Key takeaways
A unit that has been paid in full but not yet transferred generates no accounting revenue, so the cash in the account is an obligation to deliver. On actual transfer, cash may not increase, but profit and CIT arise in full, and SBT and fees must be paid.
Introduction
This situation creates an illusion. The company holds a lot of cash but has no revenue yet. When the transfer day arrives, a large CIT bill follows, even though the cash may already have been spent.
Starting scenario
A condominium project has a unit that the customer has paid in full but that has not yet been transferred. The reason may be that it is awaiting inspection, awaiting the construction completion certificate or awaiting documents to be ready, while the company is about to close its books.
Cash flow overview
| Event | Cash in | Cash out | Accounting recognition |
|---|---|---|---|
| Booking deposit and down payments received before transfer | Already received | - | Contract Liability |
| Year-end closing without transfer | - | - | Cash on hand, but no revenue yet |
| Transfer registration day | No additional cash if paid in full | SBT, fees as applicable and 1% WHT | Revenue and COGS recognised |
Impact on each statement
Statement of cash flows
In the year down payments are received, cash received from customers is positive but does not reflect revenue. In the year of transfer, if the customer has paid in full, there is no further cash receipt, but tax and fees are paid. Revenue is therefore recognised in full, even though cash does not increase.
Statement of financial position
| Item | Before transfer | After transfer |
|---|---|---|
| Cash | Held | Reduced by tax and fees |
| Contract Liability | Held | Derecognised |
| Revenue | Not yet recognised | Recognised in full |
| WIP / project cost | Held in assets | Transferred to COGS |
| Withholding tax credit | - | Recognised as a tax asset |
Risks and traps
Cash comes first; revenue and tax follow later
The cash may be spent on construction, operating costs or debt repayment. On the transfer day, profit arises at the same time, and cash must be available to pay 20% CIT on schedule.
Year-end closing before transfer: cash looks overstated
High year-end cash may give the impression that the project has good liquidity, but in reality it is money that carries an obligation to deliver the unit, and CIT may follow in the next year.
SBT must be paid on the registration day
The Revenue Department has ruled in response to enquiries that SBT on real estate sales is filed and paid at registration, with no monthly PT 40 filing. A unit that has been paid in full must therefore still have cash ready for SBT at 3.3% of the full base on transfer day. If the project previously paid under another practice, prepare the documents and discuss offsetting or a refund.
1% WHT affects transfer-day cash
A corporate seller has 1% withholding tax deducted, which is a credit against CIT, but the cash goes out first.
Construction VAT that cannot be refunded
Real estate sales fall under the SBT system, so this input VAT cannot be refunded. The 7% VAT on tax invoices is therefore a project cost and must be included in the budget from the start.
Timeline
- Presale: down payments are received in instalments, and construction costs are paid in instalments
- Before transfer: set aside cash for SBT, WHT, fees and CIT
- Transfer day: recognise revenue, move WIP to COGS and pay tax at the land office
- By August: include the estimated profit in PND 51 if the transfer falls in that year
- Within 150 days after year-end: file PND 50 and pay or claim a refund
Management approach
- Reserve cash for CIT in advance: estimate profit per unit multiplied by 20%, after considering accumulated losses and credits
- Maintain a unit-by-unit tax schedule: track revenue, costs, SBT, WHT and CIT for each unit
- Check the amounts payable on transfer day: appraised value, SBT, fees and WHT
- Set transfer dates according to actual readiness: if transfers cluster at year-end, revenue falls into a single year, but do not postpone transfers without a business reason
Conclusion
Cash in hand is not profit, and accounting profit is not cash you can actually hold. Executives who understand this mechanism can maintain liquidity throughout the cycle.