This article surveys the principal national and local taxes, documentary charges, and compliance checkpoints that a buyer should understand when acquiring commercial real property in the Philippines. It reflects general rules under the National Internal Revenue Code (NIRC), the Local Government Code (LGC), and standard practice. Always confirm the specifics of your transaction with counsel and your tax adviser.

I. Key Concepts That Drive Tax Outcomes

1) Asset classification (capital vs. ordinary).

Capital asset: generally property not used in business by the seller and not held primarily for sale or for lease in the ordinary course (e.g., an individual selling a personal parcel).
Ordinary asset: property used in business or held for sale/lease by a real estate dealer, developer, or a VAT-registered enterprise.

2) Tax base “whichever is higher” rule. For most transfer taxes (CGT/CWT, VAT, Documentary Stamp Tax, and local Transfer Tax), the base is the higher of:

the stated gross selling price (GSP) in the deed;
the Bureau of Internal Revenue (BIR) zonal value (if any); or
the fair market value (FMV) per the local assessor.

3) Commercial vs. residential. This article focuses on commercial assets. VAT exemptions and thresholds intended for low-cost residential housing generally do not apply.

II. National Taxes on a Sale

A. Income tax on the seller (affects pricing and closing mechanics)

Route 1: Capital Gains Tax (CGT)

Who: Typically applies when the seller is an individual (or non-real-estate corporation) selling real property classified as a capital asset.
Rate: 6% of the tax base (see “whichever is higher” rule).
Compliance: Paid by the seller using BIR Form 1706. Statutory filing is generally within 30 days from the date of sale (or deed execution).
Buyer’s concern: Buyers usually require proof of CGT payment because the BIR Certificate Authorizing Registration (CAR) will not be released without it.

Route 2: Creditable Withholding Tax (CWT) on sale of ordinary assets

Who: Applies where the property is an ordinary asset of the seller (e.g., a developer, real estate dealer, or a company using the property in business).
Mechanics: The buyer withholds a percentage of the tax base and remits it to the BIR as expanded withholding tax (EWT/CWT).
Typical rates (set by regulation and tiered by price brackets): commonly 1.5% / 3% / 5% of the tax base.
Effect: This is a creditable prepayment against the seller’s income tax; the seller recognizes regular income (not a final CGT).
Buyer’s compliance: File the relevant withholding return and remit within the prescribed deadline for the month/quarter of payment; issue the BIR Form 2307 to the seller.

Practical tip: A property can be a capital asset for one seller but an ordinary asset for another. Always verify the seller’s books and tax status; this drives whether the deal is CGT-based (final tax) or CWT-withheld (creditable).

B. Value-Added Tax (VAT) on the sale

Who: A VAT-registered seller (or one required to register due to exceeding the VAT threshold) selling real property held as an ordinary asset will generally charge 12% VAT on the tax base.
Not typically VATable: Sales of capital assets by non-VAT sellers and sales by persons not in the real estate business are generally outside VAT.
Commercial focus: VAT exemptions tailored to lower-priced residential projects do not apply to commercial property.
Incidence: While VAT is economically borne by the buyer (added to the price), it is reported and paid by the seller via VAT returns.
Input tax: A VAT-registered buyer may claim input VAT (subject to the usual substantiation and timing rules).

C. Documentary Stamp Tax (DST)

Instrument: Deed of absolute sale (or similar conveyance).
Rate: Effectively 1.5% of the tax base (implemented as ₱15 for the first ₱1,000 plus ₱15 for every additional ₱1,000 or fraction thereof).
Who typically pays: Negotiable, but in practice often borne by the buyer (or shared).
Compliance: Filed and paid via eDST; one-time transactions are generally reported on or before the 5th day after the close of the month when the document was executed.

III. Local Taxes and Fees

A. Local Transfer Tax (LTT)

Base: Same “whichever is higher” rule.
Rates (subject to local ordinances, not exceeding national caps):
- Provinces: up to 0.5%
- Cities and municipalities within Metro Manila: up to 0.75%
Who pays: Typically the buyer.
When: Payable before registration, at the city/municipal treasurer where the property is located.

B. Registration Fees (Registry of Deeds / LRA)

What: Fees to enter the deed and issue a new Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT).
How computed: Graduated schedule under LRA rules (marginal percent of value). In large transactions, the all-in registration/entry fees are often in the low-basis-point range of value; ask the Registry for an official computation.
Who pays: Typically the buyer.

C. Real Property Tax (RPT) and SEF

Annual local tax based on the assessed value (not the selling price).
Base rates: set by LGU ordinance within LGC caps; plus an additional 1% of assessed value for the Special Education Fund (SEF).
Arrears: A buyer should obtain a Tax Clearance; delinquent RPT accrues interest at 2% per month on the unpaid amount, capped at 36 months.
Allocation in SPA/contract: Parties usually prorate RPT as of date of transfer/possession.

D. Other LGU levies

Idle land tax (surcharge on assessed value) may apply where declared by ordinance.
Special assessments for public improvements may exist in certain districts.

IV. Ancillary & Transactional Costs

Notarial fees: Often a percentage of value or a negotiated fixed fee; large deals typically involve bespoke fee arrangements.
Legal/advisory fees: For due diligence, structuring, and documentation.
Brokerage/agency fees: Commonly paid by the seller by market practice, but negotiable.
Survey and technical fees: For subdivision plans, relocation surveys, or consolidations; paid to licensed geodetic engineers.
Condominium-related charges: If buying commercial condo units, there may be association dues, parking unit transfers, and management clearance fees.
Certification fees: Barangay, Treasurer’s, Assessor’s, and Registry certifications; Owner’s Duplicate Title reissuance fees if needed.

V. Regulatory Process & Closing Checklist

1) Pre-contract diligence

Title verification: Obtain a current Certified True Copy of the title (TCT/CCT), check encumbrances, adverse claims, and annotations.
Tax status: Secure RPT and SEF tax clearances, check for special assessments.
Land use and zoning: Confirm commercial zoning, locational clearances, and any easements (e.g., road right-of-way, waterways).
Environmental/permits: For certain properties, check ECC (Environmental Compliance Certificate) or CNC, and fire/building compliance for existing improvements.
Corporate authority (if seller is a company): Board/Shareholder approvals, secretary’s certificates, specimen signatories.

2) Contracting and tax allocation

Identify asset classification (capital vs. ordinary) to determine CGT vs. CWT and VAT.
Allocate responsibilities for CGT/CWT, VAT, DST, LTT, registration, and RPT proration in the deed or contract to sell.
Invoice and receipts: If VATable, ensure the seller issues a VAT invoice with correct details for input tax claims.

3) BIR one-time transaction (OTT) and CAR issuance

File and pay: CGT (if applicable), CWT (if applicable), VAT (if VATable), and DST.
Submit: Deed, IDs, TINs of both parties, proof of tax payments, Tax Declaration, Vicinity Map (if required), Certificate of No Improvement (or proof of improvements), and other BIR checklist items.
Outcome: CAR issued by BIR, which is required for registration.

4) LGU transfer and Registry of Deeds

LTT payment at the City/Municipal Treasurer.
Registry: Present CAR, Official Receipts, Deed, Tax Declarations, and clearances.
New title issuance to buyer; Tax Declaration transferred at the Assessor’s Office.

VI. Worked Illustrations (for intuition)

Scenario A — Capital asset sale (no VAT) Facts: Deed price ₱100,000,000; BIR zonal value ₱110,000,000; Assessor FMV ₱90,000,000. Tax base: ₱110,000,000 (highest). CGT (seller): 6% × ₱110,000,000 = ₱6,600,000. DST (negotiable, often buyer): ~1.5% × ₱110,000,000 = ₱1,650,000. Local Transfer Tax (city/MM): up to 0.75% × ₱110,000,000 = up to ₱825,000. Registry/LRA fees: per schedule (obtain an official quote). VAT: Not applicable (capital asset; non-VAT seller).

Scenario B — Ordinary asset sale by VAT-registered seller Facts: Same base ₱110,000,000. CWT (buyer-withheld; creditable to seller): e.g., 3% × ₱110,000,000 = ₱3,300,000 (rate depends on bracket). VAT (seller bills; buyer bears): 12% × ₱110,000,000 = ₱13,200,000 (buyer may claim input VAT if VAT-registered). DST and LTT: computed on ₱110,000,000 as above. Registry/LRA fees: per schedule.

VII. Special Structuring Considerations

Asset sale vs. share sale: Buying the shares of the property-holding corporation avoids realty transfer taxes and retitling but triggers share-deal taxes (e.g., documentary stamp tax on shares; capital gains/regular income tax at the shareholder level; potential stock transaction tax if listed). The company retains all liabilities and RPT obligations—due diligence is critical.
Long-term lease (if foreign): Foreign nationals/corporations cannot own land, but may acquire condo units within the 40% foreign ownership cap, or enter into long-term land leases (up to certain maximum terms under special laws). Taxes differ (e.g., VAT on rent, DST on lease instruments, and withholding on rentals).
Build-to-suit / sale-and-leaseback: May change VAT timing, withholding obligations, and book/tax recognition; model the cash taxes across milestones.
Improvements vs. land: VAT and income tax treatment can differ between land and improvements; ensure values are properly allocated in the contract and tax returns.
Installment sales: Affect withholding timing and VAT recognition; the tax base for one-time taxes (DST/LTT) still references the higher of GSP/zonal/FMV.

VIII. Who Typically Pays What (Market Practice, Unless Negotiated Otherwise)

Item	Typical Payer	Notes
CGT (if applicable)	Seller	Final tax; buyer ensures it’s paid to obtain CAR.
CWT (if ordinary asset)	Buyer (withholding agent)	Withhold & remit; issues 2307 to seller.
VAT (if applicable)	Economically the Buyer; reported by Seller	Seller issues VAT invoice/OR; buyer may claim input VAT if eligible.
DST	Often Buyer (or shared)	One-time; eDST.
Local Transfer Tax	Buyer	Pay before registration.
Registry/LRA Fees	Buyer	Payable upon registration.
RPT up to transfer date	Seller (often prorated)	Ensure tax clearance; arrears follow the land.
Notarial/Legal/Brokerage	Negotiated	Clarify in the deed/side letter.

IX. Timing & Penalties (High-Level)

CGT: Generally due within 30 days from execution; penalties and interest apply if late.
DST: For one-time transactions, on or before the 5th day after the close of the month of execution; surcharges/interest apply if late.
CWT: Buyer must withhold upon payment and remit within the statutory period for the month/quarter; penalties for late withholding/remittance are significant.
VAT: Report in the correct VAT period; late filing incurs surcharge, interest, and compromise penalties.
RPT: Annual due dates per LGU (often payable quarterly or with early-payment discounts); 2%/month interest on delinquencies, capped at 36 months.

X. Documentation Must-Haves (Typical BIR OTT/CAR Set)

Executed Deed of Absolute Sale (or Deed of Assignment), notarized.
Valid TINs of both parties; IDs and corporate documents (if applicable).
Proof of tax payments: CGT/CWT/VAT/DST e-filings and official receipts.
Latest Tax Declaration(s) of land and improvements; Certificate of No Improvement or proof of improvements.
Real Property Tax Clearance and Mayor’s/Treasurer’s certifications as required.
Vicinity map, lot plan, or sketch (where required).
Secretary’s certificate/board resolutions (for corporate sellers/buyers).
Any special permits or waivers relevant to the property.

XI. Common Pitfalls (and How to Avoid Them)

Mismatched asset classification → wrong tax route (CGT vs. CWT/VAT). Confirm seller’s status early.
Under-declared consideration vs. zonal/FMVs → unexpected top-up on all “higher of” taxes. Obtain zonal values and assessor FMVs up front.
Unpaid RPT/SEF → delays and liens. Secure tax clearances before paying the bulk of the price.
Missing VAT invoice when VAT was charged → lost input VAT. Lock invoice requirements into closing deliverables.
Title issues/annotations (e.g., adverse claims, lis pendens, mortgages) → registration blocked. Run a full title and lien check; include clean-title conditions precedent.
Late eDST/CWT filings → heavy penalties. Calendar statutory deadlines into the closing checklist.

XII. Executive Takeaway

When buying commercial real estate in the Philippines, expect these core cost pillars on top of price:

CGT (6%) or CWT (1.5%/3%/5%) depending on the seller’s asset classification,
VAT (12%) if the seller is VAT-registered and the property is an ordinary asset,
DST (~1.5%),
Local Transfer Tax (≤0.75%),
Registration/LRA fees, plus professional costs—all computed largely on the higher of GSP, zonal value, or assessor’s FMV.

Structure the tax allocation in the contract, manage filings to obtain the BIR CAR, and coordinate with the LGU and Registry to land the new title without surprises.