May VAT be imposed upon condominium association dues?

Value Added Tax (VAT) is NOT imposed on condominium association dues in the Philippines. Association dues, membership fees, and other assessments collected by condominium corporations are explicitly exempt from VAT under Philippine law.

Legal Basis for Exemption

Supreme Court Ruling

The definitive legal authority is the Supreme Court decision in G.R. No. 215801 (First E-Bank Tower Condominium Corp. v. Bureau of Internal Revenue, January 15, 2020). The Court held that:​

• Association dues, membership fees, and assessments collected by condominium corporations are not subject to income tax, VAT, and withholding tax

• A condominium corporation is not engaged in trade or business

• Dues are collected purely for the benefit of condominium owners and constitute contributions for maintenance, not income

• The dues do not arise from the sale of goods or services

This Supreme Court ruling specifically invalidated Revenue Memorandum Circular No. 65-2012 (RMC 65-2012), which had attempted to impose 12% VAT on condominium dues in 2012.manilatimes+1​

Tax Code Provisions

The exemption is codified in the National Internal Revenue Code (NIRC) through two provisions:

Section 109(Y) - VAT Exemptions: Following the Tax Reform for Acceleration and Inclusion (TRAIN) Law (RA 10963, 2018), this section explicitly lists "association dues, membership fees, and other assessments and charges collected by homeowners' associations and condominium corporations" as VAT-exempt transactions

Section 30(C) - Mutual Benefit Associations: Condominium corporations qualify as "beneficiary societies" or associations operating exclusively for the benefit of their members. No part of net income or assets may inure to any member individually.​

Conditions for the Exemption

The VAT exemption applies only if the condominium corporation meets specific requirements:

Requirement	Details
Legal Structure	Non-stock, non-profit corporation
Primary Purpose	Organized exclusively to manage and maintain common areas for members' benefit
Use of Funds	Association dues must be budgeted and spent solely for common area maintenance, utilities, security, administrative expenses, and governance
Income Activities	No substantial income-generating activities directed at non-members (e.g., commercial leasing)
BIR Certification	Must obtain and maintain a valid Certificate of Tax Exemption (CTE)
CTE Validity	Valid for three years; must be renewed periodically (RMO 38-2019)

Obtaining Tax Exemption Status

To qualify for and maintain the exemption, associations must:

1. File BIR Form 1945 with the Bureau of Internal Revenue, including:

   • Certified copies of Articles of Incorporation and By-Laws

   • Latest General Information Sheet

   • Audited financial statements

   • Detailed list of actual activities

   • Board resolution authorizing the application

2. Pay the certification fee (₱100)

3. Undergo BIR evaluation, which may include field inspection and document verification

4. Receive and maintain the Certificate of Tax Exemption, valid for three years

5. File annual returns (BIR Form 1702-EX for exempt entities) demonstrating continued compliance​

What Is Taxable vs. Exempt

Understanding the distinction is critical for proper compliance:

VAT-Exempt Receipts

• Member association dues and CUSA (common-usage-service-area) charges

• Special assessments for common area improvements

• Penalties and interest on late payment of dues (part of enforcing collection)

• Rental of function rooms to members (mutual benefit activity)

Taxable Receipts (Subject to Income Tax and VAT)

• Lease income from commercial tenants (telco antennas, retail kiosks)

• Interest income on bank deposits (subject to 20% final withholding tax)

• Unrelated commercial operations

• Services rendered to non-members for consideration​

Important Compliance Consideration

Failure to maintain the Certificate of Tax Exemption is critical. If a condominium corporation's CTE lapses due to non-renewal, the exemption is automatically lost. This means all association dues collected become taxable income retroactively, creating significant tax liabilities and penalties.​

Evolution of the Law

The current exemption status represents a reversal of the BIR's 2012 position:

Year	Action	Outcome
2012	BIR issued RMC 65-2012 imposing 12% VAT and 32% income tax	Created significant burden on condo owners
2018	TRAIN Law amended the Tax Code to expressly exempt condominium dues	Provided statutory protection
2020	Supreme Court invalidated RMC 65-2012	Confirmed exemption is constitutionally and legislatively sound
2025-2026	Current BIR position and jurisprudence confirm exemption	Stable legal framework in place

Conclusion

Condominium association dues cannot lawfully be subject to VAT in the Philippines. This protection is established through:

1. Supreme Court precedent (G.R. No. 215801)

2. Tax Code statutory exemption (Section 109(Y) and Section 30(C))

3. Legislative intent embodied in the TRAIN Law and prior homeowners association statutes

4. Underlying principle that condominium corporations are not engaged in trade or business

Unit owners and condominium boards should ensure their associations maintain valid Certificates of Tax Exemption from the Bureau of Internal Revenue to protect this exemption and demonstrate compliance to local government units and regulatory authorities.

Source: Ziggurat Real Estate

HOA can impose property construction restrictions

Can a homeowners' association restrict me to only build a two-story house?. Are these kinds of restriction allowed?

Yes, homeowners' associations (HOAs) and exclusive subdivisions often have restrictions on home construction, including height limits, architectural styles, and building materials. These rules are typically outlined in the deed of restrictions, subdivision rules, or master deed that you agreed to when purchasing the lot.

One of the most important features of Philippine Property law is the right to ownership which is protected by Republic Act (RA) 386, otherwise known as the "Civil Code of the Philippines." Articles 427 and 428 of the Civil Code of the Philippines define ownership as the independent and general right of a person to control a thing, particularly in terms of use, possession, enjoyment, disposition, and recovery, subject only to certain limitations established by law or agreements, viz.:

"Article 427. Ownership may be exercised over things or rights.

"Article 428. The owner has the right to enjoy and dispose of a thing, without other limitations than those established by law.

"The owner has also a right of action against the holder and possessor of the thing in order to recover it."

Relative thereto, Sections 10 and 18 of Republic Act (RA) 9904, otherwise known as the "Magna Carta for Homeowners and Homeowners' Association," provide for the rights and powers of the homeowners' associations (HoAs), to wit:

"Section 10. Rights and Powers of the Association. - An association shall have the following rights and shall exercise the following powers:

(j) Cause compliance with regard to height regulations, easements, use of homes, buildings, edifices, or structures that may be built within the subdivision, in accordance with the National Building Code, zoning laws, HLURB rules and regulations, existing local ordinances, and existing deeds of restriction;"

Clearly, our laws recognize the owner's right to control the property in line with these principles, subject to any limitations imposed by contracts, local ordinances, or zoning rules and regulations. Relative to validity of restrictions in deeds or contracts, Cezar Yatco Real Estate Services, Inc. vs. Bel-Air Village Association, Inc. GR 211780, 21 November 2018, with Honorable Associate Justice Marvic M.V.F. Leonen as ponente, is instructive:

"The Deed Restrictions is a restrictive covenant that governs how lot owners can use or enjoy their properties. It was annotated on the land titles issued to the lot owners and it is not disputed that lot owners are bound by these annotations under Section 39 of Act 496, or the Land Registration Act, which provides:

"Section 39. Every applicant receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land who takes a certificate of title for value in good faith, shall hold the same free of all encumbrance except those noted on said certificate, and any of the following incumbrances which may be subsisting, ..."

Thus, if there is indeed a validly instituted restriction on the number of stories or floors that can be built on the property that you purchased, then the same may be imposed or implemented by the HoA.

Corollary, as a buyer, you are duty-bound to comply with such restriction as it forms part of your contractual obligation when you purchased the subject property. Although, as owner of the property, you have rights to use and develop it, these rights are not absolute and must comply with laws, contracts, local ordinances, and zoning rules and regulations.

Source: Manila Times

Membership in Homeowners' Association

• Every homeowner shall be qualified to be a member of the association

• Membership in the association is optional

• A lessee may become a member of the homeowners’ association

How does a homeowner become a member in the homeowners’ association?

The law says:

Every homeowner shall be qualified to be a member of the association.

Unless otherwise provided in the Contract to Sell, Deed of Sale, or other instruments of conveyance, or annotated in the title of the property, membership in the association is optional.

Is a lessee qualified to be a member of the homeowners’ association?

The law says:

A lessee of a member under a contract with a term of at least one (1) year may qualify to be a member and shall have the rights of a member upon procurement of a written consent or authorization from the owner of the lot or housing unit. Until the written consent or authorization is revoked in writing, the owner of the lot or housing unit is deemed to have waived the rights of an association member except the right to inspect association books and records.

A lessee of a homeowner under a contract with a term of at least one (1) year may qualify to be a member and shall have the rights of a member upon complying with the requirements of membership under the by-laws and the law.

What are the rights of a member?

The law says:

A member in good standing shall have the right to:

1. Avail of and enjoy all basic community services and the use of common areas and facilities;

2. Inspect association books and records during office hours and to be provided upon request with annual reports, including financial statements;

3. Participate, vote and be eligible for any elective or appointive office of the association subject to the qualifications as provided for in the bylaws;

4. Demand and promptly receive deposits required by the association as soon as the condition for the deposit has been complied with or the period has expired;

5. Participate in association meetings, elections and referenda, as long as bona fide membership subsists; and

6. To enjoy all other rights as may be provided in the by-laws of the association.

What are the duties of a member?

The law says:

A member shall have the following duties:

1. To pay membership fees, dues and special assessments;

2. To attend meetings of the association; and

3. To support and participate in projects and activities of the association.

Source: alburolaw