The transfer of real property through donation in the Philippines is a gratuitous act that carries significant legal and fiscal responsibilities. Governed primarily by the Civil Code of the Philippines and the National Internal Revenue Code (NIRC), as amended by the TRAIN Law (RA 10963), donating land requires strict adherence to both substantive law and procedural tax requirements to ensure a valid transfer of title.
I. Substantive Requirements for a Valid Donation
Under Article 749 of the Civil Code, the donation of immovable property (land) must follow specific formalities to be valid:
- Public Instrument: The donation must be made in a public document (Deed of Donation), specifying the property donated and the value of any charges the donee must satisfy.
- Acceptance: The donee must accept the donation either in the same Deed of Donation or in a separate public document.
- Notification: If acceptance is made in a separate instrument, the donor must be notified in an authentic form, and this step must be noted in both instruments.
II. The Donor’s Tax (The Primary Tax Burden)
Since the implementation of the TRAIN Law on January 1, 2018, the taxation of donations has been simplified.
1. Tax Rate
A flat rate of 6% is imposed on the total net gifts made during a calendar year that exceed ₱250,000. This rate applies regardless of whether the donee is a relative or a stranger.
2. Valuation of the Property
For tax purposes, the value of the land is determined by the fair market value at the time of the donation. Under Section 6(E) of the Tax Code, this is the higher value between:
- The Zonal Value as determined by the Commissioner of Internal Revenue (BIR).
- The Fair Market Value as shown in the schedule of values of the Provincial and City Assessors (Tax Declaration).
3. Filing and Payment
The Donor’s Tax Return (BIR Form 1800) must be filed and the tax paid within thirty (30) days after the date the gift (donation) is made.
III. Other Related Taxes and Fees
While Donor’s Tax is the primary tax, several other costs are involved in the transfer of the Transfer Certificate of Title (TCT):
| Tax/Fee | Description | Rate/Basis |
|---|---|---|
| Documentary Stamp Tax (DST) | Required for the execution of the deed. | ₱15.00 for every ₱1,000 (or 1.5%) of the property value. |
| Transfer Tax | Imposed by the Local Government Unit (LGU). | Usually 0.50% to 0.75% of the property value, depending on the city/municipality. |
| Registration Fee | Paid to the Registry of Deeds for the issuance of the new title. | Based on a graduated table of fees provided by the Land Registration Authority (LRA). |
| Certification Fees | For the issuance of various clearances. | Varying nominal amounts. |
IV. Procedural Steps for Title Transfer
To successfully transfer the title from the Donor to the Donee, the following process must be observed:
- Execution of the Deed of Donation: Draft and notarize the Deed of Donation, ensuring it includes the donee's acceptance.
- Payment of Taxes at the BIR: File the Donor’s Tax Return and pay the DST. Secure the Certificate Authorizing Registration (CAR). This document is proof that the taxes have been settled and is mandatory for the Registry of Deeds to process the transfer.
- Payment of Transfer Tax: Pay the Transfer Tax at the City or Provincial Treasurer’s Office where the property is located.
- Tax Clearance: Obtain a Tax Clearance from the LGU, which certifies that real property taxes (Amilyar) are fully paid.
- Entry at the Registry of Deeds: Submit the Deed of Donation, CAR, Tax Clearance, and the original Owner’s Duplicate Copy of the TCT to the Registry of Deeds.
- Update Tax Declaration: Once the new TCT is issued in the donee’s name, the donee must visit the Assessor’s Office to update the Tax Declaration for the land and any improvements.
V. Key Exemptions
Certain donations may be exempt from Donor’s Tax under Section 101 of the Tax Code:
- Government Entities: Donations to the Government of the Philippines or any entity that is not conducted for profit.
- Accredited Institutions: Donations to educational, charitable, religious, cultural, or social welfare institutions, provided that not more than 30% of the gift is used for administration purposes.
VI. Legal Consequences of Non-Compliance
Failure to pay the appropriate taxes within the prescribed period results in surcharges (25% to 50%), interest (12% per annum), and compromise penalties. Furthermore, without the CAR from the BIR, the Register of Deeds is legally prohibited from cancelling the old title and issuing a new one, leaving the donee’s ownership unrecorded and vulnerable to third-party claims.