Summary
Highlights
The video discusses VAT on the sale of real properties. As a general rule, sales made in the ordinary course of trade or business are subject to VAT, unless explicitly exempt by law. The focus will be on illustrating how to compute the applicable output VAT for non-exempt real property sales.
The sale of real property primarily for sale or lease in the ordinary course of business is subject to a 12% VAT. The basis for this 12% VAT is the selling price, the fair market value (FMV) provided by city/provincial assessors, or the zonal valuation by the BIR, whichever is the highest amount among these figures.
There are three types of sales for VAT purposes: cash basis, deferred payment basis, and installment basis. The classification affects how much of the output VAT is reported to the BIR and when. For cash sales, the entire output VAT is reported immediately in the month of sale.
A sale is classified as a cash sale if the initial payment over the selling price is greater than 25%. If this ratio is not met, it's considered either a deferred sale or an installment sale. For deferred sales, the entire output VAT is still reported in the month of sale. For installment sales (where the initial payment over selling price is 25% or less), the output VAT is reported based on collections.
The initial payment includes the down payment, all collections during the year of sale, and if applicable, penalties, interests, and excess of mortgage over costs. For installment sales, the output VAT for the year of sale is based on the initial payment multiplied by 12% of the higher between the gross selling price (GSP) and fair market value (FMV) or zonal value. For subsequent years, it's based on collections.
An example demonstrates the computation of output VAT for a real estate sale. In this scenario, with a selling price of 5 million, an assessed value of 4.8 million, and a zonal value of 5.2 million, the highest value (5.2 million) is used as the VAT base. Given an initial payment ratio of 20% (below 25%), the sale is classified as an installment sale, and the output VAT is reported proportionally to the collections each year.