Executive overview (Philippine setting)

In the Philippines, the “capital gains tax” (CGT) on the sale of real property is, as a rule, a tax on the seller (transferor)—because the seller is the one who realizes (and is presumed by law to have realized) the gain from the transfer.

That said, many deals contractually shift the cash burden to the buyer (or split it), and in practice the buyer often pays (or advances) the CGT to secure the BIR clearance needed to transfer title. But even if the buyer pays, the BIR generally treats the seller as the taxpayer unless a special rule applies.

This article explains the legal liability, the practical arrangements, and the key exceptions—plus how to determine whether CGT applies at all (it does not apply to every property sale).

1) The legal foundation: when “CGT” applies to real property

A. CGT is not automatically due on every real property sale

A Philippine real property transfer is taxed in different ways depending on whether the property is a:

Capital asset (for the seller), or
Ordinary asset (for the seller)

This classification is everything: it determines whether the seller pays 6% CGT or instead pays regular income tax (and the buyer may be required to withhold creditable withholding tax).

B. Capital asset vs ordinary asset (for real property)

Under the National Internal Revenue Code (NIRC), a capital asset is generally any property not used in business and not held primarily for sale to customers in the ordinary course of trade/business.

Real property is typically an ordinary asset if the seller is, for example:

A real estate dealer, developer, or lessor (as defined by BIR rules), or
A business that uses the property in business (e.g., a building used in operations), depending on facts and BIR regulations.

Real property is typically a capital asset if the seller is:

An individual selling a home/lot not used in business, or
A corporation disposing of land/building not used in business and not held for sale (subject to applicable BIR rules).

Bottom line: “Capital gains tax” on real property is mainly the regime for sales of capital assets.

2) The standard CGT regime: 6% of a presumed base

A. Rate and base

For a sale (or other disposition treated as a sale) of real property located in the Philippines that is a capital asset, the tax is generally:

6% CGT of the higher of:
1. Gross Selling Price (GSP) (or total consideration), or
2. Fair Market Value (FMV)

FMV for this purpose is typically the higher of:

The BIR Zonal Value, or
The Assessor’s (local) fair market value (as shown in the Tax Declaration / Schedule of Market Values)

Even if the deed states a low price, the tax base is “floored” by FMV.

B. What counts as “gross selling price”

GSP generally includes the full economic consideration, such as:

Cash and non-cash consideration
Assumption of mortgage or liabilities (as applicable)
Other forms of consideration stated or effectively paid

3) So who pays the CGT—seller or buyer?

A. Legal taxpayer (default rule): the seller

In a typical private sale of capital-asset real property:

The seller/transferor is the person liable for the CGT.

This is the clean legal answer: the seller is the one taxed on the disposition.

B. Practical payer (common in transactions): often the buyer, by agreement

Although the seller is the statutory taxpayer, parties often agree that:

The buyer shoulders the CGT, or
The buyer advances the CGT and deducts it from the price, or
The CGT is split in some negotiated way

This happens because the buyer needs BIR clearance (via the eCAR process) and wants certainty that taxes are paid to enable:

Issuance of the BIR certificate authorizing registration, and
Transfer of title at the Registry of Deeds

Important: A private agreement on who shoulders the tax does not change who the law treats as the taxpayer. It mainly affects who bears the economic burden between the parties.

C. If the buyer pays, does that make the buyer liable to the BIR?

Usually:

No, it does not automatically make the buyer the taxpayer for CGT.
The buyer is paying for or on behalf of the seller (or paying per contractual allocation).

However, the buyer may still be exposed to transaction risk:

If CGT is unpaid, the BIR clearance may not be issued, and title transfer can be blocked.

4) When CGT is not the tax: ordinary assets and the withholding tax system

A frequent source of confusion is calling everything “capital gains tax.” If the property is an ordinary asset for the seller, the tax treatment shifts:

A. Seller’s income tax is under regular rules

Instead of 6% CGT, the seller is taxed under:

Regular income tax (individual graduated rates or corporate income tax), generally on net taxable income/gain per accounting and tax rules.

B. Buyer often becomes a withholding agent (CWT)

For sales of ordinary assets, the buyer is commonly required to withhold creditable withholding tax (CWT) at prescribed rates (depending on seller classification and nature of transaction), and remit it to the BIR. The withheld tax is a credit against the seller’s final income tax.

So if you hear “the buyer must withhold,” that is usually about ordinary-asset sales, not the 6% CGT regime.

5) Key exceptions and special cases that affect “who pays” or how CGT is handled

A. Sale of principal residence by an individual (possible CGT exemption)

A natural person selling a principal residence may qualify for CGT exemption if requirements are met (commonly summarized as):

The proceeds are fully used to acquire/build a new principal residence within the prescribed period (commonly 18 months),
Proper notification to the BIR is made within the required period,
The exemption is subject to conditions (including frequency limits commonly referenced as once every 10 years under BIR practice),
Any unutilized portion of proceeds may be subject to CGT,
BIR may require an escrow arrangement for the 6% CGT pending proof of compliance.

Who pays? If the exemption applies, CGT may be zero (or reduced). But compliance is strict—failure to satisfy requirements can retroactively trigger CGT liability.

B. Sale to the Philippine government or its instrumentalities (option rules may apply)

For sales of real property to the National Government, its political subdivisions, or certain government-owned or controlled corporations, the seller may be granted an option between:

The 6% CGT regime, or
Regular income tax (under normal rates)

This affects not only the ultimate tax but also paperwork and sometimes withholding mechanics.

C. Transfers not treated as “sales” for CGT

Not all transfers are CGT events:

Inheritance is generally under estate tax, not CGT.
Donations are generally under donor’s tax, not CGT (though improperly documented “sales” that are really donations can trigger disputes, reclassification, and penalties).
Certain reorganizations/exchanges may have different rules (highly fact-specific).

D. Foreclosure and similar transfers

Foreclosures and subsequent consolidation of title can raise timing and characterization issues for tax compliance, including when CGT/DST becomes due and when the eCAR can be issued. These are technical and often require transaction-specific advice.

6) Timing and compliance: how CGT gets paid in the real world

A. Returns and deadlines (typical private sale workflow)

For capital-asset real property sales, the CGT and documentary stamp tax (DST) are typically filed/paid using BIR forms and within prescribed deadlines (commonly within 30 days from the date of sale/transaction, subject to current BIR rules and any updates).

B. eCAR: the practical gatekeeper

In many transactions, the critical practical step is obtaining the BIR electronic Certificate Authorizing Registration (eCAR). Without it, the Registry of Deeds normally will not transfer title.

Because buyers want the title transferred, buyers often:

Require CGT payment before releasing full payment, or
Pay/advance the tax and treat it as a deduction/charge to the seller, or
Hold part of the price in escrow until eCAR issuance

C. Common documents for BIR processing

While exact requirements vary by RDO and transaction, packages often include:

Notarized Deed of Absolute Sale / deed of conveyance
TCT/CCT, Tax Declaration
BIR zonal value/FMV references
IDs, TINs, authorizations, SPA if applicable
Proof of payment of CGT and DST
Other supporting documents depending on exemptions (e.g., principal residence reinvestment)

7) Contracting for “who shoulders” CGT: what’s enforceable?

A. Allocation clauses are generally enforceable between the parties

A deed or contract can validly provide that:

“Buyer shall shoulder CGT,” or
“Seller shall pay all taxes,” or
Taxes are allocated in a negotiated way

This is typically enforceable as a private obligation.

B. But allocation does not bind the BIR as to who the taxpayer is

Even if the buyer shoulders the tax, the BIR’s position usually remains:

CGT is imposed on the seller/transferor in a capital-asset sale.

So the clause is mainly about reimbursement and risk allocation.

C. Watch the income tax implications of “buyer shoulders seller’s tax”

If the buyer pays a tax that is legally the seller’s liability, that payment can be treated as part of the seller’s economic benefit/consideration in some contexts. This can affect how parties compute the “true” consideration and should be handled carefully in documentation and computation.

8) Illustrative computations (6% CGT)

Example 1: Deed price lower than FMV

Deed price (GSP): ₱3,000,000
Zonal value: ₱3,800,000
Assessor’s FMV: ₱3,600,000

Tax base = higher of GSP or FMV FMV = higher of zonal or assessor’s = ₱3,800,000 Base = higher of ₱3,000,000 vs ₱3,800,000 = ₱3,800,000

CGT = 6% × ₱3,800,000 = ₱228,000

Example 2: Deed price higher than FMV

GSP: ₱5,000,000
FMV (higher of zonal/assessor): ₱4,200,000

Base = ₱5,000,000 CGT = 6% × ₱5,000,000 = ₱300,000

9) “Who pays what” in a Philippine property sale: CGT and the usual companions

Even when the question is CGT, parties usually allocate these too:

CGT (6%) – usually seller’s tax (capital-asset sale), though often shouldered by buyer by agreement
DST – often negotiated; commonly buyer-shouldered in practice, but not universal
Local transfer tax – often buyer-shouldered (varies by locality and agreement)
Registration fees (Registry of Deeds) – commonly buyer
Notarial fees – varies
Agent/broker commissions – depends on engagement

A clean contract spells these out explicitly.

10) Practical guidance: how to avoid disputes and failed transfers

A. Decide early whether the property is capital or ordinary (seller’s side)

This single determination affects:

Whether CGT applies, or regular income tax applies
Whether the buyer must withhold CWT
The documents and BIR steps needed

B. Match the deed, tax base, and payment mechanics

Common best practices:

State the consideration clearly
Clarify who shoulders CGT/DST/transfer taxes
Use escrow/holdback if needed for tax clearance
Align the tax base expectation with zonal/assessor values to avoid “surprise” computations

C. If claiming principal residence exemption, treat compliance as a project

Because a missed deadline or incomplete documentation can restore CGT liability (with penalties), the seller should prepare:

Proof of principal residence status
Proof of reinvestment and timeline tracking
Required BIR notices and documents

11) Frequently asked questions

Q1: If the deed says the buyer pays CGT, can the BIR collect from the buyer?

For a standard capital-asset sale, the buyer’s payment is typically treated as payment on behalf of the seller. The BIR’s focus remains that CGT is imposed on the seller/transferor. The buyer’s main leverage is contractual reimbursement/price adjustment and controlling release of funds pending tax clearance.

Q2: Can the parties split CGT?

Yes, economically and contractually. But legally it remains a tax arising from the seller’s disposition (unless a special regime applies).

Q3: Is CGT computed on profit (selling price minus cost)?

Not in the 6% CGT regime for capital-asset real property. It is computed on the higher of GSP or FMV, regardless of the seller’s actual profit.

Q4: If the seller is a developer or VAT-registered business, is it still CGT?

Often not. If the property is an ordinary asset, the seller is generally under regular income tax rules and the transaction may also implicate VAT or other business taxes, plus withholding tax requirements for the buyer.

12) Sample clause (simple and commonly used format)

Taxes and Expenses. Capital gains tax, if applicable, shall be for the account of the [SELLER/BUYER]. Documentary stamp tax shall be for the account of the [SELLER/BUYER]. Transfer tax, registration fees, and other expenses required for the issuance of a new title in the name of the Buyer shall be for the account of the [BUYER/SELLER]. The parties agree to cooperate in securing the BIR eCAR and the transfer of title.

(Real clauses should be tailored to whether the transaction is capital vs ordinary asset and to any exemption claims.)

Closing note (legal accuracy and updates)

Philippine tax treatment of real property sales is heavily dependent on asset classification, seller type, and transaction structure, and BIR implementation details can vary by RDO and updated issuances. For high-value transfers or exemption claims (especially principal residence exemption, foreclosures, corporate disposals, or government acquisitions), transaction-specific review is strongly advisable.