July 3, 2002

BIR RULING NO. 027-02

RR 6-2001
Sentosa Park Property Development Corporation
1760 Evangelista cor. Macabulos Sts.,
Bangkal, Makati City
Attention: Ms. Flordeliza S. Manuel
Executive Assistant
Gentlemen :
This refers to your letter dated September 3, 2001 requesting for a ruling on
the tax consequences of the following sales transactions:

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1.

Sale of a real estate property wherein the seller and the buyer
are both corporations and are engaged in real estate business.
Both corporations are issued a certification by the Housing &
Land Use Regulatory Board (HLURB) to that effect. The seller
has also been issued a License to Sell by the HLURB;

2.

Sale of real estate property by a corporation engaged in real

estate business to another corporation not engaged in real estate
business. The corporation engaged in real estate business, being
the seller, is issued a certification by the HLURB to that effect.
The seller has also been issued a License to Sell by the
HLURB;

3.

Sale of a real estate property by a corporation not engaged in

real estate business to another corporation engaged in real estate
business; and

4.

Sale of real estate property by a corporation engaged in real

estate business to individual buyer. The corporation engaged in
real estate business, being the seller, is issued a certification by
the HLURB. The seller has also been issued a License to Sell

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by the HLURB.
In reply, please be informed of the following:
It is noted that, except for No. 3, the situations you presented involve a
seller that is engaged in real estate business. However, you did not specify in each
of these instances, whether the property being sold is an ordinary asset or a capital
asset in the hands of the seller.
It is necessary to first determine the character of the real property being
sold. Thus, if the real property is a land or building which is not actually used in
the business of the seller-corporation and is treated as a capital asset, as that term
is defined in Section 39 (A) of the 1997 Tax Code, then a final tax of six percent
(6%) shall be imposed on the gain presumed to have been realized on its sale,
exchange or disposition of such land or building based on the gross selling price or
fair market value as determined in accordance with Section 6(E) of the Tax Code
of 1997, whichever is higher of such land and/or building. This rule applies,
whether or not the seller-corporation is engaged in real estate business. [Sections
27 (D) (5); 1997 Tax Code].
On the other hand, it is only when the real property being sold is an
ordinary asset that the withholding tax rates imposed under Section 2.57.2 of
Revenue Regulations No. 2-98, as amended, shall apply. The rate of withholding
tax will depend on whether, first, the seller is exempt or taxable; second, whether
the seller is habitually engaged in real estate business or not; and third, if the seller
is habitually engaged in real estate business, the gross selling price, as that term is
defined in the above-mentioned Revenue Regulations.
Based on the foregoing discussion, and on the assumption that the seller in
each case is not exempt, we rule as follows on each situation in the same order as
they are presented above.
1. Section 2.57.2 of Revenue Regulations No. 2-98, as amended,
provides that 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 the fair market value
determined in accordance with Section 6(E) of the 1997 Tax Code, 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.

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Where the seller/transferor is exempt from creditable

withholding tax in accordance with Sec. 2.57.5 of these
Regulations
Exempt

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B.

Upon the following values of real property, where the

seller/transferor is habitually engaged in the real estate
business:
With a selling price of Five Hundred Thousand
Pesos (P500,000.00) or less

1.5%

With a selling price of more than Five Hundred

Thousand Pesos (P500,000.00) but not more
than Two Million Pesos (P2,000,000.00)

3.0%

With a selling price of more than Two Million

Pesos (P2,000,000.00)

5.0%

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 real estate business.
3. As stated earlier, Section 2.57.2(J) of Revenue Regulations No. 2-98,
as amended, applies only in cases where the real estate property is an ordinary
asset. Thus, if the property is an ordinary asset, since the seller is not habitually
engaged in the real estate business, the rate of creditable withholding tax is six
percent (6%) of the gross selling price as provided in Section 3(J) of Revenue
Regulations No. 6-2001. On the other hand, if the real property is land or building
which is not actually used in the business of the seller-corporation, and is treated
as a capital asset, a final tax of six percent (6%) is hereby imposed on the gain
presumed to have been realized on the sale, exchange or disposition of land and/or
building pursuant to Section 27 (D) (5) of the Tax Code of 1997; and
4. Section 2.57.2 of Revenue Regulations No. 2-98, as amended by
Section 3 of Revenue Regulations No. 6-2001, provides that where the
seller-corporation who is habitually engaged in the real estate business sell real
property/ies held as ordinary asset to an individual not engaged in trade or
business, the following rules shall apply:
(i)

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If the sale is a sale of property on the installment plan (that is,

payments in the year of sale do not exceed 25% of the selling
price), no withholding of 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 fair market value
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.

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(ii)

If, on the other hand, the sale is on a "cash basis" or is a

"deferred-payment" sale not on the installment plan" (that is,
payments in the year of sale exceed 25% of the selling price),
the buyer shall withhold the tax based on the gross selling price
or fair market value of the property, whichever is higher, on the
first installment.

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

corporation or otherwise, these rules shall apply:
(i)

If the sale is a sale of property on the installment plan (that is

payments in the year of sale do not exceed 25% of the selling
price), the tax shall be deducted and withheld by the buyer on
every installment.

(ii)

If, on the other hand, the sale is on a "cash basis" or is a

"deferred-payment sale not on the installment plan" (that is,
payments in the year of sale exceed 25% of the selling price),
the buyer shall withhold the tax based on the gross selling price
or fair market value 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 fair market value
determined in accordance with Section 6 (E) of the Tax Code of 1997, whichever
is higher.
Finally, registration with the HLURB or HUDCC shall be sufficient for a
seller/transferor to be considered as habitually engaged in the real estate business.
If the seller/transferor is not registered with HLURB or HUDCC, he/it may prove
that he/it is engaged in the real estate business by offering other satisfactory
evidence (for example, he/it consummated during the preceding year at least six
taxable real estate transactions, regardless of amount).
Please be guided accordingly.

Very truly yours,

(SGD.) REN G. BAEZ

Commissioner of Internal Revenue

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Philippine Taxation Encyclopedia First Release 2014