Who Pays Documentary Stamp Tax on a Sale of Real Property in the Philippines?

Introduction

In the Philippine tax system, the Documentary Stamp Tax (DST) serves as an excise tax imposed on various documents, instruments, loan agreements, and transactions that evidence certain acts or transfers. Among these, the sale of real property is a common transaction subject to DST, as it involves the execution of a deed of sale or similar instrument. This tax is crucial for revenue generation and ensures that transfers of ownership are properly documented and taxed. Understanding who bears the responsibility for paying DST in such transactions is essential for buyers, sellers, real estate professionals, and legal practitioners to avoid penalties and ensure compliance with the law.

This article provides a comprehensive overview of the rules governing DST liability in sales of real property, drawing from the provisions of the National Internal Revenue Code (NIRC) of 1997, as amended, relevant Bureau of Internal Revenue (BIR) regulations, and established practices in the Philippines. It covers the legal framework, the primary liable party, potential shifts in responsibility, special cases, and implications for non-compliance.

Legal Basis for Documentary Stamp Tax on Real Property Sales

The imposition of DST on sales of real property is primarily governed by Section 196 of the NIRC, as amended by Republic Act (RA) No. 10963, also known as the Tax Reform for Acceleration and Inclusion (TRAIN) Law, and further modified by subsequent laws such as RA No. 11534 (CREATE Act). Section 196 specifically levies DST on "deeds of sale and conveyances of real property" at a rate of fifteen pesos (P15) for every one thousand pesos (P1,000), or 1.5%, of the consideration or the fair market value (FMV) of the property, whichever is higher.

The tax is affixed to the document itself, such as the Deed of Absolute Sale (DOAS), Deed of Conditional Sale, or any instrument that transfers ownership or title to real property. The NIRC emphasizes that DST is a tax on the document evidencing the transaction, not on the property or the transaction per se. However, the liability for payment arises upon the execution and notarization of the document.

Section 173 of the NIRC provides the general rule on who is liable for DST: "The payment of the tax shall be made by the person making, signing, issuing, accepting, or transferring the thing subject to tax." This broad provision sets the stage for determining responsibility in real property sales, where multiple parties are involved.

Primary Liability: The Seller as the Default Responsible Party

In standard real property transactions, the seller is primarily liable for the payment of DST. This stems from the interpretation of Section 173, where the seller is typically the one "making" or "issuing" the deed of sale, as they are conveying title to the buyer. BIR Revenue Regulations (RR) No. 13-2004, which consolidates rules on DST, reinforces this by stating that in conveyances of real property, the tax is payable by the grantor, vendor, or transferor—terms that generally refer to the seller.

This default rule aligns with Philippine real estate practice. For instance, in a typical residential or commercial property sale, the seller prepares the deed, ensures its notarization, and affixes the required documentary stamps before the document is submitted for registration with the Registry of Deeds. The buyer, on the other hand, is usually responsible for other taxes and fees, such as Capital Gains Tax (CGT) if applicable (though CGT is also seller's liability but often shifted), Transfer Tax, and registration fees.

Rationale for Seller's Liability

The rationale behind holding the seller liable is rooted in the nature of the transaction: the seller is the party benefiting from the proceeds of the sale and is divesting themselves of ownership. This encourages proper documentation and taxation at the point of transfer. Moreover, BIR rulings, such as Revenue Memorandum Circular (RMC) No. 15-2009, clarify that the seller's obligation persists even if the buyer advances the payment, as the tax remains the seller's legal responsibility unless otherwise agreed upon.

Agreements to Shift Liability: Contractual Freedom and Its Limits

While the seller is primarily liable, Philippine law allows parties to a transaction to agree on who will bear the cost of DST. This is based on the principle of freedom of contract under Article 1306 of the Civil Code, which permits stipulations not contrary to law, morals, good customs, public order, or public policy. Thus, in the contract of sale or deed itself, parties may stipulate that the buyer will pay the DST, or that it will be shared equally.

In practice, such shifts are common in certain scenarios:

Developer-Buyer Transactions: In sales by real estate developers (e.g., condominiums or subdivisions), the purchase agreement often passes the DST burden to the buyer as part of the total contract price. This is permissible, but the developer remains the nominal liable party for BIR purposes.
Corporate or Bulk Sales: In large-scale transactions, negotiation may result in the buyer assuming DST to sweeten the deal.
Installment Sales: For sales on installment under Section 175 of the NIRC (for shares, but analogous principles apply), DST may be prorated, but the initial liability stays with the seller.

However, any agreement to shift liability does not absolve the seller from BIR scrutiny. If the tax is unpaid, the BIR may still pursue the seller as the primary obligor. Buyers assuming payment should ensure stamps are affixed promptly to avoid issues during title transfer.

Special Cases and Exceptions

Several special circumstances alter the standard rule on DST liability:

1. Government Transactions

When the seller is a government entity (e.g., privatization sales by the Privatization and Management Office), DST may be exempt under Section 199 of the NIRC, which lists exemptions including transfers involving government instrumentalities. However, if the buyer is private, the exemption may not apply, and liability could fall on the buyer if stipulated.
In expropriation cases, where the government acquires property, DST on the deed is typically borne by the government as the "acquirer," but jurisprudence (e.g., BIR Ruling No. 123-2012) often treats it as the landowner's (seller's) obligation.

2. Foreclosure and Judicial Sales

In mortgage foreclosures, the DST on the sheriff's deed or certificate of sale is paid by the mortgagee (buyer at auction), as they are the party issuing the transfer document. RR No. 7-2003 specifies this shift.
For judicial sales ordered by courts (e.g., execution sales), the purchaser pays DST, as confirmed in BIR rulings.

3. Inheritance and Donations

While not strictly sales, transfers via extrajudicial settlement of estate or donation of real property are subject to DST under Sections 196 and 180. Liability falls on the executor, donor, or heirs, akin to the "seller."

4. Corporate Reorganizations and Mergers

In mergers where real property is transferred, DST may be exempt under Section 40(C)(2) of the NIRC for tax-free exchanges, but if taxable, the transferring corporation (seller) pays.

5. VAT-Exempt or Zero-Rated Sales

For sales subject to Value-Added Tax (VAT), DST is still imposed separately, with the seller liable unless shifted. However, for socialized housing under RA No. 7279, exemptions may apply, relieving the seller.

6. Installment and Conditional Sales

DST is computed on the full value at execution, paid by the seller. If conditional, upon fulfillment, additional DST may apply, still on the seller.

Computation and Payment Mechanics

Although the focus is on liability, understanding payment ties into who pays. DST is computed as 1.5% of the higher of the selling price, zonal value (from BIR), or assessed value (from local assessor). Payment involves purchasing loose documentary stamps from the BIR or authorized agents and affixing them to the deed before notarization. Electronic DST (eDST) systems, introduced via RR No. 6-2022, allow online payment, but the liable party must still initiate it.

If unpaid, the document cannot be registered, halting title transfer under Section 113 of Presidential Decree No. 1529 (Property Registration Decree).

Penalties for Non-Compliance

Failure to pay DST incurs severe penalties under Section 250 of the NIRC: a 25% surcharge, interest at 12% per annum (post-TRAIN rate), and potential compromise penalties. Willful neglect can lead to fines up to P100,000 or imprisonment. The BIR may impose deficiency assessments, and both parties risk joint liability if the document is used without stamps. In audits, the seller is first targeted, but buyers may face withholding obligations in certain cases.

Practical Considerations and Best Practices

In real estate dealings, transparency is key. Parties should explicitly address DST in the Letter of Intent or Contract to Sell. Legal counsel can draft clauses to allocate costs clearly. For foreigners or non-residents selling property, additional rules under Section 173 apply, but liability remains with the seller. Title insurance or escrow services can ensure payment before closing.

BIR issuances, such as RMC No. 46-2019 on eDST, modernize processes, but compliance rests with the liable party. In disputes, administrative remedies via BIR rulings or appeals to the Court of Tax Appeals are available.

Conclusion

In summary, the seller is the default party responsible for paying DST on sales of real property in the Philippines, as per the NIRC and BIR regulations. However, contractual agreements allow flexibility, and special cases like foreclosures shift the burden. Comprehensive knowledge of these rules ensures smooth transactions, minimizes risks, and upholds fiscal responsibility. Stakeholders are advised to consult updated BIR guidelines or tax professionals for case-specific advice, given evolving tax laws.