Taxes Paid by Sellers and Buyers in Land Title Transfers

Introduction

In the Philippines, the transfer of land titles involves a series of legal and administrative processes governed primarily by the Civil Code, the National Internal Revenue Code (NIRC), and various local government ordinances. A land title transfer typically occurs through a sale, donation, inheritance, or other modes of conveyance, culminating in the registration of the new title with the Registry of Deeds. Central to this process are the taxes and fees imposed on both sellers and buyers, which ensure compliance with fiscal policies and facilitate the orderly transfer of property rights. These taxes are designed to generate revenue for the government while discouraging speculative real estate practices.

The Bureau of Internal Revenue (BIR), local government units (LGUs), and the Registry of Deeds play key roles in administering these taxes. Sellers are generally responsible for capital-related taxes reflecting gains from the transaction, while buyers handle transfer and registration costs. Failure to pay these taxes can result in delays, penalties, or invalidation of the transfer. This article provides a comprehensive overview of all applicable taxes, drawing from relevant laws such as Republic Act No. 8424 (Tax Reform Act of 1997, as amended), Republic Act No. 7160 (Local Government Code), and BIR regulations.

Taxes and Responsibilities of the Seller

The seller, as the party disposing of the property, bears the primary burden of taxes related to the income or gain derived from the sale. These taxes are computed based on the higher of the selling price, fair market value (FMV), or zonal value as determined by the BIR or the Department of Finance.

1. Capital Gains Tax (CGT)
   Under Section 24(D) of the NIRC, as amended by Republic Act No. 10963 (TRAIN Law), a final tax of 6% is imposed on the capital gains presumed to have been realized from the sale, exchange, or other disposition of real property classified as a capital asset. This applies to land and buildings not used in trade or business.

   • Computation: The tax base is the higher of the gross selling price or the current FMV/zonal value. For example, if a property is sold for PHP 5,000,000 but the zonal value is PHP 6,000,000, the CGT is 6% of PHP 6,000,000 (PHP 360,000).
   • Exemptions: Sales of principal residences are exempt up to PHP 5,000,000 if the proceeds are used to acquire or construct a new principal residence within 18 months (BIR Revenue Regulations No. 13-99). Also exempt are sales to the government or in expropriation cases. Properties classified as ordinary assets (e.g., held for business) are subject to regular income tax instead.
   • Payment and Filing: The seller must file BIR Form 1706 and pay within 30 days from the date of notarization of the Deed of Sale. The BIR issues a Certificate Authorizing Registration (CAR) upon payment, which is required for title transfer.

2. Documentary Stamp Tax (DST)
   Pursuant to Section 196 of the NIRC, DST is levied on documents, instruments, and papers evidencing the transfer of real property at a rate of 1.5% (PHP 15 for every PHP 1,000 or fraction thereof).

   • Computation: Based on the higher of the consideration or FMV/zonal value. For a PHP 10,000,000 property, DST would be PHP 150,000.
   • Exemptions: Transfers exempt from CGT (e.g., principal residence) may also be exempt from DST. Donations to qualified donees under Section 101 of the NIRC are exempt.
   • Payment: The seller typically pays this via BIR Form 2000, affixed to the Deed of Sale before notarization.

3. Creditable Withholding Tax (CWT)
   If the seller is engaged in real estate business or habitually sells properties, a CWT of 1.5% to 6% applies under Revenue Regulations No. 2-98, as amended. This is withheld by the buyer and remitted to the BIR using Form 2307. It is creditable against the seller's income tax liability.

   • Rates: 1.5% for non-individual sellers exempt from VAT; 3% for individuals; up to 6% for corporations.
   • Applicability: Not imposed on ordinary capital asset sales but on dealers or developers.

4. Donor's Tax (if applicable)
   For transfers via donation, Section 98 of the NIRC imposes a donor's tax of 6% on the net gift value exceeding PHP 250,000 annually. This is paid by the donor (seller equivalent) within 30 days via BIR Form 1800. Exemptions include donations to family members up to the third degree or to qualified institutions.

5. Other Seller Obligations

   • Estate Tax: In cases of inheritance, the estate pays 6% on the net estate value under Section 84 of the NIRC before transfer.
   • Value-Added Tax (VAT): If the seller is VAT-registered and the property is an ordinary asset, 12% VAT applies on the gross selling price. Threshold for VAT exemption is PHP 3,199,200 for residential lots (as per Revenue Regulations No. 16-2011).
   • Penalties: Late payment incurs 25% surcharge, 12% interest per annum, and possible compromise penalties under Section 255 of the NIRC.

Taxes and Responsibilities of the Buyer

The buyer, as the acquiring party, is responsible for taxes and fees associated with the registration and local transfer of the property. These ensure the new title is duly recorded and local revenues are collected.

1. Transfer Tax
   Under Section 135 of the Local Government Code (RA 7160), LGUs impose a transfer tax on the sale, donation, or other conveyance of real property at a rate not exceeding 50% of 1% (0.5%) of the total consideration or FMV, whichever is higher. In the City of Manila and other highly urbanized areas, it may reach 0.75%.

   • Computation: For a PHP 5,000,000 property in a province with 0.5% rate, the tax is PHP 25,000.
   • Payment: Paid to the Provincial, City, or Municipal Treasurer's Office within 60 days from notarization. A Tax Clearance Certificate is issued upon payment.
   • Exemptions: Transfers to government entities or by virtue of court orders.

2. Registration Fees
   Administered by the Registry of Deeds under Presidential Decree No. 1529 (Property Registration Decree), these fees cover the annotation and issuance of a new Transfer Certificate of Title (TCT).

   • Rates: Variable, typically PHP 5,000 to PHP 20,000 depending on property value, plus entry fees (PHP 30 per document) and annotation fees. For properties over PHP 100,000, it's 0.25% of the value.
   • Additional Charges: IT service fees, legal research fees (1% of registration fee), and assurance fund contributions (0.25% of assessed value).
   • Process: The buyer submits the Deed of Sale, CAR from BIR, Tax Clearance from LGU, and original TCT to the Registry of Deeds.

3. Buyer's Share in DST and Other Fees
   While DST is primarily the seller's responsibility, parties may agree to share it. Buyers may also pay for notarial fees (typically 1-2% of selling price) and real property tax clearances.

4. Other Buyer Obligations

   • Real Property Tax (RPT): Post-transfer, the buyer assumes ongoing RPT under Section 233 of the Local Government Code, at 1-2% of assessed value annually. Arrearages must be cleared before transfer.
   • Donee's Tax: For donations, the donee (buyer) pays 6% on the gift value if not exempt.
   • Business Tax: If the buyer intends commercial use, additional local business taxes may apply.

Shared Responsibilities and Procedural Aspects

In practice, the Deed of Absolute Sale often stipulates how taxes are allocated, though by default, sellers handle income-related taxes and buyers cover transfer costs. The entire process involves:

• Execution and notarization of the Deed of Sale.
• Payment of BIR taxes by seller to obtain CAR.
• Payment of LGU transfer tax by buyer.
• Submission to Registry of Deeds for title cancellation and new issuance (typically 1-3 months).

Exemptions and Special Cases:

• Government-to-government transfers are tax-exempt.
• Foreclosures or dacion en pago may have modified tax treatments under Revenue Regulations No. 4-99.
• Agricultural lands under Comprehensive Agrarian Reform Program (CARP) have exemptions via Republic Act No. 6657.
• Corporate reorganizations (e.g., mergers) may qualify for tax-free exchanges under Section 40(C)(2) of the NIRC.

Penalties and Compliance: Non-payment can lead to BIR assessments, LGU liens, or nullification of the transfer. Surcharges (25-50%), interest (12% p.a.), and fines apply. Tax evasion may result in criminal charges under Section 255-272 of the NIRC.

Conclusion

The taxation framework for land title transfers in the Philippines balances revenue generation with property rights protection. Sellers primarily face CGT and DST to tax gains, while buyers handle transfer taxes and registration to formalize ownership. Thorough compliance with BIR, LGU, and Registry requirements is essential to avoid legal pitfalls. Parties are advised to consult certified public accountants or lawyers for case-specific computations, especially amid evolving regulations like those from the CREATE Law (RA 11534), which adjusted corporate tax rates but maintained real property tax structures. Understanding these taxes ensures smooth, lawful transactions in the dynamic Philippine real estate landscape.