Surprise, Surprise – Part 2

Here are my notes/takeaways from yesterday's post.

1. Always check the TIN of ALL sellers to find out whether their TIN is registered as someone who's engaged in RE business. You need an SPA to do this. Don't merely check whether they're VAT-registered–being engaged in RE business and being VAT-registered are two different things.

2A. If you're on the buyer's side, make sure to include the clause, "Seller shall pay for CGT or CWT+VAT (whichever applies)" in the Deed of Absolute Sale (DOAS).

2B. As the buyer, you want to be in control of the Title Transfer. Thus, it is best that you withhold the CGT/CWT from the seller's net proceeds. Assuming the BIR subjects the sale to CWT+VAT, you could repurpose the CGT payment for CWT since both taxes are 6%. The VAT payment is not required for title transfers. So, paying the CWT (and DST) will allow you to secure the CAR.

If the seller later complains about why you agreed to pay CWT+VAT, point to 2A.

3. If you're the seller, do number 1 long before you find a buyer. If a co-inheritor is registered as someone engaged in RE business, ask him to waive his right to the inheritance so the whole property doesn't become tagged as an ordinary asset. Probably, just execute a side agreement with that person promising his share once the property is sold (e.g., a promissory note).

4A. If it's too late for 3, have that co-owner donate his share to a sibling. Yes, they will have to pay the donor's tax on his 1/4 share, but that's significantly less than VAT+income tax on the whole property. (The donation might be subjected to VAT as delineated in RMC 99-2023.)

4B. If it's too late for 4A, I would try arguing with the examiner to only subject 1/4 of the total transaction value to VAT and income tax.

Think of it this way: 1 (of the 4) siblings can sell his 1/4 share of the property (while the other three keep theirs), right? Therefore, each sibling can execute their own Deed of Absolute Sale to the buyer. The buyer ends up with the whole property and only the sibling who registered as a lessor gets subjected to VAT.

5. NEVER REGISTER YOURSELF AS SOMEONE ENGAGED IN RE BUSINESS. Put up a RE company instead.