordance with Section 6 (E) of the Tax Code!! D. Buyer Not Engaged in Trade or Business Sale on Installment Basis * No withholding is required to be made on the periodic installment payments. In such a case, the applicable rate of tax based on the gross selling price or fair market value of the property at the time of the execution of the contract to sell, whichever is higher, shall be withheld on the last installment or installments immediately prior to such last installment, if the last installment is not sufficient to cover the tax due, to be paid to the seller until the tax is fully paid! Sale on Deferred Payment (Cash Basis) * Ifthe sale is on a cash basis or is a deferred-payment sale not on installment plan, and the buyer is likewise not engaged in trade or business, said buyer shall withhold the tax based on the gross selling price or market value of the property, whichever is higher on the first installment E. Obligation to Withhold © Under Revenue Regulation 2-98, the obligation to withhold is imposed on the buyer of the real property" "© Sales of real property on installment plan are those wherein the payments in the year of sale do not exceed twenty five percent (25%) ofthe selling price "Buk Ruling No. D-14940, 6 May 2003 ® Section 2.57.2, Revenue Regulation 2-98, ws amersled by Revenue Regulation 17-2003 'S BIR Unnumbercd Ruling [DA-{C-156) 419-09], 30 July 2009, See also Revenue Regulation No. 8-98, 28 August 1998‘* However, the BIR has ruled that in sales of real property on deferred cash basis to individuals not engaged in business, the individual buyers are not considered as duly authorized withholding agents and shall therefore not withhold any expanded withholding tax on their subsequent installment payments implying that the buyers are still obligated to withhold on their initial installment payment. This notwithstanding, the BIR in several cases has also ruled that where the buyers failed to withhold the corresponding tax on their initial payment in sales on deferred cash basis, the transaction is still wholly taxable to the seller in the year of sale; thus, no withholding shall be made by such buyer and the seller shall be the one to report and remit the expanded withholding tax required to be withheld’. F. Venue for Filing * Revenue Regulation No. 005-09" provides that the venue for the filing of tax returns and payment of the taxes due thereon (i.e., CGT/CWT/Regular Income Tax/DST) on real properties owned by large taxpayers, including securing of CAR/TCL, is reverted to the jurisdiction of the concerned RDO where the real property concerned is located”, IL. Documentary Stamp Tax A. Applicability ‘© DST is imposed on all conveyances, deeds, instruments, or writings, other than grants, patents or original certificates of adjudication issued by the Government, whereby any land, tenement, or other realty sold shall be granted, assigned, transferred or otherwise conveyed to the purchaser, or purchasers, or to any other person or persons designated by such purchaser or purchasers, there shall be collected a documentary stamp tax based ‘on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of this Code, whichever is higher: Provided, That when one of the contracting parties is the Government the tax herein imposed shall be based on the actual consideration". B. Basis QW0 We. 41-91 © In all cases involving sale, exchange, or any disposition of real property, the tax base for documentary stamp tax purposes shall be the same as the tax base used in the 'S BIR Ruling [DA-46)-04), 30 August 2004; BIR Ruling No. (13-01, 2 June 2003 "16 March 2009, " Prior tothe issuance of said regulation, Revenue Regulation No. 004-08 (19 February 2008) allowed large taxpayers to file the tax retums and payment of the tax (CGTICWTDST), including securing of Tax Clearance CentificateCertificate Authorizing Regstra‘ion, with respect to theieeal estate transactions to the concerned Large Taxpayers Services Office where the texpayer's head office is registred. "Section 196, National Internal Revenue Code. 2 March 2001; BIR Ruling [DA-172-03],2imposition of the capital gains tax (including the expanded creditable withholding tax prescribed) which means, gross selling price, fair market value or zonal value of the real property whichever is higher'®. C. Venue for Filing © Revenue Regulation No. 005-09 provides that the venue for the filing of tax returns and payment of the taxes due thereon (i.e., CGT/CWT/Regular Income Tax/DST) on real properties owned by large taxpayers, including securing of CAR/TCL, is reverted to the jurisdiction of the concerned RDO where the real property concemed is located?!. For your information and instructions. "BAR Ring No, 109-97, 20 October 1997 16 March 2009, ® Prior to the issuance of said regulation, Revenue Regulation No, 004.08 (19 February 2008) allowed large taxpayers 10 file the tax retums and payment of the tax (CGTICWTIDST), including securing of Tax Clearance Cerificate!Cerificate Authorizing Registracin, with respect to thei real estat transactions, othe concerned Large Taxpayers Services Office where the taxpayer's head office is registered, 6