BIR amends Real Property tax rules for businesses and taxpayers

09 January 2024
The Bureau of Internal Revenue (BIR) clarifies the application of taxes on sale of real property considered as ordinary assets.

The BIR clarifies the different taxes that will be applied during the sale of Real Property considered as Ordinary Assets through their Revenue Memorandum Circular (RMC) 99-2023 which was released on October 3, 2023. The memorandum was issued in accordance with the need for a uniform application of tax laws and regulations regarding the sales and transfers of real properties that are also classified as “ordinary assets” and to serve as a guide to the offices that are processing the electronic Certificate Authorizing Registration (eCAR).

Definition of Ordinary Assets

Revenue Regulations (RR) No. 7-2003 currently provides that properties considered "ordinary assets" shall refer to all "real properties" specifically excluded from the definition of capital assets under Section 39(A)(l) of the National Internal Revenue Code (NIRC) of 1997, as amended. The following are considered as “ordinary assets”:

  • 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
  • Real property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business; or
  • 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 under Section34(F) of the NIRC of 1997, as amended; or
  • Real properties used in trade or business of the taxpayer; or
  • In the case of banks, real properties acquired through a foreclosure sale.

The RMC also clarified that any real properties seized by the government while exercising regulatory functions that were eventually sold through public auction are not considered "ordinary assets". Although it is part of the "inventory" of the government primarily held for sale, the real property in the hands of the government shall not be considered "stock in trade/inventory" in the ordinary course of trade or business.

Issuance of Sales Invoice

For every sale of real properties classified as "ordinary assets", the sellers are required to issue a Sales Invoice pursuant to Section 237 of the NIRC, as amended. However, in the case of a VAT-registered taxpayer who is engaged solely in the sale of service, consequently thereof, has only Authority to Print for Official Receipt (OR), the issuance of an OR covering the sale of its real property used in trade or business is permitted as the sale is merely incidental to its regular business operations.

Furthermore, the RMC explains that if the seller's registered business is "real estate business", the sales shall form part of its gross sales. Otherwise, if the seller is not involved in the real estate business, the sale of real property, though covered by a sales invoice, shall not form part of the gross sales. The gain on the sale of such real property shall be declared as other taxable income which shall be declared in the seller's Income Tax Return (ITR). The gain is computed by deducting the book value of the real property from the selling price indicated in the sales invoice.

Any creditable tax withheld by the purchaser shall be claimed as a tax credit. A copy of the duly files BIR Form No. 1606 with proof of payment of the Creditable Withholding Tax shall be attached to the ITR where the sales were declared by the seller as proof of tax credit that shall be deducted from the seller's tax due.

When it comes to the required tax return filings, the RMC explains that if the real property is considered an "ordinary asset" of the transferor/seller, the tax returns to be filed are:

  • BIR Form No. 1606 for the remittance of Expanded Withholding Tax on the purchase of real property; and
  • BIR Form No. 2000-OT for the declaration and payment of the Documentary Stamp Tax (DST) due on the transfer/sale of real property.

Value Added Tax Implications

For VAT purposes, the sale of real property generally classified as “ordinary assets” will be subject to Value Added Tax (VAT). However, there will be instances where these sales will not be subject to VAT which are as follows:

  • When the real property is used in business by a "Non-VAT Registered Person", whose transactions are under Section 109(1)(A) to (BB) of the Tax Code, as amended; or
  • When the real property subject of sale/transfer falls under Section 109 (P) of the NIRC, as amended (i.e., sale of real property utilized for socialized housing as defined by Republic Act No. 7279, as amended; sale of house and lot and other residential dwellings with the selling price of not more than ₱ 3,199,200.00: provided that every three (3) years thereafter, the amount shall be adjusted to its present value using the Consumer Price Index as published by the Philippine Statistics Authority [PSA].

It is also clarified that if the sale of real property is subject to VAT, the taxable base that will be used shall be the "gross selling price or gross value in money of the goods or properties sold, bartered or exchanged”. The "gross selling price" shall mean the consideration stated in the sales document or the fair market value, whichever is higher. The term "fair market value" shall mean whichever is the higher of:

  •  Fair market value as determined by the Commissioner (zonal value), or;
  • The fair market value as shown in the schedules of values in the Provincial or City Assessors (Real Property Tax Declaration).

The RMC also discusses the rules when it comes to donated real properties. It was mentioned that any donation by a VAT-registered person of a property classified as an “ordinary asset” is hereby considered a transaction “deemed sale” subject to VAT. If the donor-taxpayer is not a VAT-registered person, the donation is then exempt from VAT.

Moreover, if a real property is originally intended for use in business, it will be considered a “deemed sale” transaction and will be subject to the payment of VAT.



The RMC was made following Revenue Regulation 7-2003, which states that “ordinary assets” that were excluded from the definition of capital assets are now referred to as “real properties” while also solidifying the situations in which real property is referred to as an ordinary asset.

The circular then clarifies that the sellers of these "ordinary assets” must now file an Issuance of Sales Invoice regarding the sale of properties classified as “ordinary assets” and if these sellers’ registered business is "real estate business" then sales will form part of its gross sales. It’s then stated that the tax returns must be filed if the real property has been considered an ordinary asset [BIR Form No. 1606 and BIR Form No. 2000-OT].

Lastly, the RMC explains that while real properties classified as ordinary assets will still be subjected to VAT, there will be instances where such sales will not be subject to VAT. Additionally, if a VAT-registered taxpayer donates a property labelled as an ordinary asset, it’s still considered a “deemed sale” as will be subject to VAT. But if the donator isn’t VAT registered then they won’t be exempt from VAT.