1) The short legal answer (and the practical reality)

Legally, the Capital Gains Tax (CGT) on the sale of Philippine real property is imposed on the seller (the transferor). The law treats CGT on real property as a final income tax on a presumed gain realized by the seller when a covered property is sold, exchanged, or otherwise disposed of.

Practically, however, the parties may agree that the buyer will shoulder the CGT (either by paying it directly to the Bureau of Internal Revenue or by reimbursing the seller). That private agreement affects who bears the economic cost, but it does not change who the law treats as the taxpayer for CGT purposes: the seller remains the person whose transaction is being taxed, and the BIR will typically process the one-time transaction as a seller’s tax.

Because the transfer of title cannot be registered without BIR clearance (through the BIR’s Certificate Authorizing Registration / eCAR system for one-time transactions), it is common for buyers—especially when they are eager to complete registration—to pay the CGT as part of closing logistics. This is convenience, not a shift in legal incidence.

2) What “Capital Gains Tax” means for Philippine real estate

In Philippine real estate transactions, “Capital Gains Tax” generally refers to the 6% final tax imposed on the sale, exchange, or disposition of real property located in the Philippines that is classified as a capital asset.

Key features:

It is a final tax (not a creditable withholding tax and not the regular income tax rate schedule).
It is based on a presumed gain, not the seller’s actual profit.
It is computed on the higher of:
- the gross selling price/consideration stated in the deed, or
- the property’s fair market value (as defined by tax rules, commonly tied to the BIR zonal value and/or the local assessor’s valuation).

This is why CGT can be due even if the seller sells at a loss (e.g., distress sale), because the law presumes a gain and taxes based on prescribed valuation bases.

3) When CGT applies (and when it does not)

A. CGT applies when ALL of these are true

Real property is located in the Philippines, and
The transaction is an onerous transfer (sale, exchange, dacion en pago, foreclosure leading to consolidation, etc.), and
The property is a capital asset in the hands of the seller.

B. CGT does not apply when the property is an ordinary asset

If the real property is an ordinary asset, the transaction is generally subject to regular income tax (and possibly VAT or percentage tax, depending on the seller and the transaction), not the 6% CGT.

This classification—capital asset vs ordinary asset—is the most important “gatekeeper” issue in Philippine real estate taxation.

4) Capital asset vs ordinary asset: how classification determines the tax

A. For individuals (general rule)

For an individual seller, capital assets are generally properties not used in trade or business. If the property is used in business (including properties used in a trade, profession, or enterprise), it is typically treated as an ordinary asset.

B. For corporations (general rule)

For a corporation, property is generally an ordinary asset if it is:

inventory or primarily held for sale to customers in the ordinary course of business, or
used in business (e.g., used in operations, leased as part of the business model in many cases, or otherwise treated as business property).

If land/buildings are not actually used in the business and are treated as capital assets, their sale is typically subject to the 6% CGT regime.

C. Real estate dealers, developers, and lessors (common special case)

A person or entity engaged in the real estate business (dealer/developer/lessor) commonly has real properties treated as ordinary assets, so sales are typically not under CGT but under income tax and VAT/withholding rules applicable to ordinary assets.

Why this matters for “who pays”: parties often assume “real property sale = 6% CGT,” but if the seller is a developer or otherwise selling an ordinary asset, the 6% CGT framework is the wrong tax framework altogether.

5) Who is the taxpayer for CGT (statutory incidence) vs who “shoulders” it (economic burden)

A. Statutory incidence: the seller is taxed

Under Philippine tax design for real-property CGT, the seller is the party whose disposition is taxed. The CGT is an income tax on the seller’s presumed gain from disposing of the property.

B. Economic burden: the parties can allocate by contract

In practice, contracts may state any of the following:

“CGT for seller’s account” (seller pays from proceeds).
“CGT for buyer’s account” (buyer pays as added cost).
“Net of tax” sale (a “net” amount to seller, with buyer shouldering CGT and sometimes other costs).
“All taxes for buyer’s account” (broad shifting clause—often negotiated).

Important legal and tax consequences of shifting:

Shifting does not change who is taxed under the CGT rules; it only changes who funds the payment.
If the buyer pays a liability that is legally the seller’s, that payment may be treated (for various tax and accounting purposes) as part of the consideration or as an assumed obligation, depending on how the transaction is structured and documented.
Under-declaration to “save tax” is risky because CGT is commonly computed against a valuation floor (fair market value rules) and can trigger assessments, penalties, and registration delays.

6) How the 6% CGT is computed for real property

A. The rate

6% final tax.

B. The tax base (the common formula)

CGT = 6% × (higher of)

Gross selling price / consideration, OR
Fair market value (as determined under the relevant rules; commonly anchored on BIR zonal value and/or the assessor’s valuation, whichever is higher under the governing definition)

C. What counts as “gross selling price/consideration”

The consideration is not limited to cash. It generally includes the total value the seller receives or is treated as receiving, which may include:

cash paid,
property received in exchange,
liabilities assumed by the buyer as part of the deal (depending on how the deal is structured),
other forms of consideration stated or effectively agreed.

D. Example

Deed of sale price: ₱3,000,000
Fair market value per applicable valuation basis: ₱4,000,000 Tax base is higher value: ₱4,000,000 CGT: 6% × ₱4,000,000 = ₱240,000

Even if the seller originally bought the property for ₱4.5M and is selling “at a loss,” CGT may still be computed as above because it is a presumptive final tax.

7) When CGT becomes due, and why registration usually forces payment

For one-time real property transactions, CGT is typically required to be filed and paid within the prescribed period (commonly counted from the date the deed is notarized or the transaction is consummated under applicable rules). The BIR will generally not issue the eCAR/CAR unless the appropriate taxes for the transaction are paid and documentary requirements are submitted.

Why this matters: The Registry of Deeds usually requires the BIR eCAR/CAR before it will register the deed and issue a new title/transfer the condominium certificate. This creates a strong practical pressure point—someone must pay promptly, and buyers often handle the payment process to move registration forward.

8) Special situations that affect “who pays” or whether CGT applies

A. Sale of a principal residence by a natural person (possible exemption from CGT)

Philippine law provides a major relief mechanism where the sale of a principal residence by a natural person may be exempt from CGT, subject to strict conditions commonly including:

Full utilization of the proceeds to acquire/build a new principal residence within a prescribed period (commonly 18 months),
Frequency limitation (commonly once every 10 years),
Timely notice to the BIR and required documentation,
If only partially utilized, CGT may apply proportionately to the unutilized portion.

This exemption can dramatically change the “who pays” conversation—if properly availed, no CGT is due, though other taxes/fees (e.g., documentary stamp tax, local transfer tax, registration fees) may still apply depending on the transaction.

B. Foreclosure and consolidation

Foreclosure-related transfers often raise timing issues: CGT may attach upon the taxable “disposition” event as recognized under tax rules (commonly linked to the point the sale becomes final and ownership is consolidated, particularly when redemption rights lapse). These transactions are frequently processed as one-time transactions with BIR clearance requirements.

C. Dacion en pago (property given in payment of a debt)

Dacion en pago is generally treated as a form of disposition/exchange for tax purposes. If the property is a capital asset, CGT can apply.

D. Partition of property / settlement among co-owners

A pure partition that merely segregates shares and does not involve an exchange with consideration beyond equal shares may be treated differently from a sale. But if a co-owner receives more than their share and pays the others (an “owelty” scenario), that part can resemble a sale/exchange and may trigger tax consequences. These are fact-sensitive.

E. Donations and inheritance are different taxes

Donation of real property is generally subject to donor’s tax (not CGT).
Transfer by succession is handled under estate tax rules (not CGT).
A later sale by heirs of inherited property may trigger CGT (if the property is a capital asset in their hands and the transaction is a covered onerous transfer).

F. Tax-free exchanges and certain corporate reorganizations

Certain exchanges (e.g., property contribution to a corporation in exchange for shares under qualifying “control” conditions) may be treated as non-recognition transactions for income tax purposes. These can remove CGT from the equation, although other taxes like DST may still apply depending on the structure.

9) Related taxes and charges in Philippine real estate transfers (and who usually pays)

CGT rarely stands alone. A typical transfer involves several tax and fee layers. Contract practice varies, but the table below reflects common allocations while distinguishing them from legal liability concepts.

Item	What it is	Usually paid by (market practice)	Notes
Capital Gains Tax (6%)	Final tax on sale of capital asset real property	Seller (often shifted to buyer by agreement)	Legal incidence is on the seller’s disposition; payment is typically required for eCAR/CAR
Documentary Stamp Tax (DST)	Tax on the deed/instrument of transfer	Often buyer, sometimes shared/negotiated	Typically required for BIR clearance processing
Local Transfer Tax	LGU tax for transfer of ownership	Usually buyer	Rate and rules depend on LGU (province/city/municipality/Metro Manila)
Registration fees	Registry of Deeds fees, title issuance, etc.	Usually buyer	Includes RD fees, entry fees, issuance costs
Notarial fees	Notarization of deed and related documents	Negotiated; often seller for deed, buyer for other filings	Practice varies by region and value
Real property tax (amilyar) arrears	Local property tax arrears	Typically seller must settle	Buyers usually require tax clearance/no arrears as closing condition
Income tax / VAT (if ordinary asset)	Applies if sale is not subject to CGT	Seller (with buyer withholding obligations in some cases)	This is the alternative regime when property is ordinary asset

Critical reminder: If the property is an ordinary asset, the “who pays CGT” question is replaced by who pays income tax/VAT and who must withhold under the applicable rules.

10) Drafting and due diligence points that prevent disputes about “who pays”

State the tax allocation clearly (CGT, DST, transfer tax, registration fees, notarial fees, clearance costs).
Define whether the price is “inclusive” or “exclusive” of CGT to avoid later claims that the seller expected a net amount.
Align the declared consideration with valuation realities (CGT uses a valuation floor; misalignment can cause delays and assessments).
Confirm asset classification early (capital vs ordinary) because it changes the entire tax framework.
Build the eCAR/CAR timeline into the closing mechanics (who files, who pays, who submits documents, who picks up releases).

11) Bottom line

The CGT on the sale of real property classified as a capital asset is, by law, a tax on the seller’s disposition.
The buyer may agree to shoulder or even directly pay it, but that is a contractual/economic arrangement and does not change the legal character of the tax.
The first question should always be: Is the property a capital asset (CGT regime) or an ordinary asset (income tax/VAT/withholding regime)?