RMC No. 99-2023: Clarifies the applicable taxes due on sale of real property considered as ordinary assets of the seller and other relevant matters

Key points

1. What is an ordinary asset. Under RR No. 7-2003, ordinary assets are real properties excluded from capital assets under Section 39(A)(1) of the NIRC. These include stock in trade or inventory, property held primarily for sale to customers, depreciable real property used in business, other property used in business, and, for banks, properties acquired through foreclosure sale. Real property seized by government and sold at public auction is not an ordinary asset.
2. Invoice and reporting. Sellers of ordinary asset real property issue a Sales Invoice under Section 237. A VAT-registered seller of services only with an ATP for Official Receipts may issue an OR if the sale is merely incidental to its regular business operations.
3. Gross sales or other income. If the seller’s registered business is real estate business, the sales form part of gross sales. Otherwise, the gain is declared as other taxable income, computed as the selling price in the sales invoice less the book value, and any creditable tax withheld is claimed as tax credit.
4. Returns to file. BIR Form No. 1606 is filed for the Expanded Withholding Tax and BIR Form No. 2000-OT for the Documentary Stamp Tax. A copy of BIR Form No. 1606 with proof of payment is attached to the ITR.
5. VAT treatment. Sales are generally subject to VAT, with exceptions for property used by a Non-VAT Registered Person under Section 109(1)(A) to (BB) and for property under Section 109 (P), such as socialized housing or residential dwellings with a selling price of not more than ₱ 3,199,200.00. The 12% VAT base is the higher of the consideration in the sales document or the fair market value.
6. Donation. Donation of an ordinary asset by a VAT-registered person is a deemed sale subject to VAT. If the donor is not VAT registered, the donation is exempt from VAT.

Who is affected

• Sellers of real property classified as ordinary assets
• VAT-registered persons donating ordinary assets