Understanding the Capital Gains Tax is crucial when dealing with real estate and other assets in the Philippines, especially for foreign investors. The Capital Gains Tax is imposed on the presumed gains sellers realize from the sale, exchange, or other disposition of capital assets in the Philippines, including real estate. This article will discuss the Capital Gains Tax in the Philippines.
What is Capital Gains Tax in the Philippines?
Capital Gains Tax is one of the property taxes in the Philippines. The Bureau of Internal Revenue (BIR) defines the Capital Gains Tax (CGT) as a tax levied on the estimated profits a seller attains from the sale, exchange, or any other transfer of capital assets in the Philippines.
For tax purposes, capital assets refer to all properties the taxpayer holds, excluding those primarily held for sale to customers in the ordinary trade or business or those that form part of the taxpayer’s inventory or stock in trade. The most common examples of capital assets are lands and buildings.
The Capital Gains Tax in the Philippines is only imposed on two types of capital assets: real properties and shares of stocks.
Who pays the Capital Gains Tax in the Philippines?
The seller or transferor typically shoulders the Capital Gains Tax in the Philippines. It is applied to those who sell, exchange or dispose of capital assets located within the country, regardless of whether they are a natural or juridical entity, resident or non-resident, including estates and trusts.
It’s applied to the gains presumed to have been realized from the sale, exchange, or other means of disposal of capital assets. Notably, the term sale includes pacto de retro sales and other forms of conditional sales. A pacto de retro sale is a contract in which ownership of the property being sold is immediately vested in the buyer, subject to the condition that the seller may repurchase it within a certain period.
Therefore, anyone selling, exchanging, or otherwise disposing of capital assets in the Philippines should expect to pay Capital Gains Tax.
How much is the Capital Gains Tax on property in the Philippines?
The Capital Gains Tax on real property in the Philippines is set at a flat rate of 6%. This rate applies to the gross selling price, the Bureau of Internal Revenue (BIR) zonal valuation, or the property’s fair market value, whichever is highest.
How to compute Capital Gains Tax in the Philippines?
To compute the Capital Gains Tax in the Philippines, follow these steps:
- Determine the taxable base: This is the higher value between the gross selling price of the property and the current fair market value as determined by the BIR.
- Calculate the tax due: Apply the 6% rate to the taxable base. This will give you the amount of Capital Gains Tax to be paid.
For example, if you sell a property with a gross selling price of ₱ 2 million ($34,000) but the current BIR fair market value is ₱ 2.5 million ($42,500), your tax base would be ₱ 2.5 million ($42,500). The Capital Gains Tax due would be ₱ 2.5 million ($42,500) * 6% = ₱ 150,000 ($2,550).
You can also use our Capital Gains Tax calculator below to compute the CGT in the Philippines.
Capital Gains Tax requirements and exemptions
Understanding the Capital Gains Tax in the Philippines will help ensure proper compliance with the law and determine possible exemptions. The Capital Gains Tax requirements consist of different documentation. The requirements and exemptions are listed below.
Requirements
The required documentation includes:
- TIN of sellers and buyers. TIN, short for Taxpayer Identification Number, is a unique code used to identify sellers and buyers for tax purposes.
- Notarized Deed of Absolute Sale or Deed of Transfer.
- Certified True Copies of the Tax Declaration at the time or nearest to the transaction date, issued by the Local Assessor’s Office for land and improvement.
- Certified True Copies of Original/Transfer/Condominium Certificates of Title (OCT/TCT/CCT)
- If applicable, a Special Power of Attorney (SPA) from the transacting party.
- For cases wherein there is no improvement on the land, either a Sworn Declaration of No Improvement by at least one of the transferees or a Certificate of No Improvement issued by the Assessor’s Office.
- Official Receipt/Deposit Slip and duly validated return as proofs of payment of taxes.
- If the seller or transferor is a corporation, a Secretary’s Certificate or Board Resolution approving the sale/transfer of the real property and indicating the name and position of the authorized signatory to the Deed of Sale/Assignment.
Exemptions from Capital Gains Tax
Foreigners may be granted exemption from Capital Gains Tax in the Philippines if they obtain a Certificate of Exemption or BIR Ruling from the Commissioner of Internal Revenue or the authorized representative.
How to pay property Capital Gains Tax in the Philippines in 4 steps
Here are four steps for paying the Capital Gains Tax in the Philippines:
Step 1: File the Capital Gains Tax Return
The Capital Gains Tax Return (BIR Form No.1706) shall be filed within 30 days following the sale, exchange, or disposition of real property. You can file this with any Authorized Agent Bank (AAB) or Revenue Collection Officer (RCO) of the Revenue District Office (RDO) having jurisdiction over the location of the transferred property.
Step 2: Submit BIR-prescribed deposit slip
When filing the return with an AAB, you must accomplish and submit the BIR-prescribed deposit slip. The bank teller will machine-validate this as proof of payment receipt by the AAB. The AAB receiving the tax return will stamp the return with the word “Received,” and the machine validates it as proof of the filing and payment.
Step 3: Make use of electronic filing and payment
Alternatively, filing and payment can also be made using the BIR’s electronic filing and payment facilities (i.e., EFPS/eBIRForms and G-cash, credit, debit card/prepaid card). It’s not necessary to have a Philippine bank account to pay the Capital Gains Tax in the Philippines.
Step 4: Follow the ‘fast lane’ for certain transactions
For transactions involving one to three properties covered by a single Deed of Sale/Exchange/Donation, taxpayers can avail of the ‘fast lane’ according to RMC No. 43-2018, amended by RMC No. 107-2018. Payments amounting to ₱ 20,000 ($340) and below can be paid in cash. In comparison, those exceeding twenty thousand pesos must be made through the manager’s or cashier’s check to the RCO of the RDO that has jurisdiction over the location of the transferred property.
Get help with filing Capital Gains Tax in the Philippines
Navigating the complexities of property taxes in the Philippines can be challenging. Own Property Abroad offers support for property owners, including assistance with all types of property taxes, such as Capital Gains Tax (CGT), Real Property Tax (RPT), Transfer Tax, Value Added Tax (VAT), and Documentary Stamp Tax (DST), along with income tax, business taxes, and other taxes related to buying and selling properties.
Our legal team is experienced in the Philippine tax system and is dedicated to ensuring that your tax filings are accurate, timely, and compliant with local regulations. You can leave your details below or email us at hello@ownpropertyabroad.com for more information or assistance with property taxes in the Philippines.
Frequently Asked Questions (FAQs)
What is the penalty for late payment of Capital Gains Tax in the Philippines?
Failure to file and pay the Capital Gains Tax in the Philippines, late payment, or underpayment may result in a compromise penalty ranging from ₱ 200 ($3.40) to ₱ 50,000 ($850). A 25% surcharge (or 50% if found fraudulent) and a 20% annual interest rate may apply. Attempting to transfer the title through the Register of Deeds or the Corporate Secretary without a Certificate Authorizing Registration is also subject to penalties.
Who pays Capital Gains Tax in the Philippines, the buyer or seller?
The seller usually pays the Capital Gains Tax in the Philippines. The tax is imposed on the gains presumed to have been realized by the seller from the sale, exchange, or other disposition of capital assets in the country.
Do you pay Capital Gain Tax on selling property in the Philippines?
Yes, the seller must pay the CGT on selling property in the Philippines. The tax rate is typically 6% of the property’s selling price, zonal value, or fair market value, whichever is higher.
20 Responses
Ms Therese Angeles may am I exempt for a capital gain tax if I’m a foreigner ?
Hi Jesse, foreigners may be granted exemption from Capital Gains Tax in the Philippines if they obtain a Certificate of Exemption or BIR Ruling from the Commissioner of Internal Revenue or the authorized representative. Without this, you won’t get exempted.
we need a death certificate of the late original owners (husband and wife) of the property i bought in the Philippines. The heirs are in the Philippines. The original owners (their parents) died in the USA. How do we get a copy of the death certificate in the USA?
Hi Ines, to obtain a death certificate in the USA, contact the vital records office in the state where the death occurred. You can usually request a copy online, by mail, or in person. You may need to provide identification and proof of your relationship to the deceased. Check the specific state’s vital records website for detailed instructions and fees.
what is the deadline in paying cgt in case the seller is a corporation? thank you.
Hi Ernesto. The deadline for paying CGT for a corporation in the Philippines is within 30 days following the sale or disposition of the property.
Hi,
If a property was bought 3yrs ago and capital gains tax will be settled this year, what amount is taxed? Would it be the zonal value 3yrs ago or the current zonal value now?
Hi Girlie. The capital gains tax will be based on the current zonal value at the time of the sale, not the value from 3 years ago.
Hi, we are in the process of finalising the extrajudicial settlement for a property with land and building. The size of the land is 85 square meter with a building. We are 4 siblings. My share on the land is 21.25 sq mtr., and my share on the building is only 18.75% on the zonal value of the building. The property is located in Tatalon Quezon City. I have decided to sell my shares to one of my siblings. I want to find out the process involved and I believe there is also CGT to pay. Please advise.
To sell your share of the property, you need to prepare a Deed of Sale, have it notarized, and pay the Capital Gains Tax (CGT). Afterward, submit the necessary documents to the Registry of Deeds to transfer the ownership to your sibling.
A property was sold in 1980 and the title was lost on the same year. The title was reproduced only in 2024. The nearest zonal value was P1,350 in 1994. How do you compute the capital gains tax, surcharge and interest penalties?
Hi Carlos. To compute the capital gains tax, surcharge, and interest penalties for a property sold in 1980 with a zonal value of P1,350 in 1994:
– The capital gains tax (CGT) is 6% of the sale price or zonal value, whichever is higher. Using the zonal value, the CGT is P81 per square meter (6% of P1,350).
– The surcharge is 25% of the CGT, so P20.25 per square meter. Interest penalties are 20% per annum on the unpaid CGT from 1980 to 2024, which totals P712.80 per square meter.
Adding these together gives the total amount due!
We purchased property in the Philippines and the seller paid all capital gains and documentary stamp taxes in a timely fashion. However, under a prior transaction involving different sellers and buyers on the same property, CGT and Doc Stamp was not filed nor paid. BIR refuses to release a CAR based on the prior unreported transaction – even though our current transaction was timely documented, filed and paid. Is BIR correct to withhold our CAR for a prior failure to file or pay? Does a prior unpaid CGT create an obligation to be paid by future sellers or is it the personal obligation of the parties involved in the prior transaction?
Hey! Yes, the BIR can withhold the Certificate Authorizing Registration (CAR) due to unpaid Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) from a prior transaction. The unpaid taxes from the previous transaction are considered an obligation of the parties involved in that transaction, but they can impact subsequent transactions. It’s essential to resolve any outstanding tax issues to proceed with the current sale.
If the buyer is willing to shoulder the CGT, will that work?
Hey Anele. Yes, the buyer can shoulder the Capital Gains Tax (CGT) in the Philippines, but it should be clearly stated in the sale agreement. Just ensure all terms are agreed upon by both parties to avoid future disputes. It’s smart to consult with a legal expert to formalize tis arrangement. You can email us at hello@ownpropertyabroad.com to get legal assistance.
Hi! I went to BIR (Philippines) to pay the property Gain Tax on March 5, 2024, to avoid a penalty on the property I bought in a bank on October 30, 2023. Just so you know, we both agreed that I will be the one to pay the capital gain tax, and the bank issued a deed of sale on February 24, 2024.
What is the basis of the transaction date of the sale/buying of the property? Is it the deed of sale or the payment date? Because the bank says it would be the deed of sale but the BIR was the payment date. I don’t know why the penalty was charged.
Hi Wilman! The basis of the transaction date for paying the Capital Gains Tax (CGT) in the Philippines is the date indicated on the Deed of Sale. If there was a penalty charged, it could be due to a late submission or processing at the BIR. It’s advisable to clarify this with the BIR and provide all relevant documents to resolve the issue.
If I’m selling a property and end up buying another property a year later, will I get a refund if I already paid the CGT? How many months from the time of selling my old property to buying a new property to avail this? Thank you.
In the Philippines, if you sell a property and buy another within one year, you may apply for a refund of the Capital Gains Tax (CGT) paid. The refund is applicable if the new property purchase is made within 12 months from the date of sale of the old property. However, specific conditions and documentation are required, so it’s best to consult with the BIR or a tax professional.