Deed of Sale vs Deed of Donation for Property Transfer to Foreign Citizens in the Philippines

Philippine legal context. This is general information, not legal or tax advice. Laws, rates, and procedures change—work with a Philippine lawyer and tax professional for your specific deal.

TL;DR (decision snapshot)

Land: A foreign individual cannot acquire land in the Philippines by sale or donation. The only constitutional exception is hereditary succession (inheritance).
Condo units & building improvements on leased land: A foreigner can acquire or receive these by sale or donation, subject to the 40% foreign cap for condominiums and the lease’s assignment rules for improvements.
Taxes:
- Sale: usually 6% Capital Gains Tax (CGT) on the seller (for capital assets) + 1.5% Documentary Stamp Tax (DST) on the buyer + local transfer tax + registration fees (VAT/CWT may apply in some cases).
- Donation: 6% Donor’s Tax on the donor (on total gifts in the calendar year above ₱250,000) + DST + local transfer tax + registration fees.
Registration: No title transfer without BIR eCAR (Certificate Authorizing Registration). Both parties need TINs.

1) The legal backdrop: who may own what

Land

Aliens cannot own land in the Philippines. The constitutional ban applies to sales and donations inter vivos.
Exception: a foreigner may inherit land (hereditary succession). Once inherited, the foreigner can keep it or transfer it only to a qualified recipient (e.g., a Filipino citizen or a compliant Philippine corporation). A transfer to another foreigner remains barred.

Condominium units

Allowed if foreign ownership in the condominium corporation does not exceed 40%.
A foreigner may acquire or receive a condo by sale or donation, so long as the 40% cap remains satisfied after the transfer.

Buildings/improvements on leased land

Foreigners may own improvements (e.g., a house) erected on land they lease (under the Civil Code and the Investors’ Lease Act).
They may receive such improvements by sale or donation, typically together with an assignment of leasehold rights (which usually requires the lessor’s written consent).

Corporate structures

A Philippine corporation that owns land must be at least 60% Filipino-owned. Transferring shares to a foreigner must not push Filipino equity below 60%, or the corporation risks losing the right to own land.
A corporation that does not own land (e.g., it only owns condo units) may be 100% foreign-owned, but the condo project’s 40% cap still governs unit ownership.

Spouses & family status

Donations between spouses during marriage are void (save for moderate gifts on family occasions).
Sales between spouses are generally prohibited unless there is a valid separation of property (by marriage settlements or court order).
Foreign spouses cannot receive land in any case; a Filipino spouse cannot “donate” or “sell” land to a foreign spouse to sidestep the constitutional ban.

2) What is a Deed of Sale vs a Deed of Donation?

Deed of Sale (real property)

Transfers ownership for valuable consideration (price).
Must be notarized to be registrable; if signed abroad, it must be apostilled (or consularized).
Triggers the tax regime for sales (CGT or income tax, DST, local transfer tax, registration).

Deed of Donation (real property)

Transfers ownership gratuitously (without price).
Form requirements for immovables: must be in a public instrument describing the property and its value; the donee must accept—either in the same deed or in a separate public instrument duly notified to the donor.
Triggers Donor’s Tax (plus DST, local transfer tax, registration).

Mixed/partly onerous transfers: If the donee assumes a mortgage or pays something (e.g., “₱1 + assumption of ₱3M loan”), the BIR typically treats the onerous part as a sale (taxed accordingly) and the excess value as a donation (subject to Donor’s Tax). Expect both CGT/Income Tax and Donor’s Tax in such structures.

3) Can a foreign citizen be the transferee?

Property / Right	By Deed of Sale to Foreign Citizen	By Deed of Donation to Foreign Citizen
Land	Not allowed (void)	Not allowed (void). The inheritance exception does not extend to gifts.
Condominium unit	Allowed if the project stays ≤40% foreign-owned	Allowed on the same condition
Building on leased land	Allowed with lease assignment (lessor consent as required)	Allowed with lease assignment (lessor consent)
Shares of a land-owning PH corp	Allowed only if corp remains ≥60% Filipino after transfer	Same rule; otherwise void/unenforceable against nationality rules
Shares of a non-land-owning PH corp (e.g., condo owner)	Generally allowed (subject to sectoral limits, if any)	Generally allowed

4) Can a foreign citizen be the transferor?

Foreign owner of condo / improvements / inherited land can sell or donate what they lawfully own, but:
- Land inherited by a foreigner may be transferred only to qualified recipients (e.g., Filipino citizens, compliant corporations).
- A donation to a foreigner of land is still barred.
- Donor’s Tax applies to gifts of property located in the Philippines regardless of the donor’s residency/citizenship (for real property).

5) Tax & fee comparison (core framework)

Rates below are the common ones in practice. Special situations (ordinary assets, VAT registration, treaty/reciprocity for intangibles, etc.) can change the outcome.

A) If you use a Deed of Sale

Capital Gains Tax (CGT): 6% of the higher of (i) gross selling price, (ii) BIR zonal value, or (iii) fair market value (FMV) per Tax Declaration, if the property is a capital asset in the seller’s hands (e.g., personally held condo not in business).
Income Tax instead of CGT: If the property is an ordinary asset (used in business, or seller is a real estate dealer), gains are taxed as ordinary income; CWT (creditable withholding tax) by the buyer and VAT may apply depending on the facts.
Documentary Stamp Tax (DST): typically 1.5% of the higher of contract price or FMV.
Local Transfer Tax: imposed by the LGU (province/city)—commonly around ~0.5%–0.75% of the tax base.
Registration Fees: LRA table (tiered by value).
Who usually pays (market norm, but negotiable): seller handles CGT/Income Tax/VAT; buyer handles DST, local transfer tax, registration.

B) If you use a Deed of Donation

Donor’s Tax: 6% on the aggregate net gifts made within the calendar year in excess of ₱250,000 (flat rate regardless of relationship; TRAIN law).
- Tax base is the property’s FMV (often assessed using BIR zonal value or Tax Declaration FMV).
- Allowable charges or encumbrances might reduce the net gift in partly onerous cases (see mixed transfers above).
DST: generally applies to the conveyance instrument (real property transfers trigger DST even when gratuitous).
Local Transfer Tax: also imposed on transfers by donation (the LGU taxes changes in ownership, regardless of cause).
Registration Fees: LRA schedule.
Who usually pays: donor bears Donor’s Tax; donee typically covers DST, local transfer tax, registration—but parties may reallocate by agreement.

Filing & timing (both routes)

Both parties need TINs (foreigners can obtain under E.O. 98).
BIR eCAR is mandatory before the Registry of Deeds will register the new owner.
Donor’s Tax return is filed shortly after the donation date; CGT is typically due soon after notarization of the sale deed. Penalties apply for late filings.
DST & local transfer tax are ordinarily paid as part of the eCAR and LGU processing sequences.

6) Formalities & documents

Shared essentials (sale or donation)

Notarized public instrument (Deed of Sale or Deed of Donation).
Owner’s duplicate title (TCT/CCT), latest Tax Declarations, Real Property Tax clearance.
BIR eCAR, DST proof, local transfer tax receipt.
Condo admin clearances (no arrears; certificate on foreign-ownership %, if transferring to a foreigner).
IDs & TINs for both parties; SPA if someone signs on your behalf (apostilled/consularized if executed abroad).

Donation-specific formalities

Donee acceptance in the same deed or in a separate notarized instrument duly communicated to the donor (Civil Code).
If the donee is a minor, the parent/guardian accepts; if the donation imposes obligations, court or special approvals may be needed—get counsel.
Between spouses: donation during marriage is void (except moderate customary gifts).
Conditional gifts (e.g., with reserved usufruct to donor) are common estate-planning tools for condos; the reserved right must be clearly described for registration.

Sale-specific formalities

If the property is encumbered (mortgage/annotation), secure bank release (or assumption approvals) aligned with the closing.
Sales between spouses are generally prohibited (absent valid separation of property).

7) Special scenarios & examples

(1) Foreigner-donee of a condo unit via donation

Allowed, but the condo corporation must remain ≤40% foreign-owned after the transfer.
Taxes: donor pays 6% Donor’s Tax (on FMV); donee typically pays DST, LGU transfer tax, registration.
Paperwork: condo clearance, proof of no arrears, acceptance of donation, eCAR, title transfer.

(2) Foreigner-donee of a house on leased land

Allowed if the lease permits assignment; get lessor consent.
Donation may be structured with a reserved usufruct in favor of the donor until death (common for family estate planning).
Watch tax bases: improvements are valued separately from the land (the land remains with the lessor).

(3) Foreign parent who inherited land, donating to Filipino children

Permissible (donees are qualified to own land).
Donor’s Tax applies. Not permissible to donate the land to another foreigner.

(4) Mixed transfer (assumption of mortgage)

Example: FMV ₱10,000,000; donee assumes ₱3,000,000 mortgage; no other cash.
- Sale portion: ₱3,000,000 (subject to CGT or Income Tax/VAT depending on asset class).
- Gift portion: ₱7,000,000 (subject to Donor’s Tax; aggregated with other same-year gifts).
- DST/LGU/registration still apply.

8) Anti-dummy risks and simulations

Placing land in a Filipino “dummy” name for a foreigner’s benefit is illegal and can void the arrangement and invite criminal/administrative penalties.
Simulated deeds (calling a transfer a “donation” when there’s a hidden price, or vice versa) can be void for lack of cause or for being in fraud of the law.
Keep the form aligned with reality: if value changes hands or a debt is assumed, disclose it and pay the correct combination of CGT/Income Tax/VAT and Donor’s Tax.

9) BIR & registration workflow (both routes)

Execute & notarize the deed (and donee acceptance for donations).
Gather requirements: IDs/TINs, title, tax declarations, RPT clearance, condo clearances, bank releases/consents, SPAs (apostilled if signed abroad).
File taxes with the BIR RDO of the property:
- Sale: pay CGT or Income Tax/VAT (as applicable) + DST.
- Donation: pay Donor’s Tax + DST.
BIR issues eCAR (sometimes separate eCARs per tax).
Pay LGU transfer tax.
Register with the Registry of Deeds (old title cancelled; new title issued).
Update Assessor records (new Tax Declaration).

10) Practical pros & cons

Deed of Sale

Pros

Commercially familiar; fewer questions about acceptance or capacity.
Easier when parties want market-value consideration and clean tax allocation.

Cons

CGT (or Income Tax/VAT) may be more than Donor’s Tax in family transfers.
Sales to spouses are largely prohibited; land to foreigners impossible.

Deed of Donation

Pros

Useful for family/estate planning (e.g., Filipino children), with options like reserved usufruct.
Flat 6% Donor’s Tax (over ₱250k annual threshold) can be efficient for high-value gifts.

Cons

Donee acceptance formalities; donations between spouses are void.
Still requires DST, LGU taxes, registration, and must not violate foreign-ownership limits.

11) Compliance checklist (foreign-citizen transferee)

✅ Confirm the asset type (condo vs land vs improvements) and that the transfer to a foreigner is legally allowed.
✅ For condos, secure project foreign-ownership % certification to prove compliance with the 40% cap.
✅ Verify title status (encumbrances, adverse claims); obtain certified true copy.
✅ Ensure both parties have TINs; foreigners may apply under E.O. 98.
✅ Prepare correct deed (sale vs donation) and acceptance (for donations).
✅ Handle BIR taxes and obtain eCAR; pay LGU transfer tax; complete Registry transfer.
✅ If improvements on leased land, obtain lessor consent to assignment.
✅ For payments/repatriation, expect bank KYC/AML documentation (deed, eCAR, proof of taxes).

12) Common pitfalls (and fixes)

Trying to acquire land by donation or sale as a foreigner → Void. Consider condo or improvements on a lease instead.
Ignoring the condo 40% cap → Registry refuses transfer. Get the admin’s certification in advance.
Understating values to cut taxes → BIR re-bases to zonal value/FMVs; penalties may apply.
No TIN for either party → No eCAR, no registration. Apply for TINs early.
Donation without proper acceptance → Invalid; re-execute correctly.
Sale/Donation between spouses without legal basis → Void; consider estate planning to children (observe legal formalities).
Mixed transfer not disclosed (assumed loans) → Wrong taxes paid; can derail eCAR issuance.

13) When to prefer sale vs donation (quick guide)

Use a Deed of Sale when:
- It’s a true commercial deal at or near market value.
- The seller has a capital asset (e.g., personal condo), and CGT is straightforward.
- The buyer wants clear price-based warranties and remedies typical of sales.
Use a Deed of Donation when:
- It’s family succession planning to Filipino children (for land) or to any qualified recipient for condos/improvements.
- You want to use reserved usufruct or conditions rather than price.
- The overall tax burden (6% Donor’s Tax) is expected to be more efficient than CGT/Income Tax, considering all facts.

14) Key takeaways

A foreign individual cannot receive land in the Philippines by sale or donation—only inheritance is exempt.
Condo units (observing the 40% cap) and improvements on leased land may be transferred to foreign citizens by sale or donation.
Sale usually means CGT (or Income Tax/VAT) on the seller; Donation triggers Donor’s Tax on the donor; both routes still require DST, LGU transfer tax, registration fees, and a BIR eCAR.
Form and substance must align: if consideration or loan assumption exists, expect mixed tax treatment.
Get TINs early, verify project caps/lease consents, and plan tax filings to avoid penalties and transfer delays.

If you’d like, tell me the exact property type (condo, building on leased land, inherited land, or corporate shares) and who’s transferring to whom, and I’ll map out the precise steps, taxes, and documents for your scenario.