- Ziggurat Realestatecorp
- 5 days ago
- 3 min read
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:
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
Pay the certification fee (₱100)
Undergo BIR evaluation, which may include field inspection and document verification
Receive and maintain the Certificate of Tax Exemption, valid for three years
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:
Supreme Court precedent (G.R. No. 215801)
Tax Code statutory exemption (Section 109(Y) and Section 30(C))
Legislative intent embodied in the TRAIN Law and prior homeowners association statutes
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