Deed of Absolute Sale in the Philippines: Requirements, Taxes, and Title Transfer

Introduction

In the Philippine legal system, a Deed of Absolute Sale (DAS) is a fundamental document used to effect the transfer of ownership of real property from a seller (vendor) to a buyer (vendee). Governed primarily by the Civil Code of the Philippines (Republic Act No. 386), particularly Articles 1458 to 1504 on sales, the DAS represents an absolute and unconditional conveyance of title, free from any encumbrances unless otherwise specified. This contrasts with conditional sales or contracts to sell, where ownership transfer is contingent on certain conditions, such as full payment.

The DAS is essential in real estate transactions to ensure the legal validity of the transfer, protect the parties' interests, and facilitate the registration of the new ownership with government authorities. It must comply with statutory requirements to be enforceable and to avoid disputes. This article comprehensively explores the requirements for executing a valid DAS, the associated taxes and fees, the process of title transfer, and related considerations, all within the Philippine context.

Legal Nature and Essential Elements of a Deed of Absolute Sale

Under Philippine law, a sale is perfected by mere consent (Article 1475, Civil Code), but for real property, the DAS serves as the written embodiment of that consent. It is considered a public instrument when notarized, which is crucial for its admissibility in evidence and for registration purposes (Article 1358, Civil Code; Rule 132, Rules of Court).

The essential elements of a valid DAS include:

Consent: Both parties must have the legal capacity to contract. The seller must be the owner or have authority to sell (e.g., via a Special Power of Attorney). Minors, insane persons, or those under guardianship cannot validly consent without court approval.
Object: The property must be determinate or determinable, with a clear description including lot number, area, boundaries, technical description from the title, and any improvements. For titled properties, reference to the Original Certificate of Title (OCT) or Transfer Certificate of Title (TCT) is mandatory.
Cause or Consideration: A certain price in money or its equivalent, paid or promised to be paid. The price must be real and not simulated; otherwise, the sale may be void (Article 1471, Civil Code). In cases of gross inadequacy of price, the contract may be rescissible if it indicates lesion or fraud (Article 1381).

The DAS must be in writing to be enforceable against third parties (Statute of Frauds, Article 1403). Oral sales of real property are valid between parties but unenforceable in court without a written memorandum.

Requirements for Executing a Deed of Absolute Sale

To ensure the DAS is legally binding and registrable, the following requirements must be met:

1. Preparation of the Document

The DAS should be drafted in clear, unambiguous language, typically in English or Filipino.
Key clauses include: identification of parties (full names, civil status, addresses); property description; selling price and payment terms; warranties (e.g., seller warrants clear title, free from liens); and signatures.
If the property is conjugal, both spouses must sign unless it is paraphernal or separate property (Family Code, Article 124).
For corporate sellers, board resolution authorizing the sale is required.

2. Notarization

The DAS must be acknowledged before a notary public to qualify as a public document (Notarial Law, Act No. 2711, as amended).
Parties must present valid identification (e.g., passport, driver's license) and, if married, proof of marital consent.
Notarization fees vary but are generally based on the document's value (e.g., PHP 500–2,000 for standard deeds).

3. Supporting Documents

Seller's Documents: Original TCT/OCT, Tax Declaration, latest Real Property Tax (RPT) receipt, clearance from homeowners' association (if applicable), and BIR Certificate of Registration if the seller is engaged in business.
Buyer's Documents: Proof of identity and, if applicable, marital status.
If the property is agricultural, clearance from the Department of Agrarian Reform (DAR) is needed to confirm it is not covered by agrarian reform (Republic Act No. 6657).
For foreclosed properties or those under mortgage, redemption certificates or release of mortgage.

4. Compliance with Anti-Money Laundering Laws

Transactions exceeding PHP 500,000 must be reported to the Anti-Money Laundering Council (AMLC) by covered persons like notaries (Republic Act No. 9160, as amended).
Parties may need to provide source of funds documentation.

Failure to meet these requirements can render the DAS voidable or unenforceable, leading to legal challenges such as actions for annulment or specific performance.

Taxes and Fees Associated with the Deed of Absolute Sale

Real property sales in the Philippines trigger several taxes and fees, payable by either the seller or buyer as specified by law. These must be settled before title transfer.

1. Taxes Payable by the Seller

Capital Gains Tax (CGT): Imposed under Section 24(D) of the National Internal Revenue Code (NIRC, Republic Act No. 8424, as amended by TRAIN Law). Rate: 6% of the selling price, fair market value (zonal value per BIR), or assessed value per local government, whichever is highest. Exemptions include sales of principal residence (with reinvestment in a new one within 18 months) and sales below PHP 100,000 for non-business properties.
Creditable Withholding Tax (CWT): If the seller is habitually engaged in real estate business, CWT ranges from 1.5% to 5% (Revenue Regulations No. 2-98).
Documentary Stamp Tax (DST): 1.5% of the selling price or zonal value, whichever is higher (Section 196, NIRC). Paid to BIR within 5 days of the month following execution.

2. Taxes Payable by the Buyer or Shared

Local Transfer Tax (LTT): Under Section 135 of the Local Government Code (Republic Act No. 7160), typically 0.5% to 0.75% of the selling price, zonal value, or assessed value, whichever is highest. Payable to the local treasurer's office within 60 days of notarization.
Registration Fees: Paid to the Registry of Deeds, based on the property's value (e.g., PHP 5,000–10,000 for average properties).
Other Fees: Notarial fees, BIR processing fees (e.g., for CAR), and assessor's fees for new tax declaration.

3. Value-Added Tax (VAT)

If the seller is VAT-registered or the sale is in the course of business, 12% VAT applies (Section 106, NIRC). Ordinary asset sales (e.g., inventory) are subject to VAT instead of CGT.

Non-payment of taxes can result in penalties (25% surcharge, 20% interest per annum) and holds on title transfer. The BIR issues a Certificate Authorizing Registration (CAR) or Electronic CAR (eCAR) upon tax payment, which is prerequisite for registration.

Process of Title Transfer

Title transfer formalizes the buyer's ownership and protects against third-party claims. It involves the following steps:

1. Payment of Taxes and Obtaining CAR

Seller files BIR Form 1706 (CGT) and/or 2000 (DST) with the Revenue District Office (RDO) where the property is located.
Submit DAS, TCT/OCT, tax receipts, and computations.
BIR issues CAR/eCAR within 30 days if compliant.

2. Payment of Local Transfer Tax

Submit to the local assessor's office for computation, then pay at the treasurer's office.
Obtain certified true copies of tax declaration and clearances.

3. Registration with the Registry of Deeds

Buyer submits: Original DAS (notarized), CAR/eCAR, TCT/OCT, tax receipts, LTT receipt, and fees to the Registry of Deeds in the property's jurisdiction.
The Register of Deeds cancels the old title, annotates the sale, and issues a new TCT in the buyer's name (Presidential Decree No. 1529, Property Registration Decree).
Timeline: 5–15 days, depending on volume.

4. Transfer of Tax Declaration

Apply at the local assessor's office for a new Tax Declaration in the buyer's name, submitting the new TCT and receipts.

5. Post-Transfer Obligations

Update utility billings, homeowners' association records, and insurance.
If the property is mortgaged by the buyer, register the mortgage deed simultaneously.

The entire process typically takes 1–3 months. Delays may arise from incomplete documents or BIR audits.

Effects and Validity of the Deed of Absolute Sale

Upon execution and delivery, the DAS transfers ownership (Article 1496, Civil Code), but registration is necessary for protection against innocent third parties (Article 1544; doctrine of double sale). Unregistered sales bind only the parties.

The sale is absolute, meaning no right of redemption unless stipulated (unlike in pacto de retro sales). Warranties against eviction and hidden defects apply (Articles 1547–1566), allowing remedies like rescission or damages if breached.

Common Issues and Remedies

Fraud or Forgery: DAS may be annulled within 4 years (Article 1391). Criminal charges under Revised Penal Code (falsification).
Encumbrances: Buyer can demand removal or sue for breach.
Adverse Claims: Lis pendens annotation protects pending litigation.
Inheritance Properties: Heirs must execute an Extrajudicial Settlement of Estate first.
Foreign Buyers: Restricted under the Constitution (Article XII); foreigners cannot own land but may own condominiums (up to 40% foreign ownership per project).

Conclusion

The Deed of Absolute Sale is a cornerstone of Philippine real estate transactions, ensuring orderly ownership transfer while complying with fiscal obligations. Parties are advised to consult lawyers or real estate professionals to navigate complexities and avoid pitfalls. Proper execution, tax compliance, and registration safeguard investments and uphold property rights in accordance with Philippine laws.