What is the main tax when selling real property?
When Philippine real property is classified as a capital asset, the sale is generally subject to a six percent (6%) final capital gains tax. The tax is based on the highest of the gross selling price, the BIR zonal value, or the fair market value shown in the applicable assessor’s schedule of values.
The 6% capital gains tax does not automatically apply to every real-property sale. Property classified as an ordinary asset, such as property used in business or held primarily for sale to customers, is generally subject to ordinary income tax and creditable withholding tax rules instead. Exemptions or special rules may also apply, including qualified sales of a principal residence.
Who pays the capital gains tax?
The capital gains tax is imposed on the seller or transferor. The parties may agree between themselves on who will shoulder the economic cost, but their private agreement does not necessarily alter the taxpayer’s statutory obligations to the government. The applicable BIR filing and withholding procedures must still be followed.
What is documentary stamp tax?
Documentary stamp tax, or DST, is imposed on the deed or instrument conveying the real property. For a taxable sale, it is generally equivalent to one and one-half percent (1.5%), based on the consideration stated in the instrument or the applicable fair market value, whichever is higher. Special rules may apply when a contracting party is the government.
Is there a local tax involved?
Yes. The relevant province or city may impose a transfer tax under the Local Government Code and its local revenue ordinance. A province may impose a rate of up to 0.5% of the consideration or applicable fair market value, whichever is higher. A city may generally impose up to 50% more than the provincial ceiling, resulting in a maximum rate of 0.75%. The actual rate should be confirmed with the treasurer of the LGU where the property is located.
Are there other costs aside from taxes?
Yes. A transfer may also involve Registry of Deeds registration fees, certification or tax-clearance charges, notarization, documentary requirements, and other incidental expenses. The amount and party responsible may depend on the transaction documents and the requirements of the BIR, LGU, Registry of Deeds, and other relevant offices.
Legal basis: Sections 24(D)(1) and 196 of the National Internal Revenue Code, as amended; Sections 135 and 151 of the Local Government Code; and BIR Revenue Regulations No. 7-2003.