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TAX EXEMPTION – REAL ESTATE PHILIPPINES

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What is a Principal Residence?

Section 2(2) of Revenue Regulations (RR) No. 13-99, as amended by RR No. 14-00, defines principal residence as:

the dwelling house, including the land on which it is situated, where the husband and wife or an unmarried individual, whether or not qualified as head of family, and members of his family reside. Actual occupancy of such principal residence shall not be considered interrupted or abandoned by reason of the individual’s temporary absence therefrom due to travel or studies or work abroad or such other similar circumstances. Such principal residence must be characterized by permanency in that it must be the dwelling house in which, whenever absent, the said individual intends to return.

LAW:

The proceeds of the sale of the principal residence have been fully utilized in acquiring or constructing new principal residence within eighteen (18) calendar months from the date of sale or disposition;

The historical cost or adjusted basis of the real property sold or disposed will be carried over to the new principal residence built or acquired;

The Commissioner has been duly notified, through a prescribed return, within thirty (30) days from the date of sale or disposition of the person’s intention to avail of the tax exemption;

Exemption was availed only once every ten (10) years;

If there is no full utilization of the proceeds of sale or disposition, the portion of the gain presumed to have been realized from the sale or disposition will be subject to Capital Gains Tax.

In case of sale/transfer of principal residence, the Buyer/Transferee shall withhold from the seller and shall deduct from the agreed selling price/consideration the 6% capital gains tax which shall be deposited in cash or manager’s check in interest-bearing account with an Authorized Agent Bank (AAB) under an Escrow Agreement between the concerned Revenue District Officer, the Seller and the Transferee, and the AAB to the effect that the amount so deposited, including its interest yield, shall only be released to such Transferor upon certification by the said RDO that the proceeds of the sale/disposition thereof has, in fact, been utilized in the acquisition or construction of the Seller/Transferor’s new principal residence within eighteen (18) calendar months from date of the said sale or disposition. The date of sale or disposition of a property refers to the date of notarization of the document evidencing the transfer of said property. In general, the term Escrow means a scroll, writing or deed, delivered by the grantor, promisor or obligor into the hands of a third person, to be held by the latter until the happening of a contingency or performance of a condition, and then by him delivered to the grantee, promise or obligee.

Tax Exemptions:

1. RPT exemption on government real properties

Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration, or otherwise, to a taxable person

Under this, a government owned property used in furtherance of its governmental functions. However, if the use of such government owned property is granted to a taxable person, the exemption does not apply and the property shall be subject to real property tax in the Philippines.

2. RPT exemptions on religious, charitable and educational institution’s

Charitatable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious cemeteries and all lands, buildings and improvements actually, directly, and exclusively used for religious, charitable, or educational purposes.

In here, the exemption is strictly applicable to properties actually, directly, and exclusively used for religious operations, or charitable operations, or educational purposes. Ownership in itself does not count, but rather, the fact of actual, direct, and exclusive use of such owned property.

3. RPT exemptions on Local water utilities machinery and equipments

All machineries and equipment that are actually, directly, and exclusively used by local water districts, and government owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power.

4. RPT Exemptions of cooperatives

All real property owned by duly registered cooperatives as provided under Republic Act No. 6938. Under the concept of cooperatives, involvement of the ground level members of society is being encouraged for forge an alliance towards mutual benefits. The Cooperative Code of the Philippines provides a number of tax exemptions on such cooperatives and included among which is that of real property taxes in the philippines.

5. RPT exemptions for pollution and environmental protection

Machinery and equipment used for for pollution control and environmental protection.

Under Section 206 of the Local Government Code of the Philippines, a taxpayer who claims exemption from real property taxation in the Philippines shall file with the local government sufficient documentary evidence in support and as proof of such exemption within thirty (30) days from date of declaration of such property.