Commercial leases in the Philippines often become confusing because people use the words “taxes,” “business tax,” “VAT,” “withholding tax,” and “real property tax” as if they mean the same thing. They do not. In a typical office, store, clinic, restaurant, warehouse, or mall lease, the landlord usually pays taxes connected with earning rental income, the tenant pays taxes connected with operating its own business, and real property tax is legally tied to the land and building even if the lease contract shifts the cost to the tenant.

The safest way to read a commercial lease is to separate the taxes into four buckets:

Tax or charge	Usually connected to	Who the government normally looks to	Can the lease shift the cost?
Local business tax on leasing	Landlord’s rental/leasing business	Landlord/lessor conducting the leasing business	Yes, as reimbursement if clearly agreed
Tenant’s own local business tax	Tenant’s store, office, restaurant, clinic, etc.	Tenant/lessee operating the business	Usually no, because it is the tenant’s own business tax
VAT or percentage tax on rent	Landlord’s rental income	Landlord/lessor, although VAT may be passed on	Yes, if properly invoiced and agreed
Real property tax	Land, building, improvements, machinery	Owner or person with legal interest; tax is a lien on the property	Yes, as between landlord and tenant, if clearly agreed

The contract matters, but it does not erase the government’s power to collect from the person or property made liable by law.

What “business tax” means in a Philippine commercial lease

In practice, “business tax” can mean two different things.

First, it may refer to national business taxes administered by the BIR, such as 12% value-added tax (VAT) or 3% percentage tax on non-VAT taxpayers.

Second, it may refer to local business tax, sometimes loosely called the “Mayor’s Permit tax,” imposed by the city or municipality under the Local Government Code of 1991, Republic Act No. 7160.

This distinction is important because a landlord and tenant may both have business tax obligations at the same commercial address.

The landlord may be conducting the business of leasing real property.

The tenant may be conducting a separate business, such as selling food, providing medical services, operating a salon, running a logistics office, or maintaining a branch office.

Those are not the same taxable activity.

Basic legal framework for commercial leases

Under Article 1643 of the Civil Code of the Philippines, Republic Act No. 386, a lease of things exists when one party gives another the enjoyment or use of a thing for a price certain and for a definite or indefinite period.

For commercial leases, the “thing” is usually an office unit, retail space, warehouse, land, building, stall, or portion of a building.

The Civil Code also gives the basic obligations:

Party	Basic Civil Code obligation
Lessor / landlord	Deliver the leased property, keep it suitable for the agreed use, and maintain peaceful and adequate enjoyment of the lease, unless validly modified by contract
Lessee / tenant	Pay rent according to the lease, use the property for the agreed purpose, and pay expenses for the deed of lease unless otherwise agreed

Article 1306 of the Civil Code allows contracting parties to agree on terms they find convenient, provided the terms are not contrary to law, morals, good customs, public order, or public policy.

This is why Philippine commercial leases often contain clauses such as:

“All real property taxes shall be for the account of the lessee.”
“VAT shall be for the account of the lessee.”
“Lessee shall reimburse lessor for increases in real property tax.”
“Rent is exclusive of VAT, local taxes, association dues, and common area maintenance charges.”
“Lessee shall pay its own business taxes, permits, licenses, and regulatory fees.”

These clauses are generally enforceable between landlord and tenant if they are clear. But they do not necessarily change who the BIR or LGU may pursue under tax law.

Who pays local business tax on a commercial lease?

The landlord pays local business tax on the leasing business

If the owner or sub-lessor is regularly leasing commercial spaces, the LGU may treat the lessor as engaged in business. The lessor is normally required to secure a business permit and pay local business tax based on the local revenue code of the city or municipality where the leased property is located.

Section 143 of the Local Government Code authorizes municipalities to impose taxes on businesses. Section 146 states that the tax on a business must be paid by the person conducting the business. Cities and municipalities in Metro Manila may impose rates subject to the limits in the Local Government Code and their own ordinances.

For leasing, many LGUs classify landlords as:

lessors of real estate;
lessors of spaces, stalls, offices, warehouses, or commercial units;
real estate dealers/lessors;
businesses not otherwise specifically classified; or
property operators.

The exact label and rate vary by LGU because local business tax is ordinance-based.

The tenant pays local business tax on its own business

A tenant operating a business in the leased premises must usually secure its own business permit and pay its own local business tax.

For example:

Scenario	Landlord’s tax	Tenant’s tax
Owner leases a unit to a coffee shop	Local business tax on rental/leasing income	Local business tax on coffee shop operations
Mall leases space to a retail store	Local business tax on leasing or mall operations	Local business tax on retail gross sales
Building owner leases office to a BPO	Local business tax on rent income	Local business tax or local fees applicable to the BPO
Condo owner leases a commercial ground-floor unit to a clinic	Local business tax on leasing activity	Local business tax, permits, and health/sanitary requirements for the clinic

The tenant should not assume that because it pays rent, the landlord’s business permit already covers the tenant’s operations. LGUs usually require a separate permit for the tenant’s business at that address.

Can the landlord pass local business tax to the tenant?

Yes, but only as a contractual reimbursement or pricing arrangement between the parties.

The LGU still treats the lessor as the person conducting the leasing business. If the lease says the tenant must reimburse the lessor’s local business tax, that may be valid between landlord and tenant. But if the tenant does not reimburse, the lessor remains exposed to the LGU for the lessor’s own local business tax.

This is why clear drafting matters. Compare these clauses:

Lease clause	Practical effect
“Lessee shall pay all taxes.”	Too vague; may lead to disputes
“Lessee shall pay all taxes arising from Lessee’s business operations.”	Usually covers tenant’s permits and business taxes only
“Lessee shall reimburse Lessor for local business taxes imposed on rental income from the leased premises.”	Clearly shifts economic burden of lessor’s local business tax
“Rent is exclusive of VAT, local business tax on rental income, real property tax, and other assessments, all for Lessee’s account.”	Broad shifting clause; tenant should compute total occupancy cost before signing

A tenant should ask whether quoted rent is gross or net of taxes. “₱100,000 monthly rent” can mean very different things depending on whether VAT, withholding tax, real property tax reimbursement, association dues, and local taxes are included.

BIR taxes on commercial rent: VAT, percentage tax, withholding tax, and income tax

A commercial lease normally creates taxable rental income for the landlord.

Income tax on rental income

The landlord must report rental income in the appropriate income tax return:

Lessor type	Common income tax filing
Individual sole proprietor / self-employed lessor	BIR Form 1701 or 1701Q, depending on registration and income type
Domestic corporation	BIR Form 1702 series
Partnership or other juridical entity	Applicable corporate or entity return
Nonresident foreign lessor	Special rules may apply depending on source, tax treaty, and withholding

The tenant does not “pay the landlord’s income tax” unless the lease explicitly prices rent on a net-of-tax basis. But the tenant may have withholding obligations.

VAT on commercial rent

Under the VAT rules in the National Internal Revenue Code and BIR regulations, VAT applies to the sale, exchange, or lease of goods, properties, and services in the course of trade or business. BIR Revenue Regulations No. 16-2005 states that the seller or lessor is the one statutorily liable for VAT, but the VAT amount may be shifted or passed on to the buyer or lessee.

For commercial rent:

If the lessor is VAT-registered, rent is generally subject to 12% VAT.
VAT should be shown in a proper VAT invoice.
The tenant may be able to claim input VAT if it is VAT-registered and the expense is connected to VATable business operations.
If rent is quoted “exclusive of VAT,” the tenant pays rent plus VAT.
If rent is quoted “VAT inclusive,” the total amount already includes VAT.

Under the Ease of Paying Taxes Act, Republic Act No. 11976, as implemented by BIR Revenue Regulations No. 3-2024, the term invoice is now used as the primary sales document, and “gross sales” is the uniform basis for VAT and percentage tax references. This matters because many older lease templates still refer to “official receipts.”

Percentage tax for non-VAT lessors

If the lessor is not VAT-registered and is below the VAT threshold, the lessor may be subject to 3% percentage tax under Section 116 of the Tax Code, unless the lessor is exempt or has validly chosen an income tax option that replaces percentage tax.

A non-VAT lessor cannot charge 12% VAT. If the landlord is non-VAT, the invoice should be a non-VAT invoice, not a VAT invoice.

The lessor may factor percentage tax into the rental price, but the landlord should not represent it as VAT.

Five percent expanded withholding tax on rent

In many commercial leases, the tenant is required to withhold 5% expanded withholding tax (EWT) on rent and remit it to the BIR. BIR Revenue Memorandum Circular No. 11-2024 confirms that for contracts considered leases, only the actual rental paid or accrued is subject to 5% EWT.

In simple terms:

The landlord bills rent.
The tenant withholds 5% EWT from the rental base, if the tenant is a withholding agent.
The tenant remits the withheld tax to the BIR.
The tenant issues BIR Form 2307 to the landlord.
The landlord uses the Form 2307 as a credit against its income tax.

This is not an extra tax on top of rent in the same way VAT is. It is an advance income tax collection from the landlord.

Example:

Item	Amount
Monthly rent, exclusive of VAT	₱100,000
12% VAT, if lessor is VAT-registered	₱12,000
Gross amount billed	₱112,000
5% EWT on rent base	₱5,000
Amount paid to landlord	₱107,000
Amount remitted to BIR as EWT	₱5,000

The correct computation can vary depending on whether rent is VAT-inclusive, whether charges are separate, and whether the tenant is a withholding agent.

Documentary stamp tax on lease contracts

Lease agreements are also subject to documentary stamp tax (DST) under Section 194 of the Tax Code. BIR RMC No. 11-2024 also notes that operating lease transactions are subject to DST on lease agreements under Section 194.

In commercial practice, the lease often states who pays DST. If silent, parties usually negotiate or follow customary allocation. Many landlords require the tenant to shoulder notarization and DST as part of move-in requirements.

A well-managed lease file should keep proof of DST payment, especially for longer lease terms, audit situations, and corporate due diligence.

Who pays real property tax in a commercial lease?

The LGU taxes the property, not just the contract

Real property tax (RPT), also called “amilyar” in many places, is imposed on real property such as land, buildings, machinery, and improvements.

Under Sections 232 and 233 of the Local Government Code:

provinces may levy basic RPT at a rate not exceeding 1% of assessed value;
cities and municipalities within Metro Manila may levy basic RPT at a rate not exceeding 2% of assessed value;
Section 235 allows an additional 1% Special Education Fund (SEF) levy on assessed value.

The formula is generally:

Fair market value × assessment level = assessed value

Assessed value × RPT rate = annual RPT

Commercial property usually has a higher assessment level than residential property. Section 217 of the Local Government Code also says real property is classified, valued, and assessed based on actual use, regardless of where located, whoever owns it, and whoever uses it.

This means a property used commercially may be assessed as commercial even if the title or original plan suggests something else.

The owner is normally responsible to the LGU

For privately owned commercial property, the registered owner or person with legal interest is normally the one expected to settle RPT. The tax declaration is usually in the owner’s name.

But RPT is stronger than an ordinary personal obligation because it becomes a lien on the property.

Section 246 of the Local Government Code provides that RPT accrues on January 1 and from that date constitutes a lien on the property superior to other liens, mortgages, or encumbrances. Sections 257 and 258 allow collection through levy on the real property if taxes remain unpaid.

So even if a lease says the tenant must pay RPT, the LGU can still proceed against the property if RPT is unpaid.

The lease can require the tenant to pay or reimburse RPT

A commercial lease may validly shift the economic burden of RPT to the tenant.

This is common in:

long-term land leases;
warehouses and industrial leases;
stand-alone buildings;
triple-net or “NNN” leases;
leases where the tenant occupies the entire property;
leases where the tenant’s commercial use increases the assessment;
leases with foreign investors or large corporate tenants;
PEZA or industrial park leases, depending on structure.

Common clauses include:

“Real property tax shall be for the account of the lessee.”
“Lessee shall reimburse lessor for RPT attributable to the leased premises.”
“Any increase in real property tax due to lessee’s use, improvements, or operations shall be paid by lessee.”
“Lessor shall pay base RPT; lessee shall pay incremental RPT caused by reclassification or reassessment.”

The most balanced clause distinguishes between:

Type of RPT cost	Common fair allocation
Existing RPT based on the property’s ordinary classification	Landlord pays, unless rent is structured as net rent
Increase caused by tenant’s fit-out, machinery, or commercial use	Tenant pays or reimburses
RPT on tenant-owned improvements or machinery	Tenant pays, especially if separately declared
Penalties due to landlord’s failure to provide assessment or billing documents	Landlord pays
Penalties due to tenant’s failure to reimburse after proper billing	Tenant pays

Real property tax deadlines, penalties, and protest rules

RPT accrues on January 1 each year. Under Section 250 of the Local Government Code, it may be paid in four equal installments:

Installment	Deadline
1st quarter	On or before March 31
2nd quarter	On or before June 30
3rd quarter	On or before September 30
4th quarter	On or before December 31

Many LGUs give discounts for early annual payment, often if paid in December before the tax year or early January, depending on local ordinance. Section 251 allows discounts for advanced prompt payment not exceeding 20% of the annual tax due.

If unpaid, Section 255 imposes interest of 2% per month on the unpaid amount or fraction thereof, up to a maximum of 36 months.

If the taxpayer disputes the assessment, Section 252 requires payment under protest first. The written protest must be filed within 30 days from payment. This is why businesses should not ignore a questionable RPT assessment; they should preserve the protest process properly.

Step-by-step guide: how to determine who should pay what

1. Identify the tax being charged

Do not accept the phrase “taxes” without details. Ask whether the amount refers to:

VAT;
percentage tax;
expanded withholding tax;
income tax;
local business tax;
real property tax;
garbage fee;
sanitary permit fee;
fire safety inspection fee;
community tax;
association dues;
common area maintenance charges;
insurance;
DST; or
penalties and interest.

Each has a different legal treatment.

2. Read the lease tax clause carefully

Look for these phrases:

“exclusive of VAT”;
“net of withholding tax”;
“inclusive of all taxes”;
“all taxes arising from lessee’s business”;
“real property tax for lessee’s account”;
“increase in taxes due to lessee’s improvements”;
“lessor’s income taxes excluded”;
“local business taxes passed on to lessee”;
“tenant shall secure all permits and licenses.”

A vague “all taxes” clause is a common source of disputes.

3. Check the landlord’s BIR status

Ask for the landlord’s:

BIR Certificate of Registration;
registered business name;
VAT or non-VAT status;
registered address and line of business;
sample invoice;
TIN;
authority to print or approved invoicing system details, when relevant.

A VAT-registered landlord should issue a VAT invoice. A non-VAT landlord should not charge VAT.

4. Check the tenant’s withholding status

The tenant should confirm whether it is required to withhold 5% EWT on rent.

Many corporations, registered businesses, and designated withholding agents must withhold. Failure to withhold can create problems for the tenant because the BIR may disallow the rent expense or assess penalties.

The tenant should issue BIR Form 2307 to the landlord on time.

5. Verify local business permit requirements

The landlord and tenant should separately check with the city or municipal Business Permits and Licensing Office (BPLO).

Usually:

Party	Usual LGU requirement
Landlord	Business permit for leasing or real estate rental activity
Tenant	Business permit for the tenant’s actual business activity
Both	Barangay clearance, zoning/locational clearance, fire safety requirements, and other permits depending on use

LGUs may ask for a notarized lease contract before issuing or renewing the tenant’s permit.

6. Get the RPT documents before agreeing to pay RPT

Before a tenant agrees to shoulder RPT, it should ask for:

latest real property tax declaration;
latest RPT official receipt;
current RPT statement of account from the City or Municipal Treasurer;
breakdown of basic RPT, SEF, discounts, penalties, and prior years;
proof of property area and leased area;
computation if the tenant occupies only part of the property.

If the tenant occupies only 100 square meters of a 1,000-square-meter building, the lease should explain whether RPT reimbursement is based on area, actual assessment, separate tax declaration, or a fixed amount.

7. Require proof of payment and reimbursement procedure

A good lease clause should answer:

Who receives the RPT bill?
Who pays the LGU?
If the tenant reimburses, how many days after billing?
What documents must the landlord give the tenant?
Who gets the original official receipt?
Who bears penalties if the party responsible delays?
What happens if the assessment is increased or appealed?

Without these details, RPT disputes often arise during renewal, pre-termination, or sale of the property.

Common commercial lease scenarios

Scenario 1: Small office lease, rent is VAT-inclusive

A consulting company leases a small office from a VAT-registered building owner. The rent is stated as “₱56,000 per month, VAT inclusive.”

The landlord pays income tax and VAT on rental income. The tenant pays its own local business tax and permits. If the tenant is a withholding agent, it withholds 5% EWT from the rental base and issues BIR Form 2307.

RPT remains the landlord’s concern unless the lease separately says the tenant reimburses it.

Scenario 2: Restaurant leases an entire building

A restaurant leases an entire stand-alone building and the contract says the tenant pays “all real property taxes, assessments, permits, licenses, and charges arising from use of the premises.”

The tenant likely pays:

its own business permit and local business tax;
sanitary permit and other food-related permits;
fire safety inspection charges;
RPT if clearly shifted by the lease;
increases in RPT caused by improvements, if stated;
VAT on rent if the landlord is VAT-registered;
5% EWT on rent if the tenant is a withholding agent.

The landlord still remains exposed to the LGU if RPT is unpaid because the tax lien attaches to the property.

Scenario 3: Mall tenant pays rent plus CUSA and percentage rent

A retail tenant in a mall pays fixed rent, common use service area charges, and percentage rent based on sales.

The mall operator or landlord pays taxes on its rental income and may charge VAT if VAT-registered. The tenant pays its own business taxes based on its retail operations.

The lease should clarify whether RPT is already built into rent and CUSA or separately billed. Mall leases often contain broad pass-through provisions.

Scenario 4: Tenant constructs improvements

A logistics company leases land and builds a warehouse or installs machinery.

The lease should identify who owns the improvements during and after the lease. It should also state who declares improvements for RPT, who pays taxes on machinery, and who handles assessment notices.

Commercial machinery may be subject to real property tax if classified as taxable machinery under local assessment rules.

Scenario 5: Foreign company leases Philippine premises

A foreign company may lease commercial premises in the Philippines. The tax rules on rent, VAT, withholding, local business permits, and RPT are generally the same.

However, foreigners should watch for:

Philippine constitutional restrictions on land ownership;
proper registration of the Philippine entity or branch, if doing business locally;
notarization and apostille requirements if documents are signed abroad;
tax treaty and withholding issues if payments are cross-border;
long-term land lease restrictions.

For foreign investors leasing private lands for qualified investment projects, Republic Act No. 12252, enacted in 2025, amended the Investors’ Lease Act and allows long-term leases with an aggregate period of up to 99 years, subject to the law’s requirements and registration rules. The official text is available through Republic Act No. 12252.

Practical documents to prepare

For landlords or lessors

Document	Why it matters
BIR Certificate of Registration	Shows tax type, VAT or non-VAT status, and registered business
BIR-registered invoice	Needed for rent billing and tenant expense substantiation
Business permit for leasing	Shows LGU registration of leasing activity
Lease contract	Basis for rent, tax shifting, withholding, DST, and permit applications
RPT tax declaration	Shows assessed value and classification
Latest RPT official receipt	Proves RPT is updated
RPT statement of account	Shows current year and arrears, if any
BIR Form 2307 from tenant	Credit against landlord’s income tax
DST proof	Supports compliance for lease agreement
Tenant information report, when applicable	BIR RR No. 12-2011 requires owners or sub-lessors of commercial spaces to ensure tenants are BIR-registered and submit tenant information to the RDO

BIR Revenue Regulations No. 12-2011 specifically requires owners or sub-lessors of commercial establishments, buildings, or spaces to make sure tenants engaged in commercial activities are BIR-registered taxpayers and to submit required tenant information to the BIR.

For tenants or lessees

Document	Why it matters
Notarized lease contract	Usually required for business permit, BIR registration, and bank/accounting records
BIR Certificate of Registration	Shows tenant’s own tax registration
Business permit / Mayor’s Permit	Required to operate in the LGU
Barangay clearance	Usually required before Mayor’s Permit
Fire Safety Inspection Certificate	Commonly required for commercial occupancy
Locational or zoning clearance	Confirms allowed use of premises
Sanitary permit or health permits	Required for food, clinic, salon, and similar businesses
BIR Form 2307 issued to landlord	Proof of withholding tax remittance
Rent invoices	Needed for expense deduction and input VAT, if applicable
RPT reimbursement documents	Needed if lease makes tenant pay RPT

Common mistakes that cause tax disputes

1. Saying “all taxes” without defining which taxes

A clause saying “tenant shall pay all taxes” can lead to arguments over whether it includes VAT, RPT, local business tax, income tax, association dues, garbage fees, or penalties.

A better lease separates:

taxes on rent;
taxes on the property;
taxes on tenant’s business;
taxes caused by tenant improvements;
penalties caused by each party’s delay.

2. Treating withholding tax as an added charge

The 5% EWT on rent is usually withheld from the rental payment and credited to the landlord’s income tax. It is not supposed to be casually added on top unless the lease is drafted on a “net of withholding tax” basis.

If the landlord demands full rent without recognizing withholding, the tenant may end up shouldering a cost that should have been credited to the landlord.

3. Charging VAT without being VAT-registered

Only a VAT-registered taxpayer should issue a VAT invoice and charge VAT. If the lessor is non-VAT, the tenant should not accept a document showing 12% VAT.

This matters because a VAT-registered tenant cannot properly claim input VAT from an invalid VAT invoice.

4. Tenant pays RPT but gets no official receipt

If a tenant shoulders RPT, payment should be documented. The tenant should receive a copy of the LGU official receipt and statement showing the year and property covered.

Otherwise, the tenant may later face double billing or disputes during lease renewal.

5. Ignoring old RPT arrears

RPT payments are applied first to prior years’ delinquencies, interests, and penalties before current taxes. A tenant taking over an old property should check if there are arrears before agreeing to pay “current RPT.”

6. Not checking if the property’s actual use changed

A residential property converted into a restaurant, clinic, office, or dormitory may trigger reassessment based on actual use. If the lease makes the tenant responsible for increases caused by its use, the tenant should estimate this cost before spending on fit-out.

7. Assuming the landlord’s permit covers the tenant

The landlord’s business permit for leasing does not authorize the tenant to operate a restaurant, store, clinic, or office. The tenant needs its own permit.

8. No clear rule on penalties

If RPT is due March 31 and the landlord sends the statement only in June, who pays the interest? If the tenant receives the bill on time but pays late, who pays the penalty?

The lease should answer this.

Sample tax allocation clause concepts

Commercial leases should be tailored, but these concepts are usually helpful:

Issue	Clear drafting concept
VAT	State whether rent is VAT-inclusive or exclusive
Withholding tax	State that tenant may withhold taxes required by law and issue BIR Form 2307
Landlord’s income tax	State whether landlord’s income tax is excluded from tenant reimbursement
Local business tax on leasing	State whether included in rent or reimbursable
Tenant business taxes	State that tenant pays taxes, permits, and licenses for its own operations
RPT	State whether landlord pays, tenant reimburses, or tenant pays directly
RPT increases	Allocate increases caused by reassessment, improvements, or change in use
Penalties	Assign penalties to the party whose delay caused them
Proof	Require invoices, official receipts, assessment notices, and statements of account
Partial occupancy	Provide an allocation formula based on area or separate assessment

Frequently Asked Questions

Who pays business tax on a commercial lease in the Philippines?

The landlord usually pays business taxes connected with the leasing business, such as local business tax on rental activity and BIR taxes on rental income. The tenant pays business taxes connected with the tenant’s own business operations. A lease may require the tenant to reimburse some landlord taxes, but the clause must be clear.

Is the tenant required to pay real property tax?

Not automatically. Real property tax is imposed on the property and is normally assessed in the name of the owner or person with legal interest. However, a commercial lease may validly require the tenant to pay or reimburse RPT. This is common in long-term, stand-alone, warehouse, land, and triple-net leases.

Can a landlord legally pass real property tax to the tenant?

Yes, as a contractual arrangement. The landlord and tenant may agree that the tenant will shoulder RPT. But as far as the LGU is concerned, unpaid RPT remains a lien on the property and may lead to levy or auction if not settled.

If the tenant pays RPT directly, whose name appears on the receipt?

Usually, the LGU official receipt follows the tax declaration and property records, which are commonly in the owner’s name. The tenant should keep the official receipt, statement of account, and proof that the payment corresponds to the leased premises and the correct tax year.

Does the tenant pay VAT on commercial rent?

If the landlord is VAT-registered and the rent is subject to VAT, the landlord may pass 12% VAT to the tenant. The lease should say whether rent is VAT-inclusive or VAT-exclusive. A non-VAT landlord should not charge VAT.

Is withholding tax deducted from rent?

Usually, yes, if the tenant is required to withhold. The common withholding tax on rent is 5% expanded withholding tax on actual rental paid or accrued. The tenant remits it to the BIR and issues BIR Form 2307 to the landlord.

Can the landlord demand rent “net of withholding tax”?

Only if the lease clearly says rent is net of withholding taxes or the parties agreed to a gross-up. Without clear language, withholding tax is normally deducted from the rent base and treated as the landlord’s creditable tax.

Does the tenant’s Mayor’s Permit include the landlord’s business tax?

No. The tenant’s Mayor’s Permit covers the tenant’s business activity. The landlord’s business permit or local business tax on leasing is separate. Both may be required at the same address because they involve different businesses.

What happens if real property tax is not paid?

Unpaid RPT earns interest of 2% per month, up to 36 months. The LGU may enforce collection by administrative levy or judicial action. Because RPT is a lien on the property, nonpayment can eventually lead to public auction, subject to the owner’s redemption rights under the Local Government Code.

Should a commercial lease be notarized?

In practice, yes. LGUs, the BIR, banks, corporate auditors, and building administrators often require a notarized lease. Notarization also helps prove the document’s due execution. Longer-term leases and leases intended to bind third persons may require additional registration considerations.

Key Takeaways

The landlord usually pays taxes on rental income and the business of leasing.
The tenant pays taxes, permits, and fees for the tenant’s own business operations.
Real property tax is legally tied to the property, but the lease may shift the cost to the tenant.
A tenant should not pay VAT unless the landlord is VAT-registered and issues a proper VAT invoice.
The 5% withholding tax on rent is generally deducted from rent and credited to the landlord, not treated as a casual add-on.
Local business tax and real property tax are different taxes handled by the LGU, but they arise from different legal bases.
Vague phrases like “all taxes for tenant’s account” cause disputes; commercial leases should identify VAT, withholding tax, local business tax, RPT, DST, permits, and penalties separately.
Before agreeing to shoulder RPT, ask for the tax declaration, latest official receipt, and current statement of account.
Unpaid RPT can result in interest, levy, and auction because the tax is a lien on the property.
For foreigners and foreign companies, the tax rules are generally the same, but land ownership restrictions, lease duration rules, apostille requirements, and Philippine registration issues should be checked before signing.