1) The core idea: VAT is a tax on the sale, not on the turnover

In Philippine real estate, many buyers expect that VAT should only be “charged” when the unit is delivered/turned over. Tax law doesn’t work that way.

Value-Added Tax (VAT) is an indirect tax imposed on certain sales of goods/properties or services in the course of trade or business. For real estate developers/dealers, VAT—when applicable—attaches to the taxable sale of real property and is commonly recognized as collections are received in installment-type arrangements. This is why VAT can appear in your Statement of Account (SOA) even during reservation, downpayment, or progress payments—before physical delivery.

What buyers often describe as “the seller deducting VAT” is usually one of these:

VAT is added on top of each payment (VAT-exclusive pricing), or
VAT is already embedded in the amount paid (VAT-inclusive pricing) and the seller is merely allocating a portion of the payment to VAT on the SOA, or
less properly, the seller is mislabeling amounts or charging VAT on a transaction that is VAT-exempt or not VATable.

So the real question is not “Is delivery required before VAT?” but:

Is the transaction VATable at all? and
If VATable, when is the seller required/allowed to recognize and collect VAT? and
Is the seller charging it correctly (rate, base, timing, documentation)?

2) When is a real estate sale subject to VAT?

VAT applies only if the seller is a VAT-registered person (or required to be VAT-registered) and the sale is in the course of trade or business (e.g., developers, dealers, habitual sellers; or a seller holding the property as an ordinary asset).

A. Common VATable scenario

Sale of a condominium unit, house-and-lot, or lot by a real estate developer/dealer that is not VAT-exempt under the thresholds/exemptions.

B. Common non-VAT scenario (often confused with VAT)

A private individual selling a personal property that is a capital asset (not in business): typically not VAT, but may be subject to capital gains tax (CGT) and documentary stamp tax (DST), plus local transfer taxes.

C. VAT exemptions that frequently matter to buyers

VAT law contains specific exemptions for certain residential sales (price-threshold based) and housing categories (e.g., socialized housing). The exact thresholds and rules can change by law/regulation, but the practical point is:

If the unit/house-and-lot is VAT-exempt, a seller should not be charging “12% VAT” at all.

Because this is commonly mishandled in the market, buyers should always verify whether the unit is VATable vs VAT-exempt, especially for residential properties near exemption thresholds or categorized housing.

3) The timing rule: Why VAT can appear before delivery

A. Installment vs deferred payment treatment (why this matters)

Philippine VAT rules distinguish sales where payment is spread out:

Installment sale (conceptually): VAT is generally recognized as payments/collections are received (especially where initial payments do not exceed a specified percentage of selling price under BIR rules).
Deferred payment sale (conceptually): VAT may be recognized earlier/more upfront depending on how the transaction is structured and how “sale” is treated under tax rules.

In real estate practice, many developer sales are documented as a Reservation → Contract to Sell → Deed of Absolute Sale upon full payment/loan takeout flow. Even if ownership transfers only later, VAT rules can still require recognition based on the taxable sale and collections.

B. “But I don’t have the unit yet—why VAT now?”

Because VAT is not a “delivery tax.” It is a tax on taxable transactions, and for many real estate installment arrangements, VAT is recognized on collections (i.e., as the buyer pays).

So, yes, it can be legally normal for VAT to be included in the computation of:

reservation fee (depending on documentation and whether it’s applied to price),
downpayment equity,
progress billings,
monthly amortization to the developer before bank takeout, even if turnover is months or years away.

4) “Deducting VAT” vs “Charging VAT”: what’s actually happening?

A seller typically does not “deduct VAT from your payment” in the sense of taking money away from you. Instead:

Scenario 1: Price is VAT-exclusive (VAT added on top)

Example:

Contract price (net of VAT): ₱3,000,000
VAT (12%): ₱360,000
Total payable: ₱3,360,000

If your monthly equity is ₱50,000, the seller may bill:

₱50,000 + ₱6,000 VAT = ₱56,000 total monthly

This feels like “VAT being taken” each month, but it’s simply the VAT component billed separately.

Scenario 2: Price is VAT-inclusive (VAT is already inside the payment)

Example:

Total contract price (VAT-inclusive): ₱3,360,000

When you pay ₱56,000, the seller may allocate:

VAT portion = ₱56,000 × (12/112) = ₱6,000
Net portion = ₱50,000

Buyers sometimes see this allocation and think the seller is “deducting VAT.” It’s actually just accounting for the embedded VAT.

Practical check: If the contract or price list says “VAT inclusive,” you should not be paying VAT on top. If you are, that’s a red flag.

5) Documentation rules buyers should insist on

If VAT is being charged or embedded, the seller should comply with invoicing/receipting requirements.

What you should receive

Proper VAT invoice/receipt reflecting:
- seller’s name and TIN and VAT registration status,
- the amount paid,
- VAT amount (if separately stated) or indication that VAT is included,
- description identifying the property/unit.

Why it matters

It’s your proof that VAT was actually accounted for as VAT (not just an arbitrary “charge”).
If you are a VAT-registered buyer (less common for end-user residential buyers, more common for business buyers), documentation affects input VAT claims (subject to rules).

6) Contract-law context: Contract to Sell vs Sale, and why VAT can still show up early

Many developers use a Contract to Sell (CTS): ownership transfers only after full payment and execution of a Deed of Absolute Sale.

Civil law: ownership typically transfers upon delivery (or as stipulated). In a CTS, the seller retains title until conditions are met.
Tax law: VAT consequences are driven by the taxable transaction and VAT recognition rules (often tied to collections for installment sales), and the BIR may treat certain milestones/documents as triggering VAT recognition.

So it is possible for:

ownership/title transfer = later, but
VAT billed/recognized = earlier, as payments are collected.

7) When VAT charges before delivery are wrong

Even if early VAT billing is often normal, there are common situations where charging VAT is improper:

A. The transaction is VAT-exempt but the seller charges 12% anyway

This is a major issue. If the law/regulations exempt the sale (e.g., qualifying residential threshold or housing category), the seller should not charge VAT.

B. The seller is not VAT-registered and not required to be, but charges “VAT”

Non-VAT sellers sometimes charge a “VAT” line item anyway. That is not acceptable; VAT is tied to VAT registration and VATability of the transaction.

C. “VAT on penalties / interest / late fees” without clear basis

Some add VAT to everything. Certain charges may be VATable depending on characterization, but blanket VAT on penalties can be disputable. The contract and tax characterization matter.

D. Double charging due to VAT-inclusive price + VAT billed on top

If the marketing price is VAT-inclusive but the SOA adds VAT again, that’s a strong red flag.

8) Interaction with other taxes and deductions (often confused with VAT)

Buyers sometimes confuse VAT with other items that really do operate like “deductions”:

A. Creditable withholding tax (CWT/EWT) on real property purchases

In many real property transactions (especially where the seller is engaged in business or the property is an ordinary asset), the buyer may be required to withhold creditable withholding tax and remit it to the BIR, then give the seller the BIR certificate.

This feels like “deducting tax from payment,” but it is withholding tax, not VAT.

B. CGT vs VAT

Capital asset sale (common for private individuals): typically CGT, not VAT.
Ordinary asset sale by developer/dealer: often VAT, not CGT.

Misclassification causes wrong tax charges.

9) What happens if the sale is cancelled before delivery?

This matters a lot because buyers worry: “If I paid VAT already and the deal is cancelled, do I lose that VAT?”

Generally, if a sale is rescinded/cancelled and payments are refunded, VAT accounting should be adjusted using proper documentation (e.g., issuance of credit memo/adjustment documents) so the seller does not permanently keep VAT on a transaction that did not ultimately proceed—subject to conditions and timing and how the cancellation is documented.

Separately, buyer refund rights may be governed by:

Maceda Law (RA 6552) for certain installment sales of real property (with rules on grace periods and refunds depending on years paid), and
project-specific rules for subdivision/condo sales (e.g., regulatory requirements, licensing to sell, etc.).

Key point: VAT handling is a tax-accounting layer on top of your contractual/refund rights. The cancellation paperwork matters.

10) A buyer’s practical checklist (Philippine setting)

Step 1: Confirm whether VAT should apply

Ask for:

seller’s VAT registration status,
whether the unit is VATable or VAT-exempt,
the stated basis: gross selling price vs zoning/market values as applicable,
the contract price breakdown.

Step 2: Identify if the price is VAT-inclusive or VAT-exclusive

Check the reservation agreement, CTS, sample computations, brochures, price list, and CTS schedules.
Ensure your SOA matches the contract.

Step 3: Match VAT timing to your payment structure

If your payments are installment-type, VAT often appears with each collection.
If the seller bills the entire VAT upfront despite installment characteristics, ask for the tax basis and classification.

Step 4: Require compliant documents

VAT invoice/receipt for each payment.
Clear ledger showing principal vs VAT allocation.

Step 5: If something is off, raise it early

Disputes are easier before you’ve paid a large portion of equity or before bank takeout.

11) Bottom line

Yes—VAT can legally be charged/recognized before unit delivery in many Philippine developer sales, especially where the transaction is VATable and payments are structured as installments, because VAT recognition commonly tracks collections, not physical turnover.

But whether what you’re seeing is valid depends on three things:

Is the sale VATable or VAT-exempt?
Is VAT being computed on the correct base and at the correct time under the applicable BIR rules?
Is the seller consistent with the contract (VAT-inclusive vs VAT-exclusive) and issuing proper tax documents?

This article is for general information in the Philippine legal context and is not a substitute for advice on a specific contract or project. For a definitive position on a particular developer’s billing method, the CTS, price list, VAT registration details, and SOA entries should be reviewed together.