Dear PAO,
May Value Added Tax (VAT) be imposed upon condominium association dues? Jinda
Dear Jinda,
In the case of Bureau of Internal Revenue (BIR) vs. First E-Bank Tower Condominium Corp. (G.R. No. 215801, 15 January 2020, penned by the Associate Justice Amy Lazaro-Javier), the Supreme Court held that Value Added Tax (VAT) cannot be imposed upon condominium association dues: “Association dues, membership fees, and other assessments/charges do not arise from transactions involving the sale, barter, or exchange of goods or property. Nor are they generated by the performance of services. As such, they are not subject to value-added tax per Section 105 of RA 8424, viz.: “Section 105. Persons Liable. -Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
“xxx “The value-added tax is a burden on transactions imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto, so much so that even a non-stock, non-profit organization or government entity, is liable to pay value-added tax on the sale of goods or services.” A condominium corporation is not designed to engage in income-generating activities. Although a condominium corporation is permitted to collect association dues, this is only for the benefit of the condominium owners. This is necessary to effectively manage, maintain, or improve the “common areas” of the condominium.
Association fees and other charges do not generate income or profit to the condominium. The expenses of the condominium corporation together with the owners of the condominium units are not intended to generate income or equal the cost of doing business. It was also stated in the above case that: “Both under RA 8424 (Sections 106, 107, and 108) and the TRAIN Law, there, too, is no mention of association dues, membership fees, and other assessments/charges collected by condominium corporations being subject to VAT. And rightly so. For when a condominium corporation manages, maintains, and preserves the common areas in the building, it does so only for the benefit of the condominium owners. It cannot be said to be engaged in trade or business, thus, the collection of association dues, membership fees, and other assessments/charges is not a result of the regular conduct or pursuit of a commercial or an economic activity, or any transactions incidental thereto.” (Emphasis and underscoring supplied) Applying the foregoing, VAT is essentially a tax on consumption. It is imposed on transactions involving the sale, exchange, barter, or lease of goods, properties, and services within the Philippines, as well as on goods brought into the country through importation. As an indirect tax, it can be transferred or passed on by the seller or service provider to the purchaser, recipient, or lessee.
When a condominium corporation oversees the upkeep, administration, and preservation of the building’s common areas, it does so exclusively for the benefit of its unit owners. These activities are not commercial in nature and are not carried out as part of any profit-driven enterprise. For this reason, the association dues, membership fees, and similar charges collected from owners are not considered earnings from business operations or from any economic or commercial undertaking. As such, as mentioned by the Supreme Court in the above-cited case, the same may not be subject to VAT.
We hope that we were able to answer your queries. This advice was based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.
Thank you for your continued trust and support.
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