How to Compute Transfer Taxes for a Real Property Deed of Sale Worth ₱750,000 in the Philippines

Introduction

In the Philippines, the transfer of real property through a deed of sale involves several taxes and fees collectively referred to as transfer taxes. These are imposed by national and local government authorities to facilitate the legal transfer of ownership from the seller to the buyer. For a property sold at ₱750,000, the computation of these taxes is based on the provisions of the National Internal Revenue Code (NIRC) of 1997, as amended by Republic Act No. 10963 (TRAIN Law), the Local Government Code of 1991 (Republic Act No. 7160), and relevant Bureau of Internal Revenue (BIR) regulations. This article provides a comprehensive guide on computing these taxes, including legal bases, responsible parties, payment procedures, exemptions, and potential penalties. It assumes a standard arm's-length transaction involving non-corporate individuals and uses ₱750,000 as the gross selling price (GSP). However, actual computations must consider the higher of the GSP, the BIR zonal value, or the fair market value (FMV) as determined by the local assessor's office.

Overview of Transfer Taxes in Real Property Sales

Transfer taxes in Philippine real estate transactions encompass:

Capital Gains Tax (CGT): A final tax on the presumed gain from the sale.
Documentary Stamp Tax (DST): A tax on the document evidencing the transfer.
Local Transfer Tax (LTT): Imposed by provinces, cities, or municipalities.
Creditable Withholding Tax (CWT): Applicable in certain cases, such as when the seller is habitually engaged in real estate business.
Other Fees: Including registration fees with the Registry of Deeds (RD), notarial fees, and potential value-added tax (VAT) if the seller is VAT-registered.

These taxes ensure revenue generation while regulating property transfers. The seller typically shoulders CGT, DST, and CWT (if applicable), while the buyer pays LTT and registration fees. However, parties may negotiate otherwise in the deed of sale. Failure to pay these taxes can result in delays in title transfer, penalties, surcharges, and interest.

Legal Basis and Key Principles

Capital Gains Tax: Governed by Section 24(D) of the NIRC, as amended. It applies to sales or exchanges of real property classified as capital assets.
Documentary Stamp Tax: Under Section 196 of the NIRC, imposed on deeds of sale or conveyance of real property.
Local Transfer Tax: Authorized by Section 135 of the Local Government Code, allowing local government units (LGUs) to impose up to 50% of 1% (for provinces) or 75% of 1% (for cities and municipalities in Metro Manila) on the tax base.
Creditable Withholding Tax: Per Revenue Regulations No. 2-98, as amended, for sellers engaged in real estate as a trade or business.
Tax Base Principle: All computations use the highest among:
- Gross Selling Price (GSP) as stated in the deed.
- BIR Zonal Value (ZV) for the property's location.
- Fair Market Value (FMV) per the local assessor's office. For a ₱750,000 GSP, if the ZV is ₱800,000 and FMV is ₱780,000, the tax base is ₱800,000.

BIR requires electronic filing and payment for most taxes via the eBIRForms system or authorized agent banks.

Step-by-Step Computation of Each Tax

1. Capital Gains Tax (CGT)

CGT is a 6% final tax on the presumed gain from the sale of real property treated as a capital asset. It does not consider actual costs or gains; it's purely percentage-based.

Rate: 6%.
Tax Base: Higher of GSP, ZV, or FMV.
Who Pays: Seller (individual or corporation, unless exempted).
Formula: CGT = Tax Base × 6%.
Example for ₱750,000 GSP:
- Assume ZV = ₱750,000 (same as GSP) and FMV = ₱750,000.
- CGT = ₱750,000 × 0.06 = ₱45,000.
- If ZV = ₱900,000, CGT = ₱900,000 × 0.06 = ₱54,000.
Exemptions:
- Sale of principal residence: Exempt if proceeds are used to acquire a new principal residence within 18 months, subject to BIR approval (Revenue Regulations No. 13-99).
- Properties sold for ₱100,000 or less per Revenue Memorandum Circular No. 39-2002 (but rarely applicable for full properties).
- Sales to government entities for public use.
- If the property is an ordinary asset (e.g., held by a real estate dealer), income tax applies instead of CGT.
Payment Deadline: Within 30 days from notarization of the deed. File BIR Form 1706.
Penalties: 25% surcharge for late filing, plus 20% annual interest, and potential compromise penalties.

2. Documentary Stamp Tax (DST)

DST is levied on the instrument of sale, ensuring the document's validity for registration.

Rate: 1.5% (or ₱15 per ₱1,000).
Tax Base: Higher of GSP, ZV, or FMV.
Who Pays: Seller, but often shared.
Formula: DST = (Tax Base / 1,000) × ₱15.
Example for ₱750,000 GSP:
- Assume tax base = ₱750,000.
- DST = (₱750,000 / 1,000) × ₱15 = 750 × ₱15 = ₱11,250.
- If tax base = ₱900,000, DST = 900 × ₱15 = ₱13,500.
Exemptions:
- Transfers exempt from CGT (e.g., principal residence).
- Government-to-government transfers.
- Foreclosure sales under certain conditions.
Payment Deadline: Within 5 days after the close of the month of notarization (for loose stamps) or via eDST for electronic filing. Use BIR Form 2000.
Penalties: Similar to CGT, with 25-50% surcharge depending on willfulness.

3. Local Transfer Tax (LTT)

LTT is a local imposition varying by LGU, but capped by law.

Rate:
- Provinces: Maximum 0.5% (50% of 1%).
- Cities/Municipalities: Maximum 0.5% outside Metro Manila; 0.75% within Metro Manila.
- Actual rates are set by local ordinances (e.g., Quezon City: 0.75%; some provinces: 0.6%).
Tax Base: Higher of GSP or FMV (local assessed value; ZV not always used).
Who Pays: Buyer.
Formula: LTT = Tax Base × Local Rate.
Example for ₱750,000 GSP:
- Assume location in Metro Manila with 0.75% rate, tax base = ₱750,000.
- LTT = ₱750,000 × 0.0075 = ₱5,625.
- If rate is 0.5%, LTT = ₱750,000 × 0.005 = ₱3,750.
- If tax base = ₱900,000 at 0.75%, LTT = ₱6,750.
Exemptions:
- Transfers to government or for socialized housing.
- Inheritance or donation (but donor's tax applies instead).
- Check local ordinances for specific reliefs.
Payment Deadline: Within 60 days from notarization. Pay at the local treasurer's office; obtain clearance certificate for RD registration.
Penalties: Vary by LGU, often 2% monthly interest plus surcharges.

4. Creditable Withholding Tax (CWT)

CWT applies if the seller is engaged in real estate business or the property is an ordinary asset.

Rate: 1.5% to 5% depending on classification (e.g., 3% for non-large taxpayers).
Tax Base: GSP.
Who Pays/Withholds: Buyer withholds and remits to BIR.
Formula: CWT = GSP × Rate.
Example: For a habitual seller at 3%, CWT = ₱750,000 × 0.03 = ₱22,500 (creditable against income tax).
When Applicable: If seller has multiple sales or is registered as a real estate dealer. Does not apply to CGT-eligible capital asset sales.
Filing: BIR Form 2307, remitted within 10 days after quarter-end.

5. Other Related Fees and Taxes

Registration Fees: Paid by buyer to RD. Based on tax base:
- Entry fee: ₱36.
- Registration: 0.25% of tax base (e.g., ₱750,000 × 0.0025 = ₱1,875).
- Additional fees for annotations, IT fees (around ₱100-500).
Value-Added Tax (VAT): 12% if seller is VAT-registered and property is ordinary asset. Not applicable for capital assets.
Notarial Fees: ₱200-500 plus 1-2% of GSP, paid to notary.
Real Property Tax Clearance: Seller must secure from local assessor to prove no arrears.

Total Estimated Transfer Taxes for ₱750,000 Property

Assuming tax base = ₱750,000, capital asset, Metro Manila location (0.75% LTT), no exemptions:

CGT: ₱45,000 (seller).
DST: ₱11,250 (seller).
LTT: ₱5,625 (buyer).
Registration: ≈₱2,000 (buyer).
Total: ≈₱63,875.

If ZV is higher (e.g., ₱900,000), total rises to ≈₱75,375.

Procedures for Payment and Compliance

Determine Tax Base: Obtain ZV from BIR website or revenue district office; FMV from assessor.
Prepare Deed: Notarize with complete details.
Pay CGT and DST: File with BIR, obtain Certificate Authorizing Registration (CAR).
Pay LTT: At LGU, get tax clearance.
Register with RD: Submit deed, CAR, clearances; pay fees.
Transfer Title: Buyer receives new title.

Deadlines are strict; extensions are rare. Consult BIR RDO or LGU for specifics.

Special Considerations and Exemptions

Installment Sales: CGT prorated if payments span years.
Corporate Sellers: CGT at 6%, but corporate income tax may apply.
Non-Resident Sellers: Higher rates or withholding.
Socialized Housing: Exempt under RA 7279 if below thresholds.
Penalties for Non-Compliance: BIR can impose deficiency assessments, liens on property, or criminal charges for tax evasion.
** TRAIN Law Impact**: Increased DST from 1% to 1.5% and simplified CGT to flat 6%.
Inflation Adjustments: No automatic adjustments; rates fixed by law.
Disputes: Appeal to BIR Commissioner or Court of Tax Appeals.

Conclusion

Computing transfer taxes for a ₱750,000 real property sale requires careful determination of the tax base and adherence to national and local rules. Total costs can range from 8-10% of the value, split between parties. Always verify current rates with BIR and LGUs, as ordinances may change. Proper compliance ensures smooth title transfer and avoids legal issues. For complex cases, consult a tax lawyer or accountant.