National Taxation (Income & Business Tax) OCTOBER 1, 2014

Real Estate Service
Practitioners
Tax compliance, Avoidance & New Ruling
RESA of the Philippines RA 9646

Sec. 2 Declaration of Policy The State recognizes the vital role of real estate service
practitioners in the social, political, economic development and progress of the country by :
promoting the real estate market
stimulating economic activity
enhancing government income from real property based transaction

develop and nurture through proper and effective regulation and supervision a corps of
technically competent, responsible & respected professional
real estate practitioners whose standard of practice
and service is globally competitive
PENALTIES :
1. 25% Surcharge failure to file; filing out of district; failure to pay the full or part of the
amount.
2. 20% interest per annum on any unpaid amount of tax from the date prescribed for the
payment until it is fully paid.
3. 50% surcharge of the tax deficiency in case of willful neglect to file the return; in case of false
or fraudulent return is made.
4. Compromise penalty
Topic outline
INCOME TAX
(Graduated rates)
40% Optional Standard Deduction
Itemized Deduction
BUSINESS TAX
PERCENTAGE TAX
VALUE-ADDED TAX
(3%)
(12%)
New Ruling:
Witholding Tax for R.E.S.P.
10% or 15%
MR. ARNEL O. CRUZADO

Certified Public Accountant
Licensed Real Estate Broker
REVENUE MEMORANDUM ORDER NO. 4-2013

SUBJECT : Audit of Tax Returns by Revenue District Offices
I.
OBJECTIVES
1. To prescribe uniform criteria in the continuing audit of tax returns by the Revenue District
Offices (RDOs); and
2. To enhance taxpayers voluntary compliance by encouraging payment of correct amount of
internal revenue taxes through the exercise of the enforcement function of the Bureau
II.
POLICIES AND GUIDELINES

The following policies and guidelines shall be observed in the continuing audit of tax returns by
the Revenue District Offices:
1. All taxpayers are considered as possible candidates for audit.
2. Priority shall be given to the following taxpayers:
a. Professionals and sole proprietorships whose:
- income tax due is less than two hundred thousand pesos (P200,000.00) per annum;
- gross revenue is less than forty percent (40%) compared to the previous years reported gross
revenue;
- tax payment for each tax type is less than thirty-five percent (35%) as compared to the
previous years tax payment;
b. Those engaged in but not limited to these industries :
- Importers / manufactures / wholesalers / retailers of wrist watches and jewelry
- Petroleum / gasoline dealers
- Hotels, motels, pension houses / lodging houses / inns, dormitories / boarding houses
- Real estate industry
- Schools, particularly for foreigners (e.g. English School for Koreans), review centers.
- Contractors of NGAs, LGUs and government owned and controlled corporations GOCCs
- Retailers / wholesalers
Restaurants, fastfood chains, catering services, bars, coffee shops

Hospitals, clinics, medical/dental laboratories
Establishments/clinic for beauty enhancements
Manufacturers/dealers of beauty and health supplement
Amusement /entertainment / event centers
Advertising agencies
Business Process Outsourcing (BPO) Companies
E-Commerce industry
Manpower & other recruitment service agencies
Other industries peculiar to the area of jurisdiction of the RDO

c. Those who fall below the established benchmarks of tax compliance;

d. Those who maintained an ending inventory with value of 100% or more of its gross
sales.
III.
EFFECTIVITY
This Order shall take effect immediately.
(March 8,2013)
When you dont pay your taxes,

youre a burden to those who do.

FUNDAMENTALS OF TAXATION
Nature
Taxation is the power by which the sovereign state raises revenue to defray the
necessary expenses of government. It is the life and strength of the govt because no
govt can survive without it.
System of Taxation
Global System applies a uniform rate regardless of the amount of tax base. (CGT,
Percentage Tax, VAT)
Schedular System applies variable rates which generally behave proportionately with
the changes in the tax base. (Income Tax, Donors/Estate Tax)
Escape from Taxation (ESCATE)
Exemption grant of immunity, express or implied to a particular person/s or
corporations of a particular class from a tax upon property or an exercise which persons
and corporations generally within the same taxing district are obliged to pay. (CREDIT)
Credit (tax) (excess Input Tax)
Reciprocity application
Exclusions of certain items from taxable amounts (13th month pay, minimum
wage earners)
Deductions allowed from gross taxable amounts
(Personal & Additional Exemption; 40% OSD or
Itemized Deduction)
Income tax sparing rule observation
Tax Treaty
Shifting refers to the transfer of the tax burden by the person on whom it is imposed
by law to another who bears it.
Forward Shifting transfer of tax from factor of production , to distribution until
the burden finally rests with the consumer. (increase in selling price).
e.g.
VAT paid by the Buyer/Consumer
VAT on Prof. Fees paid by the RE Broker
Backward Shifting transfer of tax from the point of consumption through the
factors of distribution to the factors of production. (decrease in selling price)
e.g.
VAT shouldered by the Developer/Seller
VAT on Prof. Fees (RESP) paid by the Developer
Onward Shifting occurs when the tax is shifted two or more time either
forward or backward.
Capitalization is a form of backward shifting whereby future taxes on property sold
are capitalized at the time of purchase and deducted in lump from the selling price. The
taxes are shifted backward from the buyer to the seller, resulting in a reduction in price.
AVOIDANCE legal means to lessen or avoid tax by taking advantage of the loopholes
of the law. (e.g. Corporate buy-out; Special Power of Atty; Public Auction due to Real
Property Tax Delinquency; Tax Free Exchange)
Transformation effected through the process of production where the producer pays
the tax and recovers his additional expense by improving his method of production.
EVASION escape from taxation by breaking the law.
Ways to register your business
1. As Practitioner Real Estate Broker
Get Prof. Tax Receipt
City /
Municipality
BIR
(not later than Jan. 31)

a. Register with BIR Book of
accounts & Cert. of Reg.
b. Authority to Print (ATP)
c. Official Receipts
d. Ask for Receipt Notice (ARN)
e. Same TIN with the professional


2. WITH BUSINESS NAME

Business Name
(Valid for 5 years)

a. Brgy. Clearance Business Plate
b. Application for Business Permit
c. Business Permit Plate
a. Register with BIR Book of
accounts & Cert. of Reg.
e. Same TIN with the owner



Barangay Clearance

Business Permit

Same TIN
with the
Owner
1. As Corporation
SEC
City / Municipality
BPLO
BIR
Corporate Name
Stock & Transfer Books
Minimum of 5 Incorporators
a. Brgy. Clearance Business Plate

b. Application for Business Permit
c. Business Permit Plate
a. Register with BIR Book of accounts & Cert. of Reg.
e. Separate TIN for the Company

Separate TIN for

the Corporation

Tax Mapping
Tax Mapping
1. Certificate of Registration (COR) posted in Office
2. Ask for Receipt Notification (ARN) posted in Office
3. Official Receipt (New Series)
4. Book of Accounts
a. Cash Receipt Book
b. Cash Disbursements Book
c. Journal
d. Ledger
5. Number of employees (witholding tax)
6. Lease Contract (witholding tax)

How to secure
Official Receipt
&
Book of Accounts
w/ the BIR

Identify the Revenue District Office (RDO) of your registered business

/ residence address.
Prepare requirements to apply for a Certificate of Registration.

1). Accomplished Application for Registration BIR Form
1901.
2). Documentary requirements;
a. NSO Birth Certificate

b. Marriage Contract (if applicant is a married woman)
c. Company Certification (as a Licensed Agent)
d. Mayors permit and DTI Certificate of Registration of Business Name (if
applicable)
* Please note that there may be other documents that may be required by the RDO
Officer

Submit the following documents to the RDO for the processing of the
Certificate of Registration:
1). Accomplished and signed BIR Form 1901
2). Required Documents
3). Photocopy of paid Annual Registration Fee
Register books of accounts with BIR

1). Inquire from the RDO Officer the required books of accounts to be
registered.
* Required books of accounts may vary depending on the type of

taxpayer
2). Present the books of accounts for stamping and registration
Attend the required taxpayers briefing. Require schedule from the RDO.
Fill out a Request for TIN Card Slip to get a TIN ID

Card
Submit a photocopy of your COR (BIR Form 2303) to

your printer
Printer will then process the Authority to Print (ATP) and printing of the Official
Receipts

I. INCOME TAX base on net income

Taxable Income income derived by self-employed Individuals with both Business &
Compensation Income.
BIR Form
1701 Annual Income Tax Return

1701Q Quarterly Income Tax Return
Date of Filing :
Quarterly Income Tax Return (1701-Q)
1st Quarter
on or before April 15 current year
nd
2 Quarter on or before Aug. 15 - current year
3rd Quarter on or before Nov 15 current year
Annual Income Tax (1701)
on or before April 15 of the following year
INCOME TAX
1701 Q
1st Qtr.
2nd Qtr.
3rd Qtr.
1701
Sole Proprietor
1701 Q
Deadline
April 15
Aug. 15
Nov. 15
April 15
Partnership / Corp.
1702 Q
1702 Q
Deadline
st
1 Qtr.
May 30
2nd Qtr.
Aug. 29
rd
3 Qtr.
Nov. 29
1702
April 15
New BIR Ruling

REVENUE REGULATION NO. 1-2014
o Background
o These Regulations are hereby issued for purposes of ensuring that information
on all income payments paid by employers/payors, whether or not subject to the
witholding tax except on cases prescribed under existing international
agreements, treaties, laws and revenue regulations, regardless on the number of
employees and/or payees, are monitored by and captured in the tax payer
database of the Bureau of Internal Revenue (BIR), with the end in view of
establishing simulation model, formulating analytical framework for policy
analysis, and institutionalizing appropriate enforcement activities.


Mandatory
Itemized
Deduction








REVENUE REGULATIONS No. 10-2013

Amending Further Pertinent Provisions of Revenue Regulations (RR) No. 2-98, as Last
Amended by Revenue Regulations No. 30-2003, Providing for the Inclusion of Real
Estate Service Practitioners (i.e. Real Estate consultant, Appraiser and Broker) Who
passed the Licensure Examination given by the Real Estate Service under the
Professional Regulations Commission as defined in Republic Act No. 9646, The Real
Estate Service Act of the Philippines as Among Those Professionals Falling Under
Section 2.57.2 (A)(1) of RR 2-98, as Amended, and RR 14-2002 as Regards Income
Payments to Certain Brokers and Agents.
Section 2.57.2 (A)(1) of RR 2-98, as last amended by RR 30-2003, is hereby further amended
to read as follows
(A) Professional fees, talent fees, etc., for services rendered by individuals. On the
gross professional, promotional and talent fees or any other form of remuneration for
the services of the following individuals Fifteen percent (15%), if the gross income for
the current year exceeds P720,000; and Ten percent (10%, if otherwise:
(1) Those individually engaged in the practice of profession or callings: xxx designers,
real estate service practitioners (RESPs), (i.e. real estate consultants, real estate
appraisers and real estate broker)
Requiring government licensure examination given by the Real Estate Service pursuant
to Republic Act No. 9646 and all other profession requiring government licensure
examination regulated by the Professional Regulations Commission, Supreme Court, etc.
SECTION 5. EFFECTIVITY.
These regulations shall take effect June 1, 2013 and shall cover income payments to be
paid or payable starting June 1, 2013 which are required to be remitted within the
month of July, 2013.
Revenue Regulation No. 12-2013
Requirements for deductibility Any income payment which is otherwise deductible
under the Code shall be allowed as a deduction from the payors gross income only if is
shown that the income tax required to be witheld has been paid to the Bureau in
accordance to Sec. 57 and 58 of the Code.
No deduction will also be allowed nothwithstanding payments of witholding tax at the
time of the audit investigation or reinvestigation/reconsideration in cases where no
witholding of tax was made in accordance with Secs. 57 and 58 of the Code.
Revenue Regulation No. 13-2012

VAT Treatment on Sale of Adjacent Residential Lots, House & Lots or other Residential
Dwellings.
Sale of real properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business of the seller shall be subject to VAT.
This includes sale, transfer of disposal within a 12-month period of two or more
adjacent residential lots, house and lots or other residential dwellings in favor of one
buyer from the same seller, for the purpose of utilizing the lots, house and lots or
other residential dwellings as one residential area within the aggregate value of the
adjacent properties exceeds P1,919,500.00 for residential lots and P3,199,200.00 for
residential house and lots or other residential dwellings.
Adjacent residential lots, house and lots or other residential dwellings although covered
by separate titles and/or separate tax declarations, when sold or disposed to one and
the same buyer, whether covered by one or separate Deed/s of Conveyance, shall be
presumed as a sale of one residential lot, house and lot or residential dwelling.
This however, does not include the sale of parking lot which may or may not be included
in the sale of condominium units. The sale of parking lots in a condominium is a
separate and distinct transaction and is not covered by the rules on threshold amount
not being a residential lot, house & lot or a residential dwelling, thus, should be subject
to VAT regardless of amount of selling price.

CORPORATION ITEMIZED

Optional Standard Deduction (40%)

Maximum of 40% of Gross Sales or Gross Receipts shall be allowed as deduction in lieu of the
itemized deduction. Not allowed to Non-resident aliens Advantage:
individual availing of this deduction need not submit the Account Information Form
(AIF) & Financial Statements.
Official Receipts for Expenses
INDIVIDUAL OSD

Itemized deduction
Ordinary and necessary expenses paid or incurred during the taxable year in carrying on
or directly attributable to the devt, management, operation of the trade, business or
exercise of a profession including reasonable allowance for
a. Salaries
b. Travel
c. Rental
d. Entertainment Expenses
o Other allowed deductions:
Interest, taxes, losses, bad debts, depreciation, depletion, charitable contributions,
research & devt, pension, premium payments-health and/or hospital insurance
Personal Exemptions (Year 2009 & onwards)
Single / Married
P 50,000.00
Additional Exemption
Single / Married
P25,000.00 for every

qualified dependent
child not exceeding 4
Dependent child legitimate or illegitimate or legally adopted child chiefly dependent

upon and living with the taxpayer not more than 21 years old, unmarried, not gainfully
employed, or if such dependent regardless of age is incapable of self-support because of
mental or physical defect.
In case of legally separated spouses, additional exemption may be claimed only by the
spouse who has custody of the child or children. Provided that the total amount of
additional exemption shall not exceed the maximum allowed by the Tax Code.

I. INCOME TAX
If Taxable Income Is:
Tax Due Is:
Not Over P10,000
5%
Over P 10,000 but not over P 30,000
P 500 + 10% of the excess over P 10,000
P 2,500 + 15% of the excess over P 30,000
Over P 500,000
II. CORPORATE TAX

CORPORATE INCOME TAX
30% of Net Income
III. BUSINESS TAX

Percentage (3%)
Value-Added Tax (12%)
Gross Receipts up to
Gross Receipts exceeds
P1,919,500 & below
P1,919,500 (mandatory registration)
Form 2551-M
Form 2550-M & Q
20th day of the ff. month
20th day of the ff month = M

25th day of the ff quarter = Q
or (Optional Registration to VAT) lock for 3 years.

Real Estate Service Practitioners

Professional Fee is subject to:
1. INCOME TAX
(Base on Net Income)
2. BUSINESS TAX
(Base on Gross Income)
Sample Illustration : PERCENTAGE TAX

Tax Witheld
at source
To be
Paid by Broker
Income
10% W.T.
3% Percentage
Jan.
P200,000.00
P20,000.00
P 6,000.00*
Feb.
No commission
Mar.
P50,000.00
P5,000.00
Brokers Prof. Fee

Date
P 1,500.00*
* Based on Official Receipts issued (gross of witholding tax)

Even if you did not earn any income or prof. fee in a particular month you are required to file a
monthly return stating /declaring no income for that particular month
The total tax witheld at source shall be used as deduction to the Annual Income Tax due upon
filing.
HOW TO COMPUTE PERCENTAGE TAX?
Net amount received : (amount on Official Receipt)

Add: 10% or 15% Witholding Tax
Total Professional Fee
Multiply by 3% Percentage Tax
Percentage Tax Due
Php
Php
Php
xxx
xxx
xxx
3%
xxx
===
Note: the Witholding Tax being deducted by the Witholding agent is merely an advance
payment and NOT THE FULL PAYMENT of the Income Tax Due, if any, from the
Professional.

Marketing Set-up
DOUBLE TAXATION
Developer witheld 10% Tax
Marketing Co. pays 3% Percentage Tax based on PF received (Official Receipt)

Marketing Co. witheld 10% Tax for the account of the Broker
Broker pays 3% Percentage Tax based on PF received (Official Receipt)
Avoidance of Double Taxation

Developer will issue separate payments to the Mktg. Co. and to the
Broker where it will witheld the respective 10% Witholding Taxes.
Marketing Company will pay for its 3% Percentage Tax

Broker will pay for its
3% Percentage Tax

I. TAX AVOIDANCE THRU INCOME RECOGNITION / DISTRIBUTION

(VAT TRESHOLD = P 1,919,500.00)
CORP
BROKER
BROKER
BROKER
TOTAL:
II.
CORP.
BROKER
TOTAL:
BIR Revenue Regulations No. 16-2011

Increasing the amount of threshold amounts for Sale of Residential Lot, House & Lot, Lease of
Residential Unit and sale or lease of goods or properties or PERFORMANCE OF SERVICES
Effectivity : starting January 1, 2012*
Subject
Up to Y2011
Adjusted Amounts*
Residential Lot
1,500,000.00
1,919,500.00
House & Lot
2,500,000.00
3,199,200.00
Lease of Residential Units
10,000.00
12,800.00
Sale or lease of goods or properties or

Performance of services
1,500,000.00
1,919,500.00

VALUE ADDED TAX

Rate and Base of Tax There shall be levied, assessed and collected, a value-added tax
equivalent to twelve per cent (12%) of gross receipts derived from the sale or exchange of
services including the use or lease of properties. The phrase sale or exchange or services
means the performance of all kinds of services in the Philippines for others for a fee,
remuneration or consideration, including those performed or rendered by construction and
service contractors, stock, real estate, commercial, customs and immigration brokers; lessors of
property whether personal or real.
Mandatory Registration annual gross receipts exceed P1,919,500.00.
Optional Registration P1,919,500.00 & below but opted to be under the VAT registered entity.
Registration is lock-in for 3 years whether the gross receipts fall below the threshold.
Input Tax (VAT on purchases) VAT due on or paid by a VAT registered person or importation
of goods or local purchases of goods, properties or services, including lease or use of
properties, in the course of his trade or business.
Sources of Input taxes (R.E. Brokers)
1.
2.
3.
4.
Rental
5. Office Equipment
Gasoline
6. Hotel Accommodations
Food
7. Seminar / Training Fees
Utilities
To claim Input Tax the taxpayer has to maintain a Report indicating the Establishments name;
VAT Reg./TIN; Amount of O.R. and Input Tax.
Vat Registered Receipts

Formula in computing VAT Liability

Output Tax
(VAT on Income or Professional Fees)
Less : Input Tax
(VAT on Purchases)
Vat Payable (Excess Output Tax) or Excess Input Tax*
*Excess Input Tax is carried over to the next quarter
The Excess Output Tax is paid monthly (Form 2550M) not later than 20th day of the following
month furthermore a corresponding Quarterly Return (2550Q) is prepared and needs to be filed not
later than the 25th day following the close of the taxable quarter.
Value-added Tax
INPUT TAX
OUTPUT TAX
(From Purchases)
(From Gross Receipts/Income)
book as Asset
book as Liability
Excess Input Tax is applied to next qtr.
Excess Output Tax is liability to BIR
Sample Computation:
P 1 M paid-up sale at 5% Commission
Output Tax / Vat (P50T/1.12 X .12)
P 5,357.00
Less :
Input Taxes
Gasoline 53.57 + 64.29
Food
Rental (15T plus Vat)
Total Input Taxes
VAT Payable (Excess Output Tax)
117.86
186.75
1,800.00
P 2,104.61
P 3,252.39
========
If Input Taxes exceeds the Output Tax the excess shall be credited or applied to the following
taxable quarter

Comparison : Percentage Tax vs. VAT

Cash Sale of P1 M with 5% Professional Fee;
Expenses : Gasoline 1,120 & Food 560 paid in Cash
Percentage
Cash
Tax Witheld
VAT System
45,000
5,000
PF / Comm
Percentage Tax 3%
1,500
Food
Cash
1,120
1,680
50,000
5,357
Output Tax 12%
Gasoline
560
5,000
PF / Comm
PF / Comm
1,500
VAT
INCLUSIVE
45,000
Tax Witheld
50,000
PT Payable
Gasoline
Cash
5,357 *
1,000
Food
500
Input Tax
180
Cash
1,680
(50,000 / 1.12 X ,12)
Which is advantageous is it Percentage or VAT?

Always bear in mind
: Tax Compliance & Avoidance
Do you want to comply or not?
It will depend on the following:
Business Structure (Sole Prop.; Corporation)
Accounting System (Percentage is simpler; VAT a bit complicated)
Source of Professional Fee (Big Developer or Large Taxpayers versus non-key players)
Nature of Business Operation (Part-time or Full-time)
It is the Management responsibility to determine what is best and beneficial to their unique
and distinct type of business operation.
ARNEL O. CRUZADO
PAREB-MVRB 2013 President
Neo-Upscale Property Specialists Corp.
0917-8961717 / 664-2921
upproperty17@gmail.com
Website : www.upproperty.net


National Taxation (Income &amp; Business Tax) OCTOBER 1, 2014

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Real Estate Service

RESA of the Philippines RA 9646

promoting the real estate market

stimulating economic activity

enhancing government income from real property based transaction

MR. ARNEL O. CRUZADO

REVENUE MEMORANDUM ORDER NO. 4-2013

POLICIES AND GUIDELINES

Restaurants, fastfood chains, catering services, bars, coffee shops

MR. ARNEL O. CRUZADO

c. Those who fall below the established benchmarks of tax compliance;

When you dont pay your taxes,

MR. ARNEL O. CRUZADO

(not later than Jan. 31)

MR. ARNEL O. CRUZADO

MR. ARNEL O. CRUZADO

2. WITH BUSINESS NAME

(Valid for 5 years)

MR. ARNEL O. CRUZADO

MR. ARNEL O. CRUZADO

MR. ARNEL O. CRUZADO

MR. ARNEL O. CRUZADO

MR. ARNEL O. CRUZADO

a. Brgy. Clearance Business Plate

MR. ARNEL O. CRUZADO

Separate TIN for

MR. ARNEL O. CRUZADO

MR. ARNEL O. CRUZADO

MR. ARNEL O. CRUZADO

Identify the Revenue District Office (RDO) of your registered business

Prepare requirements to apply for a Certificate of Registration.

2). Documentary requirements;

a. NSO Birth Certificate

MR. ARNEL O. CRUZADO

Register books of accounts with BIR

* Required books of accounts may vary depending on the type of

Fill out a Request for TIN Card Slip to get a TIN ID

Submit a photocopy of your COR (BIR Form 2303) to

MR. ARNEL O. CRUZADO

I. INCOME TAX base on net income

1701 Annual Income Tax Return

New BIR Ruling

MR. ARNEL O. CRUZADO

MR. ARNEL O. CRUZADO

MR. ARNEL O. CRUZADO

MR. ARNEL O. CRUZADO

MR. ARNEL O. CRUZADO

MR. ARNEL O. CRUZADO

MR. ARNEL O. CRUZADO

MR. ARNEL O. CRUZADO

MR. ARNEL O. CRUZADO

MR. ARNEL O. CRUZADO

REVENUE REGULATIONS No. 10-2013

Revenue Regulation No. 13-2012

MR. ARNEL O. CRUZADO

MR. ARNEL O. CRUZADO

Optional Standard Deduction (40%)

MR. ARNEL O. CRUZADO

P25,000.00 for every

Dependent child legitimate or illegitimate or legally adopted child chiefly dependent

MR. ARNEL O. CRUZADO

Tax Due Is:

Not Over P10,000

Over P 10,000 but not over P 30,000

National Taxation (Income & Business Tax) OCTOBER 1, 2014

National Taxation (Income & Business Tax) OCTOBER 1, 2014