Sale of Real Property Used in Business Exempt from VAT


The sale of a mall building used by a company engaged in wholesale and retail for its department store/dry goods section and grocery store operations, with less than five percent of the total mall building space rented out to tenants, is exempt from value-added tax (VAT) in accordance with BIR Ruling DA 130-A-03, April 25, 2003.

Pursuant to the VAT law and regulations, the sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business is exempt. To be “held” primarily for sale or lease,” the property must be held with the chief intention of being sold or leased. Since the main line of business of the seller is wholesale and retail of goods, wares, merchandise and other commodities, the subject real properties cannot be considered as being held primarily for sale to customers.

On the other hand, while a small portion of the mall building is being rented out, this only constitutes less than five percent of the total mall building spaces. Thus, it cannot be said that the subject properties are held primarily for lease.

Furthermore, the sale was not made in the ordinary course of the regular trade or business, but was merely an isolated transaction. The properties are likewise not among the stock in the trade of the company since it is not primarily engaged in the buying and selling of real properties, nor in the leasing of properties.