I. Overview: What Is Capital Gains Tax (CGT) in the Philippines?

In the Philippine tax system, capital gains tax (CGT) is a final tax imposed on certain transactions involving capital assets. In broad terms, it applies mainly to:

Sale, exchange, or other disposition of real property located in the Philippines classified as a capital asset (not used in business), and
Sale, exchange, or other disposition of shares of stock in a domestic corporation not traded through the local stock exchange.

The tax is imposed under the National Internal Revenue Code (NIRC) of 1997, as amended (notably by the TRAIN Law), and is collected by the Bureau of Internal Revenue (BIR).

While the rates and tax bases are important, this article focuses on timeframes for payment and penalties when payment is late, which is often where disputes, surcharges, and interest arise.

II. Statutory Basis for Timeframes and Penalties

Several provisions of the NIRC govern the timing and penalties:

Capital gains on real property: primarily under Section 24(D) (individuals) and certain provisions under Section 27 (corporations).
Capital gains on unlisted shares: Section 24(C) (individuals) and Section 27(D)(2) (domestic corporations).
Surcharges (additions to tax): Section 248.
Interest on unpaid taxes: Section 249, as amended by the TRAIN Law.
Criminal liabilities for willful failure to pay or file: Section 255 and related provisions.
Prescriptive periods for assessment and collection: Sections 203–204, 222.

These provisions operate together: once the tax becomes due and is not paid on time, surcharge, interest, and sometimes compromise and criminal penalties come into play.

III. When Is Capital Gains Tax Due?

A. Real Property Classified as Capital Asset

Typical transactions:

Sale of a residential lot or house and lot not used in business
Dacion en pago (property given in payment of debt)
Exchange of real property
Other forms of transfer for consideration

Rate (for context):

Generally 6% of the higher of:
- Gross selling price in the Deed of Sale; or
- Fair market value (zonal value or assessed value) as determined by BIR/LGU.

Timeframe for filing and payment:

CGT return is usually due within 30 days following the date of the sale, exchange, or disposition.
For one-time transactions, taxpayers use BIR Form 1706 (Capital Gains Tax Return for Real Property).

Practical effect: The countdown generally starts from the date appearing on the Deed of Absolute Sale or equivalent document.

Installment Sales of Real Property

If the sale is on installment:

By default, the CGT is still computed based on the total selling price or fair market value (whichever is higher).
The BIR allows certain treatment where CGT may be computed per installment collected, but this requires specific conditions and documentation.
In practice, many parties opt to pay the full CGT upfront within the 30-day period so they can obtain the Certificate Authorizing Registration (CAR) and proceed with transfer of title.

Timeframes are tied either to the date of sale or to the receipt of installment payments, depending on the chosen method allowed by the BIR. Any tax due beyond those prescribed periods becomes subject to penalties.

B. Shares of Stock Not Traded on the Local Stock Exchange

Typical transactions:

Sale of shares in a family corporation
Sale of shares in a privately held domestic company
Transfer of shares between individual shareholders outside the stock exchange

Rate (for context):

Under the TRAIN amendments, generally 15% final tax on net capital gains from sale of unlisted shares (for both individuals and domestic corporations), subject to specific rules.

Timeframe for filing and payment:

CGT on unlisted shares is typically due within 30 days following each sale, exchange, or disposition.
Taxpayers use BIR Form 1707 (Capital Gains Tax Return for Onerous Transfer of Shares of Stock Not Traded Through the Local Stock Exchange).

If you miss this 30-day period, the tax due becomes delinquent, triggering the imposition of surcharges and interest.

Important: CGT on listed shares is not applicable; instead, a stock transaction tax (STT) is collected through the stockbroker. Timeframes and penalties for STT are different and largely handled by market intermediaries.

IV. What Counts as “Late” Payment?

You are considered late when:

You fail to file the required CGT return (Form 1706 or 1707) within the prescribed period (generally within 30 days from the transaction), and/or
You file the return but do not pay the tax due in full within that period.

Late payment scenarios include:

Filing the return after the 30th day;
Filing on time but paying the tax a few days or months later;
Failing to pay the full amount (underpayment);
Not filing any return at all, with the BIR discovering the transaction later (e.g., during a title transfer or audit).

Each of these has implications for surcharge, interest, and possibly compromise or criminal liability, depending on the facts.

V. Administrative Penalties for Late CGT Payment

A. Surcharge Under Section 248 NIRC

A surcharge is a one-time addition to tax, calculated as a percentage of the basic tax due.

There are two main rates:

25% Surcharge – imposed when:
- You fail to file any return and pay the tax due on the due date;
- You file with a wrong internal revenue officer or in a wrong venue without authorization;
- You fail to pay the deficiency tax within the time prescribed in a notice of assessment.
50% Surcharge – imposed in more serious cases:
- Willful neglect to file the return within the period required by law; or
- Filing a false or fraudulent return.

Key points:

The 25% surcharge is the standard penalty for ordinary late filing/payment.
The 50% surcharge is reserved for situations involving intent to evade or fraud, which requires factual and legal determination by the BIR (and often ends up in dispute or litigation).
The surcharge is computed on the basic CGT (e.g., 6% on the selling price/fair market value for real property).

B. Interest Under Section 249 NIRC (as Amended by TRAIN)

Interest is imposed on unpaid tax to compensate the government for the use of money.

Post-TRAIN, Section 249 provides:

The rate of interest is double the legal interest rate for loans or forbearance of money as set by the Bangko Sentral ng Pilipinas (BSP).
As a practical matter, this has been 12% per annum (double the 6% legal interest), but it is subject to change if BSP revises the legal interest rate.

Types of interest related to CGT:

Deficiency Interest – applies when:
- A return was filed and paid, but later the BIR finds that more tax should have been paid (e.g., undervaluation of selling price).
- Interest accrues on the deficiency tax from the original due date (e.g., 30 days after sale) until paid.
Delinquency Interest – applies when:
- You fail to pay the amount of tax due on or before the due date; or
- You fail to pay the amount stated in a notice and demand from the BIR on time.

Post-TRAIN, the law clarifies that deficiency and delinquency interest cannot be imposed simultaneously for the same period on the same amount of tax. Instead, they apply sequentially depending on the situation.

Computation outline:

Identify the basic CGT due.
Determine the period of delay (from due date to actual payment).
Apply the annual interest rate pro-rated on a daily basis (or per month, depending on BIR practice), on the unpaid basic tax (and as may be implemented by regulations).

C. Compromise Penalties (Administrative, Not in the NIRC Text)

Apart from statutory surcharge and interest, the BIR imposes compromise penalties based on internal issuances (often Revenue Memorandum Orders) for certain offenses, including:

Failure to file tax returns;
Late payment of tax;
Failure to pay the correct amount of tax.

Characteristics of compromise penalties:

They are not mandated by the NIRC itself but are allowed as part of the BIR’s authority to compromise tax liabilities.
Amounts depend on the basic tax due, with schedules (e.g., brackets of tax deficiencies corresponding to compromise amounts).
They are “compromise” in nature, meaning technically they require the taxpayer’s consent—though in practice they are often treated as standard additions unless contested.

For late CGT payments, the BIR may assess:

Basic CGT;
25% or 50% surcharge;
Interest; and
Compromise penalty, typically a fixed amount depending on the tax deficiency bracket.

VI. Example Computations (Simplified)

Example 1: Late CGT on Real Property (No Fraud)

Selling price/FMV: ₱3,000,000
CGT rate: 6%
Basic CGT = ₱3,000,000 × 6% = ₱180,000
Due date: 30 days after sale
Payment is made 1 year after the due date
Assume no fraud, so 25% surcharge and 12% interest per annum for illustration.

Surcharge (25%):
- 25% × ₱180,000 = ₱45,000
Interest (12% per annum):
- ₱180,000 × 12% × 1 year = ₱21,600
Total Amount Payable (excluding compromise penalty):
- Basic tax: ₱180,000
- Surcharge: ₱45,000
- Interest: ₱21,600
- Total: ₱246,600 (plus any compromise penalty the BIR may impose).

Example 2: Underdeclared Selling Price (Deficiency CGT)

Deed shows selling price of ₱2,000,000, but BIR zonal value / FMV is ₱2,800,000.
Taxpayer paid CGT on ₱2,000,000 only.

Correct CGT (6% of ₱2,800,000) = ₱168,000
CGT Paid (6% of ₱2,000,000) = ₱120,000
Deficiency CGT = ₱168,000 – ₱120,000 = ₱48,000

If the BIR discovers this after 2 years:

Surcharge (if assessed as simple deficiency, typically 25%):
- 25% × ₱48,000 = ₱12,000
Deficiency interest (say 12% per annum × 2 years):
- ₱48,000 × 12% × 2 = ₱11,520
Total deficiency (excluding compromise penalty):
- Deficiency tax: ₱48,000
- Surcharge: ₱12,000
- Interest: ₱11,520
- Total: ₱71,520, plus compromise penalty.

VII. Criminal and Other Legal Consequences

Beyond administrative penalties, criminal liability can arise under the NIRC for willful violations, such as:

Willful failure to file capital gains tax returns;
Willful failure to pay tax;
Filing false or fraudulent returns.

Under Section 255 and related penal provisions, violations can be punished with:

Fines, and
Imprisonment (actual jail time), or both, upon conviction.

In practice, criminal actions are typically pursued in cases involving significant amounts, clear evidence of fraud, or repeated violations, often in tandem with BIR investigations and Department of Justice (DOJ) prosecutions.

VIII. Prescriptive Periods: How Long Can the BIR Pursue Late CGT?

A. Assessment Period

Under the NIRC:

Ordinary period – The BIR generally has three (3) years from the last day prescribed by law for filing the return, or from the actual date of filing (whichever is later), to assess additional taxes.
Ten (10)-year period – If:
- No return is filed, or
- A false or fraudulent return is filed with intent to evade tax,
the BIR has ten (10) years from the date of discovery of the omission or fraud to assess.

For CGT, which is a one-time transaction, this means:

If you file the return late, the three-year clock starts from the actual filing date.
If no CGT return is ever filed, the BIR may claim a longer prescriptive period (ten years from discovery).

B. Collection Period

Once the BIR issues an assessment:

The government generally has five (5) years from the date of assessment to collect the tax by distraint, levy, or court action.
This period may be suspended in certain circumstances (e.g., taxpayer requests for reinvestigation, injunctions, etc.).

IX. Practical Effect: Transfer of Title and Share Registration

A unique feature of CGT in the Philippines is the practical enforcement mechanism:

A. Real Property – BIR CAR and Registry of Deeds

Before the Registry of Deeds will register the transfer of a real property title, the parties must present a Certificate Authorizing Registration (CAR) or electronic CAR (eCAR) issued by the BIR.
The BIR will not issue the CAR unless:
- CGT and related taxes (e.g., Documentary Stamp Tax, DST, and sometimes Creditable Withholding Tax (CWT)) are paid; and
- Required documentation is submitted.

If you are late in paying CGT:

You may still ultimately obtain a CAR, but only after settling the basic tax plus penalties.
This often surfaces when a buyer attempts to transfer title years after the deed was signed and discovers significant surcharges and interest have accrued.

B. Shares of Stock – CAR and Corporate Books

For transfers of unlisted shares in a domestic corporation, the BIR also issues a CAR.
The corporate secretary usually requires this CAR before:
- Cancelling the old share certificates; and
- Issuing new certificates in the buyer’s name, and recording the transfer in the stock and transfer book.

If CGT on the share transfer was not paid on time:

The parties may be forced to settle basic CGT plus surcharges, interest, and compromise penalties before the BIR issues a CAR, delaying recognition of the new shareholder.

X. Special Scenarios

1. Dacion en Pago and Other Forms of Transfer

CGT is not limited to simple sale:

Dacion en pago (property given in payment of an obligation);
Pacto de retro sales;
Certain exchanges of property;
Transfers for valuable consideration with equivalent economic effect.

In these cases, the timeframe (usually 30 days from the date of the transaction) and penalties for late payment still apply, unless a specific exemption or special treatment (e.g., tax-free exchange under Section 40(C)(2)) is properly availed of and documented.

2. Transactions Covered by Tax Treaties or Special Laws

Where a taxpayer invokes tax treaty relief or a special exemption, timing can be sensitive:

Failure to follow procedural requirements (e.g., prior application or timely filing of relief applications, depending on the rules in force at the relevant time) may result in the denial of relief and full CGT exposure.
If CGT is later assessed due to non-compliance with procedural requirements, penalties for late payment (surcharge and interest) can still attach.

XI. Compliance Tips and Practical Reminders

Track the 30-day deadline carefully.
- Mark the date of the deed (real property) or share transfer.
- Count 30 days as your maximum window to file and pay.
Coordinate with your notary public and broker.
- Many notaries and real estate brokers are familiar with BIR processing and can remind you of deadlines.
- Ensure they are using current rules and rates.
Gather documents early.
- For real property: TCT/CTC, tax declaration, tax clearance, deed, IDs, etc.
- For shares: stock certificates, corporate secretary’s certifications, valuation documents, etc.
- Missing documents can cause delays which do not automatically suspend the running of penalties.
Avoid undervaluation.
- The BIR will compare the declared selling price with zonal value and assessed value.
- If your declared price is lower, CGT will be based on the higher BIR/LGU value. Understatement can lead to deficiency assessments with penalties.
Pay early when in doubt.
- Even if processing of the CAR is delayed due to documentary issues, paying the correct CGT on time stops the accrual of interest and avoids surcharges.
Keep proof of filing and payment.
- Secure stamped copies of returns and payment confirmations.
- These are vital if there is later a dispute about whether you filed/paid on time.
Consider professional advice for complex transactions.
- Corporate reorganizations, large property portfolios, or cross-border transactions can involve intricate CGT issues and timing risks.
- Tax counsel or a seasoned tax practitioner can help structure transactions to avoid unnecessary penalties.

XII. Summary

In the Philippines, capital gains tax is tightly linked to strict timeframes:

Generally due within 30 days from the sale, exchange, or disposition of real property (capital assets) and unlisted shares.
Late payments trigger:
- 25% surcharge (or 50% in cases of willful neglect or fraudulent returns);
- Interest at a rate set by law (currently tied to double the legal interest rate); and
- Compromise penalties under BIR schedules.

The BIR also wields strong practical leverage: no Certificate Authorizing Registration (CAR), no transfer of title or recognition of new shareholder. Add to this the possibility of criminal prosecution in serious cases, plus prescriptive periods that can be extended to ten years for fraudulent or no-return situations, and it becomes clear that timely and correct CGT compliance is critical.

For taxpayers, the safest course is straightforward: know your 30-day window, compute the correct tax base, pay on time in full, and document everything.