Tax update: Condominium association dues are now subject to VAT

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condominium dues now subject to vatThe Bureau of Internal Revenue (BIR) has just released Revenue Memorandum Circular (RMC) No. 65-2012 which clarifies the tax treatment of association dues, membership fees, and other assessments/charges collected by condominium corporations.

In the past, the BIR has issued rulings which held that condominium corporations are holding the payments of its members only in trust for the actual payees. As such, it is not engaged in business and does not have profit from its activities, and consequently, it is exempt from income tax and value-added tax (VAT).

With this RMC, the BIR made a complete about-face and abandoned its previous position, stating that it lacked legal basis. The BIR now takes the position that condominium corporations provide services and benefits to its members and thus payments to it shall be considered as income and consequently, condominium corporations are subject to income tax and withholding taxes. Furthermore, the RMC states that condominium corporations are engaged in trade or business when it renders services to its members, and thus its gross receipts are subject to VAT.

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The implication of course of this RMC is that association dues will increase and will be grossed-up to take into consideration the taxes that need to be paid. Since this RMC was said to take effect immediately, condominium owners can expect an increase that will be reflected in their condominium dues soon.

A copy of BIR RMC No. 65-2012 can be found at BIR’s website: ftp://ftp.bir.gov.ph/webadmin1/pdf/66019RMC%20No%2065-2012.pdf

~~~

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

Text by Jay Castillo and Cherry Castillo. Copyright © 2012 All rights reserved.

Full disclosure: Nothing to disclose.

Image courtesy ofrenjith krishnan  / FreeDigitalPhotos

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About Cherry Castillo

is a Real Estate Broker (PRC Real Estate Broker License No. 3187), Lawyer (Roll of Attorneys No. 55239), and CPA (PRC CPA License No. 0102054). She is the 2013 Internal Education Head of REBAP-LMP

  • Pingback: Understanding Condo Dues in the Philippines()

  • jane ibay

    You may want to check this out :)

    Makati RTC declares invalid RMC 65-2012 subjecting condominium corporation to VAT and income tax

    A decision issued by the Makati Regional Trial Court (RTC) dated September 5, 2013 declaring Revenue Memorandum Circular (RMC) No. 65-2012, subjecting condominium corporation to VAT and income tax as invalid. This decision was issued by the RTC with Judge Encarnacion Jaja G. Moya as the Presiding Judge.

    This decision was a result of the petition filed by First e-Bank Tower Condominium Corporation, as represented by Engr. Victorio M. Amante, versus the Bureau of Internal Revenue, as represented by Commissioner Kim S. Jacinto-Henares and Revenue District Officer Ricardo B. Esperitu.

    Read the decision here.

    http://cpaccountant.files.wordpress.com/2013/09/rtc-resolution-sca-no-12-1236-on-rmc-65-2012.pdf

    • http://ocalundan.info Orlando Calundan

      I wonder what happened with the appeal to the higher courts?

  • Michelle
  • Rose Zamora

    Is it correct for the condominium admin. office to impose 12% VAT on penalty due to late payment of association dues and water bill?

    • http://ocalundan.info Orlando Calundan

      As far as the BIR is concern, those constitute income and should be taxed. :)

  • Rose Zamora

    Is it correct for the Condominium Admin Office to chat 12% VAT on the penalty for late payment of association dues and water bills?

    • Michelle

      yes ms. Rose because it is part of their assessments. RMC 65-2012 includes all other assessments collected by the condo corp. I hope this will help, have a nice day!

  • Cate Soriano

    As i understand in the BIR ruling, the memorandum is clearly addressed to “Condo Corp only, Ask ko lang po, why other building owners/lessors not a condo corp nakikisali sa ruling na ito? how do we respond to the demand of building owners?

  • Arvin L. Atienza

    Revenue Memorandum Circular 65-2012
    1. What is a Condominium Corporation?
    The Condominium Corporation or Homeowners Association is a non-stock and-non-profit organization registered in the Securities and Exchange Commission (SEC) and organized under the Republic Act 4726 or Condominium Act of the Philippines.

    2. Does the government allowed the condominium owners to organize Homeowners Association?
    Yes. 1. Section 30 of P.D. 957-Organization of Homeowners Association. “The owner or developer of subdivision project or condominium project shall initiate the organization of homeowners association among the buyer and residents of the projects for the purpose of promoting and protecting their mutual interest and assist in their community development.” 2. Section 23 of the 1987 Constitution of the Philippines “The State shall encourage non-governmental, community based, or sectoral organizations that promote the welfare of the nation.”

    3. Does the Condominium Corporation authorize to collect association dues from the members?
    Yes. Under Section 9.9 (d) of RA 4726 the law authorized to collect dues from the unit owners to spend for maintaining the common areas. As stated also in Article 2174 of the Civil Code of the Philippines “When a small community a majority of the inhabitants of age decide upon a measure for protection against lawlessness, fire, flood, storm or other calamity, anyone who objects to the plan and refuses to contribute to the expenses but is benefitted by the project as executed shall be liable to pay his share of said expenses.”

    4. Why the Association collecting Dues/ Assessments?
    In a Supreme Court Decision G.R. NO. 154993 it ruled that “Even though the Corporation is empowered to levy assessments or dues from the unit owners, these amounts collected are not intended for the incurrence of profit by the corporation or its members, but to shoulder the multitude of necessary expenses that arise from the maintenance of the Condominium Project……These would include the salaries of the employees of the Corporation, and the cost of maintenance and ordinary repairs of the common areas.”

    5. Do we need to pay VAT on Association Dues under RMC 65-2012?
    No. Because, 1. The Association is a non-stock, non-profit organization and not rendering service for the members/ residents of the condominium. 2. Association Dues is TAX EXEMPT. Section 18 of RA 9904 MAGNA CARTA FOR HOMEOWNER’S ASSOCIATION. “In recognition to association’s efforts to assist the LGU’s providing such basic services, association dues and income derived from rentals of their facilities shall be tax exempt.” This law is not for subdivision only but for “or other residential property located within the jurisdiction of the association.” Section 3 (b) of RA 9904. This includes residential condominiums that pay also Real Estate Tax (RET) to the local government.
    On October 31, 2012 the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular 65-2012 clarifying the Taxability of Association Dues, Membership Fees, and other Assessments/ Charges collected by Condominium Corporation.
    The explanation of the BIR to impose VAT on association dues is this: “The amounts paid in as dues or fees by members and tenants of a condominium corporation forms part of the gross income of the latter subject to income tax. This is because a condominium corporation furnishes its members and tenants with benefits and privileges, advantage in return for such payments. For tax purposes, the association dues, membership fees and other assessments/ charges collected by a condominium corporation constitute income payments or compensation for beneficial services it provides to its members and tenants”. The BIR emphasized Section 105 of National Internal Revenue Code of 1997 “Section 105. Persons Liable-Any person who in the course of trade or business, sells, exchanges, lease goods or properties, renders services…………shall be subject to value added tax (VAT). It is very clear that the BIR imposed VAT on association dues because they believe that the Condominium Corporation is rendering service to the members/ owners and tenants of the condominium.
    I DISAGREE to the interpretation of the Bureau of Internal Revenue that the Condominium Corporation is rendering service for the members/ residents of the building. In fact, the Condominium Corporation is not created to render service for the members/residents, but form to administer, protect and maintain the common areas of the building. There is no provision or any words in the Condominium Act of the Philippines, Master Deed with Declaration of Restrictions, Articles of Incorporation and By-Laws that the Condominium Corporation must render service to the members/ residents. According to the Supreme Court Decision (GR No. 154993), “The condominium corporation is a NECESSITY to enable the orderly administration over the common areas.” The Condominium Corporation is also authorized by law to levy assessments. The association dues/ assessments collected from the members are intended to use for the multitude of necessary expenses arise from the maintenance in the common areas. Definitely, the unit owners/ homeowners will benefit well manage common areas because it will enhance the value of their property, but it doesn’t mean that the Condominium Corporation is rendering service to the members/residents. Those who provide or render services to the members/ residents are their employees (household helpers, drivers, caretaker, babysitter, contractors, etc.).
    Therefore, RMC 65-2012 is unlawful and without any factual basis. The law cannot be amended by a mere regulations or a memorandum circular which is a product of wrong interpretation of the law. In a Supreme Court decision, it was held that a regulation that is inconsistent with the statute is a mere nullity and cannot prevail.
    A course of action that may immediately take is to challenge the RMC 65-2012 in Court and in the meantime, ask the temporary injunction be issued against the BIR from enforcing the RMC.

    Arvin L. Atienza
    Calumpang West, San Luis, Batangas

  • jane ibay

    Hello everyone,
    >
    > Have you read about –
    >
    > Revenue Regulation No.18-2012: Regulations in the Processing of Authority
    > to Print (ATP) Official Receipts, Sales Invoices, and Other Commercial
    > Invoices using the On-line ATP System and Providing for the Additional
    > Requirements in the Printing Thereof
    >
    > http://www.bdblaw.com.ph/index.php?option=com_dms&task=show_document&category_id=4&id=652&Itemid=183
    >
    > This was also published in Manila Bulletin on January 3, 2013
    >
    > Its pertinent provisions that will impact on the taxpayers’ compliance-
    >
    > 1. All unused/unissued principal and supplementary receipts/invoices
    > printed prior to the effectivity of these Regulations shall be valid until
    > June 30, 2013. Meaning, even if a taxpayer has a roomful of ORs, all of
    > these will become invalid after June 30, 2013 and issuance of such will be
    > deemed violation of the tax code. May penalty na, may kulong pa.
    >
    > 2. The application for ATP shall be submitted through the on-line ATP
    > System. In case of systems downtime, applications for ATP shall be
    > manually filed with, and the ATP shall be manually issued by, the RDO or
    > concerned LT Office having jurisdiction over the taxpayer’s Head Office.
    > All applications processed during systems downtime shall be immediately
    > uploaded by the concerned RDO or LT Office upon availability of the
    > on-line ATP System.
    >
    > 3. Even secondary/supplementary forms now must be registered with the BIR.- Delivery Receipts, order slip etc…
    >
    > 4. The Official Receipts will now have validity period.
    >
    >
    > Please share with your friends who have businesses or are in practice of profession here in the Philippines.

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  • eugene

    hello ms. cherry,
    Sec.18 para 3 of RA9904 has provided tax-exemption for HOA’s Dues:
    “Where the LGUs lack resources to provide for basic services, the associations shall endeavor to tap the means to provide for the same. In recognition of the associations’ efforts to assist the LGUs in providing such basic services, association dues and income derived from rentals of their facilities shall be tax-exempt: Provided, That such income and dues shall be used for the cleanliness, safety, security, and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages.”
    What is your opinion on this?

  • eugene

    ask ko lang for clarification, does this RMC also also applicable to HOA’s?

  • Erika

    hi ms.cherry, ask ko lang kung kelangan din mag palit ng COR ang mga condo association from Non-VAT to VAT registered, we are so confused since condominium is Non-VAT registered. Thank You.

  • ed

    thanks for the reply. it is okay for me to be charge that little amount for the VAT it is for our country that what they said, but our admin office did not hesitate or bothered to explain what this RMC for, we recieve a billing for the VAT, those the BIR had consulted the developers regarding on it becuase some condo units owners paid their dues in advance,
    I THINK WE DESERVE A PROPER EXPLANATION AND CLARIFICATION REGARDING ON RMC from the BIR

  • Glaiza

    Hi all,

    We also had an advance payment on association dues and now we were being charged retroactively for the vat. Though the prepaid association dues covers the yer 2013, the official receipt was given before this RMC was released. Based on documentation isn’t it that payment was included on the gross receipts declared by the condo management before this RMC? BIR doesn’t follow the accrual basis of accounting hence we shouldn’t be charged of vat since we dont have any means to verify that they will remit the 12% vat. Hope someone can enlighten me with this matter. Thank you.

    • http://www.foreclosurephilippines.com Cherry Castillo

      Hi Glaiza,

      VAT for services is based on gross receipts as discussed by Jane in an earlier comment so in my personal opinion, VAT should not be charged retroactively. As I said in my earlier comment, I don’t see how the amounts will balance if the VAT will not be the same as the amount net of VAT x 12%. If they will issue a VAT official receipt wouldn’t it be weird if there is no amount net of VAT and only VAT will be on the receipt?

      Best regards,

      Cherry

  • Cherry

    Dear friends,

    I just attended a seminar last Thursday where my beloved former boss was the speaker (I’m just blown away by his tax brilliance, really). I got interesting insights to which I agree. It is highly unlikely that anyone can get a TRO to stop the RMC because taxes are the lifebood of the nation. As a general rule, the collection of taxes cannot be stopped. Any judge will be hesitant to issue a TRO. Last Jan 16, the requested TRO for the regulations of the Sin Tax Law (which is a bigger issue because of the big industries affected) was denied for the reas I cited earlier.o

  • ed pengson

    we pay 2 years in ADVANCE for the association dues before move in. the last payment will be JULY 2013 yet they billed us for the vat of the assoc dues for december 2012 to january 2013. Are we entitle to this matter we paid for the 2 years in advance . even our SO CALLED ADMIN MANAGER AND HOME OWNERS OFFICERs never tried to explain regarding on this VAT,
    our admin is very INUTIL

    • Michelle

      hi sir Ed,

      We also do that in our condo. even if you paid your association dues in advance, yet the application of which is for the month where vat is implemented. So if you paid 100 in advance and they billed you 112 including vat for the month of December, you still have to pay 12. I hope this will help. thanks

    • http://www.foreclosurephilippines.com Cherry Castillo

      Hi Sir Ed,

      Many people are indeed very confused about what to do with this, perhaps they are taking the conservative position. But in my personal opinion, since VAT is based on gross receipts and they received your payments prior to the effectivity of the RMC, they should not bill you anymore for the VAT. If you think about it, if they file their VAT returns now, the VATable amount and the VAT will not balance, if you multiply the amount by 12% it will not be the same. So even administratively, I don’t know how they can make it work.

      Best regards,

      Cherry

      • jane ibay

        i agree Atty Cherry – that’s how we implemented it with my client condominium association. It’s because the date of reckoning for VAT on services is date of Official Receipt. So if a unit owner has paid last year his association dues for this year, he is no longer liable to pay VAT.

        conversely, those with past due accounts are liable to pay VAT for past years’ Association dues even if these are for years when there is no VAT yet.

        For INput VAT credit, we applied the same principle.

        unless current BIR administration interprets the law again in another way…

      • Mon Delatore

        Atty. CHERRY,
        I understand that indeed the VaT will not balance bec the dues were collected in advance. Is it also because that advance dues paid must be realized on the period it was collected? Is it also because for BIR they do not practice accrual method of accounting?
        Thank you if ever you reply to this.

  • http://yahoo elizabeth

    I will go to BIR fort and show my friends condo fees receipt that does not have any 12%VAT
    annd hopefully i will get a good explanation about it!

    • Cherry

      Hi Elizabeth,

      Did the condo corp bill you VAT but did not issue a VAT OR? Or no VAT was billed to you? It is possible that your condo corp is waiting for a reversal of the RMC. Either way, someone will get in trouble if you report it with the BIR.

      Best regards,
      Cherry

  • Lanie

    Hi. I would just like to ask if the receipt that will be issued for my condo dues payment, the vat should be indicated? Thanks

    • Cherry

      If your condo corp has already complied with the RMC and has changed its COR to VAT, it should also have VAT OR’s and the VAT shiuld be separately indicated. If you are being billed the VAT, I assume they already have the VAT COR and OR.

      Best regards,
      Cherry

      • ven

        can condo corp collect even without sending a billing to unit owner? what is a compliant billing system should condo corp apply? thanks!

  • Titus

    This is truly one of the most stupid collection schemes from the BIR. The condo corp’s mandate is very clear – the condo owners banded together to ensure that their common property is maintained. How can the act of simply pooling their money to maintain the condo a vatable action? For example, if 3 brothers who share a house decide to collect a set amount from each other each so they can pay for the maid, is that vatable? If I save a set amount of money each day to ensure that I have funds to pay for the day my car breaks down, is that subject to VAT? All 3 are the same – the owner is simply allocating funds to manage his property. And yet, the Condo dues somehow get the special distinction from the BIR! Bravo!!! More funds to go with the lucky politicians. How screwed are we? Income tax at 32%, VAT at 12%. That’s 44% of my salary going to the government and for what? Bad public school? Bad roads? Bad government service? I mean, common! The middle class can’t get much better than this, right??? YEAH RIGHT!

    • Cherry

      Hi Titus,

      While we can all rant till kingdom come, until such time someone rises up to challenge this rule, it shall remain. I have always said that this RMC can be challenged in the proper fora (which is obviously not this blog). I am sure that the BIR is expecting a challenge, and at the same time they know that the challenger should have no fear of the BIR. And I do not know anyone who does not fear possible retaliation from the BIR. You are very free to be the David that will slay the Goliath BIR. Please go ahead and I’m sure you will get applause and admiration from all of us.

      Best regards,
      Cherry

      • J So

        Good news… Bayan Muna Rep Teddy Casino and Neri Colmenares have already filed a bill on this. Here’s the link: http://businessmirror.com.ph/index.php/news/economy/6173-solons-seeks-exemption-of-condo-housing-dues-from-income-tax-vat
        Thanks to these few people in congress who Are actually doing a good job.

        • http://www.foreclosurephilippines.com Cherry Castillo

          Thank you J So. Good to know this. I guess only Bayan Muna and the like can do this.

          Best regards,
          Cherry

          • http://www.foreclosurephilippines.com/2012/11/condo-association-dues-now-subject-to-vat.html EDB

            Hi Cherry,

            This there an update on Bayan Muna Rep Teddy Casino and Neri Colmenares fight on this issue? I believe the news was dated 20 December 2012?

            Thanks,

            EDB

  • Rona

    And how much should be the withholding tax from supplier?

  • Rona

    Hi!
    Good Day!

    I am very confuse. We started collecting association dues on Nov 2012 and we were able to update our COR on Jan.7. At first a personnel from our RDO has said that dues collected on January ( including bills released on 2012) will be subject to VAT but we talked to other personnel from the same RDO and said that dues billed prior to COR update are not subject to VAT. Now I’m wondering which is which?

    • Cherry

      Perhaps you can talk to the Revenue District Officer for clarification. I think that for computer record purposes, your classification as VAT only became effective after your COR was changed. So in the BIR computer files, prior to the change in your COR to VAT, you are still listed as non-VAT.

      Best regards,
      Cherry

    • Michelle

      Hi Rona,

      We spoke to a BIR personnel (Receipts dept. at National Office) and according to her, we are subjected to VAT only after we updated our COR.

      thanks,
      Michelle

      • Cherry

        Thanks Michelle.

        Best regards,
        Cherry

  • http://yahoo elizabeth sytian

    Yeah, does the government soon tax us on the air we breathe?
    This kind of government system will not help our country prgoress, rather would create more poor individuals rather than middle class man.

    • Cherry

      Sadly, indeed, I have to agree with you ma’am. I pray that there will be God solution to this problem of raising funds for government use, that it should not be at the expense of the people. I think if corruption is gone completely, then the amounts that the BIR needs to raise will be reduced significantly. I have to say, though, that efforts are indeed being made to erase corruption through the Matuwid na Daan program. Of course, this is my personal opinion only based on my observation.

      Best regards,
      Cherry

  • Herbert Bitantes

    I also have the same concerns as the previous comments. Our property management office (for a DMCI condo) has included RPT and Utilities in the computation for the 12% VAT in compliance with the BIR memorandum circular on association dues and I strongly disagree with this (since this would constitute double-taxation). You mentioned that the BIR should clarify and fine-tune the RMC but would you know if there are any cause-oriented/consumer/watchdog groups who have already taken this up with BIR or at least filed a complaint with any other gov’t agency? What would be a proper venue to request a clarification on RMCs? Can we just call up BIR and tell them to release documentation on this so I can get back to my condo’s property office and ask for a re-computation?

    • Rain Santos

      Hi, Herbert! Mine is a DMCI condo too in Taguig, and Yes, they did charged us with the 12% VAT as well. Funny thing was our Seibu Tower PMO sent us a memo stating that our utilities there are VAT exempt including RET/RPT. Why are there variations in the implementation?

    • Cherry

      Hi Herbert,

      I just got rumors that the association of condominium corporations will be challenging this RMC. See link: http://www.interaksyon.com/article/49432/cocktales–makati-condos-revolt-against-12-vat-on-association-dues. The observation I believe is correct, who would be brave enough to tangle with the BIR on this issue?

      Best regards,
      Cherry

  • jane ibay

    Suggestion to all condominium owners & property owners who pay Association Dues:
    Request your Homeowners Association &/or Condo corp to give you itemized billing for Association Dues separating Real Property Tax, Insurance, Water & electricity from the rest of maintenance & operating expenses.

    RPT is VAT exempt; insurance premium has charges that are VAT exempt; electricity & water bills from MERALCO and Manila Water/Maynilad already has VAT; thus bills for the last 3 items should reflect the tax basis & VAT separately.

    It is even better if you can request for a recomputation of budgetary basis for your association dues segregating VAT from contract price on VATable recurrent contracts/services (security guards, elevator maintenance, janitorial services, management services etc)

    The SOA for association dues and other assessments can then include a summary of VAT exempt & VAT-able charges and charge VAT only on VAT-able charges. This invoicing practice is what BIR requires of VATable commercial entities.

    From my audit field work of Condominium corporations, i noticed that most association dues already include the budget for RPT, Insurance, maintenance, water, insurance, security and all other maintenance & operating expenses based on GROSS amount, meaning inclusive of VAT when applicable. This was done because association dues then were not subject to VAT thus it is not necessary to segregate VAT

    Now, if the budget already included VAT, an outright imposition of 12% VAT on the ASD will, in effect impose VAT on VAT and VAT on non-VAT items. Well, the financial impact of the two suggestions above may be minimal on a monthly basis per unit but over a long period- the amount can be staggering.

    “Madugo,” yes, but only on the first few months specially if your condo corp already has a software in place.

    Best of all , why not file a TRO with the appropriate courts to stop implementation of this RMC? i’m sure this RMC will be deemed “without legal basis ” and therefore will be nullified when challenged before appropriate courts.

    calling all condo corporations- maybe you can band together for this cause? :)

    • http://www.foreclosurephilippines.com Cherry Castillo

      Thanks Jane for your exhaustive comment.

      I think that since the RMC as currently worded treats the whole lump of association dues as payments for “beneficial services,” then the whole thing will be subject to VAT. Documentation-wise, I don’t know if the utility companies can issue receipts for the share of unit owners directly to them, so payments for those services for common areas will be included in the “lump” of association dues. For those expenses which can be directly attributed to unit owners and receipted in their names, there may be hope if they are not made part of the lump of association dues.

      Re: challenge to the RMC, it would be good so that the BIR can fine-tune it.

      Best regards,
      Cherry

  • Rain

    I was reviewing my latest SOA today and to my surprise even my electricity, fire insurance, Real Estate Tax and water consumption are charged with VAT ! Is this in line with the memorandum? Thanks!

    • http://www.foreclosurephilippines.com Cherry Castillo

      Hi Rain,

      Are these expenses directly attributable to your unit? Can they be billed directly to you and not go through the condo corp? Or do these pertain to expenses for the common areas? I think that the condo corp is taking the conservative position and maybe this is because of the issue on documentation. My understanding of the RMC is that the condo corp renders beneficial services to its members so the payments for these beneficial services should be subject to income tax and VAT. Now, if the services rendered by Meralco or Maynilad directly to unit owners is included in the association dues, they may be considered as part of the fees for the “beneficial services” rendered by the condo corps. This needs clarification from the BIR.

      Best regards,
      Cherry

      Best regards,
      Cherry

      • Rain Santos

        Hi, Ms. Cherry! Thank you for taking the time to answer my query!
        I am directly paying my utility bills to our condo corp as well as everyone else in the building. We have submeters being regulated by the condo corp. It’s just a bit confusing now when I received another memo from a different property we own in BGC and the memo states that our RPT, Insurance, Meralco and Maynilad are all exempted from VAT.

        Sincerely,
        Rain

        • http://www.foreclosurephilippines.com Cherry Castillo

          Hi Rain,

          It seems that your BGC condo corp got an opinion from either an acctg or law firm. I think the key here is documentation. It is the condo corp which will be audited by the BIR in the future so they are taking a risk when they do not pass the VAT. I assume, of course, that the risk is managed and supported by the proper documentation.

          Best regards,
          Cherry

  • Mr. Angles

    Happy New Year Jay & Cherry!

    I am a condo owner here in Manila, upon receiving my 1st SOA with the additional 12% vat the first thing that I noticed is that the Real Estate Tax is included in the fees summed up where the new 12% vat is computed from.

    Is this computation correct?

    Thank you and more power to you guys! Information here has really helped me a lot!

    • http://www.foreclosurephilippines.com Jay Castillo

      Hi Mr. Angles, on behalf of Cherry, I would like to say Happy New Year to you too and I would like to answer this question of yours as well.

      I couldn’t help but say this is wrong. As someone who pays RPT, based on experience, RPT should not be subject to VAT.

    • http://www.foreclosurephilippines.com Cherry Castillo

      Happy New Year Sir.

      Your condo corp is taking the conservative position in subjecting all its receipts to VAT. Is the RPT you are talking about for your unit or for the common areas? I think one issue here will be the documentation. If the receipt will be in the name of the condo unit owner, and the amount is clearly defined to be for the account of such owner, then there may be basis for it not to be subjected to VAT. However, if the receipt is in the name of the condo corp (I think this may pertain to common areas), then it may be argued that the amount is part of the gross receipts of the condo corp which shall be subject to VAT.

      Best regards,
      Cherry

  • gerlie

    Hi I need a clarification as to when the Vat is impletmented.
    I understood that the memo was released Oct31.
    So does it mean assoc dues effective Nov 1 incurs VAT, how about those
    Owners who pays late on their assoc dues? Will the owners be charged Vat for all
    The months they haven’t paid or only for the month starting November?
    The condo pmo doesn’t billed assoc dues on time, thus majority of the owners paid late. Now they are implementing vat on all the months that the owner had paid in the month of nov. for example owner just paid assoc dues last month for the period of jan-dec. admin is charging vat for the whole year. I just wanna ask if thats the right way to interpret the bir ruling.
    Hope someone can enlighten me.
    Thanks

    • Jane Ibay

      Hi Girlie,

      That is still a matter BIR should address aside from the (lack of ) legal basis of this RR.
      Anyway- to answer your question on what period of Association Dues is VAT-able –

      For sales of goods – Invoice Date is reckoning date and not the date of payment. Thus when ABC Trading delivered some goods to DEF Company on & dated the Sales Invoice Dec 31, 2012, ABC Trading should include that sale in its report for December 2012 & pay corresponding Output VAT thereon even if DEF will pay on Jan 31, 2013 yet. Meanwhile, DEF can already claim the Input VAT credit for the said transaction even if the said delivery has not been paid yet.

      For sales of SERVICE – OR Date is reckoning date and not the date when service was rendered. Thus when GHI Catering received downpayments from Castro Company on Dece 31, 2012 GHI should include that receipt in its report for December 2012 & pay corresponding Output VAT thereon even if the catering service is yet to be rendered on Jan 31, 2013 . Castro Company can already claim the Input VAT credit for the said payment.

      Since condo Association Dues is ” revenue for services” then current receipts is VATable, even if the said payment is for Association Dues from several years back.
      And, may i add, interests/penalties/surcharges imposed on late payments is also VAT-able.

      Hope this helps.

      • http://www.foreclosurephilippines.com Cherry Castillo

        Thanks Jane.

        Best regards,
        Cherry

  • http://yahoo.com AURORA

    our unit owners are very much surprise on this new rulings. our collection in our condominium is not even sufficient for our monthly expenses, security fees, salaries of employees and other utility fees are always delayed because some unit owners do not pay thier dues on time, 3 to 9 months overdue. we cannot even increase our association dues which was 6 years behind. How about the exemptions are senior citizen unit owners exempted from this vat. where can we get guidelines on this so that we can photo copy and at attached to monthly soa billing of unit owners.
    what is the purpose of this new rulings

  • Roland Perez

    Atty, Castillo,

    I strongly agree with many of those whose sentiments go against the imposition of VAT affecting the condominium owners. The whole notion of which is idiotic.
    First, determining the legality or lack therof of anything (taxes in this case) is not the responsibility of the BIR. Legal issues are interpreted by the courts, not by the appointed agents of the administration. The BIR is an enforcer not unlike other administrative agencies.
    Second, in a democratic society no one can simply impose a burden on anybody because exempting such burden “lacks legal basis.” You impose a burden because of a clear, definitive, and justified reason as established by the constitution. Life, itself, has no legal basis and the constitution protect our right to exist and prosper. It is only after due process that the same right maybe taken away.
    Third, VAT, as stated and intended, was aimed at condominium corporations. Why, then, would the BIR in its infinite wisdom imposed it arbitrarily knowing that the individual owners/citizens will be the ones to shoulder it? Therefore, the idea of the corporations profiting from it as a “trade of business” is flawed. It is the owners who had already paid questionable amount of fees and taxes related to their purchase of property again become bearer of yet another injustice. Many of these owners are indeed honest and merely trying to succeed (despite of a corrupt government). To create another unjustified barrier on their paths is not destructive to these folks but counterproductive to the overall efforts of some in the government to change the ill-conceived course of the nation. Actually, the trend ought to be the reverse. Open all opportunities to the common people who are willing and able to contribute to the progress of the country not merely to the privilege few who openly manipulate the system to theirs and their cronies favor.
    Fourth, hypocrisy aside, what income do the owners derive from paying association dues? No matter how you slice this pie, it does not make sense. Owners pay and still charged with income? From what economic model was that taken from?
    Fifth, you can pigeon-hole this matter from the total governmental practices. The impsition of this VAT nor any other taxes is not unrelated to the corrupt behavior of many officials at all levels of the government, elected and appointed. To deny that they are separate issues is not only accepting the practices but actually encouraging them. And, if this continues, the country will remain as it is now (regardless of temporary and superficial infrastructures) — a third rate state. If you don’t believe it, ask a common person in other countries as to their perception of the Philippines and observe how a Filipino is treated compared to other ethic groups. Think about it.

    Respectfully,
    Roland Perez

    • Cherry

      Hi Roland,

      It is really the general sentiment that the BIR rules lately are anti-business and anti-people. i hope they will be able to strike a balance between tax collection and fair imposition of taxes.

      Best regards,
      Cherry

  • jane ibay

    Hi everyone,

    Below is the link to Atty Baladad’s discussion of RMC 65-2012

    http://business.inquirer.net/93632/bir-aims-at-non-stock-non-profit-entities

    @ Percy – i quote here the last paragraph of Atty. Baladad’s article – in all likelihood the cooperative formed with the same functions as a condominium corporation will not be registered with the CDA.

    “Earlier, in RMC 12-2012, certain kinds of cooperatives were disqualified from the tax exemption given under the new Cooperatives Code. The BIR stretched further to request the Cooperatives Development Authority (CDA) to deny the registration of certain cooperatives (such as those in labor-contracting, professional, construction, mining, health) which led the CDA to recall the delegated authority given to its regional offices to register these types of cooperatives. ”

    Hmmm- siguro lang better if instead of by way of RMC, the BIR issued a Revenue Regulation (RR) on this regard. This way the proposed RR will have to be presented for consultation, discussion and public hearing before this can be implemented.

    Good luck sa ating lahat.

    • http://www.foreclosurephilippines.com Cherry Castillo

      Thanks Jane. I guessed as much – for sure the BIR already thought about people using cooperatives to avoid taxes. I’ve heard about this before, about issues on mining cooperatives in particular. It’s just weird that they included those rendering professional services as they are specifically mentioned under the law. Re: RR instead of RMC, well, tough luck :-( We can really see that the BIR is plugging all loopholes right now.

  • MaryAnn

    so if we are withholding agent and deducting the dues as our expenses, what rate to use?can we use 5%?same rate as rental rate?thanks.

    • http://www.foreclosurephilippines.com Cherry Castillo

      Hi MaryAnn,

      Ang sinabi lang sa RMC is “applicable withholding taxes under existing regulations”. I think conservative yung 5% kasi technically hindi naman sya rental. I guess if you are a Top 20,000 corporation or a Top 5,000 individual, then you should withhold 2% on the “services” of the condo corp. Unless there is another rate which I am not aware of.

      Best regards,

      Cherry

  • mary grace vergino

    I am thinking about the withholding rate to be used by the unit owners?

    • http://www.foreclosurephilippines.com Cherry Castillo

      Hi Mary Grace,

      Not all taxpayers are withholding agents, usually just those who will be deducting the dues as expenses in their ITR. The condo corp should issue a statement and the way to compute the new dues should they decide to increase them.

      Best regards,

      Cherry

  • percy g. borras

    condo unit owners are required by the owner-developer to organize themselves into a corporation to service exclusively their needs which is primarily the maintenance of the place. condo corp does not engage in regular business and does not deal with the outside parties. it is not intended to make profit in a way that business corporations do. the fees collected from unit owners are for the cost of maintaining year-round, particularly the common areas within.Maintenance cost involves labor and needed materials. so what is there to profit ? If that is the position of the BIR, condo corp must be converted to a cooperative which, under the law, is exempt from all national and local taxes.

    • http://www.foreclosurephilippines.com Cherry Castillo

      Dear Percy,

      I agree. As for forming a cooperative, I am not very familiar with the nitty-gritty details but I know you need to attend a seminar, among others, and fall under the classification of cooperatives under the law. If you would kindly share more about your proposal here, I am sure there will be many who will benefit. Looking forward to it sir.

      Best regards,

      Cherry

  • lanie

    Sir Jay,

    What does it mean when it said that BIR has no legal basis in saying before that the association dues are not subject to income, w/tax & vat? Is this their way of saying that if there are no existing legal basis then everything becomes taxable??? If the air we breathe has no legal basis, then it must be taxable??? Tell me then, who makes the legal basis??? The problem with the all-knowing COMMISSIONER KIM is that she thinks she always hit the nail on the head. What she doesn’t realized is that “the rich becomes richer, & the poor becomes poorer” due to her tax policies directed at defenseless citizens who couldn’t afford to hire expensive accountants & lawyers who know how to go around the law. Madam commissioner, you passed around judgment on everyone as if you are blameless yourself. So pathetic, tsk, tsk, tsk

    • http://www.foreclosurephilippines.com Cherry Castillo

      Hi Lanie,

      When you say that the funds are merely “held in trust” by the condo corps, it means that the tenants or owners are actually paying the service providers like Meralco or Maynilad directly, but they pay “through” the condo corps only. Under this scenario, the condo corps do not earn income because it is not made to create income. Under the clarificatory RMC, it states that since the condo corps render services to the tenants/owners, it should pay income tax. Technically, if the amounts paid by the tenants/owners are just enough for the payments of Meralco and Maynilad and other necessary expenses, including payments for the maintenance of the facilities and grounds, the taxable net income should be zero so there should be no income tax. If the payments to the condo corps are considered as gross receipts subject to VAT, the condo corp can offset the output tax with the input tax coming from its payments to the service providers (for example, Meralco and Maynilad). With this, the net VAT payable should not be so big as well.

      The problem may be the withholding taxes. If the owners/tenants will withhold expanded withholding tax (EWT) from their payments to the condo corp, the cash of the condo corp which will be used to pay Meralco and Maynilad will be less. Here arises the need to gross up the condo dues payments. Even though the condo corp should have no income tax payable, it will have excess EWT which will be carried over forever unless the condo corp earns taxable income. Maybe the condo corps will charge for fees for the use of the hall, gym, etc.

      The legal basis is of course based on the law (I know, tautological). As for the Commissioner, as I said in my earlier comment, I believe she is just doing her job. It’s a tough job, but someone’s got to do it. Personally, I wouldn’t want to be in her shoes.

      Best regards,

      Cherry

      • J So

        With all due respect, I beg to disagree. Kim Henares’ take on the law is very faulty so she is not really doing her job properly. In this particular case, they want to add VAT and tax the condo corp which is a non-profit organization whose sole purpose is to collect money to put in a common fund that will be used to pay for building expenses. Where is the profit there? She thinks the money collected provides benefit for condo owners but in reality it is all maintenance cost. All she cares about is to collect money for the government regardless of the burden it poses on citizens. Sa totoo lang, in my other condo, kulang pa ang dues na binabayad namin at Php70/sq.m. so the condo corp has been billing us recoupment charges. You say that Vat can be offset with output tax, but bottomline who will pay for the additional 12%? Eh di tayong mga condo owners or ang tenants din natin, di ba?

        • http://www.foreclosurephilippines.com Cherry Castillo

          Dear J So,

          I hear you. Along with you and many others, I, too, feel that the actions of the BIR are a bit too much. However, I felt I had to balance the discussion as the BIR is not in this comment section and they are unable to defend themselves. In this particular issuance, the definition of “in the course of trade or business” is really a gray area which the BIR merely defined. People are free to question the BIR’s interpretation and bring their grievances to the proper authorities.

          The job of Atty. Henares is to collect taxes so that is what I mean when I said that she is just doing her job. If not enough taxes are collected, the government will not have enough funds to render services to the people. Again, we can always rant about corruption but that is another issue altogether. As for the burden of taxes on the citizens, the way I see it, Atty. Henares acts as the “fall guy” in a way because she is the one implementing the rules which people don’t like. Note that she has bosses too like most of us, bosses which she must follow if she desires to keep her job.

          Best regards,

          Cherry

          • J So

            Thanks for clarifying, Cherry. My real beef with Kim Henares is the fact that under her management, the BIR is creating new memos that impose taxes on what shouldn’t be taxed. As written in the article above, this is a complete about-face from the previous BIR position which I believe is more realistic and just. Since she is the BIR chief, this new policy has her stamp on it. Hence it is her responsibility. She is not a fall guy, she was the one who issued the memo. Yes, she may be pressured and she has bosses to please. But that does not give her the right to just impose new taxes in the guise of a memo “clarifying taxes on association dues”. It’s so convenient to say we can bring our grievances to proper authorities but most of us are non-lawyers and we do not even know where to go. We are very busy people and do not have the time and resources to do this. And given the many pending cases that the courts have yet to process, it will take time, resources and money to resolve the issue and fix the damage that this brings. Instead of finding new avenues to generate more tax, she should focus on actually collecting on existing taxable things. It’s as if the BIR is acting on impulse: “Ay, kulang collections natin ngayon, sige, ano pa kaya pwede natin i-tax? Ang condo corp kaya? Pero sandali, non-profit ito eh… Hindi okay lang iyan, palabasin na lang natin since the condo corp provides service and benefits, kailangan i-tax na natin. Eh paano pag may mag-complain? Ok lang iyan, they can go to the proper authorities. In the meantime, we can collect extra tax and report that we reached this month’s quota.” :(

            • http://www.foreclosurephilippines.com Cherry Castillo

              Ho J So,

              That is indeed the general sentiment. But of course, we must not discount the BIR’s efforts in collecting the taxes that are already due based on current tax laws and regulations. I know from first-hand experience that the BIR has knowledgeable revenue examiners and officials, specially in the National Office, who take assessments seriously. In my previous job, I handled a LOT of tax assessments so I know that this is true. I read too that there are new processes that will be implemented in the BIR soon (http://www.feedreader.com/feed/What_s_Up_In_The_Philippines/138868571) aside from the computerization that they have already started during the time of Commissioner Parayno. The BIR has done studies that majority of the taxes collected come from compliance and only a little from assessments so they would like to concentrate more on compliance (naturally).

              Tax is really a delicate and sensitive subject, Commissioner Henares cannot really please everyone.

              Best regards,

              Cherry

              • J So

                It seems BIR wants the easy, short-cut way… even if the legality of which is questionable.

                Anyway, putting aside my resentment, I just want to ask… in pinoyexchange forum, there’s a forumer who cited the case of Yamane vs BA Lepanto (G.R. No. 154993, October 25, 2005) whereby the Supreme Court made a ruling which defined the purpose of Condo Corp:

                “We can elicit from the Condominium Act that a condominium corporation is precluded by statute from engaging in corporate activities other than the holding of the common areas, the administration of the condominium project, and other acts necessary, incidental or convenient to the accomplishment of such purposes. Neither the maintenance of livelihood, nor the procurement of profit, fall within the scope of permissible corporate purposes of a condominium corporation under the Condominium Act.”
                —my question is, how does this affect the BIR’s interpretation?

                The BIR has begun the condo corp taxing… my office condo corp has just incorporated VAT in our bill. However, for my residential condo, I made advance payment for 6 months earlier… I wonder if they do retroactive VAT. Ayayayay!

  • Len Cruz

    What the – – -???!!! Grabe ka na talaga Kim! Lahat na lang taxable! Dagdag na naman ito sa “kaban” ng mga senador at kongresista natin! Sobra na ‘to!!!!

    • http://www.foreclosurephilippines.com Cherry Castillo

      Hi Len,

      I think she is just doing her job. In my previous job, I used to interact with the BIR a lot and the BIR personnel are also under immense pressure due to the attrition law. Also, the Philippines makes the budget without regard to how they are going to raise the funds to meet the budget, so the BIR is forced to produce. As for corruption, that is a different issue and something that has been with us for such a long time already. I don’t know if we will be able to erase it completely from the system.

      Best regards,
      Cherry

    • Charlie

      Hi ms cherry

      I just want to ask if t real property tax collected from unit owners by the Association subject to vat?? pls.