When is a sale of real property subject to VAT?

If the seller-taxpayer is a VAT-registered person, the sale of his ordinary asset shall be subject to VAT.

A person should register as a VAT entity if his gross annual sales and/or receipts exceed P1,919,500.00 in a
year. If he is not originally registered as a VAT entity but he exceeded the threshold, he should submit BIR
Form No. 1905 (Taxpayer Registration Update) to change to VAT.

When is an asset considered as ordinary? Ordinary assets are those which are:

1. Stock in trade of a taxpayer or other real property of a kind which would properly be included in the inventory of the
taxpayer if on hand at the close of the taxable year; or
2. Real property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business; or
3. Real property used in trade or business (i.e., buildings and/or improvements) of a character which is subject to the
allowance for depreciation provided for under Sec. 34(F) of the Code; or
4. Real property used in trade or business of the taxpayer.
In simple terms, real property considered as ordinary assets are those which are used in the trade or business
of the taxpayer. Please read Revenue Regulations (RR) No. 7-2003[3] in full to determine when an asset shall be
considered as capital or ordinary – this is also dependent on the classification of the taxpayer.