Legal Requirements to Purchase Philippine Land with an Overseas-Sourced Trust Fund (Philippine law, updated to 31 May 2025)
1. Constitutional & Statutory Framework for Land Ownership
| Source of law | Core rule | Key exceptions / qualifications |
|---|---|---|
| 1987 Constitution, Art. XII §7 | Ownership of “alienable lands of the public domain” and of private lands is limited to Filipino citizens and to corporations or associations at least 60 % Filipino-owned. | (a) Hereditary succession irrespective of citizenship; (b) Long-term lease (up to 75 years) for foreigners (Art. XII §11, RA 7652); (c) Condominium units (foreigners may own up to 40 % of total project under RA 4726). |
| Civil Code, Book II (Property) | Private ownership rules, modes of acquisition, co-ownership, registration. | ― |
| Anti-Dummy Law (CA 108, as amended) | Prohibits schemes that allow foreigners to control landholdings or land-owning entities beyond the 40 % constitutional cap. | Criminal liability for both dummies and foreign principals. |
| Foreign Investment Negative List (FINL) | Confirms land ownership restriction; foreigners may own buildings but not land. | ― |
Implication: A foreign-owned or foreign-controlled trust, trustee, or beneficiary may not hold or acquire Philippine land, even indirectly, beyond the 40 % ceiling. The only fully compliant scenarios are:
- Trustee or holding corporation is at least 60 % Filipino-owned, or
- The land is inherited by the foreign party, or
- The fund’s ultimate beneficiaries are Filipino citizens and title is transferred to them.
2. Trusts Recognized Under Philippine Law
| Item | Domestic trust | Foreign (offshore) trust fund |
|---|---|---|
| Governing law | Civil Code (Arts. 1440-1457), Trust Receipts Law (PD 115), BSP Manual of Regulations for Banks (MORB) on trust departments. | Seat of the trust instrument (e.g., Jersey, Singapore). |
| Recognition | Automatically valid if formalities met. | Recognized pro hac vice if not contrary to Philippine public policy; must pass “comity” test. |
| Enforcement | Philippine courts may assume jurisdiction if property or parties are in the Philippines. | Trustee may sue/be sued once jurisdiction attaches. |
| Documentary requirements | Notarized trust deed; acceptance by trustee. | Apostilled or consularized trust deed + sworn Philippine-law compliance undertaking from trustee. |
Practical tip: When an overseas trust will fund a land purchase, the trust deed, letters of authority, and proof of beneficial ownership must be apostilled (or formerly consularized) so they can be recorded or invoked before the Registry of Deeds and the BIR.
3. Foreign-Currency Funding & Bangko Sentral ng Pilipinas (BSP) Regulations
Proof of Inward Remittance
- Inward foreign currency must pass through the Philippine banking system (CAMLO § X155 of the Manual of Regulations on Foreign Exchange Transactions, 2023 edition).
- Banks will issue a Bangko Sentral Foreign Inward Remittance Certificate (FIRC)—often required by the BIR to release the Certificate Authorizing Registration (CAR).
Anti-Money Laundering & KYC
- Trustees, beneficiaries, and instructing parties are “covered persons” under the Anti-Money Laundering Act of 2001 (AMLA, RA 9160, as amended by RA 11912).
- Banks must obtain the trust deed, settlor and beneficiary IDs, source-of-funds declaration, and tax-residency self-certifications (FATCA, CRS).
- Any “covered transaction” (≥ PHP 4 million single-cash transaction or suspicious pattern) is immediately reportable to the Anti-Money Laundering Council (AMLC).
Registration of Foreign Loans or Quasi-Loans (if applicable)
- If the funding is structured as a loan from the offshore trust to a Philippine buyer entity, it must be registered with the BSP’s International Operations Department to ensure eligible foreign exchange servicing for future repayments.
4. Tax Compliance in a Trust-Fund Land Purchase
| Tax | Trigger | Rate & base | Typical supporting documents |
|---|---|---|---|
| Capital Gains Tax (CGT) | Sale of real property classified as capital asset | 6 % of higher of (i) gross selling price or (ii) zonal/fair market value | BIR Form 1706; FIRC if price paid in FX |
| Documentary Stamp Tax (DST) | Execution of Deed of Absolute Sale | PHP 15 / PHP 20 per PHP 1,000 of consideration (RA 133 Dep’T of Fin. rates) | BIR Form 2000-OT |
| Withholding Tax | If seller is corporation engaged in business | 1.5 % of selling price | BIR 1606 |
| Transfer Tax | Paid to LGU | 0.5 %–0.75 % | LGU assessment |
| Registration Fees | Registry of Deeds | PHP-scale based on assessed value | RD computation sheet |
| Donor’s / Estate Tax | If trust distribution is a donation or part of an estate | 6 % of net gift/estate | Trust deed, sworn valuation |
Trust-specific point: A direct distribution of land from the trust to a Filipino beneficiary is treated either as a donation (during settlor’s lifetime) or estate distribution (upon settlor’s death), each having their own BIR clearance requirements.
5. Land Registration Procedure
Due Diligence
- Certified true copy of Transfer Certificate of Title (TCT) from the Registry of Deeds.
- Check for liens, encumbrances, or adverse claims.
Contract Execution
- Deed of Absolute Sale signed by seller and trustee/buyer (or Philippine holding corporation).
- If trustee signs abroad, notarize locally then apostille abroad, or vice versa.
BIR Processing
- Secure Tax Identification Numbers for foreign trustees/beneficiaries (E.O. 98 TIN).
- File CGT and DST returns; obtain CAR.
Local Government Unit (LGU) Transfer Tax
- Pay within 60 days of notarization.
Registry of Deeds
- Present CAR, FIRC, notarized Deed, tax clearances; pay registration fees.
- New TCT issued in name of qualified Filipino beneficial owner or 60 % Filipino-owned corporation.
Post-Registration Compliance
- If acquisition is through a Philippine corporation, file with the SEC: verified return on subscription/payment (if new shares issued), and general information sheet reflecting ownership percentages.
6. Structuring Options
| Structure | When viable | Compliance hurdles |
|---|---|---|
| Direct purchase by Filipino beneficiary using trust funds | Beneficiary is 100 % Filipino; trust merely supplies cash | Must document beneficial ownership & remittance trail; title in beneficiary’s name. |
| Purchase by 60 % Filipino/40 % foreign corporation owned by trust | Mixed-citizenship families; investment vehicles | Must maintain 60-40 ratio both in equity and actual control; avoid anti-dummy violations (e.g., voting-trust agreements favoring foreigners). |
| Long-term lease + building ownership | Foreign beneficiaries need effective control without owning land | Land remains with Filipino lessor; improvements owned by foreign trust (allowed). |
| Condominium acquisition | Urban residential/office need; units not land | Ensure foreign ownership in project remains ≤ 40 %. |
7. Penalties for Non-Compliance
- Nullity of conveyance: Any sale or transfer violating Art. XII §7 is void ab initio; land may be escheated to the State.
- Anti-Dummy criminal sanctions: 5–15 years imprisonment and/or ₱50,000–₱100,000 fine; disqualification of foreign entities from doing business.
- AMLA penalties: ₱50,000 up to ₱500,000 per violation; possible forfeiture of property.
- Tax surcharges & interest: 25 %–50 % surcharge plus 20 % p.a. interest for late payment; criminal tax fraud charges possible.
8. Practical Compliance Checklist
- Verify parties’ citizenship down to ultimate beneficiaries.
- Review and, if necessary, re-draft trust deed to meet Philippine public-policy thresholds (no control vesting in foreigners over land).
- Obtain apostilled copies of trust instruments, board resolutions, IDs.
- Open a Philippine FX account; inward-remit funds via banking channels and secure FIRC.
- Perform AML/KYC onboarding with the bank before paying earnest money.
- Engage a licensed Philippine lawyer or notary to prepare/annotate the Deed of Sale.
- File and pay BIR taxes within 30 days of notarization.
- Register title within 60 days to avoid LGU surcharges.
- Annual compliance: If property is held by a corporation, file SEC GIS and audited FS; if trust retains ownership of improvements, ensure lease remains valid.
9. Frequently Misunderstood Points
| Myth | Correct rule |
|---|---|
| “A foreign trust can own land because the trustee is only a fiduciary.” | False. Land ownership looks to the title holder and beneficial control; if either is > 40 % foreign, it is unconstitutional. |
| “Using a Philippine nominee cures the 40 % limit.” | False. Anti-Dummy Law criminalizes nominee arrangements intended to evade the restriction. |
| “Offshore remittances automatically prove legitimacy.” | False. Banks and AMLC still require source-of-funds documentation and may freeze suspicious transactions. |
| “Paying taxes validates an otherwise void transfer.” | False. Tax payment does not cure constitutional infirmities; the deed remains void. |
10. Conclusion
Purchasing Philippine land with money parked in an overseas trust fund is legally feasible only when the constitutional citizenship requirements are strictly met and every peso entering the banking system is fully documented for AML, tax, and BSP purposes.
In practice, the cleanest path is direct acquisition by a Filipino individual beneficiary or by a Philippine corporation whose voting stock is at least 60 % Filipino-owned and controlled. Any attempt to obscure foreign control—whether through layered offshore trusts, voting-trust arrangements, or dummies—risks nullity of title, tax penalties, and criminal prosecution.
This article is for educational purposes and does not constitute legal advice. Engage Philippine counsel for transaction-specific guidance.