COMMERCIAL LEASE

TAXES ON RENT OR OTHER TAXES THAT LANDLORD ARE REQUIRED TO

COLLECT FROM TENANTS:
1. Documentary tax on lease agreement
2. Creditable withholding income tax (required to be withheld at source by
tenant; tax is creditable which is due from the landlord)
3. VAT (which may be passed on by landlord to tenant)
 If rent payments exceed 12,800per month received by landlords
whose gross rental income exceed 1,919,500 – 12% VAT
 Otherwise, 3% percentage tax on the gross rent
4. Local business tax, mayor’s permit (rates may vary among cities and
municipalities)
5. Others
 Real property tax: RPT is a tax paid by real property owners to the
local government unit
 Special Education fund: LGU may levy and collect an annual tax
rate of 1% on the assessed value of the property

RENTAL INCOME TAX

An owner of a rental property is subject to rental income tax, if:

 Gross income earned by the lessor and his or her spouse from a property
is at least 64,000 per month
 Rental property is directly owned by the lessor or jointly with his or her
spouse
 Lessors are earning no other type of income
 No existing mortgage (no loan is taken for the purchase of property)

Filing Rental Income Tax

Rental income tax falls under annual income tax for self-employed individuals,
estates, and trusts (including those with mixed income sources, i.e.,
compensation income and income from business and/or practice of profession);
thus, it will be filed under BIR Form 1701. If you are earning money from a rental
property, you will need to fill out this BIR form.

Requirements and Procedure in paying Rental Income Tax

Annual Income Tax For Self-Employed Individuals, Estates And Trusts
(Including Those With Mixed Income, i.e., Compensation Income and
Income from Business and/or Practice of Profession)
Tax Form
BIR Form 1701 - Annual Income Tax Return (For Self-Employed Individuals,
Estates and Trusts Including Those With Both Business and Compensation
Income)
Documentary Requirements
1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316), if
applicable
2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form
2304) if applicable
3. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if
applicable
4. Waiver of the Husband’s right to claim additional exemption, if applicable
5. Duly approved Tax Debit Memo, if applicable
6. Proof of Foreign Tax Credits, if applicable
7. Income Tax Return previously filed and proof of payment, if filing an amended
return for the same year
8. Account Information Form (AIF) or the Certificate of the independent CPA with
Audited Financial Statements if the gross quarterly sales, earnings, receipts or
output exceed P 150,000.00
9. Proof of prior year’s excess tax credits, if applicable
Procedures
1. Fill-up BIR Form 1701 in triplicate copies.
2. If there is payment:
• Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue
District Office where you are registered and present the duly
accomplished BIR Form 1701, together with the required attachments and
your payment.
• In places where there are no AABs, proceed to the Revenue Collection
Officer or duly Authorized City or Municipal Treasurer located within the
Revenue District Office where you are registered and present the duly
accomplished BIR Form 1701, together with the required attachments and
your payment.
• Receive your copy of the duly stamped and validated form from the teller
of the AABs/Revenue Collection Officer/duly Authorized City or Municipal
Treasurer
3. For "No Payment" including refundable/ creditable returns, returns with
excess tax credit carry over, and returns qualified for second installment:
• Proceed to the Revenue District Office where you are registered or to any
established Tax Filing Centers established by the BIR and present the
duly accomplished BIR Form 1701, together with the required
attachments.
• Receive your copy of the duly stamped and validated form from the
RDO/Tax Filing Center representative.
Deadline
Final Adjustment Return or Annual Income Tax Return – On or before the 15th
day of April of each year covering income for the preceding year.

Basic Penalties for Late filing and payment of Taxes

· PENALTY
25% surcharge on basic tax due
50% surcharge in case of fraud or intent to evade tax
· INTEREST
20% per annum based on basic tax due
· COMPROMISE PENALTY
Subject to type and amount of tax due

VAT

In general, all forms of lease of properties held primarily for lease to customers in
the ordinary course of trade or business, whether personal or real, shall be
subject to 12% Value Added Tax (VAT), except or unless the gross annual
receipts of the lessor do not exceed P1,919,500 and is non-vat registered shall
be subject to 3% percentage tax under Section 116 of the Tax Code

Gross receipts from lease of commercial units are subject to 12% VAT if the
property leased is located in the Philippines regardless of the place where the
contract of lease or licensing agreement was executed.

In a lease contract, advance payment by the lessee may be: a loan to the lessor
from the lessee, an option money for the property, and a security deposit to
insure the faithful performance of certain obligations of the lessee to the lessor
are not be subject to VAT. But a security deposit that is applied to rental is
subject to VAT at the time of application. A prepaid rental is subject to VAT to the
lessor in the month when received, regardless of the accounting method applied
by the lessor.

While, the gross receipts from lease of "residential units" are subject to the
following rules: If the monthly rental is not more than P12,800 per unit, per
month, regardless of the aggregate annual rentals and if the monthly rental is
more than P12,800 per unit, per month but the aggregate annual rentals do not
exceed P1,919,500 are VAT exempt subject to 3% percentage tax under Section
116 of the Tax Code. However, if the monthly rental exceed P12,800 per unit, per
month and the aggregate annual rentals exceed P1,919,500 shall be subject to
12% Value Added Tax (VAT). Provided, every 3 years thereafter, the amount
shall be adjusted to its present value using the Consumer Price Index, as
published by the NSO; Provided, further, that such adjustment shall be published
through revenue regulations to be issued not later than March 31 of each year.

Revenue Regulations No. 16-2011:

Section 3. VAT EXEMPT TRANSACTIONS. - Sections 4.109.-1 (B)(1) (e)(1),

(p)(4), (q) and (v) of Revenue Regulations No. 16-2005, as amended, is hereby
further amended to read as follows:
"(e) Services subject to percentage tax under Title V of the Tax Code, as
enumerated below:

(1) Sale or lease of goods or properties or the performance of services of non-

VAT-registered persons, other than the transactions mentioned in paragraphs (A)
to (U) of Sec. 109(1) of the Tax Code, the gross annual sales and/or receipts of
which does not exceed the amount of One Million Nine Hundred Nineteen
Thousand Five Hundred Pesos (P1,919,500.00); Provided, That every three (3)
years thereafter, the amount herein stated shall be adjusted to its present value
using the Consumer Price Index, as published by the National Statistics Office
(NSO) (Sec. 116 of the Tax Code); Provided, further, that such adjustment shall
be published through revenue regulations to be issued not later than March 31 of
each year;

(v) Sale or lease of goods or properties or the performance of services other than
the transactions mentioned in the preceding paragraphs, the gross annual sales
and/or receipts do not exceed the amount of One Million Nine Hundred Nineteen
Thousand Five Hundred Pesos (P1,919,500.00); Provided, every three (3) years
thereafter, the amount shall be adjusted to its present value using the Consumer
Price Index, as published by the NSO; Provided, further, that such adjustment
shall be published through revenue regulations to be issued not later than March
31 of each year;

For purposes of the threshold of P1,919,500.00, the husband and the wife shall
be considered separate taxpayers. However, the aggregation rule for each
taxpayer shall apply. For instance, if a professional, aside from the practice of his
profession, also derives revenue from other lines of business which are
otherwise subject to VAT, the same shall be combined for purposes of
determining whether the threshold has been exceeded. Thus, the VAT-exempt
sales shall not be included in determining the threshold.

REAL PROPERTY TAX

RPT = RPT rate x assessed value. What are the rates? For cities and
municipalities in Metro Manila, it is 2%. For properties in provinces, it is 1%. On
the other hand, the assessed value is the fair market value of the property
multiplied by the assessment level or the percentage applied to the fair market
value to arrive at the taxable value of the property. Limitations were established
regarding these percentages to avoid abuse of authority by the LGU. Ceiling and
base rates were given. For residential properties including condos for rent in the
Philippines, the maximum percentage is 20% while the ceiling for commercial
and industrial properties is at 50%.
When and where?
The RPT can be settled at the city or municipal treasurer’s office. Owners and
administrators can pay the RPT in full or installment basis. If you choose to pay it
all at once, the payment is due on or before January 31. If you decide to pay in
tranches, you have to pay on or before the last day of each quarter and
remember four important dates: On or before March 31, June 30, September 30,
and December 31.

Discount and penalties

The rule in paying real property tax is simple: if you pay early, you get a discount
but if you pay late, there will be penalties. Let’s start with the good stuff. If the
basic RPT and additional taxes are paid in advance, the LGU may grant a
discount not exceeding 20% of the annual tax due. You have to check with your
LGUs because discounts usually differ per city or municipality. In Paranaque for
example, if you pay in full before December 15, you get the maximum 20%
discount. If you settle after December 15 but before December 31, you still get a
16% discount from the annual tax due.

Failure to pay the real property tax on time will subject owners to late payment
interest rate of 2% to 72% on the unpaid amount depending on the months of
delay. Maximum is up to 36 months.

LOCAL BUSINESS TAX

LGC requires all business entities to renew their business permits and pay their
local business taxes on or 20 January of each year

The LGC provides that the local business tax payable would depend on the
amount of gross sales or gross receipts of the previous taxable year which a
business has to declare. For example, the local business tax that is payable for
the year 2010 would be based on the gross sales or gross receipts in the year
2009.

BUSINESS PERMIT

2016 Business Permit Renewals and Annual Filing

COMPUTATION OF BUSINESS PERMIT FEES

Business tax is imposed upon the company’s gross sales or receipts. Rates vary
depending on the nature of the business under Section 143 of the Local
Government Code of the Philippines.

Gross Sales or Receipts include the total amount of money or its equivalent
representing the contract price, compensation or service fee, including the
amount charged or materials supplied with the services and deposits or advance
payments actually or constructively received during the taxable quarter for the
services performed or to be performed for another person excluding discounts if
determinable at the time of sales, sales returns, excise tax, and value added
taxes (Book II, Section 130 (n) Local Government Code).

Sec. 143(h) On any business, not otherwise specified in the preceding

paragraphs, which the sanggunian concerned may deem proper to tax: Provided,
That on any business subject to the excise, value-added or percentage tax under
the National Internal Revenue Code, as amended, the rate of tax shall not
exceed two percent (2%) of gross sales or receipts of the preceding calendar
year. The sanggunian concerned may prescribe a schedule of graduated tax
rates but in no case to exceed the rates prescribed herein.cralaw

Initial Fee - based on

business activity

Mayor's Permit Local Government Unit Garbage Fee - based on Within

(License to (Office of the Mayor) where land/floor area two (2)
operate) business is located weeks
License Fee – Php .25
for every Php 1,000 of
company's capital

Transaction Person Maximum Documents to be Amount of

Procedure Responsible for Time to presented, Fees
(Client Step) each Step conclude if necessary
the
process
A. New Business
Registration
INQUIRE/SECURE Glenda Bondoc, 5 Minutes • Barangay 25% of 1% of
application form & Oscar Santos, Clearance Capital
requirements Susan Ferrer • Zoning Ord. 27, s.
Alicia Flores Clearance 2013
• Picture of Marikina
business Revenue Code
establishment
• Other National
Requirements
1. FILE your Glenda Bondoc, 5 - 10
business application Oscar Santos, Minutes
& requirements Susan Ferrer

2. PAY your billing & Treasurer's Billing

Permit Office Cashier
B. Renewal of
Business
INQUIRE/SECURE Glenda Bondoc, 2 Minutes • Barangay Tax is based
application form & Oscar Santos, Clearance on Gross
requirements Susan Ferrer Sales/Receipts
Alicia Flores Ord. 27, s.
2013
sec.28
Marikina
Revenue Code
1. FILE your Resurreccion 5 Minutes
Renewal application Badua, Marissa
& requirements Ramos, Timoteo
Rodriguez,
Victoria Manuel

2. PAY your Billing & Treasurer's Billing

Permit Office Cashier

Cost of Getting a Mayor’s Business Permit (Tacloban City)

Brgy. clearance fee: Php 350 (has increased to P500 in 2015)
Corporate community tax certificate: Php 500
Mayor’s business permit fee for new business: Php 2,504
Fire safety and inspection fee: Php 1,340
Sub Total: Php 4,694

Gross income includes, but is not limited to the following:

• Compensation for services, in whatever form paid, including but not limited to
fees, salaries, wages, commissions and similar item
• Gross income derived from the conduct of trade or business or the exercise of
profession
• Gains derived from dealings in property
• Interest
• Rentals
• Royalties
• Dividends
• Annuities
• Prizes and winnings
• Pensions
• Partner's distributive share from the net income of the general professional
partnerships

Lessor’s income tax

Proprietorship
Rate
Binangonan range