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[Ask the Tax Whiz] What are the taxes due on sale of real property considered as ordinary assets?

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[Ask the Tax Whiz] What are the taxes due on sale of real property considered as ordinary assets?

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The Philippine Tax Whiz discusses the recently issued Revenue Memorandum Circular 99-2023
How will you know if the sale of real property is considered as an ordinary asset?

An ordinary asset is all real properties specifically excluded from the definition of capital assets under Section 39(A)(1) of the Tax Code of 1997, as amended. These include the following:

  1. Stock in trade of a taxpayer of other real property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year
  2. Real property held by the taxpayer primarily for sale to customer in the ordinary course of his trade or business
  3. Real property used in trade or business (i.e., buildings and/or improvements) of a character which is subject to the allowance for depreciation provided under Sec. 34(F) of the Tax Code, as amended
  4. Real properties used in trade or business of the taxpayer
  5. In the case of banks, real properties acquired through foreclosure sale
Are invoices/receipts still required to be issued by the seller of real properties which is already covered by a Deed of Sale?

Yes. Pursuant to Section 237 of the Tax Code, as amended, the sellers of real properties are required to issue Sales Invoice. However, a VAT-registered taxpayer engaged in the sale of a service who has only Authority to Print for Official Receipt (OR), the issuance of an OR used in trade or business is permitted as the sale is merely incidental to its regular business operations. 

What are the tax returns required to be filed in relation to the sale of properties in the course of business?

If real properties are considered as ordinary assets, the tax returns to be filed are the BIR Form No. 1606 for the remittance of expanded withholding tax on the purchase of real property and BIR Form No. 2000-OT for the declaration and payment of the documentary stamp tax (DST) due on the transfer/sale of real property.

Is the sale of real property subject to Value Added Tax (VAT)? What is the taxable base?

The sale of real property as “ordinary assets” are subject to VAT. However, not in the instances wherein if the real property is used in business by a Non-VAT Registered Person whose transactions are under Sec. 109(1)(A) to (BB) of the Tax Code, as amended, or falls under Sec. 109(P) of the Tax Code, as amended, provided that every three years, the amount shall be adjusted to its present value using the Consumer Price Index as published by the Philippine Statistics Authority (PSA). 

The taxable base to be used to determine the VAT is twelve percent (12%) that shall be based on the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged. However, according to RR No. 16-2005 Section 4.106-4, as amended, that the gross selling price is the higher between the considerations stated in the sales document and the fair market value. 

Are inherited/donated real property used in business and payment of donor’s tax considered ‘deemed sale’ subject to VAT?

Yes. According to the Revenue Regulations No. 16-2005, as amended, and Section 106(B)(1) of the Tax Code, as amended. that donations made by a VAT-registered person of a property used in the course of business shall be considered “deemed sale” and are subject to VAT. 

Confused about real estate taxes? Clarify the process now and #AskTheTaxWhiz! Download the TaxWhizPH mobile app for quick, expert assistance! – Rappler.com

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