This is a follow up to my post about the possibility that Paranaque City will be adopting a revised schedule of values for real properties. It turns out that Paranaque City Ordinance No. 31-2011* was approved by the City Council and Paranaque Mayor Jun Bernabe last October 13, 2011, and was later published in the Philippine Star last October 25, 2011. The ordinance should take effect immediately after it’s publication.

However, the implementation of the newly approved ordinance, which would have resulted in higher real property taxes starting 2012 for Paranaque City residents, was stopped by the Supreme Court (SC) through a temporary restraining order or TRO. Yes, the TRO issued by the SC stopped the real property tax increase in Paranaque, at least for now.

*Click here to view the full text of the Paranaque City Ordinance No. 31 (Series of 2011) in PDF format

No real property tax increase in Paranaque

The TRO that stopped the real property tax increase in Paranaque City would best explain the notice below that would greet visitors of Paranaque City’s official website, as of December 2011:

Paranaque real property taxes have not been raised as can be seen when you visit http://www.paranaque.gov.ph/

As stated on the notice above, the prevailing fair market values of land remains at 1997 levels, while the valuation of buildings and other improvements stays at 1992 levels. In other words, there is no real property tax increase in Paranaque City, that is according to the notice above.

10% discount for prompt payment of real property taxes

Furthermore, the notice above also states that real property tax and business tax payers who pay their taxes promptly according to the schedule above will enjoy a 10% discount.

Actually, most Cities and Municipalities offer the same incentive for prompt payments of real property taxes ( I remember the discount in Marikina City was 20%, this was before Ondoy and we still lived in Marikina) so if you want to save on real property taxes, I suggest you check with your local government units before it’s too late.

Paranaque RPT Online Payment System is under maintenace

In related news, Paranaque’s Real Property Tax (RPT) Online Payment System, which allows taxpayers to pay through the internet without the need to go to the Paranaque City Hall, is currently under maintenance. This was posted on Paranaque City’s website, as of December 29, 2011.

~~~

To our success and financial freedom!

Jay Castillo

Real Estate Investor
PRC Real Estate Broker License No. 3194
Blog: http://www.foreclosurephilippines.com
Follow me in Twitter: http://twitter.com/jay_castillo
Find us in Facebook: Foreclosure Investing Philippines Facebook Page

Text by Jay Castillo and Cherry Castillo. Copyright © 2011 All rights reserved.

Full disclosure: Nothing to disclose.

No increase in real property taxes in Paranaque City for 2012 is a post from: Foreclosure Investing Philippines

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The BIR has just released Revenue Regulations (RR) No. 16-2011 (posted at the BIR Website) dated October 27, 2011 which increased the threshold amounts for VAT on the sale of residential lots and house and lots and the lease of residential units, as well as the threshold amount for the sale of goods and services subject to VAT.

The effectivity of the increased threshold amounts is on January 1, 2012. This adjustment is pursuant to the changes in the Consumer Price Index (CPI) released by the National Statistics Office (NSO).

Below is the summary of the changes:

Thus, effective January 1, 2012, the sale of a residential lot which is PHP1,919,500.00 and below, and the sale of a residential house and lot which is PHP3,199,200.00 and below are exempt from VAT.

The lease of a residential units which is PHP12,800 and below shall also be exempt from VAT effective January 1, 2012.

If a person’s gross annual receipts/sales on the sale or lease of goods or properties or performance of services other than those mentioned in Sec. 109 of the Tax Code does not exceed PHP1,919,500.00, he shall be subject to 3% percentage tax instead of the 12% VAT.

What does this mean to the ordinary person?

Effectively, with the thresholds for VAT-exempt sales now being higher, people can purchase real estate at a price lower by 12% for the affected price ranges.

For example, a residential house and lot which is sold for PHP2,600,000.00 now will have a 12% VAT of PHP312,000.00. But when the same property is sold for the same price, PHP2,600,000.00 on January 1, 2012, it will not be subject to the 12% VAT, so the effective savings is PHP312,000.00.

I think though that this may have the effect of pushing sales to January 1, 2012 onwards for those properties within the affected price ranges.  For the sellers, their selling prices will be effectively lower, thus their products will become more affordable for buyers.

I would like to thank my good friend, Atty. Bobby Lock, Partner of Santiago & Vidad Law Office, who gave me the heads up on this new development. For your real estate-related legal needs, you may reach him at 0917-891-9125 or e-mail him at bishopblue(at)gmail(dot)com.

~~~

To our success and financial freedom!

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
Websites:

• http://www.smgreenresidences.com
• http://www.smblueresidences.com

Text by Jay Castillo and Cherry Castillo. Copyright © 2011 All rights reserved.

Full disclosure: Nothing to disclose.

Photo Credit: Tax cuts by upside of inertia, on Flickr

Threshold for VAT exemptions to be increased effective January 1, 2012 is a post from: Foreclosure Investing Philippines

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I spotted this tarpaulin along Sucat Road across Duty Free Philippines and I thought Paranaque residents might want to check this out. The tarp says a public hearing on “Adopting the revised schedule of values of real property in the City of Paranaque” will be conducted from September 12-15, 2011.

I’m not really sure if this has anything to do with the Bureau of Internal Revenue (BIR). If you will recall, the BIR started to update real property zonal values nationwide more than a year ago. I do believe this will have an effect on Paranaque zonal values and real property taxes.

Anyway, I have posted below the contents of the Notice of Public Hearing which can be seen in the picture above.

Notice of Public Hearing

What: Public hearing by the Committee on Ways and Means on Draft Ordinance No. 031 entitled:

“Adopting the revised schedule of values of real property in the city of Paranaque”

Where: San Antonio Gym

When:

September 12, 2011

• 9AM Barangay San Antonio/Barangay Sun Valley
• 2PM Barangay Moonwalk/barangay Marcelo Green

September 13, 2011

• 9AM barangay Don Bosco/Barangay Merville/Barangay San Martin De Porres
• 2PM Barangay BF

September 14, 2011

• 9AM Barangay Baclaran/Barangay Santo Nino
• 2PM Barangay San Dionisio

September 15, 2011

• 9AM Barangay Tambo, Barangay Don Galo, Barangay La Huerta, Barangay Vitalez
• 2PM Barangay San Isidro

Why bother attending the public hearing?

If you have properties in Paranaque, you might want to check this out to see how the revised schedule of real property values might affect you. This is your chance to participate and let your voice be heard.

For example, if the real property values are raised, this would lead to a corresponding increase in real property taxes.

I just hope the revised property values would be close to actual market values of the properties in Paranaque.

If you are able to attend any of these hearings, please do leave a comment below to share what may have transpired. Thanks!

~~~

To our success and financial freedom!

Jay Castillo

Real Estate Investor
PRC Real Estate Broker Registration No. 3194
Blog: http://www.foreclosurephilippines.com
Follow me in Twitter: http://twitter.com/jay_castillo
Find us in Facebook: Foreclosure Investing Philippines Facebook Page

Text by Jay Castillo and Cherry Castillo. Copyright © 2011 All rights reserved.

Full disclosure: Nothing to disclose.

P.S. A friend of mine will be having an OPEN HOUSE of their Rent-to-own Townhouse in Kamuning, Quezon City this coming Saturday, Sept 17, 2011, from 10am to 2pm. A special discount awaits the buyer who closes the deal during the open house. You may also bring your friends or other people you want to refer. Broker/agents are very welcome. Please call/txt 09157603090/5059259 to register your name/friends/broker/prospect buyers to avail the special discount. Click here to view property details, more pictures, and video.

Paranaque adopting revised schedules of real property values? is a post from: Foreclosure Investing Philippines

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So you have announced to the world that you are now a real estate investor, and suddenly, everyone has a property they want to show to you. This often happens to me, and can also happen to you as follows.

A friends calls and says “Hey Jay, I found a foreclosed property for sale and I know it’s a bargain!”

“Really?! That’s great, may I ask why it’s a bargain?” I answered with great enthusiasm, expecting something like an ugly multi-door property in a nice neighborhood, at a ridiculously low price.

My friend quickly answers “Its selling price is way below its zonal value, it’s just a fraction of it!”

I cringe and I begin to explain in a nice way that zonal values and market values are worlds apart…

This may shock a lot of you…

BIR Zonal Values are purely for taxation purposes only! They are not an accurate basis in determining a property’s market value.

Paraphrasing what  Engineer Enrico Cruz said to our class during one of his lectures; “From this point onwards, we should forget about zonal values when appraising a property!”.

Simply put, If you’ve found a property with a  selling price that is below the BIR zonal value for that property’s location, it does not follow that the property is a bargain.

On the other hand, if a property’s selling price is higher than the BIR Zonal value for that property’s location, it also does not follow that it is overpriced.

Sometimes, you may find a property with a market value that is equal to its zonal value, but this is very rare.

Remember this if you are a real estate investor

Here’s what real estate investors should always remember: We should use the real market value in determining if a property is a bargain or not. One fairly accurate way of determining market values is by finding comparable properties or comps. To learn more about this, refer to the article on How I estimate the Market Values of foreclosed properties.

Maybe in the future, if the BIR is able to adjust the zonal values to match current market values (yes, the BIR is revising zonal values now), and if they can do this fast enough (yes, property market values change with time), then maybe we can use it to determine the market value of a property.

The question is, will the revised zonal values be the same as current market values?

Should we totally forget about BIR zonal values?

Of course not! BIR zonal values are still important as you will use them when you compute for the real estate taxes that you either as a buyer or a seller will pay, when you buy or sell a property, foreclosed or otherwise, or even as you own a property in the form of real property taxes.

This is part of due diligence and aims to mitigate just one of the risks of real estate investing, paying too much for a property by not considering expenses like real estate taxes.

In parting, let me just say it one last time. Do not use BIR zonal values to determine a property’s market value as they are not the same!

To our financial freedom!

Jay Castillo

Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Follow me in Twitter: http://twitter.com/jay_castillo
Find us in Facebook: Foreclosure Investing Philippines facebook page

Text by Jay Castillo and Cherry Castillo. Copyright © 2011 All rights reserved.

PS. Don’t be the last to know, subscribe to e-mail alerts and get notified of new listings of bank foreclosed properties, public auction schedules, and real estate investing tips. Mailbox getting full? Subscribe through my RSS Feed instead!

What you need to know about BIR Zonal values is a post from: Foreclosure Investing Philippines

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A post by Cherry Castillo

In my earlier post, I noted that the BIR has been releasing issuances showing that they are keen on collecting more revenues from real property transactions by updating real property values. I also noted from the BIR’s Memorandum of Agreement with CREBA Land that the BIR’s target date for the updating of real property values is June 30, 2010. The BIR’s latest issuance, Revenue Memorandum Order (RMO) No. 41-2010 dated April 23, 2010 confirms this deadline date.

Basically, there will be three committees who will be working on the updating real property values, namely: the Executive Committee on Real Property Valuation (ECRPV), the Technical Committee on Real Property Valuation (TCRPV), and the Sub-Technical Committee on Real Property Valuation (STCRPV). The nitty-gritty work will be done by the STCRPV, which shall be composed of the following: the Revenue District Officer (RDO) as Chairman, the Assistant Revenue District Officer (ARDO) as Vice-Chairman, and the (1) Municipal/ Assistant City Assessor, (2) Local Development Officer (Office of the Mayor), and (3) Two (2) licensed and competent appraisers from a reputable association/organization of appraisers as members.

To learn more about the procedure for determining the updated zonal values, click here to get a copy of RMO No. 41-2010.

Annex A is the format of the invitation letter that the BIR will send to members of the committees(click here to download a copy of Annex A).

Annex B contains the Classification Codes which can be seen below (click here to download a copy of Annex B).

Annex C is the format of the Schedule of Recommended Zonal Values(click here to download a copy of Annex C).

ANNEX  “B”

DEFINITION OF TERMS

RESIDENTIAL	LAND/CONDOMINIUM PRINCIPALLY DEVOTED TO HABITATION.
COMMERCIAL	LAND/BUILDING DEVOTED PRINCIPALLY TO COMMMERCIAL PURPOSES AND GENERALLY FOR THE OBJECT OF PROFIT.
INDUSTRIAL	DEVOTED PRINCIPALLY TO INDUSTRY AS CAPITAL.
AGRICULTURAL	DEVOTED PRINCIPALLY TO RAISING OF CROP SUCH AS RICE, CORN, SUGARCANE, TOBACCO, ETC. OR TO PASTURING, INLAND FISHING, SALT-MAKING, AND OTHER AGRICULTURAL USES INCLUDING TIMBERLAND AND FOREST LAND.
GENERAL PURPOSE	RAWLAND, UNDEVELOPED AND UNDERDEVELOPED AREA WHICH HAS POTENTIAL FOR DEVELOPMENT INTO RESIDENTIAL, COMMERCIAL, INDUSTRIAL, INSTITUTIONAL, ETC. MUST NOT BE LESS THAN 5,000 SQUARE METERS.
VICINITY	MEANS AN AREA, LOCALITY, NEIGHBORHOOD OR DISTRICT ABOUT, NEAR, ADJACENT PROXIMATE OR CONTIGUOUS TO A STREET BEING LOCATED.

CLASSIFICATION LEGEND:

CODE	CLASSIFICATION		CODE	CLASSIFICATION
RR	Residential Regular		GL	Government Land
CR	Commercial Regular		GP	General  Purposes
RC	Residential Condominium		I	Industrial
CC	Commercial Condominium		X	Institutional
CL	Cemetery Lot		APD	Area for Priority Development
A	Agricultural		PS	Parking Slot
	AGRICULTURAL LANDS
A1	Riceland Irrigated		A26	Bamboo Land
A2	Riceland Unirrigated		A27	Peanut Land
A3	Upland		A28	Soy beans Land
A4	Coco Land		A29	Grape vineyard
A5	Citrus Land		A30	Pepper Land
A6	Fishpond		A31	Mineral Land
A7	Swamp		A32	Non Metallic mineral Land
A8	Nipa Land		A33	Coal Deposit
A9	Cotton Land		A34	African Oil Land
A10	Cogon		A35	Rubber Land
A11	Abaca Land		A36	Forest Land/Timber Land
A12	Orchard		A37	Horticultural Land
A13	Pineapple Land		A38	Salt Beds
A14	Banana Land		A39	Seashore
A15	Pasture Land		A40	Resort
A16	Corn Land		A41	Sandy/Stony
A17	Sugar Land		A42	Prawn pond
A18	Tobacco Land		A43	Sorghum
A19	Cacao		A44	Ipil-ipil
A20	Lanzones		A45	Kangkong
A21	Durian		A46	Zarate
A22	Rambutan		A47	Vegetable Land
A23	Mango		A48	Coffee
A24	Mangrove		A49	Mountainous / Hilly Areas
A25	Camote/Cassava		A50	Other Agricultural Lands

Salient portions

For me, the salient portions are the following:

“The determination of recommended market values shall be based on:

1. Acceptable methods of appraisal of real properties;
2. Records of most recent actual sales/transfers/exchanges of properties in documents filed in public offices, e.g., BIR, Land Registration Commission, etc.;
3. Private records of banks, realtors, and appraisers in the locality;
4. Records of provincial/city/municipal assessors;; and
5. Other procedures and methods of appraisal.”

“The schedule of recommended zonal values shall contain the following:

a. The three recommended values from the BIR, the private appraisers, and the provincial/city/municipal assessor; and

b. The final recommended value which is the average of the two (2) highest recommended values.

In case there is no available private appraiser in the locality and/or in case of failure of any or all of the members of the STCRPV to attend the meeting called for and/or submit their respective recommended market values as requested within ten (10) calendar days from the date of the concluding meeting of the STCRPV, the Chairman of the STCRPV shall:

i.             Execute an “Affidavit” to that effect;

ii.             Proceed with the establishment/revision of the schedule of zonal values based on the average of the two (2) highest recommended values or best data/values available; and

iii.             Submit to the TCRPV the Schedule of Zonal Values together with copies of letter of invitation with waiver duly received by the members (Annex “A”), Affidavit, Maps, Minutes of Meeting, and all other documents relative to the establishment/revision of zonal values.”

The guidelines look fair and the procedure is quite clear-cut. I really think that the schedule is too tight though. It’s really the BIR and the municipal/city assessors who will be working hard on this as my understanding is that the private appraisers can decline the BIR’s invitation for them to join the STCRPV. On another note, it’s good that there will be public hearings, the schedules of which should be disseminated in newspapers and notices to the public.

Cherry Castillo

Cherry is my wife. She is a certified public accountant (CPA) and lawyer.

Jay’s thoughts

So what does this mean to us not just as investors but also as property owners, why should we be concerned?

We should be concerned because if the revised zonal values exceed the market values of our properties, this would mean a corresponding increase in the applicable real estate taxes that we pay.

As mentioned in my article: How I estimate the market values of foreclosed properties, market value is defined as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller  in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.” In other words, a buyer and a seller who have no compelling reason or special circumstances to buy and sell, respectively, agree on this price.

Market value is not the same as the technical term “fair market value” (FMV) which is used for taxation purposes, and is based on the zonal value of a property.

Public hearings announced in Makati

In the condo where we are renting right now for example, we saw a “Notice of public hearing” (please see picture on the left, sorry some portions might be unreadable as my camera phone stinks… hehe) and the hearing will be conducted by the BIR.

Unit owners of this particular condo in Makati were invited to attend the said hearing to be able to have the opportunity to present issues and the same be addressed accordingly. I believe  helping ensure that the zonal values/fair market values be really “fair” is one such issue. Let us all help and do our part given the same opportunity.

We would really appreciate your thoughts on this. Thanks!

—

To our success and financial freedom!

Jay Castillo

Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Mobile phone (Call/SMS): +639178843882
Follow me in twitter:http://twitter.com/jay_castillo
Find us in Facebook:Foreclosure Philippines facebook page

Text by Jay Castillo and Cherry Castillo. Copyright © 2010 All rights reserved.

PS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines

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BIR to fast track the revision of the schedule of zonal values of real properties nationwide is a post from: Foreclosure Investing Philippines

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A post by Cherry Castillo

I can see that the BIR is dead serious in collecting revenues for the government and is exploring all avenues where tax collection can be improved. In fact, the BIR has a string of recent issuances all concentrating on real property valuation, specifically on updating zonal values to be at par with current market values.

Just to refresh your memory, the basis for the power of the Commissioner of Internal Revenue (CIR) to determine the fair market value (FMV) of properties is Section 6(E) of the Tax Code, which provides:

“(E)  Authority of the Commissioner to Prescribe Real Property Values. — The Commissioner is hereby authorized to divide the Philippines into different zones or areas and shall, upon consultation with competent appraisers both from the private and public sectors, determine the fair market value of real properties located in each zone or area. For purposes of computing any internal revenue tax, the value of the property shall be, whichever is the higher of:

(1)    the fair market value as determined by the Commissioner; or

(2)    the fair market value as shown in the schedule of values of the Provincial and City Assessors.”

The zonal values can be accessed at http://www.bir.gov.ph/zonalvalues/zonalvalues.htm

It is common knowledge, however, that zonal values are not regularly updated and are usually below market value. And since taxes such as the capital gains tax (CGT) are based on the higher amount between the selling price and the actual market value, which is defined as the zonal value, parties sometimes indicate the selling price as just the same or within the vicinity of the zonal value, resulting in a lower CGT. For more information on CGT, please refer to this article about capital gains tax.

Let me give you a run-down of the latest BIR issuances so that you have an idea of things to come:

1. Revenue Memorandum Circular (RMC) No. 071-09 dated December 16, 2009

The officials of the BIR, the Bureau of Local Government Finance (BLGF), and the Philippine Association of Local Treasurers and Assessors, Inc. (PHALTRA) signed a Memorandum of Agreement (MOA) which was circularized in RMC No. 071-09 which states in part that they will share information with each other. Notably, the PHALTRA will improve its cooperation and coordination with the BIR in updating zonal values of real properties. Click here for a copy of RMC No. 071-09.

2. RMC No. 27-2010 dated March 17, 2010

This RMC circularizes the full text of Department Order No. 6-2010 dated March 12, 2010 which was issued by the Department of Finance. In essence, it creates committees on real property valuation that would determine the zonal values of real properties for purposes of computing internal revenue taxes. Real property appraisers in the Philippines have thus become even more valuable. Click here for a copy of RMC No. 27-2010.

3. RMC No. 34-2010 dated April 22, 2010

This RMC publishes the full text of the MOA between the BIR and Creba Land Services and Title Warranty Corporation (Creba Land). Creba Land has a Geographic Information System (GIS) which the BIR will use in relation to its land valuation duties. The BIR will be testing the system first and is required to purchase a license within sixty days from first use. The BIR will initially get a copy of Creba Land’s spatial database for Quezon City, Pasig City, and Taguig City. Click here for a copy of RMC No. 34-2010.

The first Whereas clause in the MOA is most interesting: “xxx the BIR aims to complete the revision of zonal values nationwide by 30 June 2010 xxx”. Personally, I think this is a very tight schedule. Those who have properties in Quezon City, Pasig City, and Taguig City should brace themselves for an increase in taxes (particularly CGT). Please note that real property taxes (RPT) are not paid to the BIR but to the local government unit (LGU). However, as earlier discussed, the BIR has a MOA with the BLGF and PHALTRA so the zonal values project will have an effect on RPT as well. [I can imagine my husband bugging me about my RPT article which has been pending for so long.]

With regard to Creba Land, I have seen several newspaper articles featuring it and its mapping services. If you want to learn more about it, please see https://www.mapsys.ph. I have not inquired with Creba Land but my guess is that it’s very expensive (if they would be willing to let us checkout the system, that would be great!). I read about it and I thought that the investment is too big to be undertaken by a private company. Of course the site owner is intelligent so he got the government to buy his services (nothing bad about that). The idea is good but I think if there is a government agency who will purchase Creba Land’s services it should be the Registry of Deeds and not the BIR. If my understanding is correct, the main purpose of mapsys is to detect title fraud, so I don’t think this is up the BIR’s alley.

On another note, I wonder how much the BIR is going to pay Creba Land for this? Also, if the fees are high, how will this affect the fees that the BIR will charge for the issuance of the Certificate Authorizing Registration (CAR) and Tax Clearance? If there will be no additional fees, will the BIR require that the taxpayer make use of the services of Creba Land? Someone has to pay for this. I hope the BIR can shed more light on this contract.

4. RMC No. 40-2010 dated April 22, 2010

This RMC is about the policies and guidelines in the recruitment and designation of private appraiser members to the Regional Executive and Technical Committees on real property valuation. Click here for a copy of RMC No. 40-2010.

To summarize, the BIR is taking steps to update the Schedule of Zonal Values and we should all be prepared for their eventual increase. Be on the lookout for the schedule of hearings on the proposed revised schedule so you can give your inputs. If you have bought real property and have not yet executed a Deed of Absolute Sale (DOAS), there is a possibility that by the time you execute it, the zonal values have already increased, possibly resulting in increased tax payable. This may potentially impact your projected profits and turn them into losses (ouch!) so it’s good to be prepared, and this goes out to all real estate investors out there!

Cherry Castillo

Cherry is my wife. She is a certified public accountant (CPA) and lawyer.

—

To our success and financial freedom!

Jay Castillo

Real Estate Investor

Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
Mobile phone (Call/SMS): +639178843882
Follow me in twitter:http://twitter.com/jay_castillo
Like this in Facebook:Foreclosure Philippines facebook page

Text by Jay and Cherry Castillo. Copyright © 2010 All rights reserved.

PS. Are you a new visitor? Click here NOW to start learning more about foreclosure investing in the Philippines and don’t forget to subscribe to e-mail alerts and get notified of new listings of bank foreclosed properties, public auction schedules, and real estate investing tips. Inbox getting full? Subscribe through my RSS Feed instead!

PPS.Do you know anyone who is either an investor or a home buyer looking for a property? Please refer them to our Buy a property form to enter their property requirements. If you need to sell a property fast, please use our Sell a property form to enter details of the property you are selling. If it fits our needs, we just might buy it. Lastly, if know anyone who wants to make 10-15% return on their money, refer them through our Investors’ form. Thanks a million!

Recent BIR Issuances on Property Valuation may affect real estate investors is a post from: Foreclosure Investing Philippines

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A transfer tax is imposed on tax on the sale, donation, barter, or any other mode of transferring ownership or title of real property at the maximum rate of 50% of 1% (75% of 1% in the case of cities and municipalities within Metro Manila) of the total consideration involved in the acquisition of the property or of the fair market value in case the monetary consideration involved in the transfer is not substantial, whichever is higher. This is pursuant to Section 135 of the Local Government Code of 1991 (LGC).

You need to pay the transfer tax because the evidence of its payment is required by the Register of Deeds of the province concerned before registering any deed. This is also required by the provincial assessor before cancelling an old tax declaration and issuing a new one in its place. Please do not confuse the transfer tax which is paid to the local government with the transfer taxes due to the BIR (which may either be donor’s or estate taxes).

Disclaimer: While great effort has been taken to ensure the accuracy of the discussion here as of its writing, this is not intended to replace seeking professional services. Always consult with your tax attorneys and read up on the relevant laws and regulations also.

Who should pay
The payment of the transfer tax is the responsibility of the seller, donor, transferor, executor or and administrator.

When to pay
The deadline for payment is sixty (60) days from the date of the execution of the deed or from the date of the decedent’s death. Please note too that notaries public are required to furnish the provincial treasurers with a copy of any deed transferring ownership or title to any real property within thirty (30) days from the date of notarization.

Where to pay
The transfer tax is to be paid at the Treasurer’s Office of the city or municipality where the property is located.

Requirements
In general, the requirements for the payment of transfer tax are the following:

• Certificate Authorizing Registration from the Bureau of Internal Revenue;
• Realty tax clearance from the Treasurer’s Office; and
• Official receipt of the Bureau of Internal Revenue (for documentary stamp tax).

Transfer Tax Rates
With regard to the transfer tax rates, please click on the links to see the different transfer tax rates and documents required to transfer the registration of a property. You have to check the rates on a per city or per municipality basis as the LGC only provides for the maximum rates. Click on the links below for the transfer tax rates of major cities.

• Manila
• Caloocan – [I have no idea why the transfer tax rate in Caloocan is 82.5% of 1%]
• Cebu
• Davao
• Las Pinas
• Makati
• Mandaluyong
• Marikina
• Pasig
• Quezon City

The http://www.doingbusiness.org site is so cool. You can learn about the requirements for registering property, etc., with cost and estimated time to complete.

Transfer Tax Base
In the case Romulo D. San Juan vs. Ricardo L. Castro, in his capacity as City Treasurer of Marikina City [G.R. No. 174617 dated December 27, 2007], one of the issues was the proper computation of the transfer tax base. In this case, petitioner San Juan conveyed real properties to a corporation in exchange for its shares of stock[1]. Using as basis Section 135 of the LGC, San Juan wanted to pay the transfer tax based on the consideration stated in the Deed of Assignment. Respondent Castro, as the Treasurer, informed him that the tax due is based on the fair market value of the property. Petitioner Castro protested the Treasurer’s computation in writing, which the Treasurer also denied in writing. Petitioner Castro then filed a Petition for mandamus and damages against the Treasurer praying that he be compelled to accept payment of the transfer tax based on the actual consideration of the transfer/assignment.

The bone of contention was the proper interpretation of Section 135 of the LGC which provides:

“SECTION 135.   Tax on Transfer of Real Property Ownership. (a) The province may impose a tax on the sale, donation, barter, or on any other mode of transferring ownership or title of real property at the rate of not more than fifty percent (50%) of the one percent (1%) of the total consideration involved in the acquisition of the property or of the fair market value in case the monetary consideration involved in the transfer is not substantial, whichever is higher. The sale, transfer or other disposition of real property pursuant to R.A. No. 6657[2] shall be exempt from this tax. xxx”

Petitioner San Juan took the position that the transfer tax base should be the total consideration involved, because the intention of the law is not to automatically apply the “whichever is higher” rule. He argued that it is only when there is a monetary consideration involved and the monetary consideration is not substantial that the tax rate is based on the higher fair market value. His argument was that since he received shares of stock in exchange for the real properties, there was no monetary consideration involved in the transfer.

Respondent Castro, on the other hand, took the position that the transfer tax base should be the fair market value, because it is higher than the “monetary consideration” San Juan received in exchange for his real properties. Castro argued that “monetary consideration” as used in the LGC does not only pertain to the price or money involved but also, as in the case of donations or barters, to the value or monetary equivalent of what is received by the transferor, which, in this case, Castro argued to be the par value of the shares of stock San Juan transferred in exchange for shares of stock.

As anticlimactic as this may sound, the Court did not rule squarely on the correct computation of the transfer tax base because it held that a Petition for Mandamus was not the correct remedy. Mandamus lies only to compel an officer to perform a ministerial duty (one which is so clear and specific as to leave no room for the exercise of discretion in its performance) but not a discretionary function (one which by its nature requires the exercise of judgment).

Sample Computation
Considering that there is still an issue as to the proper computation of the transfer tax base, I suggest that we not delve into the various interpretations of Section 135 of the LGC and simply multiply the transfer tax rate by the higher amount between the consideration paid and the fair market value.

Let’s take for example a residential condominium in Makati City with a floor area of 50sqm with a Selling Price (SP) of 1.0M. The existing zonal value per square meter for that condo in Makati is currently Php50,000/sqm.

First let’s compute for the Fair market Value (FMV):

FMV=Zonal Value x Floor Area
=50,000 pesos/sqm x 50sqm
=2,500,000 pesos

Since FMV is higher than SP, we shall use FMV to compute the transfer tax:

Makati City Transfer Tax Rate: 0.6% [that is, 60% of 1%]

Transfer Tax = 0.6% x 2,500,000 = P15,000

What if you don’t agree with the Treasurer’s computation?
Assuming you disagree with the tax assessment made by a local treasurer, you may file a written protest thereof pursuant to Section 195 of the LGC, which provides:

“SECTION 195.            Protest of Assessment. — When the local treasurer or his duly authorized representative finds that the correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties.  Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting the assessment; otherwise, the assessment shall become final and executory. The local treasurer shall decide the protest within sixty (60) days from the time of its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he shall issue a notice cancelling wholly or partially the assessment. However, if the local treasurer finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with notice to the taxpayer. The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse of the sixty-day (60) period prescribed herein within which to appeal with the court of competent jurisdiction, otherwise the assessment becomes conclusive and unappealable.”

In the case earlier discussed, the Petitioner protested in writing against the assessment and Respondent denied it in writing as well. Petitioner should thus have either: 1) appealed the assessment before the court of competent jurisdiction, or 2) paid the tax and then sought a refund.

In my view, the Petitioner San Juan could have made another argument, that is, assuming that the “monetary consideration” would be equivalent to the par value of the stocks (which is still lower than the fair market value), that value is substantial and thus, there is no need for the “whichever is higher” provision to kick in. Anyway, hopefully this issue would be decided upon squarely soon as there are really a lot of tax-free exchanges occurring and we really need guidance on the computation of transfer tax. Perhaps one day a taxpayer and his tax attorneys may decide to bring this issue up until the Supreme Court for a final decision.

Taking everything into consideration, personally, unless the difference in tax that you need to pay is really significant, it would be better to follow the computation of the Treasurer. Filing a case in court would require filing fees and fees for tax attorneys, not to mention taking up much of your time. If you will not pay the transfer taxes, you cannot transfer the title to your name and this would lead to problems with your buyer and the closing of your sale transaction. Weigh your options first before heading to battle. In real estate, as in everything, closing the deal fast is key.

[1] We will discuss the mechanics of a tax-free exchange in a later post

[2] Comprehensive Agrarian Reform Program

—–

To our financial freedom!

Jay (and Cherry) Castillo
Real Estate Investor
REBL#: 20056
Blog: http://www.foreclosurephilippines.com
Social Network: http://foreclosurephilippines.ning.com
Mobile: +639178843882
E-mail: ph.investor@gmail.com

Text by Jay and Cherry Castillo. Copyright © 2009 All rights reserved.

What is Transfer Tax? is a post from: Foreclosure Investing Philippines

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Assuming that you already have a property which you intend to sell or lease out, it is important to know whether or not VAT applies to your real estate transactions, and how you can avoid the imposition of VAT. Same goes if you intend to buy a foreclosed property.

As a general rule, 12% VAT shall be imposed on the sale of goods and services. The VAT based for goods sold shall be the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor, while the VAT base for services sold shall be the gross receipts derived from the sale or exchange of services, including the use or lease of properties.

Exceptions

The exceptions to the general rule are enumerated in Section 109 of the Tax Code, as amended. The portions pertinent to real estate transactions are (P), (Q), and (V) of Section 109 quoted hereunder for your reference:

“(P)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, residential lot valued at One million five hundred thousand pesos (P1,500,000) and below, house and lot, and other residential dwellings valued at Two million five hundred thousand pesos (P2,500,000) and below: Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amounts herein stated shall be adjusted to their present values using the Consumer Price Index, as published by the National Statistics Office (NSO);

(Q)Lease of a residential unit with a monthly rental not exceeding Ten thousand pesos (P10,000): Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price Index, as published by the National Statistics Office (NSO);

xxx

(V)Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of One million five hundred thousand pesos (P1,500,000): Provided, That not later than January 31, 2009 and every three (3) years thereafter. the amount herein stated shall be adjusted to its present value using the Consumer Price Index, as published by the National Statistics Office (NSO);

xxx” (underscoring ours)

The above provisions are explained further by Section 4.109-1(B)(p)(4) of Revenue Regulations (RR) No. 16-2005 which provides:

“Sec. 4.109-1 — VAT-Exempt Transactions. —

xxxxxxxxx

(B)Exempt transactions. —

(1)Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from VAT:

xxxxxxxxx

(p)The following sales of real properties are exempt from VAT, namely:

xxxxxxxxx

Sale of residential lot valued at One Million Five Hundred Thousand Pesos (P1,500,000.00) and below, or house & lot and other residential dwellings valued at Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below where the instrument of sale/transfer/disposition was executed on or after July 1, 2005; Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amounts stated herein shall be adjusted to its present value using the Consumer Price Index, as published by the National Statistics Office (NSO); Provided, further, that such adjustment shall be published through revenue regulations to be issued not later than March 31 of each year;

If two or more adjacent residential lots are sold or disposed in favor of one buyer, for the purpose of utilizing the lots as one residential lot, the sale shall be exempt from VAT only if the aggregate value of the lots do not exceed P1,500,000.00. Adjacent residential lots, although covered by separate titles and/or separate tax declarations, when sold or disposed to one and the same buyer, whether covered by one or separate Deed of Conveyance, shall be presumed as a sale of one residential lot.“

(q)Lease of residential units with a monthly rental per unit not exceeding Ten Thousand Pesos (P10,000.00), regardless of the amount of aggregate rentals received by the lessor during the year; Provided, that not later than January 31, 2009 and every three (3) years thereafter, the amount of P10,000.00 shall be adjusted to its present value using the Consumer Price Index, as published by the NSO;

The foregoing notwithstanding, lease of residential units where the monthly rental per unit exceeds Ten Thousand Pesos (P10,000.00) but the aggregate of such rentals of the lessor during the year do not exceed One Million Five Hundred Pesos (P1,500,000.00) shall likewise be exempt from VAT, however, the same shall be subjected to three percent (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 receipt
s 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.”

I quoted the law itself and its implementing regulations because they are self-explanatory. I know I should start with the general rule but how to avoid the tax is more fun right?

Example No. 1:

Q:Person A is registered as a non-VAT taxpayer and she is leasing our a four-door apartment building earning annual receipts of less than P400,000.00. Each unit is leased out at P8,000.000 monthly. Will her gross receipts be subject to VAT or to percentage tax?

A:Her gross receipts will not be subject to both VAT and percentage tax. This was the case in BIR Ruling No. DA-150-07 dated March 9, 2007. The 3% percentage tax will only apply to persons whose sales or receipts are VAT-exempt under Section 109 (V) of the same Tax Code and are registered with the BIR as non-VAT entities. In this regard, considering that Person A leases her apartment units at P8,000.00 per unit monthly, she qualifies for VAT exemption under Section 109 (Q) of the Tax Code and not Section 109 (V). Section 109 (Q) expressly provides that leases of residential units with a monthly rental not exceeding Ten thousand pesos (P10,000.00) are not subject to VAT. Thus, Person A is not subject to either VAT or percentage tax.

If we follow the above logic, if a person always sells houses and lots at P2.5M and below and lots only at P1.5M and below, he will not be subject to both VAT and percentage tax. Not bad eh? REBAP President Julius Topacio, during a talk he delivered on the 2^nd anniversary of REBAP-Marikina, said that sales of real estate below P3M and sales to OFWs will not be affected by the global recession. This is why I am concentrating on the low cost foreclosed properties.

Example No. 2:

Q:Person B is thinking of selling a house and lot which he bought at P2,000,000.00. What is the best selling price to avoid VAT?

A:P2,500,000.00 is the ceiling for sales not subject to VAT. If the selling price becomes P2,500,001, there shall be 12% VAT amounting to P300,000.12. See what a difference one peso makes?

As for the sale by a bank of its foreclosed properties, the BIR in BIR Ruling No. DA-216-07 dated April 4, 2007 noted that banks are exempt from VAT. In contrast, either CGT or CWT is always applicable to real estate transactions.

We will discuss the imposition of VAT on the sale of real property and lease in a separate post (no exceptions then!). This should give you enough nosebleed for one day.

To our financial freedom!

Jay Castillo
Real Estate Investor
REBL#: 20056
Blog: www.foreclosurephilippines.com

P.S. – This post was written mostly by my wife. Don’t be discouraged or intimidated by taxes as one really has to deal with them sooner or later and it would be better to be familiar with them beforehand.

Save Money On Taxes: Exemptions From VAT On The Sale And Lease Of Real Estate is a post from: Foreclosure Investing Philippines

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DST on the sale of real property

Section 196 of the Tax Code, as amended, provides:

(a) When the consideration, or value received or contracted to be paid for such realty, after making proper allowance of any encumbrance, does not exceed One thousand pesos (P1,000), Fifteen pesos (P15.00).

(b) For each additional One thousand pesos (P1,000), or fractional part thereof in excess of One thousand pesos (P1,000) of such consideration or value, Fifteen pesos (P15.00).

When it appears that the amount of the documentary stamp tax payable hereunder has been reduced by an incorrect statement of the consideration in any conveyance, deed, instrument or writing subject to such tax the Commissioner, provincial or city Treasurer, or other revenue officer shall, from the assessment rolls or other reliable source of information, assess the property of its true market value and collect the proper tax thereon.”

Take note that if the tax base is incorrect (for example, the selling price or the zonal value is understated to lower the DST), the true value of the property may be assessed so that the proper tax may be collected. Please refer to my previous post on How to Easily Compute DST as to the sample computations.

DST on loan agreements

For purposes of this section, the term debt instrument shall mean instruments representing borrowing and lending transactions including but not limited to debentures, certificates of indebtedness, due bills, bonds, loan agreements, including those signed abroad wherein the object of contract is located or used in the Philippines, instruments and securities issued by the government of any of its instrumentalities, deposit substitute debt instruments, certificates or other evidences of deposits that are either drawing interest significantly higher than the regular savings deposit taking into consideration the size of the deposit and the risks involved or drawing interest and having a specific maturity date, orders for payment of any sum of money otherwise than at sight or on demand, promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation.”

DST on lease agreements

If you will be leasing out your property, DST will be imposed at the rate of P3.00 for the first P2,000.00 and an additional P1.00 for every P1,000.00 in excess of the first P2,000.00 pursuant to Section 194 of the Tax Code, to wit:

“Section 194. Stamp tax on Leases and Other Hiring Agreements. – On each lease, agreement, memorandum, or contract for hire, use or rent of any lands or tenements, or portions thereof, there shall be collected a documentary stamp tax of Three pesos (P3.00) for the first Two thousand pesos (P2,000), or fractional part thereof, and an additional One peso (P1.00) for every One Thousand pesos (P1,000) or fractional part thereof, in excess of the first Two thousand pesos (P2,000) for each year of the term of said contract or agreement.”

To compute DST, multiply the monthly rent by 12 months and then by the number of years stated in the contract. Subtract P2,000.00 and multiply the amount by .001, then add P3.00.

For example, the monthly rent is P10,000.00, and the contract is for 3 years. The DST is computed as follows:

Monthly rent P10,000.00
Multiply by 12 months
Annual rent = P120,000.00
Multiply by 3 years
Total contract amount = P360,000.00
Subtract P2,000 = P358,000.00
Multiply this by .001 = P358
Plus P3.00
DST = P361.00

As a shortcut, multiply the contract amount by .001 and add P1.00 to get the DST.

If the total contract amount is not a multiple of P1,000.00, for example, it’s P360,500.00, round it up to the next 1,000 then multiply the contract amount by .001 and add P1.00 to get the DST.

DST on mortgages

Section 195 of the Tax Code provides:

“Section 195. Stamp Tax on Mortgages, Pledges and Deeds of Trust. – On every mortgage or pledge of lands, estate, or property, real or personal, heritable or movable, whatsoever, where the same shall be made as a security for the payment of any definite and certain sum of money lent at the time or previously due and owing of forborne to be paid, being payable and on any conveyance of land, e
state, or property whatsoever, in trust or to be sold, or otherwise converted into money which shall be and intended only as security, either by express stipulation or otherwise, there shall be collected a documentary stamp tax at the following rates:

(a) When the amount secured does not exceed Five thousand pesos (P5,000), Twenty pesos (P20.00).

(b) On each Five thousand pesos (P5,000), or fractional part thereof in excess of Five thousand pesos (P5,000), an additional tax of Ten pesos (P10.00).

On any mortgage, pledge, or deed of trust, where the same shall be made as a security for the payment of a fluctuating account or future advances without fixed limit, the documentary stamp tax on such mortgage, pledge or deed of trust shall be computed on the amount actually loaned or given at the time of the execution of the mortgage, pledge or deed of trust, additional documentary stamp tax shall be paid which shall be computed on the basis of the amount advanced or loaned at the rates specified above: Provided, however, That if the full amount of the loan or credit, granted under the mortgage, pledge or deed of trust shall be computed on the amount actually loaned or given at the time of the execution of the mortgage, pledge or deed of trust. However, if subsequent advances are made on such mortgage, pledge or deed of trust, additional documentary stamp tax shall be paid which shall be computed on the basis of the amount advanced or loaned at the rates specified above: Provided, however, That if the full amount of the loan or credit, granted under the mortgage, pledge or deed of trust is specified in such mortgage, pledge or deed of trust, the documentary stamp tax prescribed in this Section shall be paid and computed on the full amount of the loan or credit granted.”

To compute DST, subtract P5,000 from the contract amount, then divide what’s left by P5,000.00 and round off any decimal to the higher number. Multiply this by 10 then add P20.00.

To illustrate, if the amount secured is P106,000.00, the DST is computed as follows:

Amount secured P106,000.00
Subtract P5,000 = 101,000
Divide by P5,000.00 = 20.20
Round off to higher number = 21
Multiply by 10 = 210
Add 20 = P230 DST

As a shortcut, divide the contract amount by P5,000.00 and round off any decimal to the higher number. Multiply this by 10 then add P10.00.

Exemptions from DST

“(d) Loan agreements or promissory notes, the aggregate of which does not exceed Two hundred fifty thousand pesos (P250,000), or any such amount as may be determined by the Secretary of Finance, executed by an individual for his purchase on installment for his personal use or that of his family and not for business or resale, barter or hire of a house, lot, motor vehicle, appliance or furniture: Provided, however, That the amount to be set by the Secretary of Finance shall be in accordance with a relevant price index but not to exceed ten percent (10%) of the current amount and shall remain in force at least for three (3) years.”

Deadline for filing the DST return

Venue for filing the DST return

Please feel free to leave a comment below. Alternatively, you may also visit our forum and social networking site for real estate investors to post questions and discuss about real estate taxation and a whole lot of other stuff.

To our financial freedom!

Jay Castillo
Real Estate Investor
REBL#: 20056
Blog: www.foreclosurephilippines.com
Social Network: foreclosurephilippines.ning.com
Mobile: +639178843882
E-mail: ph.investor@gmail.com

More On Documentary Stamp Tax (DST) On Real Estate Transactions is a post from: Foreclosure Investing Philippines

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When buying a foreclosed property, the buyer often shoulders the Documentary Stamp Tax (DST). In the Buena Mano Green Tag Foreclosed Property listings for example, it is explicitly stated that DST is for the account of the buyer and DST is 1.5% of the Selling Price (SP) or Zonal Value (ZV), whichever is higher. To illustrate, I’ll reuse the example I used in my post about CGT.

Sample DST computation:

Example: A residential condominium in Makati City with a floor area of 50sqm has a Selling Price (SP) of 1.0M. The current zonal value per square meter for that condo in Makati is currently Php50,000/sqm. It is stipulated that the buyer shall shoulder DST. How much is the DST?

First let’s compute for the ZV:

ZV=Zonal Value x Floor Area
=50,000 pesos/sqm x 50sqm
=2,500,000 pesos

Since ZV is higher than SP, we shall use ZV to compute the DST:

DST=1.5% x ZV
=0.015 x 2,500,000 pesos
=37,500 pesos

Therefore, the buyer shall have to pay 37,500 pesos for the DST.

Is that it?! It’s that simple? Yes, it’s that simple. If you are looking for a more detailed (and more complicated) explanation about DST, you may also visit this particular page at BIR’s website.

Upcoming posts about taxes would cover Real Property Tax and Transfer Tax. Please do watch out for these posts. You may also want to read my previous posts about Capital Gains Tax and Creditable Withholding Tax.

Please feel free to leave a comment below. Alternately, you may also visit our forum and social networking site for real estate investors to post questions and discuss about real estate taxation and a whole lot of other stuff.

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How To Easily Compute Documentary Stamp Tax (DST) On The Sale Of Real Properties is a post from: Foreclosure Investing Philippines

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