Taxes and Fees After a Notarized Deed of Sale of Real Property in the Philippines (BIR, CGT, DST, Transfer Tax)

Taxes and Fees After a Notarized Deed of Sale of Real Property in the Philippines

Introduction

In the Philippines, the transfer of real property through a notarized Deed of Absolute Sale (DOAS) triggers a series of fiscal obligations imposed by national and local laws. These obligations primarily involve taxes administered by the Bureau of Internal Revenue (BIR) and local government units (LGUs), as well as associated fees for registration. The key taxes include the Capital Gains Tax (CGT), Documentary Stamp Tax (DST), and Local Transfer Tax. Failure to comply with these requirements can result in penalties, interest charges, and delays in the transfer of title. This article provides a comprehensive overview of these taxes and fees, their computation, payment procedures, exemptions, and related administrative processes, all within the Philippine legal framework governed by the National Internal Revenue Code (NIRC) as amended, local ordinances, and relevant BIR regulations.

Legal Basis and Overview

The taxation of real property sales is rooted in Republic Act No. 8424 (the Tax Reform Act of 1997), as amended by subsequent laws such as Republic Act No. 10963 (TRAIN Law) and Republic Act No. 11534 (CREATE Act). The BIR oversees national taxes like CGT and DST, while LGUs handle the Local Transfer Tax under Republic Act No. 7160 (Local Government Code).

Upon notarization of the DOAS, the transaction is considered consummated for tax purposes, even if the full payment has not been made. The seller (or transferor) is generally responsible for CGT and DST, though parties may agree to shift the burden. The buyer (or transferee) typically handles the Local Transfer Tax and registration fees. All payments must be made promptly to obtain the Certificate Authorizing Registration (CAR) from the BIR, which is essential for title transfer at the Registry of Deeds (RD).

Capital Gains Tax (CGT)

Nature and Imposition

CGT is a final tax imposed on the presumed gain from the sale or disposition of capital assets, including real property classified as capital assets (e.g., land, buildings not used in trade or business). It applies to individuals, estates, trusts, and corporations, but not to dealers in real estate where the property is considered ordinary assets subject to regular income tax.

Under Section 24(D) of the NIRC, as amended, CGT is levied at a flat rate of 6% on the gross selling price, fair market value (FMV) as determined by the BIR (zonal value), or FMV as per the Provincial/City Assessor, whichever is highest. This "whichever is higher" rule ensures the tax base reflects the property's true value and prevents undervaluation.

Computation

• Tax Base: Higher of:
  • Actual selling price as stated in the DOAS.
  • BIR zonal value at the time of sale.
  • Assessor's FMV.
• Rate: 6%.
• Example: If a property is sold for PHP 5,000,000 but the zonal value is PHP 6,000,000, CGT = 6% × PHP 6,000,000 = PHP 360,000.

For installment sales, CGT is computed on the initial payments received in the year of sale if they exceed 25% of the selling price; otherwise, it's prorated over the installment period.

Payment and Filing

• Who Pays: Seller, unless otherwise stipulated.
• Deadline: Within 30 days from the date of notarization (considered the date of sale).
• Filing: BIR Form No. 1706 (CGT Return) must be filed with the Revenue District Office (RDO) where the property is located. Payment is made via authorized agent banks, Revenue Collection Officers, or electronic means under the Electronic Filing and Payment System (eFPS) for mandatory e-filers.
• Requirements: Submit the notarized DOAS, Taxpayer Identification Numbers (TINs) of parties, proof of zonal value, and other supporting documents.

Non-payment within the deadline incurs a 25% surcharge, 12% annual interest (reduced from 20% under TRAIN Law), and possible compromise penalties.

Exemptions and Relief

• Principal Residence Exemption: Under Section 24(D)(2), sales of an individual's principal residence are exempt if the proceeds are fully utilized to acquire or construct a new principal residence within 18 months. The seller must notify the BIR within 30 days via a sworn declaration and escrow the CGT amount if not immediately exempt. Partial utilization results in proportional taxation.
• Other Exemptions:
  • Exchanges under Section 40(C)(2) for corporate reorganizations (tax-free exchanges).
  • Sales to the government or its instrumentalities.
  • Involuntary sales (e.g., expropriation) where gain is reinvested.
  • Properties classified as ordinary assets (subject to income tax instead).
• No CGT applies to foreclosures if the mortgagee is a bank, but redemption may trigger tax.

Documentary Stamp Tax (DST)

Nature and Imposition

DST is an excise tax on documents, instruments, and papers evidencing certain transactions, including sales of real property. Under Section 196 of the NIRC, DST on deeds of sale is 1.5% (PHP 15 per PHP 1,000 or fractional part) of the consideration or FMV, whichever is higher.

Computation

• Tax Base: Same as CGT—higher of selling price, zonal value, or assessor's FMV.
• Rate: 1.5%.
• Example: Using the earlier figures, DST = 1.5% × PHP 6,000,000 = PHP 90,000.

For properties sold below FMV, the tax is still based on the higher value to deter underdeclaration.

Payment and Filing

• Who Pays: Seller, but negotiable.
• Deadline: Within 5 days after the close of the month of notarization (e.g., if notarized on day 15, due by the 5th of the following month).
• Filing: BIR Form No. 2000 (DST Return) filed with the RDO. Payment modes mirror CGT. Loose DST stamps are no longer used; it's now a declarative system.
• Requirements: Similar to CGT, including the DOAS.

Penalties for late payment include 25% surcharge and 12% interest.

Exemptions

• Sales exempt from CGT (e.g., principal residence) are also DST-exempt if conditions are met.
• Government-to-government transfers.
• Certain agrarian reform transactions under Republic Act No. 6657.

Local Transfer Tax

Nature and Imposition

Under Section 135 of the Local Government Code, LGUs impose a tax on the sale, donation, barter, or other transfers of real property within their jurisdiction. This is distinct from national taxes and is based on the total consideration or FMV.

Rates and Computation

• Rate:
  • Provinces: Not exceeding 0.5% (50% shared with municipality/barangay).
  • Cities/Municipalities in Metro Manila: Not exceeding 0.75%.
• Tax Base: Higher of selling price or assessor's FMV.
• Example: For a PHP 6,000,000 property in Manila, Transfer Tax = 0.75% × PHP 6,000,000 = PHP 45,000.

LGUs may provide incentives or exemptions via ordinances.

Payment and Filing

• Who Pays: Buyer, typically.
• Deadline: Within 60 days from notarization.
• Where: Treasurer's Office of the province, city, or municipality where the property is situated.
• Requirements: Present the DOAS, BIR CAR, proof of CGT/DST payment, and tax declaration.

Non-payment bars title registration.

Exemptions

• Transfers to government entities.
• Certain inheritance or donation cases.
• LGU-specific exemptions (e.g., for low-cost housing).

Other Fees and Procedures

Registration Fees

After paying taxes, the buyer registers the DOAS with the RD under Presidential Decree No. 1529 (Property Registration Decree). Fees include:

• Entry fee: PHP 30–50.
• Registration fee: Based on property value (e.g., PHP 36 for up to PHP 20,000, plus increments).
• IT fees, annotation fees, etc., totaling around 0.25–0.5% of the value.

The process involves:

1. Obtaining BIR CAR (after CGT/DST payment).
2. Paying Local Transfer Tax and securing clearance.
3. Submitting to RD: DOAS, CAR, tax receipts, owner's duplicate title, tax declaration, etc.
4. RD issues new Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT).

Additional Considerations

• Withholding Tax: If the seller is a corporation or habitual seller, a Creditable Withholding Tax (CWT) of 1.5–6% may apply instead of CGT, withheld by the buyer.
• Value-Added Tax (VAT): Applies if the seller is VAT-registered and the property is ordinary (12% on gross selling price).
• Donor's Tax: For gratuitous transfers, but not sales.
• Penalties for Non-Compliance: BIR audits may impose deficiency taxes, surcharges up to 50% for fraud, and criminal liabilities under Section 255 of the NIRC.
• Special Cases:
  • Extrajudicial Settlement: Similar taxes apply.
  • Corporate Sellers: May opt for 15% CGT under CREATE Act for certain disposals.
  • Foreign Sellers: Subject to CGT; may require tax treaty relief.
• Administrative Relief: Taxpayers can seek rulings from BIR for clarifications or avail of the Voluntary Assessment and Payment Program (VAPP) for deficiencies.

Conclusion

Navigating taxes and fees post-notarization of a real property sale demands meticulous compliance to avoid legal pitfalls. Sellers and buyers should consult Revenue Memorandum Orders (e.g., RMO No. 15-2003 on CAR issuance) and engage tax professionals or lawyers. Timely payment not only facilitates smooth title transfer but also mitigates escalating penalties. As tax laws evolve, staying informed through official BIR and LGU issuances is crucial for all parties involved in Philippine real estate transactions.