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Tax And Real Estate In The Philippines

| by Apple Barretto

A lawyer overseeing contract of a newly bought house

What do you need to know about train law and real estate in the Philippines?

  1. Homes For Everyone
  2. Comprehensive Tax Reform Program (CTRP)
  3. Train Law Scope And Purpose
  4. Lowering Of Vat Threshold In Real Estate
  5. The Right Time To Buy A Home

Shelter is a basic need and a fundamental human right. If you’re planning to purchase a home, it is important that you are knowledgeable about Tax Reform for Acceleration and Inclusion (Train) Law and real estate in the Philippines. The Train law is part of the Comprehensive Tax Reform Program which modifies the tax on goods and services, including property transactions. Continue reading to learn more.

Homes For Everyone

House with green roof among white homes

The  general purpose of the Train Law is to lessen the gap between the rich and the poor by addressing inequality.  By being able to provide secure and affordable housing  to each and everyone, the Law provides the foundation to improving the country’s economic infrastructure. The Train Law also enables a fairer national tax system with the changes in taxes levied on real estate transactions. Moreover,  the creators of the law seek to see some positive changes within the industry.

Because the VAT exemption threshold decreases every 3 years, it encourages more developers to focus on building low-cost homes. This gives the average Filipino citizen more affordable housing choices in the market.

Buyers will also enjoy huge savings because homes under 2 million pesos are exempt from VAT starting January 1, 2021. This means that they won’t have to pay Value added tax. They will only need to purchase the property itself.

Comprehensive Tax Reform Program (CTRP)

The CTRP is a system of changes created to make a streamlined and more efficient tax system for the Filipino people. Its purpose is to reduce poverty by addressing problems when it comes to inequality. The program is currently divided into 4 parts:

  • Train Law, Tax Amnesty, and Motor Vehicle User’s Charge
  • Topics about the Corporate Income Tax and Sin Tax
  • Real Property Valuation
  • Passive Income and Financial Taxes

Train Law Scope And Purpose

A calculator with tax written on blocks

Under the CTRP’s 1st package is the Tax Reform for Acceleration and Inclusion (TRAIN) Law. This law was approved and passed last December 19, 2017. It covers provisions for tax changes in income, oil, automobile, sweetened beverages, mining, tobacco, cosmetics, documentary, foreign currency, stocks, donor, and estate.

While this law reduced the income tax, it increased the excise on other goods and services. These revenues are used to fund the construction of infrastructures under the Build, Build, Build program, which was launched by the Duterte administration.

The TRAIN Law also finances the tax for certain medicines, helped build more classrooms and hire more teachers, improve healthcare, support PUV drivers, and initiated more cash transfers for poor households.

Lowering Of Vat Threshold In Real Estate

Aside from goods, these reforms were aimed towards housing and properties in the Philippines. While the TRAIN Law reduced the estate tax to a flat rate of 6%, the changes in real estate transactions are more complicated.

TRAIN  lowers the VAT exemption on residential lots from Php 1,919,500 to Php 1,500,000. However,  this  exemption was only applicable before January 1, 2021.

When it comes to residential dwellings or house & lots and condominiums, the VAT exemption threshold has also changed. Formerly, all properties with values of Php 3,199,200 and below were exempted from VAT. The Train Law reduced this limit to Php 2,500,000, so properties above this amount are levied with tax. This limitation will be reduced every 3 years starting from 2017, which means that on January 1, 2021, the limit of Php 2,500,000 decreased to Php 2,000,000. This means that currently, only properties 2 million and below are free from VAT.

The Right Time To Buy A House

A wooden home with new keys

In general, the tax reform promotes more low-cost houses to be built in the Philippines. Developers who prioritized these are benefitting from the VAT exemption. So what do all these changes mean for the average Filipino looking to buy his or her own residence?

Remember that the VAT Threshold will decrease once again after 3 years. This means that a 2 million home would be levied with taxes in the future. To get the best value for your dream house, it is a good idea to seize the opportunity now.

As time goes by, more homes will be charged with tax, which might give you fewer options for the same budget. This could mean that you would have to settle for smaller properties  and lots.

Key Takeaway

In this article, you learned more about Train Law and real estate in the Philippines. Aside from reducing income tax and increasing the excise charged on certain goods and services, the law also modified the levy on real estate transactions.

The law reduced the threshold of Vat Exemption to promote the development of more low-cost homes. If you’re planning to purchase your first house, lot, or condominium, it is a good idea to seize this opportunity to buy properties without the sales tax.

If you’re looking for affordable housing in safe and secure gated communities all around the country, you can check out Pueblo de Oro’s residences. Located in Batangas, Pampanga, Cebu, and Cagayan de Oro, these townships and communities have all the gold standard amenities for you to enjoy.

If you require assistance and have any questions or inquiries, you can send us a message here.

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