Cndominiums continue to become an important part of the cityscape of the Philippines.

Just taking a walk in Manila, Makati or Bonifacio Global City shows us that there seems
to be no end to the number of condominiums being built as the demand increases.

Managers of these newly opened condominiums should know what taxes must be paid
by condominium corporations from their purchase and continued use.

For every individual purchase of a condominium unit, the condominium corporation

must pay the corresponding income tax. Also, every year, real property tax will have to
be paid to the local government unit, which has jurisdiction over the area where the
property is located. This responsibility may eventually be transferred to the buyer of the
unit.

With respect to the condominium corporation, there are some tax issues related to the
collection from its members. A unit owner pays association dues and other fees to the
building administrator of the condominium corporation for the maintenance and general
improvement of the condominium building and facilities.

Should these sums be considered taxable income of the condominium corporation? Are
they subject to income, withholding or value-added tax (VAT)?

The 2014 case of OfficeMetro versus Commissioner of Internal Revenue is instructive.

In this case, the taxpayer, OfficeMetro, was assessed for deficiency in the payment of
the expanded withholding tax for 2005. However, OfficeMetro asserted that these were
actually payments of condominium dues and should not form part of the condominium’s
taxable income. It argued that the same should not be subject to withholding tax.

The Court of Tax Appeals (CTA) ruled that OfficeMetro was correct. Association or
condominium dues, membership fees and other assessments collected from the
members, or unit owners, which are merely held in trust and which are to be used solely
for administrative expenses in implementing their purpose and from which the
corporation could not realize any gain or profit as a result of their receipt thereof, must
not be included part of the corporation’s gross income.
In other words, if the payments are to be used for the maintenance and upkeep of
condominium facilities and to raise the quality of life of the condominium occupants,
they do not form part of the income of the condominium corporation. This means that a
condominium corporation should not be subject to the aforementioned taxes.

This interpretation of the CTA has been integrated by the Bureau of Internal Revenue.
Revenue Regulation 13-18, which implements the VAT provisions under the Tax
Reform for Acceleration and Inclusion law, holds that association dues, membership
fees collected on a purely reimbursement basis by homeowners’ associations and
condominium corporations shall be VAT exempt.

Taxes are the lifeblood of the nation. As such, we all must do our part. However, one
must also be vigilant in paying only those taxes that one is obliged to pay.

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The author is a junior associate of Du-Baladad and Associates Law Offices (BDB Law),
a member-firm of WTS Global.

The article is for general information only and is not intended, nor should be construed
as a substitute for tax, legal or financial advice on any specific matter. Applicability of
this article to any actual or particular tax or legal issue should be supported therefore by
a professional study or advice. If you have any comments or questions concerning the
article, you may e-mail the author at josemilio.teves@bdblaw.com.ph or call 403-2001
local 150.