Capital Gains Tax in the Philippines: Rates and Calculation (A practitioner-oriented overview as of 24 June 2025)
1. Concept and Legislative Basis
Capital Gains Tax (CGT) is a final Philippine tax on presumed or actual gains derived by any seller from the sale, barter, exchange or other disposition of (a) real property classified as a capital asset and situated in the Philippines, and (b) shares of stock of a domestic corporation not traded through the local stock exchange. The governing provisions are found in:
| Provision | Coverage | Key points |
|---|---|---|
| National Internal Revenue Code (NIRC) of 1997, as amended (primarily §§24(D), 27(D)(5), 28(A)(6)(c), 34(C)(2), 42(E)) | Statutory rates, definitions, situs rules | TRAIN Law (RA 10963) in 2018 did not change CGT rates; CREATE (RA 11534, 2021) affected ordinary income taxes but left CGT intact. |
| BIR Revenue Regulations & Rulings (e.g., RR 7-2003, RR 16-2008, RR 13-99) | Implementing rules, forms, exemptions, evidentiary requirements | |
| Civil Code & Property Registration Decree | Determine ownership/transfer formalities affecting taxable events |
2. Capital Asset vs Ordinary Asset
- Capital asset (NIRC §39[A]) – property not used in trade or business, and not classified as inventory, accounts receivable, or property held for sale in the ordinary course.
- Ordinary asset – the converse; gains are subject to regular income tax (graduated or corporate) rather than CGT. Practical tests:
- Primary purpose of the taxpayer (developer vs private individual).
- Holding period & frequency of sales.
- Use of the property (rented, owner-occupied residence, idle).
The BIR may re-classify property based on facts. Misclassification tends to surface during examination of the Certificate Authorizing Registration (CAR).
3. CGT on Sale of Real Property (Capital Assets)
| Item | Rule |
|---|---|
| Taxpayer covered | Individuals, domestic corporations, resident foreign corporations (for property in the Philippines) |
| Rate | 6 % final tax on the higher of: • Gross Selling Price (GSP) stated in the deed, or • Fair Market Value (FMV) per BIR zonal valuation or the assessor’s schedule (whichever is higher). |
| Tax base | Entire amount (no deduction for cost, improvements or mortgages). |
| When payable | Within 30 days from notarization of the deed of sale using BIR Form 1706; payment is a prerequisite to issuance of CAR and transfer of title. |
| Women’s rights | Married women may invoke the Family Code’s conjugal property provisions; nonetheless the seller indicated in the deed is liable for CGT. |
| Special exemptions / reduced rates | • Sale of principal residence by a natural person – one sale every 10 years may be exempt if the full proceeds are fully reinvested in another principal residence within 18 months (NIRC §24[D][2]). • Tax-free exchanges under §40(C)(2) (mergers, control transfers) subject to BIR confirmation. • Sale to government (including GOCCs) is still subject to CGT—improved FMV rules ensure no deflated selling price. |
| Penalties | Surcharge (25 % or 50 % for fraud), interest (6 % per annum) and compromise penalties if late. |
Illustrative computation Deed price = ₱3,800,000 BIR zonal FMV = ₱4,200,000 CGT = 6 % × ₱4,200,000 = ₱252,000 (The higher FMV prevails; tax is paid even if the seller lost money relative to historical cost.)
4. CGT on Sale of Shares of Stock (Not Traded Through the Exchange)
| Item | Rule |
|---|---|
| Taxpayer covered | Any individual (resident or non-resident) and domestic corporation disposing of domestic shares outside the PSE; non-resident foreign corporations pay a separate 25 %/35 % branch profit-type tax on gains. |
| Rates (current since 1998) | 5 % on the first ₱100,000 of net capital gain per taxable year plus 10 % on the excess. |
| Net capital gain | Selling price minus cost basis and directly attributable selling expenses. Losses offset gains on the same kind of shares within the year. |
| When payable & forms | BIR Form 1707-A within 30 days following each transaction; a consolidated return is also attached to the annual ITR. |
| Valuation & substantiation | For closely held corporations the BIR often requires a Book Value per Share certificate stamped “received” by the RDO; unreasonably low valuations may trigger donor’s tax. |
| Exemptions / special cases | • Dealer in securities – shares are ordinary assets; gains taxed as ordinary income. • Tax-free exchanges (§40-C) – no CGT if conditions met. • Listing by way of introduction – first public sale remains subject to CGT (not STT) when off-board. |
Illustrative computation
- Shares sold: 15,000 common; Cost ₱50/share; Selling price ₱92/share
- Net gain: (₱92 − ₱50) × 15,000 = ₱630,000
- CGT: • 5 % × ₱100,000 = ₱5,000 • 10 % × ₱530,000 = ₱53,000 Total CGT = ₱58,000 (final)
5. Transactions Not Subject to CGT
| Transaction | Tax treatment |
|---|---|
| Sale of real property considered an ordinary asset (e.g., land held by a real-estate dealer, property used in business) | Gain is part of gross income, taxed at normal or graduated rates; VAT or percentage tax may apply. |
| Sale of shares listed & traded through the Philippine Stock Exchange | Subject instead to Stock Transaction Tax (STT) of 0.6 % of gross selling price; any net gain is exempt from further income tax. |
| Disposition of foreign real property or foreign shares by resident citizens | Included in regular income tax (no Philippine CGT because situs is abroad). |
| Estate or donation of property | Subject to estate or donor’s tax, not CGT (though later disposition by heirs triggers CGT based on stepped-up basis). |
| Involuntary transfers (expropriation, foreclosures) | Still generally taxable, but may fall under specialized rules (e.g., 6 % CGT withheld by mortgagee on foreclosure). |
6. Documentary Requirements & Workflow (Real Property)
- Sign & notarize Deed of Absolute Sale (or Deed of Exchange).
- Secure BIR zonal valuation print-out & approved Tax Declaration from LGU assessor.
- File BIR Form 1706 and pay CGT (and Documentary Stamp Tax) within 30 days at the Authorized Agent Bank (AAB) of the RDO having jurisdiction over the property.
- Submit with the return: deed, TCT/CCT, tax clearance, DAR clearance (if agricultural), IDs, and SPA if applicable.
- BIR exam, payment verification, and issuance of eCAR. Target turnaround: 5–20 working days depending on RDO.
- Transfer title with Registry of Deeds; then update real-property tax records and tax declaration.
7. Common Pitfalls & Audit Focus
| Issue | BIR position |
|---|---|
| Under-declaration of selling price | CGT base adjusts to FMV; may trigger donor’s tax on the difference plus 50 % surcharge. |
| Failure to distinguish capital vs ordinary asset | Reclassification can lead to deficiency income tax plus VAT, interest and penalties exceeding 100 % of original tax. |
| Failure to pay CGT within 30 days | Interest accrues daily; title cannot be transferred without CAR. |
| Wash-sales or related-party sales of shares | BIR may assert anti-tax-avoidance under §43 or invoke transfer-pricing guidelines. |
| Ignoring Documentary Stamp Tax (DST) | DST (₱15/₱1,000 on deeds; 0.75 % on shares) is separate and cumulative with CGT. |
8. Interaction with Other Taxes
| Tax | When relevant |
|---|---|
| Value-Added Tax (VAT) | Only on sale of ordinary real property or shares by VAT-registered dealer/real-estate developer. |
| Withholding tax | Buyers (notaries, registrars) have no obligation to withhold CGT—the tax is self-assessed by the seller—but substitute filing for eCAR effectively assures collection. |
| Local Transfer Tax & Registration Fees | Payable to LGU before title issuance; not creditable against CGT. |
| Income Tax & Creditable Withholding | CGT is final—the gain is excluded from the seller’s gross income for regular income-tax purposes. |
9. Tax Planning & Compliance Tips
- Check zonal valuations early—price negotiations should anticipate possible 6 % levies on a value higher than your asking price.
- Document cost basis scrupulously for shares to lawfully reduce net gain (receipts, SEC-audited FS).
- Time the reinvestment of proceeds from sale of principal residence within 18 months; secure BIR waiver before the 30-day CGT deadline.
- Use tax-free exchange provisions for business reorganisations—obtain a confirmatory ruling (or Sworn Certification under RR 19-2020) before the transfer to avoid future disputes.
- Consolidate multiple share sales in one year to maximize the ₱100,000 5 % bracket.
- File returns even for loss-making sales—unfiled returns create exposure to penalties despite no tax due.
10. Penalties and Compromise
| Violation | Penalty |
|---|---|
| Late filing/payment | 25 % surcharge + 12 % interest (historical rate pre-TRAIN) changed to 6 % per annum under TRAIN, computed from original due date. |
| Willful neglect or false return | 50 % surcharge, criminal prosecution under §255. |
| Failure to provide supporting docs | BIR may suspend eCAR and impose separate compromise penalties (₱1,000–₱25,000) per RR 19-2015. |
11. Procedural Quick-Reference
| Property type | Return | Deadline | CAR code |
|---|---|---|---|
| Real property (capital) | 1706 | 30 days from notarization | CAR-RP-06 |
| Shares (unlisted) | 1707-A | 30 days from each sale; consolidate within 15 days after year-end | CAR-ST-168 |
12. Frequently Asked Questions (FAQ)
Is CGT ever withheld by the buyer? No. Unlike creditable withholding on ordinary asset sales, CGT is self-assessed; however the BIR will not process CAR unless proof of payment is attached.
Do non-resident aliens pay CGT on Philippine real property? Yes—the tax is on the asset’s situs, independent of the seller’s residence.
What if property is transferred in dation in payment (dación en pago)? Treated as a disposition; CGT applies on the FMV versus BIR-accepted valuation.
Are foreclosures subject to CGT or DST? CGT applies on the judicial sale price; DST uses the same base. For extrajudicial foreclosures under the Realty Installment Buyer Act, special DST rates apply.
Can the BIR audit CGT after CAR issuance? Yes—CAR only allows transfer of title; it is not a conclusive assessment. The general three-year prescriptive period (or ten years for false returns) still runs.
13. Concluding Notes
Capital Gains Tax in the Philippines is deceptively straightforward—6 % on real property, 5 %/10 % on unlisted shares—but practical compliance entails careful valuation, strict 30-day deadlines, and meticulous documentation to avoid cascading penalties or re-classification. Businesses and individuals should integrate CGT analysis early in transaction structuring and maintain robust records to substantiate tax positions long after the eCAR is released.
This article is for general information only and not a substitute for individualized legal or tax advice. Consult Philippine-licensed counsel or a BIR-accredited tax agent for specific transactions.