Tax Rates on the Sale of Agricultural vs Residential Lots in the Philippines (2025 update) (A practitioner-oriented reference)
1. Legal Foundations
| Source Law / Issuance | Key Provisions on Real-Property Sales |
|---|---|
| National Internal Revenue Code (NIRC) of 1997, as amended by RA 10963 (TRAIN, 2018) and RA 11534 (CREATE, 2021) | Capital-gains tax (CGT) on capital assets §24(D), creditable/expanded withholding tax (CWT/EWT) on ordinary assets §57, VAT §106-109, documentary-stamp tax (DST) §196 |
| Local Government Code (LGC) of 1991 | Local transfer tax (LTT) and registration fees |
| Civil Code & Property Registration Decree (PD 1529) | Form of conveyance, registration, Torrens system |
| Comprehensive Agrarian Reform Law (RA 6657, as amended) | Special rules for transfers of agrarian land & CLOA-covered parcels |
| BIR Regulations (RR 7-2003, RR 13-2021, RR 4-2023, RMCs, BIR Rulings) | Implementing details, zonal values, classification rules |
| Supreme Court rulings (e.g., CIR v. Spouses Ayala, GR 205025, 2020) | Classification by actual use, not by tax-declaration or zoning label |
2. Step-Zero: Classify the Land and the Seller
Type of asset (capital vs ordinary) – §39, NIRC
- Capital asset = not used in business (typical for natural persons).
- Ordinary asset = inventory of a real-estate dealer or property used in trade/business.
Type of land
- Residential – dwelling site or “residential lot.”
- Agricultural – land devoted to farming, livestock, etc.
Type of seller
- Natural person (individual)
- Corporation/real-estate dealer (VAT-registered or not)
The tax mix depends on all three variables.
3. National Taxes at a Glance
| Tax | Residential Lot | Agricultural Lot | Notes |
|---|---|---|---|
| Capital-Gains Tax (CGT) 6% of higher of gross selling price (GSP) or zonal/FMV | Applies when capital asset sold by a natural person or non-dealer corporation | Same | Exemption for principal residence (Sec 24(D)(2))—residential only |
| Creditable / Expanded Withholding Tax (CWT/EWT) 1.5 % – 6 % of GSP/FMV (table varies by seller’s status) | For ordinary assets sold by business taxpayers | Same | Creditable against income tax of seller |
| Value-Added Tax (VAT) 12 % of GSP/FMV | Exempt if: ① seller is not in real-estate business or ② property classified as capital asset or ③ developer’s sale ≤ threshold (₱2.5 M for residential lot, ₱4.2 M for house-and-lot in 2025 after CPI indexation) | Generally exempt because agricultural land is excluded from VAT under §109(1.1), unless part of ordinary course of business of a VAT-registered dealer (then 12 %) | VAT threshold applies only to residential dwellings/lots |
| Documentary-Stamp Tax (DST) ₱15 for first ₱1 000 + ₱15 per additional ₱1 000 (≈ 0.5 %) | Same | Same | Paid by the seller unless shifted by contract |
| Income Tax (Graduated / Regular Corporate Rate) | For ordinary assets, gain is part of income; for corporations, 25 % RCIT or 1 %-2 % Minimum Corporate Income Tax | Same | Not applicable when 6 % CGT already paid |
| Withholding on VAT-Exempt Sale (BIR Form 1606) | 0 % if CGT route; otherwise 1.5 %–6 % CWT | Same | Paid by buyer but creditable to seller |
4. Local Taxes & Fees
| Charge | Statutory Ceiling | Typical Rate | Remarks |
|---|---|---|---|
| Local Transfer Tax (LTT) | ≤ 0.5 % of GSP/FMV | 0.25 % – 0.5 % | Province/City ordinance; paid by buyer |
| Registration Fee (RD) | Schedule under LRA | ≈ ₱8 000-₱20 000 per ₱1 M | Paid to Register of Deeds on issuance of new title |
| Real-Property Tax (RPT) delinquency | Basic 1 %-2 % | N/A (seller’s liability up to date of sale) | Must be cleared for eCAR release |
5. Key Distinctions & Special Rules
Principal-Residence CGT Exemption (Sec 24(D)(2))
- Available only for natural persons selling their principal residence—by definition a residential property.
- One use every 10 years; entire proceeds must be used to build/buy a new home within 18 months; otherwise pro-rated CGT is due.
VAT Thresholds (CREATE) as adjusted for CPI yearly
Year Residential Lot VAT-Exempt Price Ceiling House-and-Lot / Dwelling Ceiling 2021 (base) ₱1 500 000 ₱2 500 000 2025 (index-linked) ≈ ₱2 000 000 ≈ ₱4 200 000 Agricultural land does not benefit; exemption comes from §109’s blanket rule for non-dealer capital assets. Agrarian Reform Restrictions
- CLOA-covered agricultural land may not be sold within 10 years without DAR clearance; tax still computed but BIR requires clearance before eCAR.
- Sale to farmer-beneficiaries can enjoy DST and CGT exemptions under Sec 66, RA 6657.
Actual-Use Test
- For BIR, property is “agricultural” only if being farmed at time of sale; idle land inside a residential subdivision is residential, not agricultural, even if zoned “Agro-Industrial.”
- Evidence: tax declarations, photographs, barangay certification, or DAR certification.
Seller’s Business Status
- A VAT-registered real-estate developer who sells an agricultural subdivision (e.g., farm lots) will impose 12 % VAT regardless of land classification; residential VAT thresholds will not apply because lots are marketed for business.
Creditable Withholding Tax Table (RR 2-98, as amended) – selected lines:
| Seller’s Category (Ordinary Asset) | CWT Rate |
|---|---|
| Individual, ≤ ₱500 K | 1.5 % |
| Individual, > ₱500 K | 3 % |
| Corporation | 1.5 % |
| VAT-registered Dealer | 5 % |
| Government | Exempt |
6. Computation Examples (2025)
Scenario A – Sale of Residential Lot (Capital Asset) Facts: Resident Filipino sells his extra 400 sqm lot in Cavite for ₱3 100 000. Zonal value ₱2 800 000.
| Tax | Basis | Rate | Amount |
|---|---|---|---|
| CGT | ₱3 100 000 | 6 % | ₱186 000 |
| DST | ₱3 100 000 | 0.5 % | ₱15 × (3 100 000/1 000) = ₱46 500 |
| VAT | N/A (capital asset) | – | Exempt |
| LTT (0.5 %) | ₱3 100 000 | 0.5 % | ₱15 500 |
| Total | ₱248 000 (seller usually shoulders CGT & DST) |
Scenario B – Sale of Agricultural Lot by Non-Dealer Corporation Facts: ABC Farms, Inc. (not in real-estate business) sells 5 ha sugarcane land in Negros at ₱12 M (zonal = ₱10 M).
| Tax | Basis | Rate | Amount |
|---|---|---|---|
| CGT | ₱12 000 000 | 6 % | ₱720 000 |
| DST | ₱12 000 000 | 0.5 % | ₱180 000 |
| VAT | Exempt (§109(1.1)) | – | – |
| LTT (0.25 %) | ₱12 000 000 | 0.25 % | ₱30 000 |
| Total | ₱930 000 |
7. Compliance Workflow
Sign Deed of Absolute Sale (notarized).
Secure Tax Clearance & Updated RPT receipt from LGU.
File BIR Form
- BIR 1706 (CGT) or 1606 (CWT) within 30 days of notarization.
- Attach TCT/CCT, tax declaration, IDs, and, if agricultural, DAR clearances.
Pay CGT/CWT, DST, & penalties (if any) at AAB or online.
Obtain eCAR (Electronic Cert. Authorizing Registration).
Pay LTT & registration fees at City/Provincial Treasurer & Registry of Deeds.
Transfer Title & Tax Declaration to buyer.
8. Common Pitfalls & Practice Tips
- Wrong classification ⇒ wrong tax (BIR audit can assess deficiency VAT).
- Missed CGT exemption window for principal residence (18 months).
- “Installment sale” over > 1 year: CGT still on full amount up-front; VAT/CWT can follow installment schedule.
- Unpaid estate tax on inherited land blocks sale (one cannot sell what is not yet transferred).
- Agricultural retention limit: DAR can disallow sale > 5 ha per individual.
9. Quick Reference Matrix (2025)
| Type of Land | Seller Is | Asset Class | CGT | CWT / EWT | VAT | DST | LTT |
|---|---|---|---|---|---|---|---|
| Residential | Natural person | Capital | 6 % | – | Exempt | 0.5 % | ≤ 0.5 % |
| Natural person | Ordinary | – | 1.5-6 % | Exempt | 0.5 % | ≤ 0.5 % | |
| Developer (VAT-reg) | Ordinary | – | 5 % | 12 % (exempt if ≤ threshold) | 0.5 % | ≤ 0.5 % | |
| Agricultural | Natural person | Capital | 6 % | – | Exempt | 0.5 % | ≤ 0.5 % |
| Natural person | Ordinary | – | 1.5-6 % | Exempt (unless VAT-dealer) | 0.5 % | ≤ 0.5 % | |
| Agribusiness Corp (non-dealer) | Capital | 6 % | – | Exempt | 0.5 % | ≤ 0.5 % | |
| Real-estate dealer | Ordinary | – | 1.5-6 % | 12 % | 0.5 % | ≤ 0.5 % |
10. Final Takeaways
- Agricultural vs Residential affects VAT and special exemptions more than CGT/DST.
- Capital-asset sales default to 6 % CGT and are VAT-exempt.
- Ordinary-asset sales bring in CWT and possibly 12 % VAT—unless the land is agricultural and exempt under §109(1.1).
- Always determine (1) seller’s business, (2) asset classification, (3) actual land use before computing tax.
- Keep abreast of annual CPI-adjusted VAT thresholds and new BIR Rulings that may re-grade zonal values or classification rules.
Disclaimer: This article synthesizes statutory provisions and administrative issuances as of July 3 2025. It is for general guidance and does not substitute for individualized tax advice or a formal ruling from the BIR.