I. Overview

Capital Gains Tax (CGT) in the Philippines is a final tax imposed on certain sales or dispositions of capital assets. In practice, it mainly arises in two situations:

Sale, exchange, or other disposition of real property classified as a capital asset located in the Philippines; and
Sale, exchange, or other disposition of shares of stock in a domestic corporation not traded on the Philippine Stock Exchange (PSE).

Because CGT is a final tax, it is generally not included in the regular income tax return. It has its own BIR forms, deadlines, and penalties for late payment.

Note: Details below reflect the law and typical BIR practice as known up to around 2024. Subsequent changes in tax rates, forms, or procedures are possible, so actual compliance should be checked against current BIR issuances or with a tax professional.

II. Legal Framework (General)

While exact section numbers and wording are for reference only, CGT is mainly governed by the National Internal Revenue Code (NIRC) of 1997, as amended (including by TRAIN Law, R.A. 10963). Key provisions:

Section 24(C) & (D) – Capital gains from sale of shares in a domestic corporation (not traded) and sale of real property by individuals.
Sections 27 & 28 – Capital gains for domestic and foreign corporations.
Section 248 – Surcharges (25% / 50%) for late filing and related violations.
Section 249 – Interest on unpaid taxes.
BIR Revenue Regulations and Revenue Memorandum Orders – Detailed procedures, forms, and compromise penalty schedules.

III. When Is Capital Gains Tax Due?

A. Real Property Classified as Capital Asset

What is a “capital asset”?

Under the NIRC, capital assets are essentially any property held by the taxpayer (whether or not connected with their trade or business) that is not:

Stock-in-trade or inventory,
Property held primarily for sale to customers in the ordinary course of business,
Depreciable business property, or
Real property used in business.

So, for individuals, personal-use real estate (e.g., family home, a personal vacant lot) is usually treated as a capital asset.

Tax rate (high-level)

For individuals (citizens/residents) and, in some cases, corporations dealing with capital assets:

6% CGT on the higher of:
- Gross selling price,
- Zonal value, or
- Fair market value as per local assessor.

Deadline to file and pay

For the sale, exchange, or other disposition of real property treated as a capital asset, the CGT return is generally:

Filed within 30 days following the date of the sale, exchange, or disposition.
The same 30-day deadline is typically referenced for transactions such as:
- Cash sale
- Deed of sale with assumption of mortgage
- Pacto de retro (sale with right to repurchase)
- Expropriation (government acquisition)
- Extra-judicial settlement of estate with sale of real property

The controlling date is usually the date of notarization of the deed of sale or similar instrument, since notarization generally makes the contract public and “effective” for tax purposes.

Installment sales

In an installment sale, BIR practice has been:

A return is filed and CGT is initially computed based on the selling price, but depending on rules in effect, CGT may be computed on the actual collections per installment or on the full contract price at the outset.
Each installment may trigger additional CGT or at least monitoring.

Because installment rules have been subject to specific regulations and interpretations, careful review of current regulations is essential.

B. Shares of Stock Not Traded on the PSE

What transactions are covered?

Sale, exchange, or other disposition of shares of stock in a domestic corporation not traded on a local stock exchange.
If the shares are traded on the PSE, the transaction is generally subject to stock transaction tax, not CGT.

Tax rate (general idea)

Under TRAIN and later rules, the CGT on net capital gains from sale of unlisted shares is generally around 15%, but exact application varies depending on whether the seller is:

An individual
A domestic corporation
A resident foreign corporation
A non-resident foreign corporation

Deadline to file and pay

Typical structure:

A CGT return per transaction is filed within 30 days following the sale/disposition of shares.
An annual CGT return consolidating all such transactions in a taxable year may be due on or before the statutory annual income tax return deadlines (e.g., April 15 for individuals), depending on the specific regulations applicable.

Forms often used historically:

BIR Form 1707 – Per-transaction return
BIR Form 1707(A) or equivalent – Annual return consolidating net capital gains and losses

IV. Penalties for Late Payment of Capital Gains Tax

If the CGT return is filed late or the tax is paid late, the general rules in the NIRC on penalties apply. These typically consist of:

Surcharge (Sec. 248)
Interest (Sec. 249)
Compromise penalties (per BIR internal schedule)
Other consequences (e.g., no CAR, possible criminal liability)

Let’s unpack each.

A. Surcharge

The surcharge is an addition to the basic tax, expressed as a percentage. The common scenarios:

25% Surcharge

This generally applies in cases of:

Failure to file any return and pay the tax due thereon on the date prescribed;
Filing a return with the wrong internal revenue office;
Failure to pay the full or part of the tax due on or before the due date;
Failure to pay the deficiency tax on the date prescribed in the notice of assessment.

For CGT, the standard late filer or late payer will often be hit with 25% of the basic CGT as surcharge.

50% Surcharge

Imposed when:

There is a willful neglect to file the return within the period prescribed by law, or
A false or fraudulent return is willfully made.

A 50% surcharge is more severe and is intended as a punitive measure for deliberate non-compliance or fraud.

Important point: The surcharge is computed only on the basic tax due, not on interest or compromise penalties.

B. Interest

Interest is imposed on any unpaid tax due from the due date until the time it is fully paid. TRAIN changed the interest regime; in simplified, practical terms:

Interest rate: a rate tied to the prevailing legal interest rate, typically interpreted as simple annual interest (e.g., 12% per annum) under the TRAIN-based rules.
Interest runs from:
- The date the tax was originally due (for deficiency interest), or
- The date stated in the notice and demand for payment (for delinquency interest),

until payment in full.

Key ideas:

Interest is simple, not compounded.
It is computed on the basic unpaid tax only.
It accrues daily but is usually calculated on a per-annum rate, prorated by the number of days or months of delay.

C. Compromise Penalties

Compromise penalties are not explicitly mandated by statute for every situation, but they are a long-standing BIR administrative practice used in settling minor or routine violations.

Characteristics:

Amounts are set in Revenue Memorandum Orders (RMOs) in the form of a schedule, often based on:
- The amount of basic tax due;
- The type of violation (e.g., late filing, failure to file, failure to pay withholding tax, etc.).
They are usually negotiated, especially for first-time offenders or where equity and good faith are clearly present.
Technically, compromise penalties should be agreed upon by both BIR and taxpayer. In practice, taxpayers often pay the compromise penalty as part of the process of securing BIR clearance (e.g., for CAR issuance).

For late CGT filing, the Revenue District Office (RDO) may assess a compromise penalty in addition to surcharge and interest.

D. Other Consequences of Late CGT Payment

No Certificate Authorizing Registration (CAR)

For real property and shares of stock, the BIR issues a CAR or its equivalent as proof that CGT (and related taxes: documentary stamp tax, etc.) have been paid.

Registry of Deeds will not transfer title to the buyer without BIR CAR.
Corporate secretaries or stock transfer agents will not register the transfer of shares without proof of tax payment (CGT, DST, if applicable).

If CGT is not paid or is paid late, you may face:

Delays in title transfer or issuance of the new TCT/CTC;
Administrative issues with banks (for mortgaged properties), buyers, or future buyers.

Civil Collection Remedies

The BIR may use its power to collect delinquent taxes, including:

Distraint of personal property;
Levy on real property;
Garnishment of bank accounts.

Criminal Liability

In cases of deliberate non-payment or fraudulent schemes, criminal prosecution is possible under the NIRC (tax evasion, perjury in declarations, etc.), which may involve:

Fines;
Imprisonment;
Both.

While criminal cases are less common for simple late filing with eventual voluntary payment, the possibility exists in serious or repeated cases.

V. Illustrative Computation of Penalties

To see how the penalties work, here are simplified examples.

Example 1 – Late CGT on Sale of Real Property

Facts:

Deed of sale of land (capital asset) notarized: January 10
Selling price: ₱3,000,000
Zonal value / FMV: ₱3,500,000
CGT rate: 6% on the higher amount (₱3,500,000)
Deadline to file and pay: February 9 (30 days after Jan 10; for illustration)
Actual filing/payment date: August 9 (6 months late)
Assume no fraud, so only 25% surcharge applies.
Assume 12% simple annual interest (illustrative only).

Basic CGT:

Tax base = ₱3,500,000
CGT (6%) = ₱3,500,000 × 6% = ₱210,000

25% Surcharge (late filing/payment)

Surcharge = 25% × ₱210,000 = ₱52,500

Interest (6 months delay)

Annual interest = 12% × ₱210,000 = ₱25,200
For 6 months (half a year): 12% ÷ 2 = 6% of basic tax
Interest = 6% × ₱210,000 = ₱12,600

Total amount payable (excluding compromise penalty):

Basic tax: ₱210,000
Surcharge: ₱52,500
Interest: ₱12,600
Total: ₱275,100

Add possible compromise penalty

For instance, if the RDO applies a compromise penalty (say ₱5,000 to ₱15,000 depending on schedules and negotiation), that would be in addition to ₱275,100.

Example 2 – Late CGT on Sale of Unlisted Shares

Facts (simplified):

Sale of unlisted shares of a domestic corporation: March 1
Cost of shares: ₱500,000
Selling price: ₱1,000,000
Net capital gain: ₱500,000
CGT rate: 15% (illustrative)
Deadline to file and pay per transaction: March 31
Actual filing/payment date: September 30 (6 months late)
Assume 25% surcharge, 12% annual interest, no fraud.

Basic CGT:

Net capital gain = ₱500,000
CGT (15%) = ₱500,000 × 15% = ₱75,000

25% surcharge

Surcharge = 25% × ₱75,000 = ₱18,750

Interest (6 months late)

Annual interest = 12% × ₱75,000 = ₱9,000
For 6 months: 6% of basic tax
Interest = 6% × ₱75,000 = ₱4,500

Total amount payable (excluding compromise penalty):

Basic tax: ₱75,000
Surcharge: ₱18,750
Interest: ₱4,500
Total: ₱98,250

Again, a compromise penalty may be imposed separately.

VI. Prescription Periods (How Long Can BIR Assess or Collect?)

The NIRC sets prescriptive periods for:

Assessment – When BIR may issue a deficiency assessment.
Collection – When BIR may collect assessed taxes.

In simplified terms:

Ordinary 3-year prescriptive period for assessment

BIR generally has 3 years from:
- The deadline for filing the return, or
- The actual filing date,

whichever is later, to issue an assessment for deficiency CGT (e.g., under-declared selling price or zonal value).

10-year period if no return is filed or if the return is false or fraudulent

If no CGT return was filed at all, or if the return is proven false or fraudulent with intent to evade tax, BIR has up to 10 years from the discovery of the omission or falsity/fraud.

Collection period

After a valid assessment, BIR typically has another 5 years to collect, depending on the applicable rule and circumstances.
Certain acts (e.g., taxpayer request for reinvestigation, waivers of the statute of limitations) may suspend or extend the prescriptive period.

VII. What If You Realize You Are Late?

If you discover that you failed to file CGT on time (or at all), common practical steps include:

Voluntary filing and payment

Prepare the appropriate CGT return (e.g., BIR Form 1706 for real property, 1707 for unlisted shares) based on the law in effect at the time of the transaction.
Compute the basic tax, plus surcharge and estimated interest.
Submit the return and make payment at the relevant RDO or authorized agent bank.

Coordinate with the RDO regarding interest and compromise penalty

The RDO will often recompute interest up to the actual date of payment (since it accrues daily).
They may apply a compromise penalty according to the latest BIR schedule.
In some cases, especially if there are mitigating circumstances, taxpayers can request a reduction or waiver of compromise penalties.

Avoiding further delay

Delaying further only increases interest and risks more serious collection activity or denial of CAR/transfer.

Check related taxes

For real property: Documentary Stamp Tax (DST), possible Creditable Withholding Tax (CWT) (if applicable), local transfer taxes, etc., must also be settled.
For shares: DST on shares of stock, potential other fees or taxes.

VIII. Special Situations and Clarifications

Foreclosure of real estate

In foreclosure, tax treatment can differ depending on whether it is judicial or extrajudicial, and whether CGT or CWT applies, based on the nature of the taxpayer (bank, corporation, individual).
Deadlines and penalties will still revolve around the date of transfer or acquisition by the mortgagee and the date the tax is due.

Expropriation by the government

When the government expropriates private property, the property owner may still be subject to CGT on the compensation received, unless a special exemption applies.
Deadlines and penalties follow similar patterns (CGT due within 30 days from receipt of payment/compensation or from execution of the deed or judgment, depending on the rule in force).

Donations and estates

CGT generally does not apply to transfers subject to donor’s tax or estate tax.
Instead, Donor’s Tax or Estate Tax applies with their own deadlines and penalties.

Sale of principal residence

There have been provisions allowing exemption from CGT on the sale of a principal residence if the proceeds are fully utilized in acquiring a new principal residence within a specific period, subject to strict conditions and timely application with BIR.
Failing to comply with conditions or deadlines may cause the transaction to be subject to CGT, and if the taxpayer acted late, penalties may then attach.

IX. Practical Compliance Tips

Track the date of notarization or execution That date usually starts the 30-day clock for CGT filing.
Check the higher tax base Always compare selling price vs. zonal value vs. FMV (for real property). Under-declaration can lead to deficiency assessment and penalties.
Coordinate early with BIR and LGUs For real property, remember that:
- BIR (for CGT and DST) and
- LGU (for transfer tax)
both have requirements and must usually be complied with before title transfer.
Maintain documentation Keep copies of:
- Deeds of sale / transfer documents
- CGT returns and payment forms
- CAR and related tax clearances
- Board resolutions / stock certificates for share transfers
Consult a tax professional for complex or high-value deals Especially where there are:
- Installment sales
- Corporate reorganizations
- Partial transfers or swapping of assets
- Transactions with foreign elements
Act quickly if you are already late The later you act, the greater the interest, and the more complicated the resolution can become.

X. Conclusion

In the Philippine system, capital gains tax is highly time-sensitive:

For real property, the general deadline is within 30 days from the sale or disposition.
For unlisted shares, a similar 30-day per transaction deadline applies, often with an annual reconciliation return.

Missing these deadlines triggers surcharge, interest, and compromise penalties, and may also result in administrative obstacles (like non-issuance of CAR) and, in serious cases, potential civil or criminal consequences.

Understanding the deadlines, penalty structure, and available remedies is essential for taxpayers and practitioners to manage risks and ensure smooth transfers of real property and shares in the Philippines.