Rental Expense: Withholding Tax at Source and DST

Surely, most of the businesses now a days, if not all, has an account for “Rental Expense” on their Trial Balance. Let us discuss briefly the taxes concerning this type of expense.

1. Withholding Tax at Source. You need to withhold an amount equivalent to 5% of the gross rental (exclusive of VAT). Without withholding tax, your expense (i.e. rental) will not be deductible from your gross income, even you have an official receipt for it.

How about if your lessor refuse to give you an official receipt? Your only recourse is to shoulder the withholding tax to make it deductible. In short, the only criteria that will make your expense (i.e. rental ) deductible is the withholding of tax.

2. Documentary Stamp Tax (DST) . Yes, this is one of the most neglected tax of all time. Most people do not realize that when they execute a contract for rent (either verbal or written), they are liable to pay a DST which is 0.15% for the first 2,000 or fractional part thereof; 0.10% for every P1,000 or fractional part thereof in excess of the first P2,000 for each year of the term of the said contract or agreement.

Now, who should be liable to pay the DST? Well, it really depends between the parties involved. Just make sure that you have the DST documentation when the BIR Examiner comes. But here is the good news – DST is not a pre-requisite for a rental expense to be deductible against your income.

Now that you know what your tax responsibilities are on rent; you can now confidently say that your rental is a valid expense.

Disclaimer: New and subsequent BIR rulings, issuance and/or laws may render the whole or part of the article obsolete or inaccurate. For more information please inquire or consult with the BIR.

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