VAT THRESHOLD TRIGGER

Broker: Juan, I have a client who’s a lessor but not VAT-registered. If he sells the property, shouldn’t the sale be exempt from VAT?

Juan: What kind of property?

Broker: It’s a building with rooms being rented out.

Juan: Then the sale can still be subject to VAT.

See, VAT isn’t determined solely by your current registration status as “non-VAT registered.”

It’s based on whether your transactions cause you to breach the VAT threshold.

Since the property is used in business, it is treated as part of the seller’s business assets. That means the selling price indicated in the DOAS is not just a capital transaction—it forms part of gross sales/receipts, not just the rental income.

In practice, the BIR will even require a Sales Invoice for the sale—not just an Acknowledgment Receipt—because it is treated as a business transaction.

So if that sale pushes total annual receipts beyond the Php 3 million threshold, the seller is effectively deemed VAT-registered for that transaction, even if he wasn’t previously registered.

Broker: But what if the property being sold wasn’t used for business? Like a vacant lot—would that still be subject to VAT?

Juan: There’s a chance it won’t be.

I’ve handled a transaction involving a vacant lot that wasn’t subjected to VAT, even though the seller was registered as engaged in the real estate business.

But if I were in your shoes, I would err on the side of caution and assume it will be subject to VAT.

Under RR 7-2003, once a person is registered as engaged in the real estate business, the BIR tends to look at all real properties as part of the business, and the distinction between personal assets and business assets becomes blurred in practice.

In other words, the safer working assumption is: the property will likely be treated as an ordinary asset, and therefore subject to VAT.

Broker: Shucks. The seller said that if there’s VAT, the buyer should shoulder it.

Juan: Yup—and of course, no buyer would want to shoulder the VAT. I’ve lost deals for the same reason.

By the way, there’s income tax pa. 😅