Executive takeaway

In Philippine tax law, capital gains tax (CGT) on the sale (or other disposition) of real property treated as a capital asset is a tax legally imposed on the seller/transferor (the person who disposed of the property). In practice, however, the buyer and seller may contractually agree on who will shoulder the amount, and it is common for parties to negotiate this allocation in the deed of sale. But even if the buyer “shoulders” it, the tax is still filed and paid as the seller’s tax to the Bureau of Internal Revenue (BIR), because the seller remains the party legally liable for CGT.

That basic rule becomes more nuanced once you ask the next questions:

Is the property a capital asset or an ordinary asset?
Is the seller an individual, a corporation, a nonresident, an estate, a developer, or a real estate dealer?
Is the transaction a sale, exchange, foreclosure, expropriation, installment, donation, or tax-free exchange?
Is there an applicable exemption (e.g., sale of principal residence under conditions)?

This article walks through the full landscape.

1) What “Capital Gains Tax” means in Philippine real property sales

A. CGT is not based on actual “gain” in most real property cases

For most covered transactions, Philippine CGT on real property is a final tax computed as 6% of the tax base, which is generally the higher of:

the gross selling price (or consideration), and
the property’s fair market value (FMV) as determined by the BIR (often through zonal values) and/or the local assessor’s FMV (rules vary by implementation, but the practical effect is: you don’t get to pick the lowest value).

Because the base is tied to value and not to your actual acquisition cost, CGT often feels like a “transfer tax” even though it’s labeled an income tax.

B. CGT applies only when the property is a capital asset

CGT applies when the real property is a capital asset (in simplified terms: not used in business and not held primarily for sale in the ordinary course of business). If the property is an ordinary asset, the seller is generally taxed under regular income tax rules, and the transaction may involve creditable withholding tax and possibly VAT (depending on the seller and circumstances).

So the question “Who pays CGT—buyer or seller?” is really:

Is it even CGT? and
If yes, legal liability is on the seller, regardless of who shoulders it economically.

2) The core rule: legal liability vs. economic burden

A. Legal incidence: the seller/transferor pays

Under the National Internal Revenue Code (NIRC) framework, CGT is imposed on the taxpayer who disposed of the capital asset—i.e., the seller/transferor. The BIR looks to the seller’s tax identity (name/TIN) for the filing and payment of CGT.

B. Economic burden: parties can agree who shoulders

In real-world conveyancing, parties often negotiate:

“Buyer shoulders CGT,” or
“Seller shoulders CGT,” or
“Split tax arrangements,” or
“Net-of-tax price” (seller receives a net amount after buyer pays certain taxes).

These are valid private allocations between buyer and seller. But they do not change the legal point that CGT remains the seller’s tax as far as the government is concerned.

C. Practical effect: the buyer may pay, but it’s paid for the seller

Even if the buyer physically pays at the bank/online, the CGT return is typically prepared under the seller’s details, because:

the Certificate Authorizing Registration (CAR) (or its electronic equivalent, depending on BIR system implementation) is issued in relation to the seller’s compliance, and
the Registry of Deeds won’t transfer title without proof that the BIR cleared the transaction.

So:

Seller is responsible to the BIR (legal liability), and
Buyer may shoulder/advance the cash (economic arrangement).

3) When CGT applies: covered transactions and taxpayers

A. Transactions commonly treated as CGT-triggering dispositions

CGT may apply to a sale, exchange, or other disposition of real property located in the Philippines that is a capital asset, including many functionally similar transfers such as:

absolute sale
dacion en pago (property given in payment of debt)
exchange
foreclosure and other transfers that legally constitute a disposition (the timing and characterization can be technical)
transfers where consideration is not purely cash (still a disposition)

B. Who can be subject to CGT

CGT rules can apply to:

Individuals (citizens and resident aliens; and often nonresident aliens depending on status and sourcing rules)
Domestic corporations
Resident foreign corporations (for Philippine-situs property)
Estates and trusts (depending on how title is held and how the transaction is structured)

The specifics can vary, but the consistent theme is: the transferor is the taxpayer.

4) Capital asset vs. ordinary asset: the classification that changes everything

A. Why this matters

If the real property is:

a capital asset → typically 6% CGT (final tax)
an ordinary asset → typically regular income tax (graduated rates/corporate rates), plus usually creditable withholding tax, and possibly VAT (especially for sellers engaged in real estate business)

B. Common indicators

For individuals (typical approach)

A property is generally a capital asset if it is not:

used in trade/business or practice of profession, and
not held primarily for sale to customers (like inventory for a dealer)

Thus, most privately held residential lots/houses not used in business are capital assets.

For corporations and business sellers (often more complex)

A property tends to be an ordinary asset if it is:

inventory/stock in trade of a real estate dealer/developer
held primarily for sale to customers in the ordinary course of business
used in business (e.g., office building used by the company)
subject to depreciation and used in the business
otherwise treated as ordinary under tax regulations based on use and business activity

Developers and dealers typically sell ordinary assets, so the tax is often VAT/withholding/income tax, not CGT.

5) How CGT is computed (the usual formula)

A. Rate

For covered capital asset real property dispositions, the CGT rate is commonly 6%.

B. Tax base (the “higher of” rule)

The base is generally the higher between:

the gross selling price/consideration, and
the fair market value as determined under the rules (commonly via BIR zonal valuation and/or assessor’s value).

C. Important practical consequences

Understating the price in the deed often doesn’t reduce CGT, because BIR uses the higher value anyway.
If the deed says “₱1.00” or an unreasonably low amount, the BIR will still compute based on FMV, and the discrepancy may trigger other issues (including potential donor’s tax implications if treated as a bargain element, depending on facts).

6) Filing, payment, CAR, and why this drives who “pays” in practice

A. Why buyers care: title transfer is blocked without BIR clearance

To register the deed and transfer title at the Registry of Deeds, you typically need BIR clearance (CAR/eCAR). The BIR generally requires proof of payment of:

CGT (if applicable), and
Documentary Stamp Tax (DST) on the conveyance

Because the buyer’s priority is to obtain clean title, buyers often insist that taxes be settled promptly—sometimes by paying/advancing them directly.

B. Common deadlines (practical guide)

Deadlines can be technical and situation-dependent, but common compliance expectations include:

CGT return and payment: typically within 30 days from the date of sale/disposition (often keyed to notarization/date of deed).
DST on the deed: commonly due within a short period after the close of the month when the taxable document was made/signed/accepted (a familiar rule-of-thumb is the 5th day of the following month, though implementations and filing channels can affect how you comply).

If deadlines are missed, penalties apply.

C. Penalties

Late/non-payment can trigger:

surcharges (commonly 25% and in more severe cases higher),
interest computed based on statutory rules (often described as tied to the legal interest rate framework; the applied rate can change over time), and
possible compromise penalties.

Because these add up quickly, parties often bake “who will process and pay” into the deed.

7) Who usually shoulders which taxes and costs (market practice vs. law)

A. Typical allocations in private transactions (not mandatory)

While always negotiable, common market practice often looks like:

Capital Gains Tax (CGT): often seller (but frequently negotiated; sometimes buyer shoulders to close the deal or when price is “net to seller”).
Documentary Stamp Tax (DST) on the deed: often buyer.
Transfer tax (local government): often buyer, though in some places it’s negotiated.
Registration fees (Registry of Deeds): typically buyer.
Notarial fees: varies; often buyer or shared.
Broker’s commission: depends on engagement; often seller, but can be structured otherwise.

Again: practice ≠ legal incidence. For CGT, the legal taxpayer is still the seller.

B. A practical rule for contracts

If you want to avoid disputes, the deed should state clearly:

Who is responsible for filing and processing (who will prepare returns, secure CAR/eCAR, liaise with BIR), and
Who bears the economic cost (who ultimately pays out-of-pocket), and
What happens if penalties arise due to delay attributable to one party.

8) Special cases and frequently asked “who pays?” scenarios

A. Sale of principal residence by a natural person

A natural person’s sale of a principal residence may qualify for CGT exemption if statutory conditions are met (commonly involving full utilization of proceeds to acquire/construct a new principal residence within a prescribed period, notice requirements, and limitations on frequency of availment).

Key practical point: Even when exempt, the seller typically must still document the claim and comply with procedural requirements with the BIR to obtain clearance.

Who “pays” then? If properly exempt, no CGT is due, but the seller still carries compliance obligations.

B. Expropriation or sale to the government

Certain transfers to the government may have special options on how the tax is computed (e.g., allowing the seller to choose between CGT and regular income tax treatment in some cases). The availability depends on the taxpayer and transaction specifics.

Who pays? Still conceptually the seller’s tax, but the computation method may differ.

C. Installment sales

Parties sometimes assume CGT is paid as installments are received. Often, CGT becomes due upon the taxable disposition event, even if payment is installment (unless the transaction is structured in a way that delays consummation/title transfer, which is fact-specific and risky if done purely for tax timing).

Who pays? Still the seller’s CGT; the buyer might shoulder by agreement.

D. Sale by a corporation

If the property is a capital asset of a corporation, the sale may still be subject to the 6% CGT framework; if it’s an ordinary asset, it’s typically regular income tax (and possibly VAT/withholding regimes).

Who pays? The corporate seller is the taxpayer.

E. Sale by a real estate developer/dealer

Usually not CGT (because properties sold are often ordinary assets/inventory). The tax profile typically shifts to:

VAT (depending on thresholds/exemptions), and/or
percentage tax (in some non-VAT contexts),
income tax, and
withholding tax mechanisms.

Who pays “CGT”? Usually no CGT—different taxes apply. This is a common source of confusion.

F. Donation (or transfer for inadequate consideration)

A donation is generally subject to donor’s tax, not CGT as a sale. But bargain transfers can raise complicated issues where the BIR may scrutinize whether part of the transfer is effectively a gift.

Who pays? Donor’s tax is on the donor, but documentation and valuation rules are strict.

G. Estate-related transfers

Transfer from decedent to heirs is generally under estate tax rules.
If heirs (or the estate) later sell inherited property, that subsequent sale may be subject to CGT or regular income tax depending on classification and circumstances.

Who pays CGT on a later sale? Whoever is the seller at that point (heirs/estate), again subject to classification.

9) How to write “who pays CGT” into the Deed of Absolute Sale

A clear clause often addresses:

Taxpayer identity: seller remains the taxpayer for CGT filings.
Economic burden: buyer or seller shoulders the amount.
Mechanics: buyer may pay “on behalf of the seller,” with seller cooperation on TIN, IDs, authorizations, and signatures.
Penalties: responsibility for penalties caused by delay/refusal to sign or provide documents.

A common structure is:

“Buyer shall shoulder CGT and DST; Seller shall sign all documents and provide required IDs/TIN; taxes shall be paid in Seller’s name; Buyer will release proceeds net of taxes…” or the reverse.

10) Practical checklist: avoiding delays and disputes

Confirm classification early: capital asset vs ordinary asset (this decides whether it’s CGT at all).
Verify title and tax declarations; check zonal value and assessed value expectations (to anticipate the “higher of” base).
Agree in writing who shoulders CGT and who processes CAR/eCAR.
Calendar deadlines and assign responsibility for filing and payment.
Prepare documents: valid IDs, TINs, SPA (if applicable), proof of payment channels, and supporting documents for exemptions (e.g., principal residence).
Don’t rely on “we’ll do it later”—registration won’t move without BIR clearance.

Bottom line

By law: The seller/transferor pays (is liable for) capital gains tax on the sale/disposition of real property in the Philippines when the property is a capital asset.
By agreement: Either party can shoulder the cost, but that is a private arrangement; the BIR still treats CGT as the seller’s tax for filing and clearance.
By reality: The need for a CAR/eCAR often pushes buyers to ensure payment happens (sometimes by paying it themselves), but that does not change the seller’s legal liability.

If you want, I can also provide (1) a buyer-friendly vs seller-friendly set of deed clauses on tax allocation, and (2) a flowchart for “CGT vs ordinary asset taxes” that you can use as a quick reference.