3 Things to Know when Buying or Selling Corporation Owned Properties

Are you planning to buy or sell a real estate property owned by a corporation? It is important to note that this process has additional requirements compared to buying or selling properties that are individually owned. In my recent transaction, I learned first-hand about the process and here are three key things to keep in mind for a smooth and successful transaction:

1. Make sure you have a notarized Board Resolution and Secretary’s Certificate

The Corporate Seller needs to have a Board Resolution signed by all members of the Board and a Secretary's Certificate signed by the Corporate Secretary regarding the sale of the property. A board resolution is a formal document that outlines the decisions or actions taken by the board of directors during a meeting; whereas a Secretary's Certificate certifies that a particular board resolution has been duly adopted and is in full force and effect. To avoid any questions from BIR (and Registry of Deeds), these documents should be complete and notarized.

2. Check if the property is an “Ordinary Asset”

An “Ordinary Asset” is an asset that is held for use in the normal course of a business or trade. If the property being sold is classified as an Ordinary Asset by the BIR, the Seller will be subject to 12% VAT, Corporate Income Tax, Business/City Tax*; in addition to a 6% Withholding Tax (instead of Capital Gains Tax). In practice, here are some elements BIR will use to tag a property as an Ordinary Asset:

• If the name of the corporation implies that the corporation is in the real estate business (e.g. DY Real Estate Inc., DY Leasing Corp. etc.)
• If the line of business (regardless if primary/secondary/etc.) on the Corporation’s BIR 2303 Certificate of Registration states that the corporation is in the business of Real Estate Buying, Selling, Renting, Leasing (i.e. code 68110).
• If the Corporation’s Audited Financial Statements show any Depreciation Expense on the real estate property (usually found in the notes to financial statement).

Ultimately, a property’s classification as an Ordinary Asset will significantly affect a Seller’s net proceeds. While property owners can engage BIR to justify whether or not a property is an Ordinary Asset, from a practical standpoint, BIR will try to maximize its revenues and interpret a property’s documents in that regard.

3. Make sure to get an Official Receipt for the Sale

The sale of Corporation Owned Properties will (more often that not) require an Official Receipt. If the seller is a dormant/inactive corporation, the seller should ensure they have Official Receipts on/before signing the Deed of Absolute Sale. Furthermore, to avoid complications or delays, make sure the notarization date on the Deed of Absolute Sale is the same as the date on the sale’s Official Receipt.

In conclusion, selling or buying corporation-owned properties requires careful and thorough understanding of the process and potential challenges, and it is essential to be well-informed to ensure a smooth transaction. If you need to consult or are looking to sell or buy a property, feel free to reach out to me for assistance.

Last and definitely not the least, I would like to express my gratitude to God for the opportunities and new clients, and for this recognition following a great start to 2023 ??.

Each real estate transaction has truly been a unique and valuable learning experience, and I'm grateful for the chance to help clients achieve their real estate goals.

Until next time, take care and God bless,

Derek Yazon

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Disclaimer: This article is based on actual personal experience and research, and is intended to provide general information and tips for selling and buying corporation-owned real estate. Real-life practice is subject to interpretation and may not always follow textbook guidelines. While every effort has been made to ensure the accuracy of the information presented, readers are advised to consult with legal and financial professionals for specific guidance on their individual transactions. The opinions expressed in this article are solely my own and do not necessarily reflect those of any organization or entity.