Who Pays Capital Gains Tax and Documentary Stamp Tax on Land Sales in the Philippines?

Executive summary

Capital Gains Tax (CGT) on the sale of real property classified as a capital asset is legally due from the seller/transferor.
Documentary Stamp Tax (DST) on the deed of sale or conveyance is legally imposed on the person(s) making, signing, issuing, accepting, or transferring the taxable document; in practice, it’s usually borne by the buyer—but parties may agree otherwise.
Both taxes are computed on the higher of the gross selling price (GSP) or the fair market value (FMV) (zonal value set by the BIR, or the assessor’s schedule of values—whichever of those is higher).
No CGT applies if the land/building is an ordinary asset (e.g., held by a real estate developer or used in business); instead, the seller is subject to regular income tax (and possibly VAT), and the buyer withholds CWT. DST still applies to the deed.

Legal basics (framework and definitions)

What is being taxed?

CGT (final tax, 6%) – Imposed on the seller’s gain presumed from the sale, exchange, or other disposition of real property located in the Philippines classified as a capital asset (individuals: NIRC §24(D); domestic corporations: NIRC §27(D)(5); foreign corporations: NIRC §28).
DST on deeds of sale – Imposed on the instrument (the deed of sale or conveyance) under the DST provisions of the NIRC (e.g., §173 [incidence], §196 [deeds of sale and conveyances of real property]).

Capital asset vs. ordinary asset

Capital asset: Any property not (a) stock-in-trade, (b) property held primarily for sale to customers, (c) property used in business and subject to depreciation, or (d) real property used in trade or business.
Ordinary asset: Real property used in business or held primarily for sale (common for developers, lessors, or property used in the taxpayer’s trade/profession).

Consequences:

Capital asset → CGT (6%) final tax on seller; DST on deed.
Ordinary asset → No CGT; seller subject to regular income tax (and possibly VAT). Buyer generally withholds Creditable Withholding Tax (CWT). DST still applies.

Who pays Capital Gains Tax (CGT)?

Default rule

Seller/transferor pays CGT when the land/building sold is a capital asset. This applies to:
- Individuals (resident or nonresident)
- Domestic corporations (sale of lands/buildings treated as capital assets)
- Resident and nonresident foreign corporations (on Philippine real property classified as capital asset)

Rate and tax base

Rate: 6% (final tax).
Base: Whichever is higher between:
1. Gross Selling Price (GSP) stated in the deed, or
2. Fair Market Value (FMV)—i.e., the higher of (a) BIR zonal value or (b) the assessor’s schedule of values.

Timing (high level)

CGT return (BIR Form 1706) is typically filed within 30 days from the date of sale/exchange/transfer.
For installment sales of capital assets, BIR rules allow payment aligned with collections (proportionate to installments), but an initial filing is still required soon after execution of the transfer instrument. (Always follow the latest BIR issuance and your RDO’s process requirements.)

Common exceptions/reliefs

Principal residence exemption (individuals): Sale of your principal residence can be exempt from CGT if:
- You reinvest the proceeds in a new principal residence within the prescribed period (historically 18 months from sale),
- You notify the BIR within the required time (historically within 30 days from sale), and
- You meet the “once every X years” rule (historically 10 years). Note: Even if CGT is exempt, DST on the deed still applies unless a specific exemption in the DST law applies.
Sale to the Government/GOCCs: For certain sales of capital assets to the Government or GOCCs, sellers (especially individuals) may elect to be taxed either under the 6% CGT or the regular income tax regime—whichever is more favorable (check current law/regulations and compute both ways).
No CGT when asset is ordinary: If the property is ordinary, CGT does not apply. Seller pays income tax under the normal rules (and possibly VAT); the buyer withholds CWT. DST still applies.

Who pays Documentary Stamp Tax (DST) on the deed?

Legal incidence

Under the DST provisions (notably NIRC §173), the DST is due from the person making, signing, issuing, accepting, or transferring the taxable document. For a deed of sale/conveyance of real property (NIRC §196), the tax is imposed on the instrument itself.

Market practice & contracting

In practice, buyers usually shoulder the DST because they need the eCAR (Electronic Certificate Authorizing Registration) and tax clearances to transfer title.
Parties may contract otherwise. The BIR will issue the eCAR once all applicable taxes (CGT or CWT, DST, etc.) are paid, regardless of which party ultimately bore the cost.

Rate and tax base

Rate: ₱15 for every ₱1,000 (or 1.5%) of the consideration or FMV, whichever is higher.
Base: Same higher-of rule as CGT (GSP vs. FMV, with FMV being the higher of BIR zonal value or assessor’s value).

Timing and filing (high level)

DST return for one-time transactions is typically filed using BIR Form 2000-OT on or before the 5th day after the close of the month when the taxable document was made/signed, subject to the latest BIR e-filing/e-payment rules.

If one party is exempt

If one party is legally exempt from DST (e.g., certain government entities or transactions expressly exempted by law), the other party becomes liable for the DST under the incidence rule.

Putting it together in a typical private sale

Default allocation seen in many contracts (not mandatory by law):

Seller: CGT (if capital asset) or regular income tax (if ordinary asset), plus any broker’s fees agreed to be on seller.
Buyer: DST, Transfer Tax (local), registration fees, notarial fees, and CWT withholding (if applicable because the asset is ordinary and the seller is subject to regular income tax).

BIR processing reality:

The buyer cannot transfer title without an eCAR. The eCAR is issued only after the BIR confirms payment of all applicable national taxes (CGT or CWT and DST). This is why buyers often take the lead on ensuring these taxes are settled (even if the contract says the seller shoulders CGT).

Worked example (illustrative)

Facts:

Gross Selling Price (GSP) = ₱5,000,000
BIR zonal value = ₱5,400,000
Assessor’s value = ₱4,800,000

Step 1: Determine FMV. FMV is the higher of zonal value (₱5,400,000) and assessor’s value (₱4,800,000) → ₱5,400,000.

Step 2: Determine tax base. Tax base is the higher of GSP (₱5,000,000) or FMV (₱5,400,000) → ₱5,400,000.

Step 3: Compute

CGT (seller, capital asset): 6% × ₱5,400,000 = ₱324,000
DST on deed (usually buyer): 1.5% × ₱5,400,000 = ₱81,000

(If the property were an ordinary asset, there would be no CGT; instead, the buyer would withhold CWT at the rate prescribed for real property sales, the seller would recognize ordinary income, and DST would still apply.)

Special situations and edge cases

Installment sales (capital asset):
- CGT is a final tax; BIR rules allow proportionate payment based on collections for installment deals, but an initial filing is still needed soon after execution.
- DST is tied to the instrument: if a Deed of Absolute Sale is executed up front, full DST is generally due based on the full consideration/FMV. If parties sign a Contract to Sell first and a deed later, DST typically arises upon execution of the conveyance instrument.
Expropriation/sales to Government/GOCCs:
- Seller may have a tax election (CGT vs. regular income tax) in certain cases—compute both and choose the lower burden in accordance with the NIRC and rules then in force. DST may still apply to the conveyance instrument unless a specific exemption applies.
Tax-free exchanges/corporate reorganizations:
- Where the transfer qualifies under tax-free exchange rules (NIRC §40(C)(2) and relevant regulations), CGT does not apply. DST treatment depends on the specific instrument and any statutory exemption—review the exact structure and latest issuances.
Ordinary assets of developers/lessors:
- No CGT; VAT may apply depending on thresholds/status; CWT is withheld by the buyer; DST still applies.
Principal residence rollover (individuals):
- When conditions are met, CGT is exempt; DST on the deed still generally applies.

Practical drafting: sample allocation clause (for guidance only)

Taxes and Fees. The Seller shall bear and pay any Capital Gains Tax (if applicable) and any taxes attributable to the Seller’s income; the Buyer shall bear and pay the Documentary Stamp Tax, local transfer tax, registration fees, notarial fees, and any withholding tax required on the transaction. The parties shall cooperate to secure the eCAR and effect transfer of title. If any tax is legally due from either party but paid by the other to complete registration, such payment shall be reimbursed upon demand.

(Tailor to the true facts—e.g., ordinary vs. capital asset—and the parties’ commercial agreement.)

Filing checklists (high level)

For CGT (capital assets):

BIR Form 1706 (Capital Gains Tax Return – Onerous Transfer of Real Property)
Deed of Sale/Conveyance and notarization details
TINs of both parties; IDs; SPA/board resolutions if needed
Certified true copy of title, latest tax declaration, zonal value printout or assessor certification
Proof of purchase price and payments (especially for installments)
Other documents your RDO may require

For DST (deed):

BIR Form 2000-OT (DST – One-Time Transactions)
Deed and valuation bases (GSP, zonal value, assessor’s value)
Proof of payment and filing within the applicable period

(Local transfer tax and registration are settled with the LGU/Register of Deeds after obtaining the eCAR.)

Key takeaways

CGT is a seller’s tax on sales of capital assets (6% on higher of GSP or FMV).
DST is a tax on the deed; either party can be made liable by law, but buyers typically shoulder it by contract.
If the property is an ordinary asset, CGT does not apply—expect regular income tax (and possibly VAT) on the seller, CWT on the buyer, and DST on the deed.
Title won’t transfer without eCAR, so all applicable national taxes must be paid regardless of private cost-sharing.

This article provides general information on Philippine tax rules relevant to land sales. For a specific transaction, verify the latest BIR issuances and coordinate with your RDO or a Philippine tax professional.