Who Pays Tax Penalties in a Philippine Property Sale: Buyer or Seller?

Short answer: As a rule of thumb, the party responsible for a particular tax also bears any surcharges, interest, and compromise penalties when that tax is paid late. In Philippine practice:

Seller usually pays the 6% Capital Gains Tax (CGT) (or income tax if the property is an ordinary asset) and any penalties tied to that seller tax.

Buyer usually pays Documentary Stamp Tax (DST), local transfer tax, and registration fees—and the penalties if those are late.

If the buyer is a withholding agent (ordinary-asset sale), the buyer can be penalized for failing to withhold and remit the required creditable withholding tax.

Contract terms can re-allocate these, but the BIR will not release the CAR (Certificate Authorizing Registration) until all taxes (and any penalties) are paid—whoever ends up settling them in practice.

Below is a practical, everything-you-need guide—what each tax is, who typically pays it, when it’s due, what the penalties look like, and how to draft around the risks.

1) The taxes in a typical sale and who pays them

A. Capital Gains Tax (CGT) – 6%

What: For an individual or non–real estate business selling real property classified as a capital asset, CGT is 6% of the higher of the gross selling price, zonal value, or fair market value.
Who pays: Seller.
Deadline: Within 30 days from the date of notarized sale (or deed).
Penalties for late payment: 25% surcharge (50% if due to willful neglect/false return), interest per annum (BIR computes this using a statutory rate tied to the legal interest rate, commonly 12% p.a.), plus a compromise penalty (administrative).
Who bears penalties: Seller, because CGT is a seller-side tax.

B. Income tax & Creditable Withholding Tax (CWT) – “ordinary asset” sales

What: If the property is an ordinary asset (e.g., used in business, or seller is a real estate dealer/developer), CGT does not apply. The seller pays regular income tax (or corporate income tax), and the buyer must withhold a creditable portion of the price (rate depends on the rules for the seller/property) and remit that CWT to the BIR.
Who pays and who withholds:
- Seller bears the income tax on the gain as part of its annual/quarterly returns.
- Buyer acts as withholding agent and must withhold and remit the prescribed CWT.
Penalties for late payment:
- If buyer fails to withhold/remit, the buyer can be assessed the deficiency CWT, plus surcharge, interest, and compromise—separate from the seller’s own income tax.
- The seller remains liable for its underlying income tax (with its own penalties if underpaid/late).
Who bears penalties: Buyer for withholding failures; seller for its income tax shortfalls.

C. Value-Added Tax (VAT) – when applicable

What: A VAT-registered seller’s sale of real property classified as ordinary asset can be VATable (with threshold and exemption nuances for residential property that change from time to time).
Who pays: Economically, buyer bears VAT as part of the price; legally, the seller accounts for and remits VAT to the BIR.
Penalties: Late/under-remitted VAT triggers the VAT surcharge, interest, and compromise against the seller (unless the buyer is a government entity subject to final VAT withholding rules).
Who bears penalties: Generally seller (the remitter).

D. Documentary Stamp Tax (DST) – 1.5%

What: 1.5% of the higher of the consideration or fair market value on the deed of sale.
Who pays (in practice): Buyer customarily handles DST for one-time transactions (filed via BIR Form 2000-OT).
Deadline: Within 5 days after the end of the month when the deed was signed/notarized.
Penalties: Surcharge, interest, compromise if late.
Who bears penalties: Buyer in practice (unless contract says otherwise). The BIR just needs DST paid to issue the CAR.

E. Local Transfer Tax (province/city)

What: A local tax (rate often up to 0.5% in provinces and up to 0.75% in cities/Metro Manila) based on the higher of consideration or fair market value; exact rate and deadline depend on local ordinance.
Who pays (in practice): Buyer, typically at the City/Provincial Treasurer before Registry of Deeds registration.
Penalties: Local surcharges/interest for late payment per local rules.
Who bears penalties: Buyer (customary).

F. Registration fees (Registry of Deeds) & Assessor’s transfers

Who pays: Buyer (customary).
Penalties: Usually none aside from reprocessing costs or lapsed clearances; however, registration cannot proceed until BIR/LGU taxes (and any penalties) are cleared.

G. Real Property Tax (RPT) arrears & special levies

What: Unpaid RPT (and penalties—2% per month up to 36 months cap under the LGC) constitutes a lien on the property.
Who clears: Seller is normally required to deliver the property free of liens, meaning seller settles all RPT up to date of sale, including penalties on past delinquencies.
Who bears penalties: Seller (for pre-closing delinquencies). Post-closing RPT is a buyer obligation.

H. HOA/condo dues & utilities

Who clears: Seller usually settles amounts up to the transfer date; buyer takes over afterward. Late-related penalties follow the same cut-off principle unless the contract says otherwise.

2) Penalty mechanics you’ll actually see

Surcharge: Usually 25% of the basic tax for late filing/payment; 50% if due to willful neglect or a false/fraudulent return.
Interest: Computed per annum on the unpaid tax from statutory due date until full payment (BIR uses a statutory rate tied to the BSP legal interest rate; commonly treated as 12% p.a. in recent years).
Compromise penalty: An administrative amount the BIR uses for settlement depending on the violation; negotiable in principle, but routinely collected.

Practical rule: If your tax is late because you didn’t do your part (or withheld when you should have and didn’t remit), you shoulder the penalties. If the other side caused the delay (e.g., seller withheld documents so buyer couldn’t file DST on time), a good contract makes that party pay the incremental penalties.

3) Deadlines that trigger penalties (quick view)

CGT (seller / capital asset): 30 days from sale/notarization.
DST (buyer, 2000-OT): Within 5 days after the end of the month of the deed.
CWT on ordinary-asset sale (buyer as withholding agent): Monthly/quarterly remittance deadlines apply (depends on eFPS/eBIR and current rules).
Local transfer tax (buyer): Per local ordinance (commonly counted from deed date; many LGUs require payment within ~60 days, but always check the LGU).
VAT (seller, if applicable): Monthly/Quarterly VAT returns per registration.

Miss these and penalties start to run. The CAR won’t be released until all BIR dues (and penalties) are settled.

4) Special situations that change who can be penalized

Buyer failed to withhold (ordinary-asset sale).
- The buyer becomes liable for deficiency CWT (plus penalties) even if the seller reported income later.
- The seller still owes the proper income tax on the sale.
Installment sales.
- For capital-asset sales, BIR processing may allow paying CGT around collections/thresholds; missing any scheduled payment or required filing can trigger penalties. Allocate clearly in contract who tracks and pays each milestone.
Principal residence CGT exemption (individual).
- If the seller claims the exemption but fails to re-invest within the allowed period, CGT on the unutilized proceeds becomes due with interest from date of sale. Penalties fall on the seller.
Sale to government.
- There are special rules on the seller’s income recognition and taxes; withholding can apply. If buyer is a government entity, final VAT withholding rules may shift who remits and who is penalized for remittance failures.
Foreclosures, dación en pago, exchanges, related-party sales.
- Tax characterization can shift (e.g., DST still due, CGT vs income tax, possible VAT). Penalties follow the party who should have filed/paid.

5) Drafting the contract: allocation & penalty language (use this)

Most deeds say something like:

Taxes and Fees. The Seller shall pay Capital Gains Tax (or the Seller’s income tax if the property is an ordinary asset) and any Real Property Tax up to the date of sale, including any penalties on Seller-side delinquencies. The Buyer shall pay Documentary Stamp Tax, local transfer tax, registration fees, and other registration-related charges, together with penalties thereon if caused by Buyer’s delay.

Withholding. If the property is an ordinary asset, the Buyer shall withhold and remit the applicable Creditable Withholding Tax, and any penalties for failure to withhold/remit shall be for Buyer’s account.

Delay by a Party. If a party’s act or omission causes any additional taxes, surcharges, interest, or compromise penalties to accrue on the other party’s taxes, the responsible party shall bear and promptly reimburse such amounts.

Holdback/Escrow. The Buyer may hold back ₱[amount]% of the price (or place in escrow) to cover Seller-side taxes/penalties until the BIR CAR and new title are released. Any unused balance is released to the Seller upon completion.

6) Step-by-step to avoid penalties (both sides)

Identify classification up front (capital vs ordinary asset; VAT applicability).
List the returns you must file (1706 for CGT; 2000-OT for DST; withholding returns; VAT returns).
Calendar the due dates from the deed date—share to both sides and the broker/lawyer.
Collect documents early (TINs, IDs, titles, tax decs, RPT clearance, HOA/condo clearance).
File and pay on or before the deadlines.
Get the CAR from BIR, then pay local transfer tax, then register with Registry of Deeds.
Use a holdback so someone can step in and pay if the other side drags and penalties start accruing.

7) Worked penalty example (capital-asset sale)

Price: ₱5,000,000 (higher than FMV)
CGT (seller): 6% × ₱5,000,000 = ₱300,000
Filed 3 months late:
- Surcharge (25%) = 25% × ₱300,000 = ₱75,000
- Interest (assume 12% p.a.) = ₱300,000 × 0.12 × (3/12) = ₱9,000
- Total CGT + penalties = ₱300,000 + ₱75,000 + ₱9,000 = ₱384,000
- Who pays: Seller
DST (buyer): 1.5% × ₱5,000,000 = ₱75,000
Filed 3 months late:
- Surcharge (25%) = 25% × ₱75,000 = ₱18,750
- Interest (12% p.a.) = ₱75,000 × 0.12 × (3/12) = ₱2,250
- Total DST + penalties = ₱75,000 + ₱18,750 + ₱2,250 = ₱96,000
- Who pays: Buyer (unless contract says otherwise)

8) Frequently asked practicals

“The deed is silent—who pays penalties?” Follow the statutory incidence and custom: seller-side taxes (CGT/income/VAT) → seller; DST/LTT/registration → buyer. Penalties track whoever had the duty that went late. If blame is mixed, you negotiate; the BIR/LGU just wants full payment before CAR/registration.
“Can the buyer pay the seller’s CGT just to get the CAR?” Yes—then recover/deduct under the contract or via a settlement. Without agreement, recovery becomes a civil claim.
“What if the seller had RPT delinquencies?” They are liens on the property. If the buyer pays to clear them for transfer, the buyer should offset from the price/holdback or seek reimbursement; the penalties on pre-closing RPT are the seller’s.
“Are compromise penalties mandatory?” They’re administrative; in practice, they are routinely collected during assessment/processing. Parties generally budget for them once late.

9) Key takeaways

Allocate in writing who pays what and add a penalty-shifting clause for delays caused by a party.
Seller: CGT/income/VAT (and penalties thereon). Buyer: DST/LTT/registration (and penalties thereon).
Buyer as withholding agent in ordinary-asset sales: buyer can be penalized for withholding failures, independent of the seller’s income tax.
No CAR, no transfer—eventually someone will pay all taxes plus penalties if deadlines slip.

This is a general guide for Philippine transactions. For a specific deal, have your notary, broker, or counsel confirm current rates, thresholds, and filing procedures with the BIR and your LGU, and tailor the contract language accordingly.