In the Philippines, transferring land ownership through donation is a common practice, often driven by succession planning or charitable intent. However, many Filipinos are caught off guard by the financial implications. Under the National Internal Revenue Code (NIRC), as amended by the TRAIN Law (Republic Act No. 10963), the process involves specific taxes, local government fees, and administrative costs.
1. The Donor’s Tax: The Primary Burden
The most significant cost in a land donation is the Donor’s Tax. This is a tax on the privilege of the donor to transfer property gratuitously.
- The Rate: Under the TRAIN Law, the Donor’s Tax is a flat rate of 6% on the total value of the gifts in excess of ₱250,000 made during a calendar year.
- Basis of Valuation: The value is determined by whichever is higher between the Zonal Value (prescribed by the BIR) and the Fair Market Value (as shown in the schedule of values of the Provincial or City Assessor).
- Deadline: The return must be filed and the tax paid within thirty (30) days after the deed of donation is notarized.
2. Documentary Stamp Tax (DST)
Every transfer of real property requires the payment of Documentary Stamp Tax. This is an excise tax on the documents, instruments, and papers evidencing the acceptance or transfer of the property.
- The Rate: For donations of real property, the DST is 1.5% of the property’s value (based on the higher value between the Zonal Value and Fair Market Value).
- Deadline: This must be paid within five (5) days after the close of the month when the taxable document was signed and notarized.
3. Local Transfer Tax
While Donor's Tax and DST are national taxes paid to the Bureau of Internal Revenue (BIR), the Local Transfer Tax is paid to the City or Provincial Treasurer’s Office where the property is located.
- The Rate: This varies depending on the local government unit (LGU). In provinces, it is generally 0.50%, while in cities within Metro Manila, it can be up to 0.75% of the property's value.
- Requirement: You must present the Certificate Authorizing Registration (CAR) from the BIR before the LGU will accept payment for the Transfer Tax.
4. Registration Fees
Once the taxes are settled, the final step for title transfer happens at the Registry of Deeds (RD). This fee is for the issuance of a new Transfer Certificate of Title (TCT) in the name of the donee.
- The Computation: The RD uses a graduated table of fees based on the value of the property. Generally, for high-value land, the registration fee is approximately 0.25% of the property value, plus incidental administrative charges (e.g., legal research fund).
5. Summary Table of Estimated Costs
| Type of Tax/Fee | Agency | Approximate Rate | Basis |
|---|---|---|---|
| Donor’s Tax | BIR | 6% | Over ₱250k of Zonal/FMV |
| Documentary Stamp Tax | BIR | 1.5% | Higher of Zonal or FMV |
| Local Transfer Tax | LGU | 0.50% – 0.75% | Higher of Zonal or FMV |
| Registration Fees | Registry of Deeds | ~0.25% | Graduated Scale |
| Notarial Fees | Notary Public | 1% – 2% | Negotiable/Contract Price |
6. Procedural Workflow for Title Transfer
To successfully transfer the title, the following sequence is typically followed:
- Execution and Notarization: The Donor and Donee sign the Deed of Donation.
- BIR Clearance: Pay the Donor's Tax and DST at the BIR. Obtain the Certificate Authorizing Registration (CAR).
- LGU Clearance: Pay the Transfer Tax and obtain a Tax Clearance from the Assessor’s Office after showing the CAR.
- Title Cancellation and Issuance: Submit the CAR, Tax Clearance, and the original Owner's Duplicate Title to the Registry of Deeds.
- New Tax Declaration: After the new TCT is issued, head back to the Assessor’s Office to issue a new Tax Declaration in the donee's name.
7. Important Considerations
- Exemptions: Donations to certain entities (e.g., government, accredited NGOs, or educational institutions) may be exempt from Donor’s Tax, provided specific conditions under the NIRC are met.
- The "Grossed-up" Value: If the donor dies shortly after the donation, the property might be scrutinized under "transfers in contemplation of death" for Estate Tax purposes, though the 6% rate is now uniform for both.
- Penalties: Failure to file and pay on time results in a 25% surcharge (50% for fraud), 12% annual interest, and potential compromise penalties.