How the TRAIN Law affects the Real Estate Industry

February 10, 2018

The Tax Reform for Acceleration and Inclusion (TRAIN) or Republic Act 10963 is now in full swing. With all industries lining up with its implementation, the real estate industry is also following through. Here are some of the things that were affected by the TRAIN Law.

Documentary Stamp Tax

The documentary stamp tax (DST) has been doubled from 1.5% to 3%.

Estate Tax

Estate tax is now set at a flat rate of 6% on the amount in excess of P5 million.

Below are exempted from estate tax:

  1. Estates with net value of P5 million and below
  2. Family homes that are valued at P10 million or less

Donors Tax

Same with estate tax, donors tax has now been set to a flat rate of 6% regardless of relationship between the donor and donee. Previously, it was 2% to 15% for related donor and donee and 30% for strangers.

Gifts that are below P250,000 are exempted from this tax. The new rate of 6% are applied for donations of P250,000 and higher.

Value Added Tax

Value Added Tax (VAT) is the tax levied on the sale, barter, exchange or lease of goods, properties or services. This is currently at 12% rate. This is a form of tax which can be passed on to the buyer or consumer.

VAT for the sale of goods and services was levied when one reaches P1,919,500.00 and all VAT registered individuals and businesses. Importation of goods is also vat-able. With the TRAIN Law in full swing, the new threshold is P3,000,000.00. So how does it affect Real Estate in particular.

VAT for the sale and lease of Properties

Previously, the sale of lot only was at 1,999,500 while house and lots are at 3,199,200. No news as to whether this has been updated.

Condominium association dues are exempted from paying VAT. Rentals and leases below P15,000 per month are also VAT exempted.

Socialized housing, or houses priced at P450,000 and below, low-cost housing or any property for sale, with prices of P3 million and below are VAT exempted from 2018 to 2020 only.

VAT for Individuals and companies

P3 Million or below annual gross sales or income

This is applicable for Self-employed and professionals with annual gross sales or income receipts of P3 Million and below have the option to choose with these two tax rates:

  • Eight percent (8%) of gross sales or receipts and other income, in excess of P250,000; No need to use the income tax table and pay the 3% percentage tax;
  • Graduated income tax rates of 0% to 35% based on the net taxable income, plus 3% percentage tax

BIR Income Tax Table (2018-2022)

BIR Income Tax Table (2023 onwards)

8% Withholding Tax for Self-employed and Professionals

The two-tier rate of 10%; for income that are less than P720,000 every year or 15%; for income more than P720,000 per year was replaced with this 8% Withholding Tax until a professional or self employed individual reaches the VAT threshold of P3,000,000.

This is applied regardless of the amount as reiterated in BIR’s Revenue Memorandum Circular No. 1-2018 issued on January 4, 2018 which states that:

“Change in the Creditable Withholding Tax Rate on lncome Payments to Self-employed lndividuals or Professionals

The following lncome Payments to Self-employed lndividuals or Professionals shall be subject to Eight Percent (8%):

1. Professional fees, talent fees, commissions, etc. for services rendered by individuals;

2. lncome distribution to beneficiaries of Estates and Trusts;

3. lncome Payment to certain brokers and agents;

4. lncome Payments to partners of general professional partnership;

5. Professional fees paid to medical practitioners; and

6. Commission of independent and/or exclusive sales representatives, and marketing agents of companies.”

Annual gross sales or income of above P3 Million

A simpler tax rate is to be followed for those earning above the VAT threshold of P3,000,000. If the gross income or sales receipts total is more than P3 million, the Income tax table is to be followed on the net taxable income, plus VAT.

 

Comments

  • Dennis chua sevilla

    December 22, 2018 at 12:45 pm

    Hi i have question what is the 10% brokers tax? Is this fir yhe train law?
    Am i right the developer already less the EWT right, and what is the brokers tax of 10%?

    Reply
    • buyingph

      June 16, 2019 at 2:13 pm

      This is the withholding tax. And yes, this is already deducted from your commission by the developer. The developer then remits this tax to BIR wuth your tin#. So the developer should hand you the bir form 2307

      Reply
    • buyingph

      February 26, 2020 at 8:29 am

      The developer usually deducts the withholding tax prior to commission release. The broker then issues a receipt and gets the Form 2307 from the developer to be submitted to BIR upon your filing.

      Reply
      • buyingph

        February 26, 2020 at 8:30 am

        the Broker usually deducts the business tax depending on their registration. If Percentage, 3%. If VAT, 12%.

        Reply
  • Jay-r

    July 9, 2019 at 11:54 pm

    Good day! I have purchased a house and lot through land developer last 2017 at 3.1 and still paying for the equity until this year. Will the TRAIN Law take effect on this transaction and the developer can revised the amount to be charged to the buyer added to the contract price? Appreciate your reply.

    Reply
    • buyingph

      July 11, 2019 at 12:34 am

      Hi! This should not be the case. Since technically, the sale was already completed in 2017. This is the advantage of buying early, even during the preselling stage. The bank financing rates have already increased. So this one would certainly affect your future bank loan.

      Reply
  • SEO Referral Program

    January 29, 2020 at 12:52 am

    Awesome post! Keep up the great work! 🙂

    Reply
  • Ritz

    January 29, 2020 at 10:39 am

    Hi! We have avail a subdivision house and lot through a developer last Oct 2017 at TCP 2.8M. We have paid the equity in full last 2018. After that, no news or they did not ask anything from us yet until this year, Jan 2020, they send us notice that the TCP will be adjusted due to Train Law. The new TCP is now about 3.2M including VAT. Is this correct or legal? Thanks.

    Reply
    • buyingph

      May 22, 2020 at 8:26 am

      This should not be the case as you have bought it at 2.8M. Did you sign a Contract to Sell when you first paid your downpayment? Or have you checked if they had a License to Sell when you first bought?

      Reply
  • Kaye

    February 11, 2020 at 5:18 pm

    Hi! Just a quick question. If I purchase a pre-selling condo unit for 2.6m in 2020, do I still need to pay for the 12% VAT once it is ready to turnover at 2024?

    Reply
    • buyingph

      February 26, 2020 at 8:31 am

      The one on the Contract To Sell is to be followed. CTS is usually executed upon purchase. This should include the sample computation.

      Reply
  • AffiliateLabz

    February 16, 2020 at 12:48 am

    Great content! Super high-quality! Keep it up! 🙂

    Reply
  • Mr R Naylor

    March 30, 2020 at 11:22 pm

    Hello,

    If I am a developer building 25 condos in a condominium. If I sell each condo for less than P3,199,200 is there no VAT payable.by me or the seller?

    So the only taxes will be 6% CGT on the Sales Price? And the DST (1.5% OR 3%).

    Your writing would be vastly helped by real working examples for:

    1. Developer building and selling condos under VAT threshold price or the same selling condos for over P5M.

    Reply
    • buyingph

      May 22, 2020 at 8:29 am

      If you are a corporation and is VAT-registered, then this becomes your automatic business taxation rate. If your selling price is less than 3,199,200, then you are unable to pass the VAT to the buyer. If your price is more than the threshold, then you can charge VAT to the buyer and you can have that included in your VAT-payable to BIR.

      Reply
  • salesagent

    May 19, 2020 at 5:52 pm

    hi, based on your explanation. the developer already deducted the withholding tax on the commission due.

    Does the realty, I am currently in, has the right to withhold my commission due based on this withholding tax as an agent? since as of now, my NET commission(actual commission released of developers) is currently deducted by the realty of 12% VAT plus 5% EWT. it is to my understanding that I have been deducted TWICE on the same type of income due to the fact that the developer had already withhold an amount intended as withholding tax AND the realty as well made such deductions based also on the same withholding tax. i hope you can reply to this 😊 thank you in advance.

    Reply
    • buyingph

      May 22, 2020 at 9:01 am

      Withholding Tax for commissions is 10% for 720k and below, 15% for more than that threshold. Brokers can have 2 types of BIR registration depending on their annual income, VAT-registered (12% VAT business tax) and 3% for Percentage tax.

      For VAT-registered brokers:
      TCP of project: 3.5M
      net TCP less VAT (commissionable amount): 3,125,000
      Agent’s commission (3%): 93,750
      Withholding tax: 9,375
      VAT (12%): 11,250
      Net commission: 73,125

      For Percentage-tax registered brokers:
      TCP of project: 3.5M
      net TCP less VAT (commissionable amount): 3,125,000
      Agent’s commission (3%): 93,750
      Withholding tax: 9,375
      Percentage Tax (3%): 2,812.50
      Net commission: 81,562.50
      They now have a sworn declaration every year so Brokers have an option to file or not. If they certify that they are below the threshold for vatable income, they can choose to get deducted 8% (withholding and business tax). But this is filed every year so not all brokers can comply to this. If you are part of a big brokerage, chances are, they are VAT-registered. Advantage of VAT-registered is that they can file input and output taxes. Usually, developers only deduct the Withholding tax to your commission and hand over a BIR 2307 in exchange for a receipt to which you can file as income to BIR, if you are registered. If you are VAT-registered, you can claim the amount deducted to you as an expense, to lessen the amount of tax you need to pay.

      Reply

Leave a Reply