Held
No, the rentals are not subject to 12% value-added tax, under Sections 105 and 108 of the National Internal Revenue Code of 1997 as amended.
Explanation
Section 105 of the National Internal Revenue Code (NIRC) states that any person who, in the course of trade or business, leases properties is subject to VAT under Sections 106 to 108. Section 108(A) imposes a 12% VAT on gross receipts from the lease or use of properties. However, Section 109 enumerates exemptions from VAT, including educational services rendered by duly accredited private and government educational institutions.
The key point is that the lease of properties is generally subject to VAT unless an exemption applies. Since Maharlika University is an educational institution, the rental of apartment units to it may be considered an educational service if the lease is directly related to the educational services it provides. The law exempts educational services rendered by accredited educational institutions from VAT, which would include leases that are part of their educational operations.
Application to the facts
Renoer Housing, Inc. (RHI) constructed ten apartment units and wishes to rent them out at PHP 20,000 per month each. Maharlika University, an educational institution, wants to rent all ten units for use from January 1, 2027, to December 31, 2027, for an aggregate rental of PHP 200,000 per month.
Since Maharlika University is a duly accredited educational institution, the rental of these apartment units to the university is considered part of the educational services it renders. Under Section 109(H), educational services rendered by such institutions are exempt from VAT. Therefore, the rental payments made by Maharlika University to RHI for these apartment units are not subject to the 12% VAT imposed under Section 108.
However, if RHI is renting out the units as a commercial lessor and the lease is not directly connected to the educational services of Maharlika University, the rentals may be subject to VAT. But given the facts, the rentals are for the university's use, which is an educational service exempt from VAT.
"Value-added Tax on Sale of Services and Use or Lease of Properties. (A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to twelve percent (12%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of…
"[54] (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax. (A) Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor. Products classified under this paragraph shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking…
"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. The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services."
"There shall be levied, assessed and collected, a value-added tax equivalent to twelve percent (12%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties."
"Educational services rendered by private educational institutions, duly accredited by the Department of Education (DepEd), the Commission on Higher Education (CHED), the Technical Education and Skills Development Authority (TESDA) and those rendered by government educational institutions" are exempt from VAT. (Sec 109(H), National Internal Revenue Code of 1997 as amended)
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