Computing Capital Gains Tax on the Sale of Unlisted Shares in the Philippines
(All citations are to the National Internal Revenue Code of 1997 [NIRC], as amended, and Bureau of Internal Revenue [BIR] issuances in force as of 31 July 2025. This article is for general information only and is not a substitute for professional advice.)
1 | Statutory Framework
| Source |
Key provision |
| § 24(C), § 27(D)(2), § 28(A)(6) NIRC |
Imposes a final capital gains tax (CGT) of 15 % on the net capital gains realized each taxable year from the sale, exchange, or disposition of shares of stock in a domestic corporation not traded through the local stock exchange (commonly called “unlisted shares”). |
| § 6(E) NIRC; RR No. 06-2013; RR No. 07-2003 |
Authorize the Commissioner to determine fair market value (FMV) of unlisted shares and prescribe valuation methods. |
| § 40 NIRC; RR No. 18-2001 |
Defines gain or loss; provides tax-free exchange rules. |
| § 173-199 NIRC; RR No. 09-2003 |
Impose Documentary Stamp Tax (DST) on every sale or transfer of shares, listed or not. |
2 | Who Pays the 15 % CGT?
| Seller |
Tax exposure |
| Resident or non-resident individual (citizen or alien) |
15 % CGT on net capital gain. |
| Domestic corporation |
15 % CGT on net capital gain; tax is final, separate from regular income tax. |
| Resident foreign corporation |
Same 15 % final CGT on net capital gain. |
| Non-resident foreign corporation |
15 % final CGT unless reduced or relieved by a tax treaty (subject to prior BIR ruling/Treaty Relief Application). |
Tip: The tax attaches only if the shares are of a domestic corporation. Gains on shares of a foreign corporation are taxed under ordinary income rules, not the CGT regime.
3 | Defining “Unlisted” and “Net Capital Gain”
- Unlisted shares – equity securities not listed and not traded on the Philippine Stock Exchange (PSE). Even a brief listing suspends CGT and subjects the sale to the stock transaction tax (STT) instead.
- Net capital gain – aggregate gains minus aggregate losses from all unlisted-share transactions during the taxable year. Losses are deductible only against gains of the same class; any excess loss is not carried over.
4 | Tax Base: Whichever Is Higher
Taxable gain = (Higher of: Selling Price or Fair Market Value)
– Cost or Adjusted Basis
| Element |
How determined |
Documentary proof |
| Selling price |
Gross consideration stated in the deed (cash, property, assumption of debt). |
Notarized Deed of Sale or Assignment; proof of payment. |
| Fair Market Value (FMV) |
Higher of (a) Book Value Per Share (BVPS) from the latest audited financial statements (AFS) prior to sale, or (b) Appraised Value if BIR requires a special valuation (e.g., substantial non-operating assets). |
Latest AFS stamped “RECEIVED” by BIR; independent appraisal if demanded. |
| Cost/Adjusted Basis |
Historic acquisition cost plus subscription receivables settled, less returns of capital, adjusted for stock dividends or splits (RR 18-2001). |
Original stock certificates, SEC/BIR docs on past corporate actions. |
If the shares carry no par value, FMV is the proportionate equity represented by the shares.
5 | Valuation Nuances
| Scenario |
BIR thinking/Practice |
| AFS older than 1-year |
Submit interim FS as of the quarter nearest the sale date; BIR may still rely on last AFS if interim FS unaudited. |
| Start-ups or loss-makers |
BIR may accept BVPS below face value, but can impute FMV based on appraised net asset value or third-party funding rounds. |
| Holding companies with real property |
BIR may “look-through” and substitute the zonal value or FMV of underlying real estate when determining BVPS. |
6 | When CGT Does Not Apply
| Exemption |
Conditions |
Filing |
| Tax-free exchange under § 40(C)(2) (e.g., merger, consolidation, share-for-share swap) |
Control test (>51 %) or business purpose; no boot. |
File BIR Form 1905 for ruling (now post-approval). |
| Intra-corporate reorganization under SEC rules |
Requires BIR confirmatory ruling that transaction is tax-free. |
Same § 40(C)(2) process. |
| Donation of shares |
Subject instead to Donor’s Tax (6 %) based on FMV. |
BIR Form 1800; CAR for donation. |
| Estate transmission |
Subject to Estate Tax (6 %) on net estate. |
BIR Form 1801. |
7 | Interaction With Other Taxes
| Tax |
Rate |
Notes |
| Documentary Stamp Tax (DST) |
₱0.75 for every ₱200 of par value (or 25 % of DST on original issue for no-par shares) per § 176. |
Due within 5 days after month-end via BIR Form 2000-OT. |
| Withholding tax |
None; CGT is remitted directly by the seller. |
|
| Value-added tax & percentage tax |
Not applicable to isolated sales of shares. |
|
| Stock Transfer Fees (SEC or corporate secretary) |
Administrative, not a tax; payable by buyer or seller per agreement. |
|
8 | Compliance Workflow
| Step |
Form & deadline |
Highlights |
| 1. File & pay CGT |
BIR Form 1707 (per transaction) within 30 days after each sale. Payment through AAB/LBMS or eFPS. |
|
| 2. Attachments |
Deed, latest AFS, secretary’s certificate, stock certificates, tax clearance if seller is foreign. |
|
| 3. Secure CAR (Certificate Authorizing Registration) |
Issued by BIR Revenue District Office. Needed to annotate transfer on the Stock & Transfer Book (STB) and issue new certificates. |
|
| 4. File Annual CGT return (individuals only) |
BIR Form 1707-A on or before 15 April following the close of the taxable year, reconciling all sales and netting gains vs. losses. |
|
| 5. Pay DST |
BIR Form 2000-OT on or before the 5th day following the close of the month of sale. |
|
Penalties: 25 % surcharge for late filing, 12 % annual interest, and ₱1,000 compromise per return, plus incremental penalties for DST.
9 | Illustrative Computation
Assume:
- 10,000 common shares (₱100 par) of ABC Corp.
- Cost basis = ₱6 million.
- Deed price = ₱12 million.
- BVPS from latest AFS = ₱1,500; FMV therefore = ₱15 million (1,500 × 10,000).
- Tax base = higher of ₱12 M (price) or ₱15 M (FMV) → ₱15 M
- Net capital gain = ₱15 M – ₱6 M = ₱9 M
- CGT (final) = 15 % × ₱9 M = ₱1,350,000
- DST = par value ₱1 M (₱100 × 10,000) ÷ 200 × ₱0.75 = ₱3,750
10 | Special Rules for Certain Sellers
| Seller type |
Practical concerns |
| Non-resident foreign |
Must secure Tax Identification Number (TIN) before filing BIR Form 1707; may appoint a Philippine resident agent. Tax treaty relief applications (TTRA) still filed even if treaty rate equals 15 % to protect refund claim if BIR later disallows CGT. |
| Listed issuer buying back its own unlisted preferreds |
Treated as sale by shareholder → CGT applies; issuer withholds only if acting as statutory agent. |
| Employee stock option plans (ESOP) |
Exercise is compensation; subsequent off-market sale subject to 15 % CGT on difference between selling price/FMV and option exercise price. |
11 | Record-Keeping & Audit Hot-Spots
| Item |
BIR focus |
| Fair market value |
Ensure AFS filed with SEC before sale date; large disparity between BVPS and deed price triggers audit. |
| Cost substantiation |
Lost certificates or missing board approvals may lead to full gain assessment (FMV minus zero). |
| Proper CAR issuance |
Transfers entered in STB without CAR are invalid vis-à-vis BIR; corporation may be penalized for allowing. |
12 | Recent Developments (2022-2025)
- Revenue Regulations 01-2024 introduced eCAR generation through the Electronic One-Time Transaction (eONETT) System, covering share sales beginning 1 July 2024.
- RMO 16-2023 updated the Checklist of Documentary Requirements to require digitized copies of stock certificates and STB pages.
- The Stock Transaction Tax (STT) on PSE-traded shares remains 0.6 % after TRAIN Law; proposals in Congress to align unlisted-share tax with STT (e.g., HB 7068) are still pending as of July 2025.
13 | Practical Pointers for Taxpayers
- Close books early. Have an AFS dated within 90 days of intended sale to avoid forced appraisal.
- Price realistically. Selling below BVPS invites donor’s tax assessment; selling above but near FMV avoids questions of understatement.
- Plan for lead time. CAR processing can take 3-6 weeks; factor this into deal closing.
- Check treaty benefits when foreign parties are involved, but remember: Philippine-situs rule applies if >50 % of share value is real property in the Philippines.
- Keep the STB immaculate. BIR examiners often start audit by matching CAR details against STB entries.
14 | Penalties and Remedies
| Issue |
Penalty |
Remedy |
| Late CGT or DST filing |
25 % surcharge + 12 % interest p.a. |
Voluntary assessment under VAPP (if re-opened) or compromise. |
| Under-valuation of selling price |
50 % surcharge for willful understatement >30 % |
Protest assessment within 30 days under § 228; engage independent appraiser. |
| Failure to secure CAR but transfer recorded |
₱1,000 per certificate + possible disallowance of deduction for cost upon resale |
Petition for ratification of prior transfer; pay taxes plus penalties. |
15 | Conclusion
Capital Gains Tax on unlisted shares in the Philippines is conceptually simple—15 % of net gain—yet procedurally intricate. Accurate valuation, meticulous documentation, and timely compliance are essential to avoid crippling surcharges or stalled transactions. With electronic CAR issuance now rolling out and proposed rate harmonization on the horizon, taxpayers should stay vigilant for further BIR and legislative updates.
When in doubt, seek a tax opinion or BIR ruling before consummating the sale.