Some PRC-licensed real estate service practitioners (RESP’s) believe that the newly-released Bureau of Internal Revenue (BIR) Revenue Regulations (RR) No. 10-2013 dated May 2, 2013 is favorable to colorums/violators of the RESA Law. But what exactly does BIR RR No. 10-2013 really say?
BIR RR NO. 10-2013
RR No. 10-2013 specifically states that licensed RESP’s are subject to fifteen percent (15%) withholding tax, if the gross income for the current year exceeds P720,000, and ten percent (10%) withholding tax, if otherwise.
RR No. 10-2013 also states that gross commissions of agents of real estate service practitioners (RESPs), (i. e. real estate consultants, real estate appraisers and real estate brokers) who failed or did not take up the licensure examination given by and not registered with the Real Estate Service under the Professional Regulation Commission shall be subject to ten percent (10%) expanded withholding tax.
You may also read BIR RR No. 10-2013 below:
Is this a new rule?
The rule on withholding taxes for RESP’s is just clarificatory since RR No. 30-03 dated December 12, 2003 already states that the gross professional, promotional and talent fees or any other form of remuneration for the services of the following individuals with a profession requiring government licensure examinations and/or regulated by the Professional Regulation Commission (PRC) shall be subject to the earlier-mentioned withholding taxes. Real estate service practitioners (RESPs) were just not mentioned specifically since at that time, RESPs were not yet under the PRC.
However, the rule which specifically states that payments to agents of RESP’s who failed or did not take up the licensure examination given by and not registered with the Real Estate Service under the Professional Regulation Commission shall be subject to withholding taxes is new.
Is this regulation favorable to the unlicensed/ violators of the RESA Law?
In my opinion, since the BIR’s coverage only includes taxes, this regulation only deals with taxes (naturally). Violations of the RESA law are beyond their jurisdiction. Wouldn’t it be more unfair to the licensed RESP’s if only payments to them will be subject to withholding taxes and those unlicensed will go scot-free?
I don’t think that just because payments to agents of RESP’s are subject to withholding taxes, their actions are legitimized. Should they be proven to be violators of the RESA Law, they should be punished accordingly. Whether a person is a violator of the RESA Law or not, he/she should pay taxes for income earned.
What is the issue then?
I think the issue here is that entities who knowingly violate the RESA Law and pay unlicensed real estate practitioners are effectively encouraged to continue violating it because anyway, they will be able to deduct such expenses for income tax purposes, since they withhold taxes on such payments.
The deductibility of payments to unlicensed real estate practitioners for income tax purposes, I believe, is more important and more material finance-wise compared to paying the penalties under the RESA Law. The fact that nobody (to my knowledge) has yet been punished for any violation of the RESA Law since it came into effect may be a contributing factor to this position as well.
How can we stop people from violating the RESA Law?
The continued proliferation of unlicensed salespeople obviously gets the beef of many licensed RESP’s who took pains to comply with the law.
- Related post: Are you violating the RESA Law? (this is one of our most plagiarized articles)
Based on my simple analysis, there will be no unlicensed salespeople if there are no entities who continue to pay them for their services. How can we stop the entities from availing of their services? I believe that entities will stop catering to unlicensed salespeople if doing so would hurt them financially.
What if payments to unlicensed salespeople will not be considered as deductible for income tax purposes for being illegal payments similar to bribes or kickbacks (the term “similar” needs to be defined in a revenue regulation)? If this were the case, I believe entities will then not pay unlicensed salespeople, and consequently, the same unlicensed salespeople will be forced to comply with the RESA Law.
I would like to make it clear that by writing this post, I am not out to make enemies – far from it. I just sincerely want harmony and compliance for all.
What do you think? Let me know in the comments.
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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
2013 Internal Education Head, REBAP-LMP
Text by Jay Castillo and Cherry Castillo. Copyright © 2008 – 2013 All rights reserved.
Full disclosure: Nothing to disclose.
Hi Atty. Cherry,
I’m an real estate salesperson. I would like to ask what should be the sharing tax payment and the basis of the tax cap. My broker and I split the tax payment by calculating the tax due and then dividing the commission as per agreement but I wonder where this tax payment go, is it to my broker’s account or my account? If we should spilt tax payment, where should we base it? To the total commission from the sale or our individual shares? I would appreciate your response so we could review our system. Thank you and more power! -Sam
Analyzing on the new Revenue Regulations, we can say this is a first step for BIR to catch unlicensed agents/brokers. The entity that withholds tax is required to report the name and TIN of the payee. Then, from the report, BIR would know and can monitor whether the person receiving the payment is also declaring it as his/her income. Likewise, BIR may disallow payment as expense if not supported by Official Receipt. With this, entities have to ensure they are dealing with licensed practitioners. Most likely, this will be the next step of BIR – the strict implementation on disallowance of expense on commissions.
Jane Colenares, CPA / REB
Cebu City
Exactly Ms. Jane. Thank you for your comment.
However, illegal brokers may also get an official receipt and payments to them will be subject to withholding tax. So, payments to them may still be allowed for tax purposes, and that is what’s important to the payor-developers. It is not for the BIR to catch unlicensed brokers – that is the job of the PRB-RES. For as long as someone earns income, whether they are licensed or unlicensed, the only job of the BIR is to collect taxes.
The data which the BIR will have based on the payees from whom taxes have been withheld, may be used by the PRB-RES as part of its enforcement duties. As to whether or not the PRB-RES will do this remains to be seen.
Best regards,
Cherry
The BIR issuance is a slap in the face of all licensed RE Service Practicioners. Its like telling us that you are not the only one entitled to receive commissions. Anybody is entitled provided he pays his taxes. So what’s the use of trying to get a license?
During the oath-taking of newly registered RE brokers here in Iloilo, last June 4, Dir. Ong announced that as of the moment they cannot yet imposed strictly the RESA Law. What they are presently doing is info drive to let stakeholders knew the provisions of the RESA Law and disclosed that they will come to its strict implementation in the near future. They should act fast because BIR is acting very fast in capturing taxes. Aside from BIR , AIPOs should be closely coordinating with HLURB in issuing License to Sell to developers who tolerates hiring unlicensed brokers in marketing their projects.
Hi Ms. Carla,
Did Mr. Ong really say that? I can’t understand why they can only to information drive for now. I think he should issue a statement facing this issue head-on. The AIPO should also be focusing on this issue.
Best regards,
Cherry
Hi Atty,
That’s what he told us during his speech and ask us to be patient and bear with the Board since its new and a lot of things need to be done. So what have they done? The BIR issuance was already out. The issuance did not mention an official receipt supporting payment of commission fees that will the only be considered commission expense of developers.
Hi Ms. Carla,
There is no need to state in the new regulations that an official receipt should support the payment of commissions. This requirement is in the Tax Code itself and thus is written into all revenue regulations. Of course, unlicensed brokers may still get their own TIN and official receipts so technically, payments to them, when properly supported, will be deductible for income tax purposes.
I think we should not be blindsided by this tax regulation and focus on the fact that it is the responsibility of the PRB-RES to go after violators of the RESA Law. The Tax Code and the RESA Law are two different laws with two different implementors. But, I acknowledge that the PRB-RES will be able to use data that will be generated by this BIR regulation.
Best regards,
Cherry
Well said Atty Cherry!
I agree with you that violations of BIR regulations and violations of the RESA law are two separate issues. They are dealt with separately and each with their own punishments under the law.
It is not fair for licensed real estate broker to shoulder all the income taxes including the income tax on the commissions earned by their agents. And just because these unlicensed real estate agents are violators of the RESA law does not exempt them from paying their taxes. They are covered with the BIR Revenue Regulations 10-2013, and their earnings are subject to the withholding tax deductions and they should file their ITR as well. And when we brokers file our ITR we can claim these agents’ commissions as our expense (except of course if you are availing of the Optional Standard Deductions).
It is our responsibility as licensed practitioners to educate our agents on their tax responsibilities and to help them secure their PRC accreditation as well.
When we had our CPE seminar a few years ago at the Circle Island Resort in Cavite, which was attended by about 200 licensed brokers I was shocked to hear from the other licensed brokers that they do not understand why and how they will deduct the withholding tax from their agents’ earnings. We must educate ourselves first before we can we teach our agents.
In November 2006 a month before I retired from the corporate world, I took the real estate brokers licensing exam. I had zero knowledge of real estate then since I came from another discipline but I knew that there is some advantage of having a license. I just did not have a clear idea then what those advantages are. What I was thinking then was that I am embarking on a second career and I wanted to start on the right footing, and I did not want to practice a profession as a “colorum” practitioner. I wanted my future clients and colleagues to respect me as well not only because of the license but because I practice good ethics. I was shocked to learn that some unlicensed practitioners who have been earning for many years are not even taking the effort of securing their licenses.
To the AIPO committees, may I just request that instead of politicking and bickering because of personal (and associations’) vested interests (this is my personal opinion), please work on addressing the issue of unlicensed real estate practitioners and punishing the violators, among other issues confronting the real estate industry.
How long must we wait?
Cynthia P. Pacis
Real Estate Broker and CPA
PRC Real Estate Broker License no. 0000165
PRC CPA License no. 0031903
Real E
Thanks Ms. Tita. Honestly, going after colorum practitioners is the job of the PRB-RES. I don’t understand why they seem to be not interested with this.