Quick Notes Real Estate Taxation

Local Taxation     

Basic Realty Tax = 1% to 2% of Assessed Value Special Education Fund Tax = 1% of Assessed Value Idle Land Tax = not to exceed 5% of Assessed Value (Section 236, RA 7160) Payment of Realty Tax = March 31 / June 30 / Sept 30 / December 31 Prompt Payment Discount = maximum of 20% of total tax; deadline is on or before January 31 of the taxable year  Payment Under Protest: o Should be filed within 30 days o Decision should be made within 60 days o Refund may be given within 2 years  Interest on Unpaid Tax = 2% per month, not to exceed 36 months  Redemption period for properties sold through auction = One year from date of certificate of sale National Taxation  Installment Sale = total amount paid in first year of payments is 25% or less of total selling price  Deferred Payment Sale = total installment paid in first year of payments is more than 25% of total selling price  Documentary Stamp Tax on Sale = 1.5% of Tax Base  Documentary Stamp Tax on Mortgage = P20.00 for the first P5,000 plus P10.00 for every succeeding P5,000 or a fraction thereof, or (Amount of Mortgage x 0.002) + P10.00  Capital Gains Tax = 6% of Tax Base  Creditable Withholding Tax (for real estate developers and dealers):  1.5% – if selling price is P500,000.00 and below  3.0% – if selling price is more than P500,000.00 and but less than or equal to P2 Million  5.0% – if selling price is more than P2.0 million  6.0% – if seller is not habitually engaged in sale of real estate, regardless of selling price  Percentage Tax = 3% of Gross Receipts  Value-Added Tax (VAT) = 12% of selling price before VAT  Donor’s Tax = from 2% to 15% (up to 4th degree of consanguinity)  30% if the donee is a stranger (beyond the 4th degree of consanguinity)  Estate Tax = from 5% to 20% of net estate subject to tax i. Rule on Sales on Installment [RR No. Sec. 4.106-3 of RR No. 16-05 as amended by Sec. 3 of RR No. 4-07] Installment sale of residential house and lot or other residential dwellings with gross selling price exceeding P1,000,000.00, where the instrument of sale (whether the instrument is

nominated as a deed of absolute sale, deed of conditional sale or otherwise) was executed prior to November 1, 2005, shall be subject to ten percent (10%) output VAT. 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. In case 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, subject to the provisions of Sec.4.106-4 hereof. Correspondingly, the buyer of the property can claim the input tax in the same period as the seller recognized the output tax. Installment payments, including interests and penalties, actually and/or constructively received starting February 1, 2006 shall be subject to twelve percent (12%) output VAT. ii. See also rule on sale of real property use in business (Sec. 14 (l) of RR No. 4-07) (1) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business. However, even if the real property is not primarily held for sale to customers or held for lease in the ordinary course of trade or business but the same is used in the trade or business of the seller, the sale thereof shall be subject to VAT being a transaction incidental to the taxpayer’s main business. iii. Correlate with Sec. 109 on exempt sales of Real Property (w) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business or real property utilized for low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws, house and lot and other residential dwellings valued at One million pesos (P1,000,000) and below: Provided, That not later than January 31st of the calendar year subsequent to the effectivity of this Act 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); 2. Lease of Residential Units – [Sec. 4.109-1 (B)(q) of RR No. 16-05] Lease of residential units with a monthly rental per unit not exceeding 10k, regardless of the amount of the aggregate rentals received by the lessor during the year, Provided, that not later than January 31, 2009 and every three years thereafter, the amount of 10k shall be adjusted to its present value using the consumer price index, as published by the NSO. The foregoing, not withstanding, lease of residential units where the monthly rental per unit exceeds 10k but the aggregate of such rentals of the lessor during the year do not exceed

1.5M shall be likewise exempt from VAT, however the same shall be subjected to 3% percentage tax. In cases where a lessor has several residential units for lease, some are leased out for a monthly rental per unit of not exceeding P10,000.00 while others are leased out for more than P10,000.00 per unit, his tax liability will be as follows: 1. The gross receipts from rentals not exceeding P10,000.00 per month per unit shall be exempt from VAT regardless of the aggregate annual gross receipts. 2. The gross receipts from rentals exceeding P10,000.00 per month per unit shall be subject to VAT if the aggregate annual gross receipts from said units only (not including the gross receipts from units leased for not more than P10,000.00) exceeds P1,500,000.00. Otherwise, the gross receipts will be subject to the 3% tax imposed under Section 116 of the Tax Code. The term ‘residential units’ shall refer to apartments and houses & lots used for residential purposes, and buildings or parts or units thereof used solely as dwelling places (e.g., dormitories, rooms and bed spaces) except motels, motel rooms, hotels and hotel rooms. The term ‘unit’ shall mean an apartment unit in the case of apartments, house in the case of residential houses; per person in the case of dormitories, boarding houses and bed spaces; and per room in case of rooms for rent. What real estate transactions are subject to Value Added Tax (VAT)? Those involving sale, lease or sub-lease of real property by persons engaged in the business of selling, developing, leasing or sub-leasing of real property. The following are liable to pay VAT:  Those who are engaged in the business of selling, developing, leasing or sub-leasing of real property.  Those licensed to engage in real estate brokerage business based on their commission. The following are the tax rates of VAT:  On sale of goods and properties – twelve percent (12%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged  On sale of services and use or lease of properties – twelve percent (12%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties  On importation of goods – twelve percent (12%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such as tax to be paid by the importer prior to the release of such goods from customs custody; provided, that where the customs duties are determined on the basis of quantity or volume of the goods, the VAT shall be based on the landed cost plus excise taxes, if any.  On export sales and other zero-rated sales – 0%