Introduction

In the Philippines, individuals or entities engaged in leasing out real properties for residential, commercial, or industrial purposes are classified as lessors. When a lessor owns and rents out multiple properties, this activity is generally considered a business operation under Philippine law, necessitating compliance with various regulatory requirements, including the procurement of business permits. These permits ensure that the lessor's activities adhere to local governance standards, contribute to public revenue through taxes and fees, and promote orderly urban development. Failure to secure the appropriate permits can result in penalties, business closures, or legal liabilities. This article comprehensively explores the legal framework, requirements, procedures, and implications for lessors managing multiple rental properties, drawing from key statutes and administrative issuances.

Legal Basis

The primary legal foundation for business permit requirements stems from Republic Act No. 7160, otherwise known as the Local Government Code of 1991 (LGC). Under Section 143 of the LGC, local government units (LGUs) are empowered to impose and collect taxes, fees, and charges on businesses operating within their jurisdiction, including those involved in real estate leasing. Leasing activities are treated as a form of business or trade, subject to local business taxes (LBT) based on gross receipts.

Additionally, the Bureau of Internal Revenue (BIR) regulates income from rentals under Republic Act No. 8424, the National Internal Revenue Code (NIRC), as amended. Rental income is considered passive income for individuals or business income for corporations, requiring registration as a taxpayer and compliance with national tax obligations. For lessors with multiple properties, the Department of Trade and Industry (DTI) may also come into play if the lessor operates under a business name, mandating business name registration under Republic Act No. 3883, the Business Name Law.

Other relevant laws include Republic Act No. 9653, the Rent Control Act of 2009, which governs lease agreements but indirectly influences permit compliance by requiring lessors to maintain proper documentation; and various LGU ordinances that implement the LGC's provisions. For instance, in highly urbanized cities like Manila or Quezon City, specific ordinances detail permit processes tailored to real estate activities.

Classification of Lessors and Applicability

Lessors are categorized based on the nature and scale of their operations:

Individual Lessors: Natural persons renting out personal properties. If the annual gross rental income exceeds PHP 500,000 (as per BIR thresholds, subject to adjustment), they must register as a business taxpayer.
Corporate Lessors: Entities like corporations or partnerships engaged in real estate leasing as a primary or secondary activity.
Multiple Properties: When a lessor manages two or more rental properties, the operation is deemed a business enterprise, regardless of whether the properties are residential (e.g., apartments, condominiums) or commercial (e.g., office spaces, warehouses). Even if properties are scattered across different LGUs, each jurisdiction may require separate permits if the properties generate income within that area.

Exemptions are limited: Purely residential lessors with fewer than five units and gross receipts below certain thresholds (e.g., PHP 100,000 annually in some LGUs) might be exempt from LBT, but they still need BIR registration for income tax purposes. However, for multiple properties, exemptions are rarely applicable due to the aggregated income.

Registration and Permit Requirements

To operate legally, lessors with multiple rental properties must fulfill a multi-tiered registration process involving national and local agencies.

1. Bureau of Internal Revenue (BIR) Registration

All lessors must register with the BIR as taxpayers. Key steps include:

Taxpayer Identification Number (TIN): Obtain a TIN if not already registered.
Business Registration: File BIR Form 1901 (for individuals) or 1903 (for corporations) at the Revenue District Office (RDO) covering the principal place of business. For multiple properties, the principal office address is used, but income from all properties must be reported.
Books of Accounts and Invoices: Maintain books of accounts and issue official receipts (ORs) or invoices for all rental payments. Lessors must register these documents with the BIR.
Withholding Tax Obligations: Lessors are required to withhold and remit creditable expanded withholding tax (CWT) at 5% on rentals if the payor is engaged in trade or business.
Value-Added Tax (VAT): If annual gross receipts exceed PHP 3 million, VAT registration is mandatory, imposing a 12% VAT on rentals.

For multiple properties, consolidated reporting is allowed, but property-specific details must be maintained for audits.

2. Department of Trade and Industry (DTI) Registration

If operating under a business name (e.g., "ABC Rentals"), registration with the DTI is required for sole proprietorships. This involves submitting an application online or at a DTI office, providing proof of identity, and paying a nominal fee. Corporations must instead register with the Securities and Exchange Commission (SEC) under the Revised Corporation Code (Republic Act No. 11232).

3. Local Government Unit (LGU) Business Permit

The core requirement is the Mayor's Permit or Business Permit issued by the LGU where the business is located. For multiple properties:

Single LGU: If all properties are within one city or municipality, a single permit may suffice, with LBT computed on total gross receipts.
Multiple LGUs: Separate permits are needed for each LGU where properties are situated. For example, a lessor with properties in Makati and Pasig must secure permits from both cities. Each LGU assesses LBT independently, often at rates of 0.5% to 3% of gross receipts, depending on the ordinance.
Application Process:
- Submit an application form to the Business Permits and Licensing Office (BPLO).
- Required Documents: BIR Certificate of Registration, DTI/SEC Registration, Barangay Clearance, Sanitary Permit (if applicable for commercial properties), Fire Safety Inspection Certificate, Zoning Clearance, and proof of ownership or lease contracts for the properties.
- For multiple properties, list all addresses in the application and provide lease agreements as evidence.
- Fees: Application fee (PHP 500–1,000), LBT (variable), garbage fee, and other charges like signage fees if applicable.
Environmental Clearances: For large-scale rentals (e.g., apartment complexes), an Environmental Compliance Certificate (ECC) from the Department of Environment and Natural Resources (DENR) may be required under Presidential Decree No. 1586.

4. Additional Permits for Specific Property Types

Commercial Properties: May require an Occupancy Permit from the local building official under the National Building Code (Presidential Decree No. 1096).
Residential Subdivisions or Condominiums: If managing multiple units in a development, compliance with the Housing and Land Use Regulatory Board (HLURB) rules under Presidential Decree No. 957 is necessary, including a License to Sell if reselling leased units.
Special Economic Zones: Properties in PEZA zones may have modified requirements, with permits handled by the Philippine Economic Zone Authority (PEZA).

Taxation and Financial Obligations

Beyond permits, lessors face ongoing fiscal duties:

Local Business Tax (LBT): Based on gross receipts from all properties. For multiple properties, apportionment may be needed if crossing LGU boundaries.
Income Tax: Annual filing using BIR Form 1701 (individuals) or 1702 (corporations). Rental income is taxed at progressive rates (0–35% for individuals) or 25% corporate income tax.
Real Property Tax (RPT): Paid to the LGU based on assessed property values, separate from business permits but often verified during permit issuance.
Documentary Stamp Tax (DST): Imposed on lease contracts at PHP 15 per PHP 200 of rental value.
Capital Gains Tax: Applicable if properties are sold, but not directly tied to ongoing leasing.

For lessors with multiple properties, accurate record-keeping is crucial to avoid double taxation or disputes.

Compliance, Inspections, and Penalties

LGUs conduct periodic inspections to ensure compliance with health, safety, and zoning laws. Lessors must renew permits annually, typically in January, with surcharges for late renewal (up to 25% plus 2% monthly interest).

Non-compliance penalties under the LGC include:

Fines ranging from PHP 1,000 to PHP 5,000 per violation.
Business closure orders.
Imprisonment for willful violations.
BIR penalties: Up to 50% surcharge for underdeclaration, plus interest and possible criminal charges for tax evasion.

For multiple properties, aggregated penalties can be substantial, emphasizing the need for centralized management systems.

Best Practices and Considerations

Lessors should engage accountants or lawyers specializing in real estate to navigate complexities, especially with properties in different LGUs. Digital tools for tracking rentals and taxes can streamline compliance. Additionally, staying updated on amendments, such as those from the CREATE Act (Republic Act No. 11534), which adjusted corporate tax rates, is essential.

In summary, securing business permits for lessors with multiple rental properties in the Philippines involves a coordinated effort across national and local levels, ensuring fiscal accountability and legal operation. Adherence not only mitigates risks but also supports sustainable real estate practices.