Updated for the TRAIN/CREATE/EOPT era. Philippine law context. This is a practical, doctrinal, and procedural guide for lessors, churches, property managers, and accountants.

1) Short answer first

Leasing space to a church does not, by itself, make the rent VAT-exempt. VAT is transaction-based, not “because the buyer is a church.”
Who charges and remits VAT? The lessor (landlord) charges 12% VAT if (a) the lease is a VAT-able lease of real property, and (b) the lessor is VAT-registered (or is required to be).
When is a lease VAT-exempt? Typical exemptions arise from the nature of the lease, not from the lessee’s identity. The common one is the lease of a residential dwelling/unit not exceeding the monthly per-unit threshold (most recently ₱15,000 per month per unit). Certain special-law or treaty exemptions also exist (e.g., specific international organizations or diplomatic missions), but churches aren’t covered by default.
“Tax-exempt certificate” from the church? A church’s BIR Certificate of Tax Exemption (CTE) under Section 30 of the NIRC does not exempt its purchases from VAT. It may help with income tax issues (on the church’s own income) but does not compel a supplier/lessor to stop charging VAT.
Bottom line: Unless a lease-type exemption applies (e.g., qualifying residential unit under the threshold) or a specific special law/treaty covers the lessee, the lessor adds 12% VAT, and the church, as lessee, bears the cost economically. The lessor remains the party statutorily liable to collect and remit VAT.

2) Legal foundations (what the rules actually say)

VAT is imposed on the sale/lease of goods or properties and the rendering of services in the course of trade or business.
- “In the course of trade or business” is broad. Non-stock, non-profit entities (including churches) are considered to be “in business” when they regularly sell goods/services or lease property for a fee, whether or not they earn a profit.
- VAT applies to the transaction, not the tax personality of the buyer.
Lease of real property is generally VAT-able at 12%.
- This covers commercial spaces, halls, function rooms, office spaces, land/parking leased commercially, etc.
Key VAT exemptions relevant to leases:
- Lease of residential units below the per-unit monthly rent threshold (commonly referenced as ₱15,000 per unit per month). Notes:
  - Per-unit basis (not per tenant).
  - If several units are leased to the same lessee in one building by the same lessor, BIR rules may require you to aggregate for threshold tests per unit and ensure the use is residential.
  - “Residential” means dwelling; church use (worship/office/hall) is not “residential” even if inside a residential-zoned area.
- Transactions exempt under special laws or international agreements.
  - Examples: sales to specific international organizations or foreign missions formally recognized for zero-rating or exemption by law/treaty and DOF/BIR rules.
  - Churches are not automatically included. There must be a clear, specific legal basis naming the body and scope of exemption.
Registration threshold vs. VAT status of the lessor.
- A person/lessor whose gross sales/receipts exceed ₱3,000,000 in a 12-month period is generally required to register for VAT.
- A non-VAT lessor (below the threshold and not voluntarily VAT-registered) does not add 12% VAT—instead, they are subject to percentage tax (rate/timing per the latest law in force).
- Whether the lessee is a church does not change the lessor’s registration obligation or tax type.
EOPT (Ease of Paying Taxes) reforms on invoicing (2024).
- The primary document for both goods and services became the invoice (harmonizing the old invoice/official-receipt split).
- VAT-registered lessors must issue a VAT invoice showing the VAT-exclusive base and 12% VAT (or a VAT-exempt/zero-rated annotation, if applicable).
- Non-VAT lessors must issue a non-VAT invoice and annotate “not VAT-registered” and/or “VAT-exempt transaction,” as applicable.

3) Who actually “pays” the 12% VAT?

Economically: The lessee (including a church) pays the VAT as part of rent.
Legally/statutorily: The lessor is the VAT taxpayer—they charge, collect, and remit the VAT to the BIR.
Input VAT: A church that is not VAT-registered cannot claim input VAT credits on the rent. A church that is VAT-registered (uncommon, but possible if it carries on VAT-able activities over the threshold) may credit input VAT to the extent allowed by law (careful with mixed/exempt activities and pro-rata input VAT attribution).

4) Does a church’s BIR Certificate of Tax Exemption (CTE) change anything?

No, not for VAT on its purchases. A CTE under Section 30 (for entities organized and operated exclusively for religious, charitable, etc., purposes) addresses income tax on income related to its exempt purpose. It does not exempt the church from VAT imposed on suppliers’/lessors’ transactions.
The CTE does not authorize the church to demand “no VAT” on rent unless the lease itself is VAT-exempt (e.g., truly residential unit under the per-unit threshold) or the church falls under a specific special law/treaty that covers purchases (rare—must be explicit).

5) Common leasing scenarios involving churches

A) Church rents a sanctuary/hall/office from a commercial lessor

Default: 12% VAT applies (commercial lease).
Documents: Lessor issues VAT invoice with VAT breakdown.
Church’s CTE: Irrelevant for VAT on the rent.

B) Church rents a residential dwelling/unit for housing a pastor/minister

If monthly rent per unit ≤ the BIR threshold (e.g., ₱15,000): VAT-exempt residential lease.
If monthly rent per unit > threshold: VATable at 12% if lessor is VAT-registered.
Caution: The use must be residential. If the unit is used as an office or worship/assembly space, it ceases to be a residential lease and will not qualify for the residential-lease VAT exemption.

C) Church leases multiple spaces in the same building from the same lessor

Apply per-unit threshold and proper classification (residential vs. commercial).
Mixed use (some units residential, some for worship/office) should be segregated with clear documentation and proper invoices.

D) Church qualifies under a special law/treaty (rare)

If a specific international agreement or statute zero-rates/exempts the church’s purchases, the lessor should obtain the required proof (e.g., certificate/endorsement from the DOF/BIR or Department of Foreign Affairs as applicable) before not charging VAT.
Absent such proof, charge VAT.

6) “What certificate do we show so the lessor won’t add VAT?”

There is usually no church-issued certificate that removes VAT for a standard commercial lease.
The burden to support VAT-exempt or zero-rated treatment lies with the seller/lessor, and it depends on transaction type:
- Residential lease under threshold: Lessor documents the per-unit rent and residential use; issues a VAT-exempt invoice with the required annotation.
- Special law/treaty zero-rating/exemption: Lessor must secure and keep the prescribed certifications/endorsements (e.g., DOF/BIR/DFA) that name the entity and purchase as zero-rated/exempt.
- Non-VAT lessor: Lessor provides BIR Certificate of Registration (COR/2303) reflecting Non-VAT status and issues a non-VAT invoice with proper annotations.
A church CTE is not the document that exempts a supplier’s sale from VAT.

7) Withholding taxes and other side issues (quick primers)

Creditable withholding tax (CWT) on rent: Some lessees are required to withhold on rentals (e.g., those classified as Top Withholding Agents). Churches are not automatically withholding agents; this depends on their BIR classification. If the church is a withholding agent, it must withhold the applicable CWT on the VAT-exclusive rent and issue the BIR Form 2307 to the lessor.
Real Property Tax (RPT) vs. VAT: The 1987 Constitution exempts from real property tax properties actually, directly, and exclusively used for religious purposes. That exemption is for local RPT, not for VAT on rent.
Percentage tax: If a lessor is non-VAT, it generally pays percentage tax (rate and sunset depend on current law). This doesn’t switch on/off because the lessee is a church.

8) Practical compliance checklist

For LESSORS

Confirm VAT status (VAT or non-VAT) and registration threshold monitoring.
Identify the lease type: residential vs. commercial; ensure documented use.
Residential under threshold? Keep per-unit rent schedules; annotate invoice “VAT-exempt (residential lease not exceeding threshold).”
Special law/treaty claim? Obtain and file the official DOF/BIR/DFA endorsements before applying zero-rating/exemption.
Invoice correctly (post-EOPT): show VAT base, VAT amount, or VAT-exempt annotation.
File and pay VAT (or percentage tax) on time; keep substantiation (contracts, IDs, certifications, correspondence).

For CHURCHES (LESSEES)

Do not assume your CTE stops VAT on rent. Ask the lessor what lease type they are invoicing and why.
If it’s a residential dwelling for clergy/staff under the threshold, make sure the contract and actual use are residential; ask for VAT-exempt invoice annotation.
If claiming any treaty/special-law relief, coordinate early to secure the proper government certification the lessor needs to keep.
Check if you’re a withholding agent; if yes, withhold CWT on the VAT-exclusive base and issue Form 2307.
Budget with VAT included where applicable; input VAT is not creditable unless you are VAT-registered and engaged in VAT-able activities.

9) Contract language you can adapt (illustrative)

VAT and Taxes. The Parties acknowledge that this lease of [describe premises] is classified as [commercial / residential]. If commercial, Lessor shall invoice Lessee the VAT-exclusive rent plus 12% VAT, and Lessor shall be solely responsible for VAT filing and remittance. If residential and the per-unit monthly rent does not exceed the BIR threshold, Lessor shall issue an invoice annotated “VAT-exempt (residential lease not exceeding threshold)”. Any claim for zero-rating or special-law exemption shall be effective only upon Lessor’s receipt of DOF/BIR/DFA-prescribed certifications covering the specific transaction. Unless otherwise required by law, Lessee’s CTE or tax-exempt status shall not, by itself, exempt this lease from VAT. Withholding. If Lessee is a withholding agent, it shall withhold the applicable creditable withholding tax on the VAT-exclusive rent and issue BIR Form 2307 to Lessor.

10) Frequently asked questions

Q1: Our church has a BIR Certificate of Tax Exemption. Can we give that to the landlord so they won’t add VAT? A: No. A CTE addresses income tax issues for the church; it does not remove VAT on the landlord’s lease unless the lease itself is within a VAT-exempt category or a special law/treaty explicitly applies to the purchase.

Q2: If the space is inside a residential condominium, is the lease to a church “residential”? A: No if used as worship space, office, or assembly hall—that’s commercial use for VAT purposes. “Residential” refers to dwelling use.

Q3: What if the landlord is non-VAT? A: Then no 12% VAT is charged, but the landlord is generally subject to percentage tax. This depends on the landlord’s BIR registration and gross receipts.

Q4: Can a church ever get “zero-rating” on rent? A: Only if a specific statute/treaty says so and the government-prescribed certificate/endorsement is properly issued before the transaction. This is uncommon for churches.

Q5: Who keeps the paperwork for VAT-exempt treatment? A: The lessor/supplier must keep the proof that supports VAT-exempt/zero-rated treatment (e.g., residential-lease evidence; DOF/BIR/DFA endorsements). The church should provide any supporting documents the lessor requests, but the lessor bears the compliance risk.

11) Action steps (if you need to decide today)

Classify the lease (residential vs commercial) based on actual use.
Check the rent (per unit) against the residential threshold if claiming that exemption.
Confirm the lessor’s BIR registration (VAT vs non-VAT) and what they will invoice.
If claiming special-law/treaty relief, obtain the prescribed certificate in advance for the lessor.
If the church is a withholding agent, withhold on the VAT-exclusive base and issue 2307.

Key takeaways

Being a church does not automatically erase VAT on rent.
Lease classification and the lessor’s VAT status drive the VAT outcome.
Certificates that matter are those that prove the transaction is exempt (e.g., residential-lease proof or government endorsements for zero-rating)—not a generic CTE.
Lessor charges/remits VAT; lessee bears the cost.