
REVENUE MEMORANDUM CIRCULAR NO. 9-2013 issued on January 30, 2013 clarifies the taxability of association dues, membership fees and other assessments/charges collected by homeowners’ association from its homeowner-members and other entities.
Section 18 of Republic Act (RA) No. 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 tax under existing laws. 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. This is because a homeowners’ association furnishes its members with benefits, advantages and privileges in return for such payments.
For tax purposes, the association dues, membership fees and other assessments/charges collected by a homeowners’ association constitute income payments or compensation for beneficial services it provide to its members and 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 abandoned. Moreover, since a homeowners’ association is subject to Income Tax, income payments made to it are subject to withholding taxes under existing regulations.
Association dues, membership fees and other assessments/charges collected by a homeowners’ association are subject to Value-Added Tax (VAT) since they constitute income payment or compensation for the beneficial services it provide to its homeowner-members. Those exempt from the payment of VAT under Section 109(V) of the National Internal Revenue Code (NIRC) are liable to pay Percentage Tax.
Pursuant to Section 18 of RA No. 9904, the association dues and income derived from rentals of the homeowners’ association’s properties may be exempted from Income Tax, VAT or Percentage Tax subject to the following conditions:
a. The homeowners’ association must be a duly constituted “Association” as defined under Section 3(b) of RA No. 9904;
b. The local government unit having jurisdiction over the homeowners’ association must issue a certification identifying the basic services being rendered by the homeowners’ association and therein stating its lack of resources to render such services notwithstanding its clear mandate under applicable laws, rules and Provided further, that such services must fall within the purview of the “basic community services and facilities” which is defined under Section 3(d) of RA No. 9904 as those referring to services and facilities that redound to the benefit of all homeowners and from which, by reason of practicality, no homeowner may be excluded such as, but not limited to: security; street and vicinity lights; maintenance, repairs and cleaning of streets; garbage collection and disposal; and other similar services and facilities.; and
c. The homeowners’ association must present proof (i.e. financial statements) that the income and dues are used for the cleanliness, safety, security and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages.