Question & AnswerQ&A (BIR REVENUE MEMORANDUM CIRCULAR NO. 7-90)
All sales, exchanges, or transfers of real properties by corporations, whether ordinary or capital asset, consummated on or after January 1, 1990, are subject to creditable withholding tax. For individuals, estates, and trusts, only sales of real properties classified as ordinary assets are subject to this tax; sales of capital assets remain subject to the 5% capital gains (final) tax.
The date of notarization appearing on the Deed of Sale is considered prima facie as the date of consummation of the sale contract. This affects the applicability of the creditable withholding tax depending on whether the sale was consummated before or after January 1, 1990.
Generally, no withholding tax is required if the seller is an entity exempt from income tax such as GSIS, SSS, or qualified pension plans, provided they submit an affidavit of exemption and supporting laws. However, if the seller is exempt under Article 26 of the Tax Code, the gain is still subject to income tax and withholding tax.
The rates are 0% if the vendor is registered with and certified by HUDCC/HLURB for low-cost housing projects and the transaction does not exceed P500,000; 2.5% if the vendor is habitually engaged in real estate business and certified by CREBA and registered with HUDCC/HLURB; and 5% if the vendor is not habitually engaged in real estate business.
A vendor is considered habitually engaged if they consummated at least six taxable real estate transactions during the preceding year, regardless of amount, or if previously accredited by CREBA and registered with HUDCC/HLURB regardless of the number of sales in the current year.
The withholding tax base is the gross selling price or the total consideration stated in the sales document or the fair market value/zonal value, whichever is higher. In exchanges, the fair market value of the property is used.
The obligation to deduct and withhold arises at the time the consideration is paid or payable to the seller, and the withholding tax return must be filed with remittance of the tax within ten days after the end of the month.
No CAR shall be issued unless the buyer presents a Confirmation Receipt or official receipt evidencing payment of the creditable withholding tax on the transaction, with necessary tax payment information typed on the face of the CAR.
Only installment payments made beginning January 1, 1990, are subject to withholding tax. No withholding is required on installments paid before 1990. If the buyer is an individual not engaged in trade or business, withholding is required only on the last installment(s) paid starting in 1990. If the buyer is a business entity, withholding is required on each installment payment.
The Revenue District Officer may issue the CAR without payment of withholding tax if the taxpayer proves no ante-dating and justifiable cause for late submission, such as judicial reconstitution of the title or amendments to minor details in earlier deeds. The officer must document and report these circumstances.