Are Homeowners' Association and Condominium Dues Subject to VAT?

Condominium corporation dues are not subject to VAT or income tax — the Supreme Court struck down the BIR circular that tried to tax them in BIR v. First E-Bank Tower Condominium Corp. (G.R. Nos. 215801 & 218924, January 15, 2020). Homeowners’ association dues sit in a different, less settled spot: BIR’s Revenue Memorandum Circular (RMC) No. 9-2013 still treats them as taxable income and VATable, unless the association meets the conditional exemption in Section 18 of Republic Act (RA) No. 9904.

Why did the BIR start taxing association dues in the first place? #

In 2012 and 2013, the BIR issued two circulars declaring that association dues collected by condominium corporations and homeowners’ associations were taxable income and subject to VAT, on the theory that the dues were payment for “beneficial services” the entity renders to its members — not simply cost-sharing among owners. This reversed the BIR’s own earlier rulings, which had treated such dues as non-income contributions used for shared maintenance.

• RMC No. 65-2012 (October 31, 2012) — declared that association dues, membership fees, and other assessments collected by condominium corporations from unit owners and tenants were payment for services rendered, making them subject to income tax, VAT, and withholding tax.
• RMC No. 9-2013 (January 2013) — extended a substantially similar position to homeowners’ associations organized under subdivision and village setups, treating their dues, membership fees, and other assessments the same way for income tax and VAT purposes.

Tax alerts republishing the circular’s text (including Grant Thornton Philippines’ tax alert archive) consistently render RMC No. 65-2012’s operative line the same way:

“Association dues, membership fees, and other assessments/charges collected by a condominium corporation … constitute income payments or compensation for beneficial services it provides to its members and tenants.”

— RMC No. 65-2012, as quoted in secondary tax-alert coverage (BIR’s own RMC PDF was not independently accessible for this article; treat this as a secondary-sourced quote, not a primary-document confirmation)

Both circulars applied the general VAT registration threshold under NIRC Section 236(F) — currently P3,000,000 in annual gross receipts — so a smaller association’s dues, even if found taxable in principle, could still fall under percentage tax or below the line entirely. See VAT Registration Threshold in the Philippines for how that threshold works.

What did the Supreme Court rule for condominium corporations? #

The Supreme Court nullified RMC No. 65-2012 outright, holding that a condominium corporation collecting dues from its own unit owners is not engaged in trade or business for profit and therefore is not generating taxable income or a VATable transaction. First E-Bank Tower Condominium Corp., a non-stock, non-profit condominium corporation, filed a petition for declaratory relief challenging the circular; the case reached the Supreme Court as consolidated G.R. Nos. 215801 and 218924, decided January 15, 2020.

The Court’s reasoning, corroborated across multiple case summaries of the decision, centered on the purpose of the collection rather than its label:

• A condominium corporation under the Condominium Act (RA 4726) exists to hold and manage the common areas of a condominium project on behalf of unit owners, not to carry on a business for profit.
• Dues, membership fees, and other assessments collected from unit owners fund necessary maintenance, security, and upkeep of common areas — they are a pooling of the owners’ own money for their shared property, not a fee paid to the corporation for a service it independently sells.
• Because there is no profit motive and no separate “customer” relationship being monetized, the dues do not meet the definition of gross income under the Tax Code, and are therefore outside both income tax and VAT.

The decision means RMC No. 65-2012 has no legal effect, and condominium corporations organized under RA 4726 should not be assessed VAT or income tax on ordinary member dues collected for common-area maintenance.

Where do homeowners’ associations stand today? #

RMC No. 9-2013 was not the circular before the Supreme Court in the First E-Bank Tower case, so the BIR’s published position for homeowners’ associations has not been formally withdrawn or judicially nullified the way the condominium circular was. Homeowners’ associations are organized and regulated differently — under RA 9904, the Magna Carta for Homeowners and Homeowners’ Associations, rather than the Condominium Act — and RMC No. 9-2013 itself already built in a narrower, conditional exemption route rather than a blanket taxable rule.

Under Section 18 of RA 9904, association dues and rental income earned by a homeowners’ association may be exempted from income tax, VAT, and percentage tax, but only if the association can substantiate all of the following:

1. The homeowners’ association is a duly constituted association as defined under RA 9904 — properly organized, registered, and recognized under the law’s requirements.
2. The local government unit (LGU) with jurisdiction over the subdivision or village issues a certification identifying the basic community services the association is providing and confirming the LGU itself lacks the resources to render those services.
3. The association’s financial statements demonstrate that the dues and rental income were actually used for the cleanliness, safety, security, and other basic services needed by members, including maintenance of subdivision or village facilities — not retained as surplus or used for unrelated commercial activity.

An association that cannot document all three conditions falls back to RMC No. 9-2013’s default position: dues are treated as taxable income and, above the VAT threshold, subject to VAT (or percentage tax below it). Because this area has genuine legal tension — practitioners and commentators have pointed out that an administrative circular cannot override a statute, and RA 9904 is the higher-ranking law — an association close to the line should not assume exemption is automatic; it should document the Section 18 conditions and, where the position is material, seek a BIR ruling or professional advice specific to its facts rather than rely on a blanket assumption either way.

Condominium corporation vs. homeowners’ association: current treatment compared #

Worked example: a village HOA with a rented function hall #

Assume Villa Marino Homeowners’ Association, duly registered under RA 9904, collects P1,500 monthly dues from each of its 400 member-households — about P7.2 million a year — used entirely for guard salaries, garbage collection, streetlight electricity, and clubhouse upkeep, all documented in its audited financial statements. The association has also obtained the required LGU certification confirming the barangay lacks the resources to provide these services itself. Under Section 18 of RA 9904, this P7.2 million in dues can be treated as exempt from income tax, VAT, and percentage tax, because the association meets all three conditions.

Separately, Villa Marino rents its clubhouse function room to outside parties — including non-member families from a neighboring subdivision — for wedding receptions and parties, earning P480,000 in rental fees for the year. This income is not dues paid by members for shared maintenance; it is commercial rental income from third parties, and it does not fall within the Section 18 exemption. Villa Marino should treat that P480,000 as ordinary taxable income and, since its combined receipts from this line of activity are well below the P3,000,000 VAT threshold on a standalone basis, apply the 3% percentage tax under NIRC Section 116 rather than VAT — unless the association is otherwise VAT-registered, in which case the rental income would be subject to output VAT. Either way, the association should issue an official receipt for the rental fee, separate from its dues collection receipts, and should still issue BIR Form 2307 to any contractor it pays for the event set-up or catering coordination if those payments are subject to expanded withholding tax.

Frequently asked questions #

Are condominium association dues subject to VAT? #

No. In Bureau of Internal Revenue v. First E-Bank Tower Condominium Corp. (G.R. Nos. 215801 and 218924, January 15, 2020), the Supreme Court declared BIR Revenue Memorandum Circular No. 65-2012 invalid and ruled that association dues, membership fees, and other assessments collected by a condominium corporation from unit owners are not subject to income tax, VAT, or withholding tax, because the corporation is not engaged in trade or business for profit when it collects them.

Are homeowners’ association dues subject to VAT? #

Under BIR Revenue Memorandum Circular No. 9-2013, association dues, membership fees, and other assessments collected by a homeowners’ association are treated as subject to income tax and VAT (or percentage tax, if below the VAT threshold), unless the association qualifies for the conditional exemption under Section 18 of Republic Act No. 9904, the Magna Carta for Homeowners and Homeowners’ Associations.

Does the Supreme Court’s condominium ruling also apply to homeowners’ associations? #

Not automatically. The First E-Bank Tower case addressed RMC No. 65-2012, which covered condominium corporations organized under the Condominium Act (Republic Act No. 4726). RMC No. 9-2013, which covers homeowners’ associations under Republic Act No. 9904, is a separate circular that the Supreme Court decision did not directly rule on, so BIR’s published position for homeowners’ associations continues to rest on RMC No. 9-2013 and the RA 9904 Section 18 exemption route rather than on the condominium case.

What conditions must a homeowners’ association meet to exempt its dues under RA 9904? #

Under Section 18 of Republic Act No. 9904, a homeowners’ association must be a duly constituted association as defined by the law, obtain a certification from the local government unit confirming it lacks the resources to provide basic community services the association is instead providing, and support its exemption claim with financial statements showing the dues and rental income were used for the cleanliness, safety, security, and other basic services and facility maintenance needed by members — not for profit-generating activity.

Is income a condominium corporation or HOA earns from non-members taxable? #

Generally yes. The rationale in both the condominium ruling and the homeowners’ association exemption route is that dues collected from members for common maintenance are not income from trade or business. Amounts a condominium corporation or HOA earns from outsiders — for example, renting a function room or parking slots to non-members, or operating a canteen open to the public — are commercial in character and are typically treated as taxable income subject to income tax and VAT (or percentage tax) in the ordinary way, separate from the member-dues question.

Do condominium corporations and homeowners’ associations still need to file BIR returns if dues are exempt? #

Yes. Exemption of association dues from VAT and income tax does not exempt the entity from BIR registration, bookkeeping, and return-filing obligations. A condominium corporation or homeowners’ association still registers with the BIR, keeps books of account, and files applicable returns for any taxable income it earns — such as interest on deposits or income from non-member transactions — even while its member dues remain outside VAT and income tax.

Summary #

Condominium corporation dues are settled: the Supreme Court’s January 15, 2020 decision in G.R. Nos. 215801 and 218924 nullified RMC No. 65-2012, so ordinary member dues collected by a condominium corporation for common-area maintenance are not subject to VAT or income tax. Homeowners’ association dues remain governed by RMC No. 9-2013, which still treats dues as taxable by default, with exemption available only if the association documents the three conditions in RA 9904 Section 18 — duly constituted status, an LGU certification, and financial statements proving the funds funded basic member services. In both cases, income earned from non-members — rentals, outside events, commercial leasing of common facilities — falls outside the member-dues exemption and is generally taxable in the ordinary way. Associations and condo corporations with borderline facts should not assume a blanket answer; document the applicable conditions and confirm treatment against current BIR guidance. For the general list of VAT-exempt transactions this sits alongside, see VAT-Exempt Transactions Under NIRC Section 109; for how the P3,000,000 threshold applies once an association’s taxable receipts (like outside rental income) are counted, see VAT Registration Threshold in the Philippines.