Knowing the basics of real property tax law in the Philippines is essential especially if you are in the business of condominium leasing. If there is one thing more difficult than paying taxes, it is understanding taxes. There's just too many of them. There are interest rates, penalties, surcharges, deadlines, and everything else that probably puts you to sleep in your taxation class.
Homeowners and landlords know this all too well. You may be blessed to own a property but let's just say the state wants to join in the fun. Like in any other jurisdiction, failure to report and pay taxes may have serious, even expensive consequences (we will discuss this further later).
Whether you are a unit owner or a condo unit lessor, there are crucial matters you should know about. Here is a simplified guide for you.
What is Real Property Tax (RPT)?
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A real property tax is a direct tax imposed on the ownership of lands and buildings or other improvements thereon, not otherwise exempted. It is levied by the local government and collected whether the property is used or not.
A condo unit is regarded as a real property subject to RPT.
Who pays the RPT?
The RPT is a tax levied on the ownership of real property. Hence, it is the obligation of the owner or the persons whose names appear on the title or certificate of ownership.
The personal liability for RPT is generally on whoever is the property owner. It can be imposed on those who have beneficial use of the property (condo renter) only when the owner of the is exempt from payment of RPT. (HERARC Realty Corp. vs. Provincial Treasurer of Batangas City, 5 September 2018. Most condo lessors/owners factor in the RPT with the rent.
Who foots the bill?
When settling the rental agreement in the Philippines, owners and administrators are in-charge of paying the real property tax. Even if the owner decides to put up his condo for rent, he is still obliged to pay the RPT annually. In short, the renter is free of this obligation. However, the landlord may factor this in with the rent along with other dues so the renter is actually helping him pay the taxes. Of course, it is not usually discussed.
When does the RPT accrue?
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The RPT accrues on January 1st each year. From this date, the tax shall constitute a right to keep possession of property, and shall only be extinguished once the tax is paid.
The provincial, city or municipal treasurer shall, on or before January 31st each year, post the notice of the dates when the RPT may be paid without interest at conspicuous places at the city or municipal hall. You may also read the notice in a newspaper of general circulation in your locality once a week for two (2) consecutive weeks.
How much is the RPT?
To know how much you should pay in RPT, here are some points:
The RPT may be computed with this formula:
RPT = RPT rate x assessed value
The local government unit (LGU) shall fix a uniform rate of basic RPT applicable to be their respective localities:
In cities or municipalities in Metro Manila, at a rate not exceeding two percent (2%) of the assessed value of the real property.
In provinces, at a rate not exceeding one percent (1%) of the assessed value of the real property.
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For residential properties including condos for rent in the Philippines, the maximum percentage is 20% while the ceiling for commercial and industrial properties is at 50%.
In addition to the real property tax, the LGU may levy and collect an annual tax rate of 1% on the assessed value of the property. This collection is for the purposes of the Special Education Fund. A valorem tax of a maximum of 5% may also be imposed on idle lands.
The assessed value or the taxable value of the property is computed as follows:
Market value x assessment level
Take note, it is the assessor or the deputy who issues the assessment or appraisal of a real property. The LGU may levy and collect an annual tax of one percent (1%) on the assessed value of a real estate in addition to the basic RPT. The proceeds shall go to the Special Education Fund (SEF).
What is a tax declaration of real property?
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A tax declaration is a sworn statement declaring the true value of the property which shall be the current and fair market value of the property, as determined by the declarant.
The declaration contains a detailed description of the property, which will help the assessor to identify it for assessment purposes. You need to file a tax declaration with the assessor once every three (3) years during the period from January 1st to June 30th. A certified true copy of a tax declaration is a requirement upon the turnover of the condo unit.
Note: There are many instances when people use tax declarations to support their claim of title over real properties, especially lands. However, the Supreme Court has been stressing in a long line of cases that these documents are not conclusive proof of ownership of a property but merely proof of ownership or possession of the property for which taxes have been paid.
When and where?
The RPT can be settled at the city or municipal treasurer’s office. Owners and administrators can pay the RPT in full or installment basis. If you choose to pay it all at once, the payment is due on or before January 31. If you decide to pay in tranches, you have to pay on or before the last day of each quarter and remember four important dates: On or before March 31, June 30, September 30, and December 31.
Discount and penalties
The rule in paying real property tax is simple: if you pay early, you get a discount but if you pay late, there will be penalties. Let’s start with the good stuff. If the basic RPT and additional taxes are paid in advance, the LGU may grant a discount not exceeding 20% of the annual tax due. You have to check with your LGUs because discounts usually differ per city or municipality. In Paranaque for example, if you pay in full before December 15, you get the maximum 20% discount. If you settle after December 15 but before December 31, you still get a 16% discount from the annual tax due.
Failure to pay the real property tax on time will subject owners to late payment interest rate of 2% to 72% on the unpaid amount depending on the months of delay. Maximum is up to 36 months.
Who shall be responsible for the collection of property taxes?
Under Section 247 of the Local Government Code, the following are tasked to collect the RPT:
The provincial, city or municipal treasurer is primarily responsible for the collection of the RPT with interest thereon and other expenses, as well as for the enforcement of the remedies.
The barangay treasurer may be deputized by the city or municipal treasurer to collect taxes on properties located in the barangay provided that the barangay treasurer is properly bonded.
Note: The assessor shall prepare and submit to the city or municipal treasurer on or before December 31st each year an assessment roll which contains a list of all persons whose real estate properties have been assessed and reassessed together with the values of such properties.
Additional Note: No protest may be entertained unless you first pay the tax due. The tax receipts shall indicate “paid under protest.” The protest should be filed in writing to the provincial or city/municipal treasurer within thirty (30) days from payment of the tax.
What is the prescriptive period for the assessment and collection of RPT?
The government may assess and collect property taxes within certain periods as follows:
|5 years from the due date (January 1 every year)||5 years from receipt of the assessment|
|10 years from the discovery of fraud or intent to evade payment||5 years from receipt of the assessment|
If you are not satisfied with the assessment by the assessor, you may appeal to the Board of Assessment Appeals of the province or city within sixty (60) days from the date you received the written notice of assessment.
Take note that an appeal on assessments will NOT suspend the collection of your taxes.
How can you pay your RPT?
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You may pay your RPT and the additional tax for SEF in full or in four equal installments:
- The first installment to be due or payable on or before March 31st;
- The second installment, on or before June 30th;
- The third installment, on or before September 30th; and
- The last installment, on or before December 31st.
Your payments shall first be applied to prior unpaid taxes, interests, and penalties if any. Only after these unpaid amounts are settled may your tax payments be credited for the current period.
Note: The City Government of Mandaluyong is implementing an online payment scheme for business and real property taxes, effective July 1, 2020. If your condo is located in Mandaluyong, you may visit https://online.mandaluyong.gov.ph to create an account and pay your taxes. This effort seeks to simplify the tax payments and ensure social distancing during the COVID-19 pandemic.
Can you pay your RPT in advance?
Definitely. You will enjoy a discount not exceeding twenty percent (20%) of the annual tax due if you settle your RPT and the additional tax for SEF in advance.
What happens if you fail to pay for RPT on time?
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Failure to pay the basic RPT and any other tax upon the expiration of the periods for payment, or when due, shall result in an interest at the rate of two percent (2%) per month on the unpaid amount until the tax due is fully paid. The total interest on the unpaid tax or portion of it shall not exceed 36 months.
Section 258 of the Local Government Code states that after the expiration of time required to pay the basic RPT and any other tax,
--- the real property subject to such tax may be levied upon through the issuance of a warrant on or before;
--- or simultaneously with, the institution of the civil action in court for the collection of the unpaid taxes.
In case your condo unit becomes the subject of a legal suit, the DMCI Homeowners Manual also provides that:
The unit owner shall advise in writing the Condominium Corporation of every lien on his unit or every suit on proceedings that may affect the title to his unit within five (5) days after learning of such lien/or suit.
Who pays the RPT in a rent-to-own scheme?
In a rent to own or lease to buy agreement, an individual is given the option to purchase a leased property within a specified period of time. Monthly rent, purchase date, and sales price are specified in the contract. Lessees pay a higher rent because part of it goes to the down payment of the property.
Typically, the property developer remains the owner of the property before it is bought by the lessee. Hence, the RPT is the liability of the developer. However, there are developers that pass the liability to the lessee in a rent-to-own scheme even though the condominium certificate of title is not yet transferred to the new owner.
Schedule of payment
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The owner of the property settles the RPT at the city or municipal treasurer’s office on either full or installment basis. If you wish to pay it in full, pay on or before January 31. If you want to pay in tranches, you have to settle your RPT on or before the last day of each quarter and remember four important dates: on or before March 31, June 30, September 30, and December 31.
What are the tax updates that every lessor should know about?
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For lessors, take note of Republic Act No. 10963, otherwise known as The Tax Reform for Acceleration and Inclusion (TRAIN) Act and the Implementing Rules and Regulations on the imposition of Value-Added Tax (VAT) on rentals. Here is a summary:
The lease of a residential unit with a monthly rental not exceeding P15,000 shall be exempted from VAT. If you are renting out several residential units where some are for a monthly rent of P15,000 and others for more than P15,000, your tax liability is as follows:
The gross receipts from rentals not exceeding P15,000 per month per unit shall be exempt from VAT regardless of the total annual gross receipts. It is also exempt from the 3% percentage tax.
The gross receipts from rentals exceeding P15,000 per month per unit shall be subject to VAT if the total annual gross receipts from all units only exceed P3,000,000. Otherwise, the gross receipts will be subject to the 3% tax imposed under Section 116 of the National Internal Revenue Code of 1997, as amended.
Taxes are considered the lifeblood of the nation and are greatly needed to support the government and its services to the people. Paying your taxes for the right amount and at the right time is your obligation. Keep in mind the following:
- Real property taxes are the primary liability of the owner of the property at the time the taxes accrued.
- The RPT accrues on January 1st each year.
- You need to file a tax declaration with the assessor once every three (3) years during the period from January 1st to June 30th.
- Failure to pay the basic RPT and any other tax on time shall result in a 2% interest per month on the unpaid amount until the tax due is fully paid.
- The government may levy on your condo unit or institute a judicial action to enforce the collection of your unpaid realty taxes.
- Under the TRAIN law, lease of residential units with a monthly rental not exceeding P15,000 shall be exempted from VAT.
You do not need to be a lawyer or tax expert to understand your obligations as a lessor-taxpayer. Read the laws, issuances, and resolutions issued by the government. It is quite easy to get information on the web. If you need assistance in filing your RPT and any other matters about your condo, you may reach out to the DMCI Homes Leasing office.