In the Philippines, the transfer of real property involves various taxes. While national taxes like Capital Gains Tax (CGT) or Value-Added Tax (VAT) often take center stage, the Local Transfer Tax (LTT) is a crucial provincial or city-level imposition that must be settled before a new Title (Transfer Certificate of Title) can be issued.
This tax is governed primarily by the Local Government Code of 1991 (Republic Act No. 7160).
1. What is Local Transfer Tax?
The Local Transfer Tax is a tax imposed on the sale, donation, barter, or any other mode of transferring real property ownership. It is collected by the Treasurers’ Office of the city or province where the property is located.
Unlike the Documentary Stamp Tax (DST) which is a national tax paid to the Bureau of Internal Revenue (BIR), the LTT is a local government revenue measure intended to fund the basic services of the specific LGU.
2. The Tax Rate
Under Section 135 of the Local Government Code, the maximum rates allowed are:
- Provinces: Not exceeding 0.50% (1/2 of 1%) of the total consideration or the fair market value, whichever is higher.
- Cities and Municipalities within Metro Manila: Not exceeding 0.75% (3/4 of 1%) of the total consideration or the fair market value, whichever is higher.
Note: Because LGUs have the autonomy to set their own rates via local ordinances, it is vital to check the specific Revenue Code of the city or province where the property sits.
3. The Tax Base: How is it Computed?
The tax is computed based on the higher value among the following three figures:
- Total Consideration: The actual selling price stipulated in the Deed of Absolute Sale.
- Zonal Value: The value of the land/improvements as determined by the Commissioner of Internal Revenue (BIR).
- Fair Market Value (FMV): The value as indicated in the Tax Declaration issued by the City or Provincial Assessor.
Sample Computation
If a condominium in Makati City is sold for ₱5,000,000, but its BIR Zonal Value is ₱5,500,000 and the Assessor’s FMV is ₱4,000,000:
- Basis: ₱5,500,000 (The highest value)
- Rate: 0.75% (Standard rate for Metro Manila cities)
- Computation:
4. Responsibility for Payment
In standard real estate practice in the Philippines, the Buyer usually pays for the Local Transfer Tax, along with the Registration Fees and Documentary Stamp Tax. However, since this is a matter of private contract, the parties are free to negotiate who bears the cost.
Legally, the LGU holds the Seller/Transferor responsible for ensuring the tax is paid to process the transfer, but the "customary" split usually assigns this to the buyer.
5. Deadline and Penalties
The Local Transfer Tax must be paid within sixty (60) days from the date of the execution of the deed (the date the notarized document was signed).
- Surcharges: Failure to pay on time typically incurs a 25% surcharge on the tax due.
- Interest: An interest rate of 2% per month is usually applied to the unpaid amount, often capped at 36 months or 72%.
6. Required Documents for Payment
To settle the LTT at the Treasurer’s Office, you generally need to present:
- Original and photocopies of the Deed of Absolute Sale.
- Photocopy of the Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT).
- Latest Tax Declaration (Land and Improvement).
- Certificate Authorizing Registration (CAR) from the BIR.
- Official Receipt of the most recent Real Property Tax (Amilyar) payment.
7. Exemptions
Certain transfers may be exempt from the Local Transfer Tax, such as:
- Transfers under the Comprehensive Agricultural Reform Program (CARP).
- Transfers involving Socialized Housing as defined by RA 7279.
- Certain government-mandated transfers or restructuring (subject to specific legal certificates of exemption).
Summary Table
| Feature | Details |
|---|---|
| Legal Basis | Local Government Code of 1991 (Sec. 135) |
| Authority | City or Provincial Treasurer |
| Rate | 0.50% (Provinces) to 0.75% (Cities/Metro Manila) |
| Tax Base | Higher of Selling Price, Zonal Value, or FMV |
| Deadline | 60 days from the date of notarization |
Settling the Local Transfer Tax is a non-negotiable step in the "transfer of title" pipeline. Without the official receipt from the Treasurer’s Office, the Registry of Deeds will refuse to cancel the old title and issue a new one in the name of the buyer.
Would you like me to create a checklist of all the taxes and fees involved in a typical Philippine property sale to help you budget the total closing costs?