BIR scraps tax shield on condo dues, fees

MANILA, Philippines - The Bureau of Internal Revenue (BIR), the government’s main revenue collecting agency, has removed the tax exemptions previously granted to condominium operators for the association dues and membership fees they charge their tenants.

In a recent circular, BIR Commissioner Kim Henares said the issuance clarifies previous interpretation that effectively exempts such dues and fees from taxes.

“Gross receipts of condominium corporations including association dues, membership fees and other assessments and charges are subject to value added tax (VAT), income tax and income payments made to it are subject to applicable withholding taxes under existing regulations,” Henares said.

In the past, the BIR issued several rulings exempting from income tax the charges collected by condominium corporations from its members on the ground that the association dues are merely held in trust by operators to be used for operating and maintenance costs.

The BIR said that the previous rulings also exempted association dues from VAT, saying that “condominium corporations do not sell, barter or exchange goods and property nor does it render service for a fee but merely implements the administration of the required services to collect the associated dues from the unit owners pursuant to its corporate purpose as trustee of the fund.”

However, in the circular, Henares clarified that this previous interpretation is wrong.

She said the association dues, membership fees and other assessments or charges collected by a condominium corporation constitute income payments or compensation for beneficial services it provides to its members and tenants.

“The previous interpretation that the assessment dues are funds which are merely held in trust by a condominium corporation lacks legal basis and is hereby abandoned,” Henares said.

Furthermore, she said association dues, membership fees and other assessments and charges collected by a condominium corporation are subject to VAT since they constitute income payment or compensation for the beneficial services it provides to its members and tenants.

The BIR made the clarification as part of efforts to raise more revenues. This year, the agency is tasked to collect P1.066 trillion.