Introduction

In the Philippines, the donation of real property is a significant legal transaction that involves the gratuitous transfer of ownership from a donor to a donee. This process is governed primarily by the Civil Code of the Philippines (Republic Act No. 386), which outlines the formalities required for validity, as well as tax implications under the National Internal Revenue Code (NIRC) of 1997 (Republic Act No. 8424), as amended by subsequent laws such as the Tax Reform for Acceleration and Inclusion (TRAIN) Law (Republic Act No. 10963) and the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act (Republic Act No. 11534). Donations of real property are irrevocable once perfected, except in cases of revocation allowed by law, and they carry fiscal responsibilities, particularly the donor's tax, alongside specific qualifications for donees to potentially avail of exemptions. This article comprehensively explores the donor's tax, donee qualifications, and deed requirements, drawing from statutory provisions, jurisprudence, and administrative regulations issued by the Bureau of Internal Revenue (BIR) and other relevant agencies.

Legal Framework for Donations of Real Property

Under Article 734 of the Civil Code, a donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it. For real property, which includes land, buildings, and immovable assets as defined in Article 415, the donation must comply with stringent formalities to ensure enforceability and to protect against fraud. Failure to adhere to these can render the donation void. The transaction also intersects with property law under the Property Registration Decree (Presidential Decree No. 1529) and taxation under the NIRC.

Donations inter vivos (during the donor's lifetime) are distinguished from donations mortis causa (effective upon death), with the former treated as advances on inheritance for tax purposes in certain cases. Real property donations are typically inter vivos and subject to immediate transfer of title upon acceptance.

Donor’s Tax: Computation, Payment, and Exemptions

Nature and Imposition of Donor’s Tax

Donor's tax, also known as gift tax, is imposed on the privilege of transferring property by way of gift. Section 98 of the NIRC provides that the tax applies to transfers without valuable consideration, whether direct or indirect. For real property, the tax is levied on the donor, not the donee, and is based on the fair market value (FMV) of the property at the time of donation.

Prior to amendments, donor's tax followed a progressive schedule, but the TRAIN Law simplified it to a flat rate of 6% on the total value of net gifts exceeding P250,000 in a calendar year. This applies uniformly to residents and non-residents, with no distinction based on relationship (e.g., no spousal or familial exemptions beyond the annual threshold). For multiple donations in a year, the tax is computed on the aggregate net gifts after deducting the P250,000 exemption.

The FMV is determined as the higher of:

The zonal value established by the BIR under Revenue Memorandum Orders (e.g., based on location-specific valuations).
The assessed value from the local assessor's office.
The value declared in the deed of donation, if higher.

If the property is mortgaged, the donor's tax base is reduced by the mortgage assumed by the donee, provided it is substantiated.

Computation Example

Suppose a donor gifts a parcel of land valued at P1,000,000 (FMV) to a donee. If this is the only donation in the year:

Net gift: P1,000,000 - P250,000 = P750,000
Donor’s tax: 6% of P750,000 = P45,000

For non-resident aliens, the tax applies only to Philippine-situs property, with reciprocity rules under Section 104 potentially exempting intangible personal property.

Payment and Filing Requirements

The donor must file BIR Form No. 1800 (Donor's Tax Return) and pay the tax within 30 days from the date of donation. Payment is made to the Revenue District Office (RDO) where the donor is registered or resides. Late payments incur a 25% surcharge, 12% annual interest (reduced from 20% post-TRAIN), and possible compromise penalties ranging from P200 to P50,000 depending on the amount.

If the donation is part of estate planning, it may be treated as an advance on legitime (forced heirship portions) under Articles 1061-1077 of the Civil Code, affecting estate tax computations later. However, donor's tax paid is creditable against estate tax if the donor dies within five years (Section 86(E) of the NIRC, with a tapering credit: 100% in year 1, down to 20% in year 5).

Exemptions and Special Rules

Certain donations are exempt from donor's tax under Section 101 of the NIRC:

Gifts to the Philippine government or its political subdivisions for public purposes.
Donations to accredited educational institutions, provided not more than 30% is used for administration.
Gifts to non-profit organizations engaged in social welfare, cultural, or charitable activities, subject to BIR certification of donee qualification.
Political contributions certified by the Commission on Elections (COMELEC).

For real property, exemptions require proof that the donee meets qualification standards (discussed below). Additionally, donations below P250,000 annually are exempt, and encumbrances not assumed by the donee do not reduce the base.

Jurisprudence, such as in Commissioner of Internal Revenue v. Court of Appeals (G.R. No. 123206, 1999), emphasizes that the tax accrues at the time of perfection of the donation, not registration.

Donee Qualifications: Eligibility and Tax Implications

General Qualifications for Donees

Under the Civil Code (Article 735), any natural or juridical person with capacity to contract and accept gifts can be a donee, provided the donation does not violate public policy or morals. Incapacitated persons (e.g., minors) may accept through guardians, but the donation must not impose onerous conditions exceeding the gift's value (Article 742).

For real property, the donee must be capable of owning immovables. Foreigners are restricted under the Constitution (Article XII, Section 7), which prohibits aliens from acquiring private lands except through hereditary succession. Thus, non-Filipino donees cannot receive land donations unless they qualify under exceptions like former natural-born citizens repatriating under Republic Act No. 9225.

Qualifications for Tax-Exempt Donees

To avail of donor's tax exemptions, donees must be qualified under Section 101(A) and (B) of the NIRC and Revenue Regulations No. 12-2018:

Government Entities: National government, provinces, cities, municipalities, or barangays, for exclusively public purposes. No BIR certification needed if the deed specifies public use.
Educational Institutions: Must be non-stock, non-profit, accredited by the Department of Education (DepEd), Commission on Higher Education (CHED), or Technical Education and Skills Development Authority (TESDA). Income must be used solely for educational purposes, with administrative costs ≤30%.
Religious, Charitable, Scientific, Cultural, or Social Welfare Organizations: Must be accredited by the Philippine Council for NGO Certification (PCNC) or equivalent, with BIR ruling confirming exempt status under Section 30 of the NIRC. These include foundations for youth development, amateur sports, rehabilitation of veterans, etc.
International Organizations: Exempt if covered by treaties or laws, such as donations to the United Nations or ASEAN-related entities.

The donee must issue a Certificate of Donation (BIR Form No. 2322) to substantiate the exemption. Failure to qualify results in full donor's tax liability. Donees may also face donee's tax (historically abolished but monitor amendments), though currently, no donee's tax exists post-TRAIN.

In cases involving trusts or foundations, the donee must comply with Securities and Exchange Commission (SEC) registration for non-stock corporations under the Revised Corporation Code (Republic Act No. 11232).

Deed Requirements: Formalities and Registration

Form and Content of the Deed of Donation

Article 749 of the Civil Code mandates that donations of immovable property must be made in a public instrument (notarized deed) specifying the property and any charges imposed. The acceptance must also be in a public instrument, either in the same deed or a separate one notified to the donor during their lifetime. Oral or private donations of real property are void (Article 748).

The deed should include:

Full description of the property (e.g., title number, location, area, boundaries per Technical Description).
Donor and donee details (names, civil status, addresses).
Value of the property for tax purposes.
Any conditions or modes (e.g., reversionary clauses).
Notarization by a notary public, with witnesses if required.

Under Revenue Regulations No. 6-2014, the deed must be submitted to the BIR for stamping and certification before registration.

Registration and Transfer Process

To transfer title, the deed must be registered with the Registry of Deeds (RD) under PD 1529. Requirements include:

Original deed with BIR Certificate Authorizing Registration (CAR).
Payment of documentary stamp tax (DST) at 1.5% of FMV (Section 196, NIRC).
Transfer tax (0.5-0.75% of FMV, depending on local ordinances) and registration fees.
Owner's duplicate of the Transfer Certificate of Title (TCT) or Original Certificate of Title (OCT).
Tax clearance from the local treasurer and BIR (e.g., no unpaid real property taxes).

Upon registration, a new TCT is issued in the donee's name. Non-registration does not invalidate the donation between parties but affects third-party rights (Article 709, Civil Code).

Additional Requirements and Considerations

Capital Gains Tax (CGT): Donations are exempt from 6% CGT under Section 24(D), as they are not sales, but misclassified transfers may trigger it.
Value-Added Tax (VAT): Generally not applicable to gratuitous transfers, unless deemed a sale.
Revocation: Possible for ingratitude (Article 765), non-fulfillment of charges (Article 764), or birth/survival of children (Article 760), requiring judicial action within prescribed periods.
Anti-Dummy Law and Other Restrictions: For corporate donees, compliance with Republic Act No. 7042 (Foreign Investments Act) if involving land.
Environmental and Agrarian Considerations: For agricultural land, Department of Agrarian Reform (DAR) clearance is needed to ensure no violation of Comprehensive Agrarian Reform Law (Republic Act No. 6657).

Conclusion

Donations of real property in the Philippines blend civil law formalities with tax obligations, ensuring equitable transfers while generating revenue. Donors must navigate the 6% tax regime, leveraging exemptions through qualified donees such as government or charitable entities. Deed execution and registration safeguard the transaction's integrity, with non-compliance risking nullity. Parties should consult legal and tax professionals to tailor to specific circumstances, as amendments to laws like the NIRC may introduce changes. This mechanism promotes philanthropy while upholding property rights and fiscal responsibility.