I. Introduction

The acquisition of real estate in the Philippines triggers a series of national and local taxes and fees that must be settled before a new owner’s title can be issued. These levies are governed primarily by the National Internal Revenue Code of 1997 (NIRC), as amended by Republic Act No. 10963 (TRAIN Law) and Republic Act No. 11534 (CREATE Law), the Local Government Code of 1991 (RA 7160), and the rules issued by the Bureau of Internal Revenue (BIR) and the Land Registration Authority (LRA).

The taxes and fees are divided between the seller and the buyer. The seller is generally responsible for the final capital gains tax (or VAT, if applicable), while the buyer shoulders the documentary stamp tax, local transfer tax, registration fees, and miscellaneous charges. Failure to pay any of these prevents the Register of Deeds from issuing a new Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT). A Certificate Authorizing Registration (CAR) from the BIR is a mandatory prerequisite for registration.

II. Taxes and Fees Payable by the Seller

A. Capital Gains Tax (CGT) – Section 24(D), NIRC

Rate: 6% flat rate, final tax.
Tax Base: The higher of (a) the gross selling price or (b) the current fair market value (FMV) as determined by the BIR zonal valuation or the provincial/city assessor’s value, whichever is higher.
Who Pays: Natural persons (citizens or aliens) and estates/trusts selling real property classified as capital asset.
Exemptions and Special Rules
- Principal Residence Exemption: A natural-person seller may claim full or partial exemption if the property is his/her principal residence, provided:
  - BIR is notified within thirty (30) days from the date of sale using BIR Form No. 1706;
  - Proceeds are fully or proportionally reinvested in a new principal residence within eighteen (18) months;
  - The exemption is availed of only once every ten (10) years.
- Installment Sales: CGT may be paid in installments if the initial payments do not exceed 25% of the selling price.
- Foreclosure Sales: CGT is computed on the bid price or FMV, whichever is higher.
- Swap or Exchange: Taxed on the FMV of the property received.

B. Value-Added Tax (VAT) – Section 106, NIRC

Rate: 12%.
Applicability: Mandatory when the seller is a VAT-registered real-estate dealer or when gross annual sales exceed ₱3,000,000 (or the current threshold). Sales of residential units priced below ₱2,000,000 (adjusted periodically) may be exempt or zero-rated depending on the seller’s status and the buyer’s end-use.
Tax Base: Gross selling price or FMV, whichever is higher. Input VAT on acquisition may be credited.
Note: When VAT applies, CGT does not apply. The seller issues a VAT invoice and remits the tax through BIR Form 2550Q.

C. Creditable Withholding Tax (CWT) – If Applicable

Corporate sellers or individuals engaged in trade or business may be subject to 1%–5% expanded withholding tax on the gross selling price, creditable against their income tax liability. This is in addition to VAT or CGT depending on classification.

III. Taxes and Fees Payable by the Buyer

A. Documentary Stamp Tax (DST) – Section 196, NIRC

Rate: ₱15.00 for every ₱1,000 (or fractional part thereof) of the higher of (a) the selling price or (b) the FMV (zonal or assessed value). This equates to 1.5%.
Tax Base: Same as CGT base.
Who Pays: Buyer, unless otherwise stipulated in the Deed of Absolute Sale.
Payment: Affixed on the original deed or paid electronically via the BIR eDST system before presentation to the Register of Deeds.

B. Local Transfer Tax (Real Property Transfer Tax) – Section 150, RA 7160

Rate:
- Not to exceed 0.5% of the selling price or FMV (whichever is higher) in provinces and municipalities outside Metro Manila and highly urbanized cities.
- Not to exceed 1% in cities and municipalities within Metro Manila.
  Actual rates are set by local ordinances and are commonly 0.5% (provinces) and 1% (cities).
Tax Base: Higher of selling price or FMV.
Who Pays: Buyer.
Payment: Remitted to the local treasurer; an official receipt is required for registration.

C. Registration Fees and Other LRA/LGU Charges

The Land Registration Authority and Register of Deeds impose the following:

Registration Fee: Based on the LRA Schedule of Fees (currently approximately 0.25% of the FMV or a graduated scale with a minimum and maximum cap).
Entry Fee / Annotation Fee: Fixed amount per document.
Title Issuance Fee: For new TCT/CCT – ₱500 to ₱2,000 plus ₱100 per additional page.
Improvement Tax / Special Education Fund (SEF): Sometimes collected by the local assessor as part of the transfer process.
Notarial Fees: Governed by the 2022 Notarial Rules; typically 1%–2% of the consideration or a fixed schedule.
Broker’s Commission / Service Fees: Not a tax but contractually payable (usually 5% of selling price, split or shouldered by buyer/seller as agreed).

IV. Computation Methodology and Formula

Let:

SP = Contracted selling price
ZV = BIR zonal value
AV = Assessor’s fair market value
FMV = max(ZV, AV)

Step-by-Step Formula

CGT (Seller) = 6% × max(SP, FMV)
VAT (if applicable, Seller) = 12% × max(SP, FMV)
DST (Buyer) = 1.5% × max(SP, FMV)
Local Transfer Tax (Buyer) = Local rate (0.5% or 1%) × max(SP, FMV)
Registration Fee (Buyer) = LRA graduated rate applied to FMV (consult current LRA Memorandum for exact table)

Total Buyer Outlay (excluding purchase price) ≈ DST + Local Transfer Tax + Registration + Notarial + Miscellaneous

Example Computation

Assume a residential lot in Quezon City sold for ₱8,000,000 with zonal value ₱9,500,000 and assessed value ₱7,000,000. Seller is a natural person; property is not principal residence; buyer is an individual.

FMV = ₱9,500,000
CGT (Seller) = 6% × ₱9,500,000 = ₱570,000
DST (Buyer) = 1.5% × ₱9,500,000 = ₱142,500
Local Transfer Tax (1% – Quezon City) = 1% × ₱9,500,000 = ₱95,000
Registration Fee (approximate 0.25%) ≈ ₱23,750
Notarial ≈ ₱80,000–₱100,000 (sliding scale)

Total taxes and fees ≈ ₱570,000 (seller) + ₱361,250+ (buyer)

V. Documentary Requirements and Procedure

Deed of Absolute Sale – notarized.
BIR CAR – obtained after payment of CGT (and DST if seller pays) via eCAR system or RDO.
Payment of DST – if not yet paid.
Local Transfer Tax Receipt.
Original Title, Tax Declaration, Real Property Tax Clearance.
Birth/Marriage Certificates, ID, etc., for spouses.
Submission to Register of Deeds – within 15 days from notarization (to avoid penalties).
New Title Issuance – usually 30–90 days depending on the office workload.

VI. Penalties and Surcharges

Late filing of CGT return: 25% surcharge + 20% interest per annum + compromise penalty.
DST deficiency: 50% surcharge + interest.
Failure to register within 15 days: daily penalty plus possible cancellation of deed.
Local transfer tax delinquency: 25% surcharge + interest.

VII. Special Transactions and Exemptions

Donation: Donor’s tax (6%) replaces CGT; DST still applies at 1.5%.
Inheritance/Intestate Succession: Estate tax paid first; transfer to heirs is exempt from CGT and transfer tax but subject to DST at reduced rate in some cases.
Socialized Housing Projects: Exempt from certain local taxes and lower DST rates under RA 7279.
Bank Foreclosures: Special rules on redemption period and tax computation.
Condominium Units: Same taxes apply; additional Master Deed requirements.
Agricultural Lands: CARP/RA 6657 compliance and possible DAR clearance.
Foreign Buyer Restrictions: Only Filipino citizens or corporations with at least 60% Filipino ownership may own private lands; condominiums allow up to 40% foreign ownership.

VIII. Recent Developments and Compliance Tips

The TRAIN Law (2018) standardized the 6% CGT and 1.5% DST rates and removed the old graduated CGT schedule. The CREATE Law (2021) mainly affected corporate incentives but left real-property transfer rules intact. Electronic filing (eCAR, eDST, MyBIR) has shortened processing time but requires Taxpayer Identification Number (TIN) and online account activation.

Buyers are strongly advised to:

Verify zonal value via the BIR website or RDO.
Obtain a current Tax Declaration and Real Property Tax clearance.
Engage a licensed real-estate broker and a title attorney.
Factor all taxes and fees into the total acquisition cost before signing the contract to purchase.

All rates and procedures stated herein reflect the legal framework as of the latest amendments to the NIRC and RA 7160. Local ordinances and BIR Revenue Regulations may introduce minor variations by city or province; therefore, confirmation with the concerned RDO and Register of Deeds is indispensable prior to closing any real-estate transaction.