The Republic Act 9646, also known as The Real Estate Service Act (RESA), states in the Sec. 2 Declaration of Policy that Real Estate Service Practitioners (RESPs) are “a corps of real estate service practitioners whose standards of practice and service shall be globally competitive and will promote the growth of the real estate industry.”
Likewise, the proposed draft of the Code of Ethics and Responsibilities for RESPs states in the Sec. 4 of Article III, Professional Rules of Conduct and Responsibilities that “The Practitioner shall willingly share, contribute, write and publish articles for the benefit of fellow practitioners and for the good of the real estate industry by imparting knowledge, technical training, experiences, studies or research without prejudice to classified or confidential information from client.”
Therefore, in response to this call, the Real Estate Research Institute Foundation, Inc. (REsearch) has started a series of lectures to enhance the knowledge, skills and competence of RESPs.
The first seminar on “Real Property Transaction” by Atty. Victorino Mamalateo. It was held last May 25, 2013.
Atty. Mamalateo, a Trustee of REsearch Foundation and a Principal of VC Mamalateo and Associates, is a brilliant, well-known author and lecturer. He has a laws degree and a certificate in International Tax from Harvard University. He finished his studies at Manuel Luis Quezon University, University of the East, and University of Manila. He is also a Professor of Law at the University of the Philippines.
Atty. Mamalateo is an author of the Philippine Income Tax Reviewer on Taxation and a co-author on The Value Added Tax in the Philippines.
As an expert in taxation, he is a currently a Senior Tax Consultant, and former Assistant Commissioner of the Bureau of Internal Revenue.
He has extensive experience in handling tax assessment and refund cases before the Court of Tax Appeals, and has published articles and several books on tax matters. He also has a solid background as a lecturer on tax issues among BIR personnel and in various colleges and universities.
The scope of the seminar of Atty. Mamalateo covered taxes related to real estate such as income tax, value added tax, documentary stamp tax, and transfer taxes and revenue regulations, revenue memorandum circular, and other administrative issuances.
Income Tax is a tax on all yearly profits arising from property, professions, trades or offices, or as a tax on a person’s income, emoluments, profits, and the like. It is a direct tax on accrual or presumed income, gain or profit and it is not imposed on return of capital.
Withholding Income Tax is different from the Income Tax. It is a mode of collecting income tax in advance on income of the recipient of income.
We have two types of Income Tax Systems: Global Tax System and Schedular Tax System. Global Tax System is a compensation of business or professionals’ income not subject to Final Withholding Tax (FWT). For example, sale of real property classified as ordinary assets by a person engaged in real estate business.
Its capital gains are not subject to FWT. For example, sale of real property classified as capital assets located outside the Philippines by a resident or domestic corporation.
Schedular Tax System is the Tax System that has compensation income and has capital gains subject to FWT. It includes capital gains tax on sale of real property located in the Philippines by a citizen or alien or by a domestic corporation.
In the case of Real Estate transaction, it is important to know the two natures of assets- Ordinary Asset (taxed under global system) and Capital Asset (taxed under schedular or global tax system).
Ordinary Assets are inventory if on hand at end of taxable year. It is a real property asset used in trade or business that is subject to depreciation. It is also a stock-in-trade primarily held for sale or for lease in the course of trade of business.
Capital Assets are all other assets, whether or not used in trade or business, other than the above-stated ordinary assets.
It is interesting to note that in exchange of property or what in popularly called as “swap”, the Global Tax System applies.
If the seller is habitually engaged in real estate business, the asset sold is an ordinary asset subject to income tax, and the buyer is a resident of the Philippines and is engaged in trade or business in the Philippines, basis is GSP or FMV, whichever is higher.
If the seller is not habitually engaged in real estate business, the applicable EWT rate shall be 6% of GSP or FMV as determined by the CIR, whichever is higher.
The objective of joint ventures into local contractors in achieving competitiveness with foreign contractors by pooling resources, joint venture partners are the ones liable to income tax and each partner shall report its share in the JV profit during the year.
For Joint Venture not taxable as corporation, the JV consortium should be formed for the purpose of undertaking construction projects, involves joining or pooling of resources by licensed local contractors that are engaged in construction business, and the JV itself should be licensed as such by PCAB. If any of these requirements are absent, the JV or consortium is a taxable corporation.
Tax-exempt JV shall not include those who are mere suppliers of good, services or capital to a construction project.
JV involving foreign contractors may be treated as Non-taxable Corporation only if the member foreign contractor is covered by a special license as contractor by PCAB and the construction project is certified by the appropriate Tendering Agency that the project is a foreign-financed/ internationally-funded project and that the international bidding is allowed under the Bilateral Agreement entered into by and between the institution, pursuant to the rules and regulations of RA 4566.
The extensive lecture also covered taxation on the Build-to-own scheme or co-development. We covered taxation of clubs, condominium corporations, associations, and the like.
During the question and answer session, the contentious issue of taxes on monthly dues on condominiums was discussed. It was clear to all that the ruling of the BIR on this issue is subject to protest and needs to be challenged as illegal.
In a commentary of Dr. Kirby Salvador, a participant in the seminar said in her email, “Atty. Mamalateo is a detailed and accommodating speaker. Today, he tackled on topics like Income Tax, Withholding Tax, Value Added Tax, Formulas, Nature of Asset, Exchange of Property, etc. Let me share with you something very interesting. Have you heard of Barangay Micro Business? Parents, please take note of that. Today, we came across this term was due to my concern regarding my 18 year old daughter’s request of having her own business. Since she is still a minor, she can apply for Barangay Micro Business which will EXEMPT her from paying income tax for as long as the income is below P3 million. I therefore suggest that we support our children and train them to be responsible and independent.”
Board Member of PRBRES and Director of REsearch Foundation, Ramon CF Cuervo III, strongly suggest that all RESPs should undergo their continuous evaluation and to take seriously with diligence their studies so as to be a globally competitive and at par with international standards.