Foreign Trust Companies Buying Philippine Condominium Units
Everything you need to know — legal, regulatory and practical
1. Why this topic matters
Condominiums are the only form in which foreigners—including foreign corporations and trustees—may acquire a direct freehold interest in Philippine “land.” Yet Article XII § 7 of the 1987 Constitution still caps total foreign ownership at 40 %. When the prospective buyer is a foreign trust company acting as trustee, two independent regulatory regimes collide:
- Land & condominium ownership restrictions (Constitution, Condominium Act, Anti-Dummy Law)
- Trust business regulation (General Banking Law, BSP & SEC rules on trust operations and doing-business tests)
Understanding how the two sets of rules interlock is critical to avoid a void sale, disallowed registration, criminal exposure, or tax surprises.
2. Core legal texts & principles
| Subject | Key Authorities | Take-away |
|---|---|---|
| Nationalization of land | Art. XII § 7, 1987 Constitution | No private “land” ownership by foreigners; condominium units are a narrow exception subject to 40 % ceiling. |
| Condominium ownership | Republic Act 4726 (Condominium Act) | Unit owner must also hold condo-corporation shares representing the land and common areas. |
| Foreign equity ceiling | § 5, RA 4726 + constitutional policy | A project is counted foreign-owned if the aggregate voting rights attached to units exceed 40 %. |
| Trusts and trustees | Civil Code arts. 1440-1457; Property Registration Decree (PD 1529); Monetary Board/BSP circulars on trust institutions | A trustee owns legal title; the beneficiary owns equitable title. Land Registry must annotate the trust. |
| Anti-Dummy Law | Commonwealth Act 108, as amended | Any scheme designed to evade the 40 % limit (nominees, simulated trusts, side agreements) is criminal. |
| Doing business in PH | Foreign Investments Act (RA 7042), Corporation Code (RA 11232), SEC MC No. 8 - 2021 (beneficial ownership) | Buying one property ≠ “doing business,” but acting as a trust company almost always is. License required. |
| Trust business license | General Banking Law (RA 8791) §§ 79-84; BSP MORB Part IV | Only BSP-authorized banks/quasi-banks may conduct trust operations. A foreign trust company must register a branch, secure BSP authority, maintain capital, and meet fit-and-proper rules. |
3. Anatomy of condominium ownership
Dual interest:
- Unit (air space) is covered by a Condominium Certificate of Title (CCT).
- Land & common areas are owned by a condominium corporation; unit owners automatically hold shares proportional to floor area.
Foreign cap is project-wide. Even if a single foreign buyer is under 40 %, the sale cannot be registered once the entire project reaches the ceiling.
Land remains “private land.” The constitutional ban is not lifted—only qualified through RA 4726.
4. How trusts interact with the 40 % rule
| Scenario | Ownership counted as | Consequence |
|---|---|---|
| Trustee is foreign, beneficiaries all Filipino | Filipino (beneficial ownership test) | Unit may be registered; counts toward Filipino quota. |
| Trustee foreign, beneficiaries foreign | Foreign | Counts against 40 % ceiling. |
| Mixed beneficiaries | Prorated | Pro-rata counting by equity or voting rights. |
| Undisclosed beneficiaries | Presumed foreign | Register of Deeds will refuse; AMLA & SEC beneficial-ownership rules require disclosure. |
Practical tip: submit (1) trust instrument, (2) sworn SEC/BSP-prescribed beneficial-ownership declaration, and (3) developer’s current foreign-ownership certification when lodging the deed for registration.
5. Regulatory hurdles for a foreign trust company
SEC License & BSP Authority
- File an Application for License to Do Business as a Foreign Corporation (Sec. 140, RA 11232).
- Obtain a Trust License from the BSP; minimum assigned capital currently PHP 300 million for stand-alone trust corporations.
- Appoint a locally resident trustee-in-place and compliance officer.
Doing-Business vs. Single-Purpose Vehicle
- If the trust company merely holds one unit in trust and performs no commercial activity, it may try to rely on the “isolated transaction” doctrine.
- BUT once it collects rent, administers multiple trusts, or markets fiduciary services, licensing thresholds trigger.
Anti-Money Laundering & Beneficial-Ownership Disclosure
- Covered person under AMLA if licensed; even if unlicensed, real-estate transaction over PHP 7.5 million is a covered transaction.
- Submit “Beneficial Ownership Information” form (SEC MC No. 1-2021) within 30 days of issuance of CCT.
6. Land registration mechanics for a trust purchase
Deed of Absolute Sale (or Deed of Conveyance to Trustee) executed by developer/owner → names “XYZ Trust Company, as Trustee for ___.”
Trust Instrument (notarized, apostilled if executed abroad) attached.
Tax clearances paid:
- Capital Gains Tax (6 %) or VAT (if applicable) — by seller
- Documentary Stamp Tax (PHP 15/PHP 1,000) — usually buyer
BIR Certificate Authorizing Registration (CAR) issued.
Register of Deeds issues new CCT; Memorandum of Encumbrances notes that title is “held in trust.”
Condominium corporation share certificates re-issued in trustee’s name with annotation “in trust for ___.”
7. Tax profile after acquisition
| Tax | Rate / Basis | Notes for foreign trust company |
|---|---|---|
| DST on deed | 1.5 % of gross selling price or FMV | Payable within 5 days after month-end of notarization. |
| Real-property tax | LGU, graduated | Trustee must file tax declarations annually. |
| Rental income | Passive income tax: 25 % of gross (non-resident foreign corp) OR regular 25 % net if “engaged in trade.” | If trustee remits net income to non-resident beneficiaries, subject to branch-profit remittance tax (15 %). |
| VAT | 12 % on gross rent if annual receipts > PHP 3 million | Optional 8 % VAT on gross for leasing of units in residential building > PHP 15,000 per month per unit. |
| Selling later | Same CGT/VAT rules as any seller; Remember foreign cap recaptured so the condo corp must keep ceiling in mind before it signs Deed of Sale. |
8. Anti-Dummy pitfalls & jurisprudence
| Case / Regulation | Lesson |
|---|---|
| People v. Narvasa (CA) | Formal transfer of shares to Filipino nominees but control retained by foreigner held violative. |
| DOJ Op. 165 (1994) | Beneficial-ownership test applies; nominee or trustee arrangement does not cloak foreign ownership. |
| BSP vs. Overseas Bank cases | “Trust” label will be pierced if used merely to hold restricted assets. |
Red flags for regulators: irrevocable powers of attorney favoring foreign beneficiary, side letters guaranteeing repurchase, or preverbalization that trustee will vote per foreign instruction.
9. Practical compliance checklist
Confirm foreign-ownership headroom in the condominium project (ask association for certified percentage).
License status of the trust company: SEC Certificate of Authority + BSP Trust License.
Full disclosure of beneficiaries and controlling persons (BSP AML/CFT form, SEC BOI form).
Due-diligence file: charter documents, board resolutions authorizing purchase, anti-money-laundering risk assessment.
Tax identification numbers for trustee and, if local, beneficiaries.
Contract clauses:
- Representations on compliance with 40 % ceiling
- Undertaking to sell or transfer if ceiling is breached
- Allocation of tax/condo dues, insurance, special assessments
Registration timetable: expect 30–60 days from notarization to release of new CCT, assuming CAR is complete.
10. Alternative structures
| Structure | Pros | Cons |
|---|---|---|
| 40-year lease (RA 7652) | 100 % foreign control; no ownership cap | No capital appreciation; must return unit at end unless renewed. |
| Domestic corporation (60 % Filipino / 40 % trust company) | Clear compliance; easier bank financing | Requires Filipino partners and ongoing corporate housekeeping. |
| Philippine stand-alone trust corporation (organized under RA 11232) | Treated as domestic; can own units as Filipino if 60 % Filipino shareholders | Heavy capitalization and BSP oversight. |
| Investment in REIT | Fractional interest; no transfer taxes on secondary trades | Only indirect exposure; no control over specific unit. |
11. Key take-aways
- Trust form ≠ ownership exemption. Beneficial ownership, not legal title, decides whether the 40 % ceiling is breached.
- Licensing is the gatekeeper. A foreign entity “doing trust business” must pass through SEC/BSP hoops before holding the CCT.
- Annotation is non-negotiable. The Register of Deeds will reject a trust purchase if the trust instrument is not sworn, apostilled, and presented.
- Anti-Dummy Law has teeth. Criminal penalties include 5–15 years’ imprisonment and forfeiture of the property.
- Tax treatment depends on activity. Passive holding vs. active leasing triggers very different rates and filings.
12. Frequently asked questions
| Question | Short answer |
|---|---|
| Can my Cayman trust company bypass the BSP because it’s “private”? | No. Acting as trustee in the Philippines is a regulated activity. |
| Is a revocable trust treated differently? | No; trust revocability affects estate-planning goals, not foreign-ownership counting. |
| What if beneficiaries become Filipino later? | File sworn update with the condo corporation & SEC; unit can be re-tagged as Filipino-owned for ceiling computation. |
| Can we split legal and beneficial interests between two foreign entities? | Both count as foreign; the stricter rule applies. |
| Does the 40 % cap apply to parking slots? | Parking slots forming part of the same CCT follow the cap; separately titled slots are independent units and count separately. |
13. Final thoughts
A foreign trust company can buy a Philippine condominium unit, but only inside a tight legal corridor:
- 40 % aggregate foreign limit,
- full SEC/BSP licensing and AML compliance,
- transparent disclosure of the ultimate beneficiaries, and
- tax discipline from acquisition through disposal.
Missteps invite not only rejected titles and tax penalties but also criminal anti-dummy charges. Engage Philippine counsel early, coordinate with the condominium corporation, and treat trust documentation with the same rigor as cross-border banking deals.
This article is for informational purposes only and does not constitute legal advice. Consult Philippine counsel for specific transactions.