ASK JPRE - PLANNED PROPERTY ACQUISITION

Last week, a random person emailed us regarding a planned property acquisition.

Person: “I read one of your FB posts regarding the Certificate of Non-Tenancy requirement. I’m buying a condo with parking, but the building admin said a Certificate of Non-Tenancy cannot be issued because the seller rented out the unit.

My agreement with the seller is that I shoulder all taxes and fees from the DOAS until the Tax Declaration is transferred to me.

Is there anything that can still be done to avoid VAT and CWT? Or am I just unfortunate that I may have to pay an additional 12% VAT on top of the assumed 6% CGT?”

JPRE: Hi XXX,

Personally, I would recommend not pursuing the transaction.

Yes, there’s a chance the BIR may ultimately NOT subject the sale to VAT and CWT. But when tax exposure becomes uncertain, it’s usually safer to err on the side of caution.

In most transactions, BUYERS protect themselves by clearly stating in the DOAS that VAT, CWT, CGT (whichever applies) shall be for the seller’s account.

But in your case, the seller wants the buyer to shoulder all taxes and fees. That changes the risk entirely.

And frankly, the likely reason the SELLER structured the deal this way is because they already know there’s a possibility the transaction could be treated as VAT-able by the BIR.

If that happens:

+ The buyer will end up paying the 12% VAT.

+ The transaction may also shift into a CWT (6%) / income tax (~35% less CWT) framework.

The dangerous part is that the BIR may not immediately assess the seller for any income tax deficiency. Sometimes these issues only appear years later during audits, after penalties and interest have already accumulated.

And because your agreement says you shoulder all taxes and fees, the seller may later attempt to pass those liabilities on to you.

That’s the nightmare scenario.

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For other readers, if there’s one takeaway here:

STAY AWAY from “net-priced” properties whenever possible.