VAT Ruling No. 092-89

February 23, 1989 VAT RULING NO. 092-89 Active Realty & Development Corp. 15th Flr., A.C.T. Tower Sen. Gil J. Puyat Ave., Salcedo Village Makati, Metro Manila Attention: Mr . M . G . Mogarte Comptroller S i r s : This refers to your letter dated July 11, 1988, seeking clarification as to the applicability of the value-added tax (VAT) to Active Realty & Development Corp. (ARDC), a real estate developer, and Active Real Estate Marketing Corp. (ARMCORP), its sister company and marketing arm, responsible for the sale of the developed properties. cdtech In reply, please be informed of the following: a. A real estate developer is exempt from the VAT if he undertakes the development of his own real estate property. However, if the real estate developer engages in contracts to develop properties other than his own, the services rendered by him as a contractor shall be subject to VAT, pursuant to Sec. 102 of the Tax Code, as amended by E.O. No. 273. b. Commissions paid to ARMCORP are subject to the 10% VAT. However, ARDC cannot withhold the VAT from their payments to ARMCORP, as stated in the provisions of Revenue Memorandum Circular (RMC) No. 18-88 (hereto attached) c. Commissions earned by individual agents on the sale of properties are not subject to VAT if the agents are also receiving fixed monthly salaries from their employer which are to be subject to withholding tax on wages. If, however, the same agents are not receiving fixed monthly salaries but are merely on a commission basis, such commissions are subject to the VAT and the amount to be recorded as paid to them for services rendered should not include the 10% VAT. The same commissions are likewise, subject to the 5% withholding tax under Revenue Regulation No. 6-85, for income tax purposes. d. On the other hand, real estate brokers are subject to the 10% VAT on commissions paid by ARDC pursuant to Sec. 102 (a) of the Tax Code, as amended by E.O. No. 273. This replaced the 4% contractor's tax imposed on ARMCORP. However, the 1% expanded withholding tax for income tax purposes is still to be withheld by ARDC on the following basis: Total Amount of Commission P xxx Less: 10% VAT xxx Net Amount P xxx x 1% xx Amount of tax to be withheld P xxx ====== Please be guided accordingly. cdta Very truly yours, VICTOR A. DEOFERIO, JR. Deputy Commissioner