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Revenue Memorandum Circular 3-1996
Revenue Memorandum Circular 3-1996
Q-1. What real estate transactions are subject to VAT starting January 1,1996?
A-1 Real estate transactions which are subject to VAT starting January 1, 1996
include the following:
a. Sale, barter or exchange of real property held primarily for sale to customers or
for lease, in the ordinary course of trade or business, when the gross annual and/or
receipts exceed P500,000.00;2
b. Lease of real property in the ordinary course of trade or business, whether for
commercial or residential use, when the gross annual receipts exceed P500,00.003 and
provided that, in the case of residential use, the monthly rental exceeds P3,950.00/unit4
(as adjusted under Republic Act No. 7644,5 otherwise known as the Rent Control Law);
c. Security deposits in lease contracts, when the same is applied to rental (at the time
of the application);6
d. Advance payment received in the month/quarter by the lessor, when the same is in
fact a pre-paid rental, regardless of the accounting method used;
e. Real property dividends distributed by real estate dealers/lessors to its
stockholders and declared out of the retained earnings. The VAT should be computed
based on the fair market value or zonal value thereof, whichever is higher, at the time of
distribution.7
Q-4 What is the business tax liability of a real estate dealer/lessor whose gross
sales/receipts do not exceed P500,000.0020 during any 12-month period?
A-4 They shall be liable as Non-VAT taxpayers subject to 3% percentage tax imposed
under Sec. 11221 of the Tax Code. However, they have the option to register as VAT
taxpayers, in which case, they are liable to the 10% VAT with the benefit of input tax
credits.
Q-5 What is the business tax liability of individuals whose gross sales receipts do not
exceed P100,000.00 during any 12-month period?
A-5 Individuals whose gross receipts do not exceed P100,000.00 during any 12-month
period shall be exempt from the VAT and 3% percentage tax imposed under Sec. 112,22
since they are considered principally for subsistence or livelihood and not in the course of
trade or business.23
Q-9 When is a real estate dealer considered to be engaged in low cost housing project?
A-9 A real estate dealer is considered to be engaged in low-cost housing project when
such project is registered and licensed by HLURB27/HUDCC28 as low-cost housing
pursuant to BP 22029 or PD 957,30 or any other similar law. Low-cost housing refers to
housing projects intended for homeless low-income family beneficiaries, undertaken by
the Government or private developers, which may either be a subdivision or a
condominium, wherein the unit selling price is not more than P375,000.00 or as maybe
determined from time to time by HLURB/HUDCC;
Q-11 For purposes of determining exemption from VAT, what documents are required
to be submitted by real estate dealer engaged in low-cost socialized housing projects?
A-11 Within 30 days from approval of each project, real estate dealers engaged in low-
cost/socialized housing are required to submit a duly authenticated copy of the certificate
of license to sell issued by HLURB/HUDCC specifying the project name, location and
number units to be sold, to the Revenue District Office where its principal place of
business is located.32
Q-12 Are commissions of real estate agent/broker subject to VAT?
A-12 Yes, commissions of real estate agent/broker are subject to VAT if the gross
receipts exceed P500,000.0033 during any 12-month period.
Q-13 Can real estate dealers withhold the VAT from the commissions paid to real estate
brokers?
A-13 No, real estate dealers are not allowed to withhold VAT; however, government
entities can withhold VAT on its payment for goods and services.
Q-14 Are all sales of real property prior to January 1, 1996 subject to VAT?
A-14 No. only sales of real property held primarily for sale to customers or for lease by
real estate dealers or lessors on installment plan shall be subject to VAT with respect to
the installment payments made on or after January 1, 1996. Sale of real properties on
deferred payment basis in 1995 and prior years are not subject to VAT.34
Q-16 What do we mean by sale of real property on the deferred payment basis?
A-16 Sale of real property on a deferred payment basis means sale of real property, the
initial payments of which in the year of sale exceed 25% of the gross selling price.36
Q-19 What is the basis of the VAT on taxable sales of real property?
A-19 For cash basis/deferred payment plan The computation of the VAT by
persons/entities engaged in the sale of real property in the course of trade or business
shall be based on the gross selling price which is either selling price stated in the sales
document or the zonal values of the real properties sold, whichever is higher. In the
absence of zonal values the gross selling price shall refer to the market value as shown in
the latest tax declaration or the consideration, whichever is higher.
Q-20 How is the zonal valuation rule applied in the case of sale of real property on
installment plan basis?
A-20 For sale of real property on installment plan, the computation of the VAT shall be
based on the actual consideration received, including interests and other charges.
However, upon full payment, if the zonal/market value is higher than the total
receipts/collections, the additional VAT shall be paid accordingly.38
Gross receipts, as defined under Revenue Regulations No. 7-95,39 means the total
amount of money or its equivalent representing the contract price, compensation, service
fee, rental or royalty, including the amount charged for materials supplied with the
services and deposits in advance payments actually or constructively received during the
taxable quarter for the services performed or to be performed for another person
excluding VAT.
Q-22 If the contract of lease was notarized outside the Philippines, is the lease subject
to VAT?
A-22 Gross receipts from lease of real property covered by the VAT law are subject to
VAT regardless of the place where the contract of lease was executed, if the property on
lease is located in the Philippines.40
Q-23 If the lessor has real property for lease located in different places, should the
lessor register each property separately?
A-23 There shall only be one registration and, consequently, he shall pay an annual
registration fee of P1,000.0041 in the RDO where the main or head office is located.
However, if he maintains an office within the premises of the leased properties, said
office shall be considered as branch which shall also be registered and for which the
applicable registration fee shall be paid.
Taxable sales of real property on the installment plan shall, in addition to the document of
the sale, be covered by a VAT receipt for every installment payment.
Q-27 Can unused invoices or receipts printed prior to January 1, 1996, of persons
becoming liable to VAT for the first time, be used on or after January 1, 1996?
A-27 Yes, unused invoices or receipts printed prior to January 1, 1996 can still be used
provided that an inventory indicating the number of booklets and the corresponding serial
numbers as of December 31, 1995 shall be submitted to the RDO where the main office
is located on or before January 31, 1996 and the phrase "VAT registered as of (date of
registration) is stamped on all copies thereof. Said unused invoices or receipts shall be
allowed for use in transactions subject to VAT up to June 30, 1996.44
Q-28 Are real estate dealers entitled to the 8% presumptive input tax?
A-28 Yes, real estate dealers shall be entitled to the 8% presumptive input tax.45
Q-29 What is the basis of the 8% presumptive input tax of the real estate dealer?
A-29 The presumptive input tax credit of 8% of the real estate dealers shall be based on
the book value of the improvements, such as buildings, roads, drainage systems, water
drainage system perimeter posts, landscaping and other similar structures constructed on
or after January 1, 1988 (the effectivity of E.O. 273), in addition to its inventory of
supplies and materials for use in the business.
Q-31 What are documents required to be filed by sellers or lessors of real property
subject to VAT on or before January 31, 1996?
A-31 Seller or lessor of real properties are required to submit the following documents
not later than January 31, 1996 to the Revenue District Office where their principal place
of business is located.
A) For Presumptive input tax purposes;
1) Inventory of goods, supplies & materials not for sale but purchased for use in
business on hand as of December 31, 1995.
2) Inventory of goods or properties and improvements as of December 31, 1995; (for
real estate dealer only)
B) Inventory of unused invoices as of December 31, 1995, and
C) Schedule of receivable for contracts on a deferred payment basis as Dec. 31,
1995. Failure to submit this schedule shall subject receivables to VAT.
Q-32 How does the threshold provision of P500,000.00 apply to real estate lessor to
determine whether they are liable to VAT?
A-32 For purposes of determining compliance with the threshold of P500,000.00,46
even gross receipts from lease of residential units covered by the Rent Control Law shall
be included. If the aggregate of the gross receipts exceeds P500,000.00, then the real
estate lessor shall register as a VAT person. However, for purposes of determining the
VAT payable, VAT shall be computed only on the gross receipts from lease of real
properties/residential units not covered by the Rent Control Law.
To illustrate: For the month of January, 1996, ABC Realty Inc. is the lessor of a
15-door apartment with the following monthly rental charges:
10 units are being leased out for P3,950 per unit; while 5 units are being leased
out for P5,000 per unit.
Is ABC Realty Inc. subject to VAT? If so, how much is the VAT available?
I. Determine first whether the gross receipts of ABC Realty Inc. for the taxable year
(TY) 1996 from the lease of the 15-door apartment exceeds the threshold of P500,000.00.
A. Determine the gross receipts for TY 1995 from rentals covered by the rent
Control Law:
10 x P3,950 = P39,500/month
x 12 months
P474,000
B. Determine the gross receipts for TY 1995 from rentals not covered by the Rent
Control Law:
5 x P5,000 = P25,000/month
x 12 months
P300,00
C. Add (A) and (B) to determine whether ABC's gross receipts from the aforesaid
lease during the 12-month period exceeds the P500,000.00 threshold.
P474,000 (A)
+ 300,000 (B)
All revenue officials and employees are hereby enjoined to give this Circular the widest
publicity possible.
LIWAYWAY VINZONS-CHATO
Commissioner of Internal Revenue