Creditable Withholding Tax on Sales of Real Property Other Than Capital Assets

December 26, 1989 REVENUE MEMORANDUM CIRCULAR NO. 80-89 SUBJECT : Creditable Withholding Tax on Sales of Real Property Other Than Capital Assets TO : All Assistant Commissioners, Regional Directors, Revenue District Officers and Others Concerned Under existing issuances, sellers of real properties are required to file their capital gains tax returns at the Office of the Revenue District Officer where the property is located. This procedure is followed for all types of taxpayers; corporation or otherwise, whether taxable or exempt from the capital gains tax. It has been observed lately that many sellers of real properties, who are exempt from the capital gains tax because they are either real estate dealers or the property owners are in corporate forms, do not include in their income tax returns the income from their sales of real properties. The Bureau of Internal Revenue is, therefore, having some difficulty monitoring these transactions which are exempt from the capital gains tax but are subject to the regular income tax and should be declared as part of their gross income. In order to prevent further leakage of revenues from these transactions, Revenue Regulations No. 12-89 dated December 21, 1989, subjecting sales of real property other than capital assets to the creditable withholding tax was issued. This Circular is hereby issued to clarify and amplify some pertinent provisions of the aforesaid regulations. cdt 1. Only sales of real property classified as ordinary assets consummated on or after January 1, 1990, are subject to the creditable withholding tax. For purposes of this Circular, the date of notarization appearing on the Deed of Sale shall be considered prima facie the date of consummation of the contract of sale. However, sales evidenced by documents notarized in or before November, 1989 shall be deemed consummated on the date the same is filled with or submitted to the proper revenue office. If the seller is a corporation, the rate of withholding tax is 10% of the gross selling price or the total amount of money or its equivalent which the purchaser pays to the vendor. However, if the seller is an individual, estate, trust, trust fund or pension fund, the rate of withholding tax to be applied is 15%. 2. Considering that sales of real property classified as ordinary assets are merely added as one of the income payments subject to the expanded withholding tax provisions in Revenue Regulations No. 6-85, all other provisions of said regulations shall also apply to sales of real properties considered as ordinary assets. For example, the obligation of the payor to deduct and withhold arises at the time the consideration is paid or payable. The required withholding tax return shall be filed and the tax shall be remitted within ten (10) days after the end of each month. 3. Where the consideration or part thereof is payable on installments, no withholding of tax is required to be made on the installment payments where the buyer is an individual not engaged in any trade or business. In such a case, the withholding of tax shall be made on the last installment(s) paid to the seller and the basis of the withholding tax shall be the consideration appearing on the Deed of Sale or the zonal value prescribed at the time the Contract To Sale, duly notarized, was executed by the contracting parties. On the other hand, the applicable rate of withholding tax shall be deducted and withheld by the buyer of the real property, whether in corporate form or otherwise, who is constituted as a withholding agent, if he is engaged in any trade or business. He is presumed to have previously registered as such with the appropriate district office. cd i 4. No Certificate Authorizing Registration (CAR) shall be issued by the appropriate internal revenue official, unless the Confirmation Receipt or official receipt evidencing payment of the creditable withholding tax on the transaction is presented to him. For this purpose, it is required that the necessary information regarding such payment of withholding tax should be reflected on the face of the certificate to be issued by the internal revenue officer concerned. All internal revenue officials and others concerned are hereby enjoined to give this Revenue Memorandum Circular the widest publicity possible. (SGD.) JOSE U. ONG Commissioner of Internal Revenue