REAL ESATE LAWS AND REFERENCES 1.2

Value Added Tax is a basic government tax for all commodities set at 12% on top of the price of such commodity

PHILIPPINE VAT LAW:

“The VAT is equivalent to 12% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged. Any excise tax on these goods is also part of the gross selling price. In the case of imported goods, VAT is based on the total value of the goods as determined by the Bureau of Customs plus customs duties, excise taxes and incidental charges. The VAT is an indirect tax. While the obligation to collect and remit rests with the seller, the cost of the tax may be passed on to the buyer, transferee or lessee of the goods, properties or services. A VAT registered entity may credit the VAT paid on purchases of other goods and services against the tax on its current period sales of goods or services. If the amount of input tax is greater than the amount of output tax, the excess may be credited against succeeding period output VAT. VAT registered entities are required to issue an invoice or receipt for every sale and, in addition to regularly required accounting records, they must maintain subsidiary sales and purchase journals exclusively for VAT purposes. VAT reports must be submitted on a quarterly basis, twenty-five days after the end of the quarter. VAT payments must be made on a monthly basis.”

According to RA 9337, the following sales of property are VAT-Exempt

“Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business”
So if you sell your own real estate property, you are not going to pay any VAT. You will be made to pay VAT if you are a developer who sells properties for profit.

Sale of real properties utilized for low-cost housing as defined by R.A. No. 7279, otherwise known as the “Urban Development Housing Act of 1992” and other related laws, such as R.A. No. 7835 and R.A. No. 8763 wherein the price ceiling per unit is P750,000.00
Sale of real properties utilized for socialized housing as defined under R.A. No. 8763, wherein the price ceiling per unit is P225,000.00 or as may from time to time be determined by the HUDCC and the NEDA and other related laws
So, if you buy a house and lot from a developer priced at P750,000.00 and below, you can expect that the developer was not imposed with VAT for such a property and this makes the property more affordable to the masses. If over P750,000.00 the 12% VAT shall be added and the buying public may not notice this because by law, it is built in with the price offer, although there are real estate developers who itemize the details of payment including VAT but there are just a few of them.

“Residential lot valued at one million five hundred thousand pesos (P1,500,000.00) and below”
So, if you buy a large lot from real estate developers that will have a total price above 1,500,000.00 the 12% VAT shall be added to the price of P1,500,000.00 For example, the basic price is P1,520,000 the lot price becomes P1,702,400.00 after adding the 12% VAT. You can save money from taxes if you buy two lots that are adjoining if each lot is not more than P1,500,000.00 It’s better to buy two small lots than to buy one big lot where you have to pay VAT for the latter.

“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).”
If you buy house and lot package from a real estate developer priced below P2,500,000.00 the 12% VAT was not imposed on this property. In my experience as Real Estate Broker for over 7 years, I have noticed that for similar properties that are not much different in features, one that is priced at P2,400,000 is not far in size and quality from the one priced at P2,700,000.00 it is because that the VAT was already incorporated in the priced above P2,500,000.00

This piece of information is also important for real estate developers and for free lance investors. If you develop a house model for medium housing, it is best to limit it to P2,500,000 below to save on taxes and to limit lot only prices to P1,500,000.00 below such as making the size per cut smaller so as not to go beyond the taxable price.