Homeowners' associations must now pay VAT on dues — BIR

Homeowners' associations (HOAs) must now pay value added tax (VAT) on association dues, membership fees and other charges, the Bureau of Internal Revenue (BIR) said in a circular. In its Revenue Memorandum Circular 9-2013 dated Jan. 29, the BIR said that for tax purposes, the association dues, membership fees and other charges paid to HOAs constitute income payments or compensation for services provided to tenants. “The previous interpretation that the assessment dues are funds which are merely held in trust by a homeowners' association lacks legal basis and is hereby abandoned," the circular said. The circular cited Republic Act 9904, or the Magna Carta for Homeowners and Homeowners' Association, which allows tax exemptions for HOAs if their local government units lack resources to provide basic services and the HOAs must step in to help LGUs provide these services. "RA 9904, which exempts from taxation the association dues and income derived from rental subject to certain conditions, is an implied recognition by Congress that such receipts are subject to income tax,” said the circular. "Thus, the amounts paid in as dues or fees by homeowner-members of a homeowners' association form part of the gross income of the latter subject to income tax.” And since association dues are subject to income tax, income payments made to it are subject to VAT and other applicable withholding taxes. According to the BIR, homeowners' associations that want to apply for exemptions provided under RA 9904 must obtain a certification from their LGHU stating that the LGU lacks the resources to provide for the necessary services to their homeowners association. Last year, the BIR also removed the exemption previously granted to condominium operators for the association dues and membership fees they charge their tenants, reversing its previous decision. — BM, GMA News