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Rental Income Tax

Everything you need to know about Income Tax in the Philippines

What will be discussed:

 

What is a Rental Income Tax?

What is a Gross Income?

What are some of the exclusions from gross income?

Qualification subject to Rental Income Tax

Requirements and Procedure in paying Rental Income Tax

Basic Penalties for Late filing and payment of Taxes

 

What is a Rental Income Tax?

The tax collected on the average gross annual income on a rental apartment/property in the country. Rental tax is charged instead of a sales tax when equipment or properties are leased.  So instead of paying a sales tax for purchase of the leased equipment, taxes are collected by the Lessor in addition to the rentals over the lease term.

What is a Gross Income?

Gross income means all income derived from whatever source.

 

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

Qualification subject to Rental Income Tax

Assuming that:

o    Gross rental income is US$1,500 or more or less P64,000/month

o    The property is personally directly owned jointly by husband and wife

o    They have no other local income

o    There is no mortgage, i.e., no loan is taken for the purchase

In arriving at the pre-tax profit figure, we calculate, and deduct:

o    Depreciation / capital allowances if available. We assume a value for the apartment based on our valuation research, and depreciate on this basis.

Deductions are also made from any other costs which a landlord normally pays - management charges, buildings insurance, and realtor agency fees. There is a choice between standard percentage deductions (if available) or typical actually incurred costs. Real estate tax is normally payable by the landlord.

 

Note:

Under existing VAT regulations, rental payments exceeding PHP10,000 (US$216) per unit received by landlords whose gross annual rental income exceed PHP1,500,000 (US$32,427) are subject to 12% VAT. If the gross annual rental income is less than PHP1,500,000 (US$32,427), the applicable tax rate is 3%. The VAT burden is generally shouldered by the tenants but for calculation purposes, the VAT was added to the landlord’s tax liability.

 

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

 

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