How the Ease of Paying Taxes Act Will Revolutionize Real Estate in the Philippines

“Taxes are the price we pay for a civilized society.”

– Oliver Wendell Holmes, Jr., Associate Justice of the US Supreme Court

By Realttorney^®

Let’s face it: taxes have always been the ghost in the room during any property transaction in the Philippines. Whether you’re a developer breaking ground on a new residential enclave, a broker juggling multiple listings, or an heir trying to settle a family estate, tax compliance has often felt like navigating a maze – at times confusing, bureaucratic, and painfully slow.

But all that may be about to change.

Last January 2024, Pres. Marcos, Jr. signed into law Republic Act No. 11976, also known as the “Ease of Paying Taxes Act.” It aims to streamline tax administration, making it easier for real estate buyers, sellers, and owners to comply with their obligations. But Rep. Act No. 11976 does not directly address real estate taxation. Instead, it focuses on simplifying the administration of income and estate taxes, which can indirectly impact real estate transactions.

This article dives into the key features of Rep. Act No. 11976, by highlighting how it benefits various taxpayers and stakeholders in the real estate industry, especially after the BIR released seven (7) Revenue Regulations in the last week of April 2024.

Streamlined Tax Administration and Tax Compliance:

One of the most significant benefits of Rep. Act No. 11976 is the emphasis on better and efficient tax administration. To operationalize this, Revenue Regulation No. 8-2024 was issued, which classified taxpayers into four categories:

1. Micro Taxpayers – those with gross sales of less than P3 million for a taxable year;

2. Small Taxpayers – those with gross sales of between P3 million to less than P20 million for a taxable year;

3. Medium Taxpayers – those with gross sales of between P20 million to less than P1 billion for a taxable year; and

4. Large Taxpayers – those with gross sales of P1 billion and above for a taxable year.

To be clear, gross sales refer to total sales revenue, net of VAT, if applicable, during the taxable year, without any other deduction. Furthermore, gross sales shall only cover business income, excluding compensation income earned under an employer-employee relationship, passive income under Sections 24[1], 25[2], 27[3] and 28[4], and income excluded under Section 32 (B) of Rep. Act No. 8424, as amended.

Hence, a mixed income earner (or a person with multiple income streams) will no longer agonize about being unwittingly categorized into a higher classification of taxpayer since the regulation clearly defines gross sales to include only business income.

However, it should be noted that business income shall include income from the conduct of trade or business or the exercise of a profession. As such, RESPs must know these 4 categories listed above by heart.

Kindly note that VAT-registered RESPs, business people, and juridical persons shall be automatically classified as Small Taxpayers. But, a taxpayer who will register to engage in business or practice a profession upon the effectivity of RR No. 8-2024 shall initially be classified based on the declaration in the Registration Forms beginning from the year they registered, and shall remain as such unless reclassified.

Now the concerned taxpayer shall be reclassified in accordance with the threshold values indicated in the 4 items above. Taxpayers shall be duly notified by the BIR of their classification or reclassification, as may be applicable, in a manner or procedure to be prescribed in a revenue issuance to be issued separately.

Finally, taxpayers registered in 2022 and prior years shall be classified based on their gross sales for the taxable year 2022. But, for taxpayers registered in 2022 and prior years without any submitted information on their gross sales for the taxable year 2022, including taxpayers registered in 2023 or in 2024 before the effectivity of RR No. 8-2024, shall initially be classified as Micro Taxpayer.

These new classifications of taxpayers were made to encourage tax compliance on the part of all taxpayers in the Philippines.

Streamlined Tax Filing and Payment

The Act encourages the BIR to develop user-friendly online platforms for filing tax returns and paying taxes. This translates to:

• Reduced Time and Cost: Imagine the convenience of filing tax returns electronically from the comfort of your office or home. This eliminates the need to travel to BIR offices and stand in queues, saving valuable time and resources. No more going to and queuing at Authorized Agent Banks (AABs) of different Revenue District Offices (RDOs) all over the country.
• Fewer Errors: Online filing systems often come with built-in validation checks, minimizing the risk of errors in tax computations and filings.

Improved Taxpayer Assistance by Modernizing the BIR Systems

The Act emphasizes providing better taxpayer assistance. The BIR is mandated to perform the following:

• Enhance taxpayer education: This could involve providing clear and accessible information on tax obligations specific to real estate transactions, such as capital gains tax for property sales or documentary stamp taxes, among others.
• Establish a more responsive taxpayer hotline: A dedicated and accessible hotline can address taxpayer queries promptly, reducing confusion and frustration. It’s been more than one year since the law became effective. I am not so sure if the BIR has indeed established a more responsive hotline for taxpayers.

Potential for Reduced Penalties and Interest

The Act emphasizes fair treatment of taxpayers. While it doesn’t directly waive penalties and interest on late tax payments, it lays the groundwork for a more efficient system. With easier filing and clearer communication, the likelihood of unintentional tax delinquency might decrease. Additionally, the BIR may be more lenient with taxpayers who demonstrate a genuine effort to comply.

All these reforms are not just superficial changes. It is a change in philosophy. The government is finally recognizing that one size does not fit all, especially in an industry as complex and as vital as real estate.

Quid Nunc?

So, what does this mean for you? Whether you own a condominium unit in BGC, manage real estate investments from overseas, or make your living closing deals and filing tax returns, here’s why Rep. Act No. 11976 matters – and how it might just be the best thing to happen to Philippine real estate in years.

For Real Estate Developers: A Breath of Fresh Air

If you’ve ever worked behind the scenes of a property development, you know that taxes can make or break project timelines. Filing monthly VAT returns, waiting endlessly for VAT refunds, if any are forthcoming, and managing the ever-changing interpretations of “business style” in official receipts have long been thorns in the side of real estate developers.

Rep. Act No. 11976 changes the game by allowing developers (and real estate professionals) to:

• File VAT returns quarterly instead of monthly—a huge administrative relief.

• Get VAT refunds faster, thanks to a digitalized and standardized process.

• Forget about “business style” descriptions on receipts, eliminating confusion and clerical inconsistencies.

For Property Buyers and Property Owners: More Confidence, Less Complexity

Buyers of real estate will benefit from the reduced transaction time under this relatively new law. The faster processing of the payment of the appropriate tax filing expedites the issuance of certificates authorizing registration and tax clearances, which is a very crucial document for real estate transactions. This can lead to quicker property transfers.

Property owners – especially those selling land or receiving inherited properties – have traditionally relied on lawyers or licensed real estate brokers to help navigate the tax minefield. But this new law provides some much-needed breathing room.

Here’s how:

• Simplified Tax Compliance: The streamlined filing process can save property owners (sellers or heirs) valuable time and resources during property sales.

• Reduced Compliance Burden: Clearer communication from the BIR can help sellers avoid unintentional tax errors and potential penalties.

Imagine this: an 82-year-old widow in Quezon City, working to settle her late husband’s estate, no longer needs to deal with stacks of paper forms or wait in endless queues. With the help of a CPA or estate planner using accredited tax systems, her tax filings are secure and timely.

Real Estate Owners (Landlords and Landladies): Stress-free Management

• Easier Rental Income Reporting: Online filing systems can simplify the process of reporting rental income and paying income taxes.

• Improved Access to Tax Information: Clearer and more accessible information from the BIR can help property owners understand their tax obligations related to rental income and property ownership.

For OFWs and Foreign Investors: No More Flying Home Just to Pay Taxes

If you’re a Filipino-American, an overseas worker, or a foreign investor who owns land or property in the Philippines, this law is music to your ears. Why? It should be emphasized that all taxes can now be filed and paid online. You have direct control over how you pay and when to pay your taxes.

Better still, the BIR now recognizes tax service providers who can file the appropriate returns on your behalf, and these filings are considered official.

That means you don’t need to fly back just to settle capital gains tax or sign estate tax documents. A well-trusted tax lawyer or CPA can now take care of this with full legal effect. With real-time access to filings and BIR receipts, managing a Philippine property portfolio abroad just became more viable.

For Brokers and Real Estate Professionals: Clarity and Control

Real estate brokers, listen up. This law could be one of the best tools you didn’t know you needed. Why?

Historically, brokers have struggled with unclear tax obligations. Are you subject to VAT or percentage tax? Are you filing too much, too often? Worse, issuing a receipt with a mismatched “business style” could trigger an audit.

What’s better now:

• The law removes the need to state “business style”, which often caused mismatches between BIR records and what’s written on paper.

• It clearly classifies taxpayers into micro, small, medium, and large, so brokers with modest earnings aren’t lumped into the same compliance group as corporations.

• Online filing is now standard, making it easier to comply, even if you live or work in provinces where tax offices are limited.

Let’s not forget the countless real estate brokers in the past who were penalized for minor infractions in receipts or due to confusion in VAT versus percentage tax requirements. Those days are long gone.

What to Watch Out For: Implementation Hiccups

While Rep. Act No. 11976 holds promise for a more taxpayer-friendly environment, its full impact will depend on the BIR’s implementation. Let’s not pretend this will be perfect after more than a year since the effectivity of this law. There are still challenges. And the success of the Act hinges on several factors.

First, the BIR’s digital infrastructure must catch up quickly. User-friendly online platforms for filing and payment are crucial for achieving the intended benefits. Nationwide implementation requires investment and training for all BIR personnel.

Second, many tax professionals and real estate service practitioners need retraining to adapt to new systems and classifications.

Third, aside from professionals, educating taxpayers about their obligations and the new system is vital for ensuring smooth adoption.

So, while the law is promising, vigilance is still the name of the game. So here are some practical advice for real estate stakeholders – whether you’re a developer, RESP, investor, or heir, here’s what you can do today to benefit from this landmark law:

1. Review your tax filings and registration. Know what category you fall under.

2. Update your invoice and receipt formats. Remove “business style” fields and comply with new standards.

3. Go digital. Sign up for BIR’s eFPS and consult with accredited service providers.

4. Ask for help. Engage a lawyer-CPA who understands both tax law and real estate. It’s worth it.

In Closing: A Quiet Revolution for a Complex Industry

The Ease of Paying Taxes Act isn’t just about cutting red tape. It’s about trust in a system that no longer sees taxpayers as adversaries, but as partners. And in the world of real estate, where fortunes rise and fall on timing, transparency, and compliance, this law may just be the quiet revolution we’ve been waiting for.

So, the next time you close a sale, inherit a parcel of land, or get ready to invest in property, take comfort in knowing that the system behind the scenes is finally catching up with you, and for you.

Rep. Act No. 11976 is not just a law. It’s a signal that things in Philippine real estate are about to get a lot easier – and a whole lot smarter. The law represents a positive step towards simplifying tax compliance in the Philippines.

If you are a real estate service professional, you can play a vital role in disseminating information about the Act’s benefits to your clients. By understanding these changes, real estate buyers, sellers, and owners can navigate the tax landscape with greater ease and confidence. Remember, consulting with a tax advisor is always recommended for specific tax situations related to real estate transactions.

Share your thoughts by leaving your comments in the comments section, and let’s start a conversation.

——-

Atty. Jojo is a real estate attorney, an estate planning attorney, a licensed real estate broker, and a PRC-accredited Lecturer/ Speaker for Training Programs in Real Estate. He is committed to helping new and veteran real estate service practitioners be well-informed of the latest laws, rules, regulations, and information relevant to the real estate service sector.

---

[1] On Interests, Royalties, Prizes, and Other Winnings, and Cash and/or Property Dividends of Individual Citizens.

[2] On Prizes amounting to PhP 10,000.00 or less; and royalties on books as well as other literary works, and royalties on musical compositions of an Individual Resident Alien.

[3] On Interest from Deposits and Yield or any other Monetary Benefit from Deposit Substitutes and from Trust Funds and Similar Arrangements, and Royalties; and Tax on Income Derived under the Expanded Foreign Currency Deposit System of Domestic Corporations.

[4] Tax on Resident and Non-Resident Foreign Corporations.