WITHHOLDING TAX on sale of real property - The nature of the real property being sold should be

determined first. If the real property is a land or building not actually used in the business of the seller-

corporation and is treated as a capital asset, then a final tax of 6% shall be imposed on the gain presumed

to have been realized on its sale, exchange or disposition based on whichever is higher of the gross selling

price or fair market value (FMV) of such land or building. This rule applies whether or not the seller-

corporation is engaged in real estate business.

On the other hand, if the real property being sold is an ordinary asset, then the withholding tax rates

imposed under Section 2.57.2 of Revenue Regulations (RR) No. 2-98 shall apply. The rate of withholding

tax will depend on, first, whether the seller is exempt or taxable; second, whether the seller is habitually

engaged in real estate business or not; and third, the gross selling price, as defined in the said RR, if the

seller is habitually engaged in real estate business.

Based on the foregoing, and on the assumption that the seller in each case is taxable and not exempt, the

tax implication of the following sales transactions are as follows:

1. Where the seller is a corporation duly registered with the HLURB as habitually engaged in the real

estate business, a creditable withholding tax based on the gross selling price/total amount of consideration

or FMV, whichever is higher, paid to the seller/owner for the sale, transfer or exchange of real property,

other than capital asset, shall be deducted by the withholding agent/buyer, in accordance with the

following schedule:

a. Seller or transferor is exempt from creditable withholding tax in accordance with Section 2.57.5 of RR

No. 2-98

Exempt

b. Seller or transferor is habitually engaged in the real estate business and the selling price is:

i. P500,000 or less 1.5%

ii. More than P500,000 but not more than P2,000,000 3%

iii. More than P2,000,000 5%

2. The above tax treatment shall likewise apply in cases where the seller-corporation is habitually

engaged in the real estate business, even if the buying corporation is not engaged in the real estate

business.

3. If the property is an ordinary asset and the seller is not habitually engaged in the real estate

business, the rate of creditable withholding tax is 6% of the gross selling price as provided in Section 3(J)

of RR No. 6-2001. On the other hand, if the property is not actually used in the business of the seller-

corporation, and is treated as a capital asset, a final tax of 6% shall be imposed on the gain presumed to

have been realized on its sale, exchange or disposition of such land or building pursuant to Section

27(D)(5) of the Tax Code.

4. Where the seller-corporation habitually engaged in the real estate business sells real property held

as ordinary asset to an individual not engaged in trade or business, the following rules shall apply:

If the sale is on installment plan (i.e., payments in the year of sale do not exceed 25% of the selling price),

no withholding tax is required to be made on the periodic installment payments. In such a case, the

applicable rate of tax based on the gross selling price or FMV of the property, whichever is higher, shall

be withheld on the last installment or installments to be paid to the seller until the tax is fully paid.

b. If, on the other hand, the sale is on a cash basis or is a deferred payment sale not on the installment

plan (i.e. payments in the year of sale exceed 25% of the selling price or FMV of the property,

whichever is higher), the applicable withholding tax rate shall be withheld on the first installment.

However, if the buyer is engaged in trade or business, whether a corporation or otherwise, the following

rules shall apply:

a. If the sale is on installment plan, the tax shall be deducted and withheld by the buyer on every

installment.

b. If, on the other hand, the sale is on a cash basis or is a deferred payment sale not on the installment

plan, the buyer shall withhold the tax based on the gross selling price or FMV of the property, whichever

is higher, on the first installment.

For purposes of applying the foregoing rules, gross selling price shall mean the consideration stated in

the sales document or the FMV determined in accordance with Section 6 (E) of the Tax Code of 1997,

whichever is higher.

Registration with HLURB or HUDCC shall be sufficient for a seller/transferor to be considered as

habitually engaged in real estate business. If the seller/transferor is not registered with the HLURB or

HUDCC, he/it may prove that he/it is engaged in the real estate business by offering other satisfactory

evidence (e.g. consummation during the preceding year at least 6 taxable real estate transactions

regardless of amount). (BIR Ruling No. 027-2002 dated July 3, 2002)