Here’s a practitioner-style explainer on VAT liability when land-lease income exceeds ₱3,000,000 in the Philippines—what flips you into VAT, what stays exempt, registration timing, invoicing, allocation of input tax, and common traps. (General information only—not legal advice.)

The core rule in one line

If your gross receipts from leasing real property (e.g., land or land + improvements) exceed ₱3,000,000 in any 12-month period, you are mandatorily subject to VAT on taxable leases and must register as VAT with the BIR. From that point, you charge 12% VAT on taxable rent and file VAT returns. (A few lease types remain VAT-exempt—see below.)

1) What leases are VAT-taxable vs VAT-exempt

VAT-taxable (typical):

Commercial/industrial leases (e.g., bare land for warehouse, yard, plant site; space leased to a business).
Residential leases per unit above the statutory monthly threshold (commonly cited as ₱15,000 per unit per month). If a unit’s monthly rent exceeds the threshold, that unit’s lease is VAT-taxable when you are VAT-registered or required to be.

VAT-exempt (commonly):

Residential lease of a dwelling unit with monthly rent per unit not exceeding the threshold (commonly ₱15,000). Exemption is per unit, not per building or total portfolio.
Transactions expressly listed as VAT-exempt by law (e.g., certain long-term residential lot/house sales—different topic from lease, included here for orientation only).

Practical upshot: A landlord can be VAT-registered (or required to be) and still have some leases VAT-exempt (e.g., low-rent residential). You’ll then be a mixed taxpayer: some receipts VATable, some VAT-exempt.

2) The ₱3,000,000 threshold: how it works

The test is rolling 12 months (look-back or reasonable projection). If actual or expected taxable gross receipts exceed ₱3M, mandatory VAT applies.
Relevance of exempt rents to the threshold:
- Receipts from leases that are independently VAT-exempt by statute (e.g., qualifying low-rent residential units) do not become VATable just because you cross ₱3M.
- For threshold testing, focus on your aggregate gross receipts from transactions that are VATable if you were registered. Conservatively track all lease receipts and separately tag statutorily exempt ones; if your taxable side exceeds ₱3M, you’re in mandatory VAT.
Optional VAT registration: Even below ₱3M, you may elect to register as VAT (useful if you have substantial input VAT you want to credit). Electing VAT means you charge VAT on taxable leases and follow all VAT duties.

3) When VAT starts and what happens if you delay

Timing: For mandatory VAT, registration should be made no later than the first day of the month following the month you exceeded (or became reasonably certain to exceed) the ₱3M threshold.
Effect if late: If you failed to register, the BIR may assess output VAT as if you were VAT-registered from the date you should have registered, plus surcharges, interest, and penalties. You’ll still have to sort out input-VAT claims (often limited if you didn’t document properly—see below).

4) VAT mechanics for lessors (once in VAT)

A) Output VAT

Rate: Standard 12% on the gross rent for taxable leases.
Invoice must separately show VAT (see invoicing below).

B) Input VAT

Credit input VAT on your purchases/expenses directly attributable to VATable leases (e.g., repairs, security, utilities rebilled, professional fees, capital improvements that benefit taxable areas).
Mixed activities rule: If you have both VATable and VAT-exempt leases, allocate input VAT:
- Directly attributable input VAT → claim in full against VATable sales.
- Common inputs (e.g., building maintenance) → allocate using a sales ratio (VATable gross receipts ÷ total gross receipts).
Capital goods (e.g., site development, major improvements): input VAT is generally creditable subject to current rules on recognition caps and documentation. Keep contracts, ORs/invoices, and proof of payment.

C) Transitional / beginning-inventory input VAT (when switching from non-VAT to VAT)

Historically, rules allowed credits on goods on hand/capital goods at transition (or a standard formula). The specifics have changed across reforms; today, plan on claiming actual supported input VAT on qualifying goods/capital goods on hand at effectivity. Keep a detailed inventory and official receipts/invoices. (If you lack support, you may lose the credit.)

5) Invoicing & compliance (high-stakes for audits)

Issue a VAT invoice (not a mere statement) for VATable rent showing:
- Your VAT-registered TIN, address, and “VAT-registered” label;
- Serial-numbered invoice;
- Tenant/lessee details;
- Description and period of lease;
- Gross amount, 12% VAT shown separately, and total;
- For VAT-exempt residential rents: issue an invoice indicating “VAT-EXEMPT SALE” and cite the legal basis (e.g., residential rent not exceeding threshold; per unit). Do not add VAT to these.
Returns: File quarterly VAT returns (and any required monthly supplements, depending on current forms), pay VAT due, and keep SLSP/sales-purchase books updated.
Withholding tax: Many lessees (especially corporations and government) must withhold income tax on rent (creditable) and, for government, withhold VAT under special rules. Ensure the correct rates and 2307/2306 certificates are exchanged so your books reconcile. (Rates/coverage change from time to time—coordinate with the tenant’s compliance team.)

6) Residential leasing nuances

Per-unit test controls VAT exemption. If Unit A = ₱12,000/month → VAT-exempt; Unit B = ₱20,000/month → VATable (if you’re VAT).
Annual increases can push a previously exempt unit over the threshold, making that unit VATable going forward. Adjust invoices from the effective month of increase.
Add-ons (association dues, utilities, parking):
- If you rebill at cost with proper third-party invoices in the tenant’s name, treatment can differ from when you bundle them into rent. Bundled/mandatory charges usually follow the main lease treatment (VATable if the lease is VATable).

7) Bare land leases vs land + improvements

Bare land lease for business use is VATable once you’re VAT (or required to be).
If the arrangement includes use of improvements (e.g., paved yard, perimeter wall, utility posts), still generally VATable as lease of real property (no need to split unless the contracts are truly separate and independently priced).

8) Crossing ₱3M mid-year—what to do (step-by-step)

Monitor cumulative gross receipts monthly (maintain a rolling 12-month dashboard).
Hit/exceed ₱3M? File VAT registration update with the RDO immediately (best practice: within the same month; the law keys off the following month for effectivity, but don’t cut it close).
From effectivity, start issuing VAT invoices and charging 12% on taxable leases.
Prepare a beginning inventory of goods/capital goods and gather official receipts/invoices to support input VAT you’ll claim post-transition.
Update lease contracts or issue addenda to reflect VAT going forward (gross-up clauses, if any).
Educate tenants on VAT start date; coordinate withholding certificates so your VAT and income-tax withholdings reconcile.

9) Percentage tax when not VAT

If you are not VAT (below threshold and not optionally VAT-registered), the use or lease of properties is generally subject to percentage tax (the statutory rate has been temporarily adjusted by recent laws in certain periods). Once you shift to VAT, percentage tax stops for the VATable streams.
Do not pay both VAT and percentage tax on the same receipts. If you have VAT-exempt residential rents, check whether percentage tax applies to those specific receipts under current rules (many statutory VAT-exempt transactions are likewise outside percentage tax).

10) Common audit findings—and how to avoid them

Charging VAT on exempt residential units (or failing to charge on VATable ones).
Failure to register on time after breaching ₱3M; BIR then assesses VAT retroactively plus penalties.
No proper VAT invoice (missing “VAT-registered,” TIN, separate VAT line). If the invoice is defective, input VAT of your tenant can be disallowed—expect disputes.
Not allocating input VAT between VATable and VAT-exempt sales (BIR recomputes and disallows portions).
Treating association dues/utilities as non-VAT without basis while they’re contractually bundled with rent.
Misclassifying residential as commercial (or vice-versa) in mixed-use buildings.

11) Worked micro-scenarios

A. Commercial land lease breaches ₱3M

Jan–Oct receipts total ₱3.2M → Mandatory VAT from Nov 1.
Nov rent invoice for ₱300,000 → ₱300,000 + ₱36,000 VAT; file in your Q4 VAT return.
Allocate input VAT on common costs (guarding, groundskeeping) using sales ratio from Nov–Dec.

B. Mixed portfolio

Units R1–R10 (₱12,000/month per unit) → VAT-exempt;
Yard lease to a logistics firm (₱250,000/month) → VATable.
Total annual VATable receipts hit ₱3.1M in August → register; start charging VAT on the logistics yard from Sept 1; do not add VAT to the R-units (still exempt).
Allocate input VAT on building security and groundskeeping between VATable and exempt sales.

C. Optional VAT below ₱3M

You elect VAT because of large capital improvements with significant input VAT. You must charge VAT on taxable leases even if under ₱3M and consistently file VAT returns thereafter (no flip-flopping within the lock-in period).

12) Documentation checklist

BIR VAT registration certificate; Authority to Print / e-invoicing enrollment (if applicable).
Lease agreements and addenda (with VAT/gross-up clauses).
VAT invoices (serial-controlled) and official receipts/proofs of payment.
Subsidiary sales & purchases journals; input-VAT allocation worksheets.
Beginning inventory and source ORs/invoices for transition claims.
Withholding certificates (2307/2306), government VAT-withholding certificates where applicable.
Mapping schedule of units: residential vs commercial, monthly rate, VAT status.

13) Penalties snapshot

Surcharges/interest for late VAT registration/late filing or payment.
Compromise penalties for invoice violations (missing details/legends).
Disallowance of input VAT (yours or your tenants’) due to paperwork defects—often the most expensive “invisible” penalty.

Bottom line

Crossing ₱3,000,000 in taxable lease receipts flips you into mandatory VAT on taxable leases; low-rent residential units that meet the per-unit threshold remain VAT-exempt even if you are VAT-registered.
Register promptly, invoice correctly, and allocate input VAT for mixed portfolios.
Avoid charging VAT where exempt (and vice-versa), and align contracts and tenant communications the moment VAT status changes.

If you outline your portfolio (unit types, monthly rates, when you’ll cross ₱3M), I can draft the tenant notice, contract addendum, and a one-page VAT/input-allocation worksheet tailored to your setup.