Everything you need to know about zonal value in the Philippines

For foreigners seeking to buy property in the Philippines, understanding the fundamentals of real estate investment is important. This includes conducting thorough due diligence when considering buying a house and land for investment purposes. More specifically, the inherent understanding of the zonal value in the Philippines is essential.

Being familiar with the basics of real property taxes, property prices, and the workings of property transfers aids in navigating the real estate landscape correctly. Moreover, acquiring knowledge about additional property-related taxes is beneficial. It promotes effective management of personal real estate properties and can open avenues for investing in various real estate units.

What is zonal value?

Zonal value refers to the assigned value on real estate properties intended for taxation purposes. This assignment is a principal function of the Bureau of Internal Revenue (BIR) in the Philippines, made possible by Republic Act No. 8424’s Section 6 (E) – also known as the Tax Reform Act of 1997. This Act authorized the commissioner of BIR to establish the zonal value schedule and help in realizing the meaning of the zonal value.

Zonal valuation is a predefined schedule of fair market values for various real estate sectors adopted by the Internal Revenue Service. As per Republic Act No. 10963, also recognized as the TRAIN Law or Tax Reform for Acceleration and Inclusion, the Commissioner of BIR has the jurisdiction to partition the Philippines into distinctive zones or territories. The purpose of this partition is to calculate the fair market value in each region, thereby determining the zonal value of land in the Philippines. Moreover, these values undergo review every three years, maintaining accurate BIR land value assignments.

As a valuable note, the Corporate Recovery and Tax Incentives for Enterprises Act, effective since April 11, 2021, continues to be in force. This showcases the evolving nature of land zonal value in the Philippines, prominently seen in key areas such as the zonal value in Manila.

What is the purpose of zonal value and why is it important?

The declaration of property valuation serves dual purposes. It is used for calculating taxes and as the basis for determining the fair market value of the property. The Bureau of Internal Revenue (BIR) in the Philippines uses this zonal value as the foundation for computing internal revenue taxes. These taxes include Capital Gains Tax (CGT) and Documentary Stamp Tax (DST). Such a symbolic scale is an officially approved zonal schedule of fair market values for real property, essentially serving as the zonal valuation BIR employs.

In real estate transactions, it’s important to note that if the zonal value in the Philippines is less than the selling price, it doesn’t imply that the property is overpriced. If the zonal value in the Philippines exceeds the selling price, it doesn’t automatically indicate that the property on sale is undervalued. This factor might vary, especially when the land is situated in central business zones like the zonal value in Manila.

The significance of understanding the zonal value of land can’t be stressed enough, as it designates a civic responsibility to pay the associated taxes with a property sale transaction. Prospective buyers must familiarize themselves with the property’s zonal value as part of the due diligence process. The aim is to minimize the potential for tax fraud, including the underpayment of taxes, along with any subsequent interest and penalties. Such discrepancies can become a burden for the next buyer, complicating the process and affecting the overall BIR land value. Thus, understanding the land zonal value in the Philippines is an essential step in successful real estate transactions.

What is the difference between market value and zonal value?

The market value of a property in line with the Philippine Valuation Standards, reflecting International Valuation Standards, is set through arm’s-length transactions. In such transactions, the buyer and seller willingly participate, acting sensibly, informed, and free from coercion, based on comprehensive marketing reflecting the property’s true value.

Differently, the zonal value in the Philippines is determined and proclaimed by the Commissioner. It may vary significantly from the market value, primarily influenced by factors such as land enhancements and existing infrastructure. For due diligence, a property of similar market value can serve as a reference. This discrepancy necessitates the application of three primary property valuation methods:

• Cost approach
• Market approach
• Income approach

While the zonal and market values of a property can greatly differ, there are rare times when they match up perfectly.

Fair market value vs. zonal value

The fair market value is an estimated property price in the market. These transactions usually involve a willing buyer and seller, with thorough knowledge of all necessary facts, neither being obliged to sell nor buy.

The zonal value in the Philippines, on the contrary, is defined by the Bureau of Internal Revenue (BIR) for the primary purpose of calculating property taxes. The zonal value in the Philippines considers average values within specific zones, influenced by aspects like location, accessibility, land use, and demand.

Assessed value versus zonal value

There exists another property value, the assessed value, that is assigned by the local government units (LGU) assessor’s office for real property tax purposes. This value represents a particular percentage of the fair market value, subject to periodic amendments due to changes in local tax laws or property assessments.

The zonal value in the Philippines, as established previously, is used to determine national taxes payable and is set by the zonal valuation of the BIR. Remember, the zonal value classification is a determinant that can significantly affect the zonal value of a property.

Get to know the zonal value of a property in the Philippines in 5 steps

Knowing the zonal value in the Philippines can be a difficult task if foreigners are unfamiliar with the process. However, with correct knowledge and guidance, it can be simplified. In this guide, we will walk through the process of determining the zonal value of a property in the Philippines.

• Step 1: The first step in determining the zonal value in the Philippines is to have a clear understanding of the meaning of zonal value. The Bureau of Internal Revenue (BIR) defines zonal value as the average price of properties within specified zones.
• Step 2: To begin the process, visit the BIR’s official website. They provide a complete list of zonal values for various locations.
• Step 3: On the BIR’s website, look for the zonal value classification section. Select the region where the property is located to access the zonal values for different areas.
• Step 4: Find the exact location on the list, then take note of the corresponding zonal value. This is the zonal value that pertains to the property.
• Step 5: Zonal values are subject to change, so keep an eye out for updates. Frequent changes in zonal values in the Philippines mean that the zonal value classification can alter quite often, so it’s important to stay informed.

Remember that the zonal value in the Philippines is an essential figure when calculating property taxes. Understanding how to determine the zonal value in the Philippines is an essential aspect of managing real estate.

3 ways to compute the zonal value of a property in the Philippines

Getting the zonal value of the property in the Philippines may appear to be complex, mainly because it differs largely from the process of market value appraisal. Unlike the market value, which can be estimated using various property computation techniques, the zonal value in the Philippines cannot be calculated using a general formula.

So, how is the zonal value calculated in the Philippines? This guide will explain how to compute the zonal value of land using the guidelines provided by the Bureau of Internal Revenue (BIR).

1. Identify the Revenue District Office (RDO) Code

The first step to compute the zonal value of land begins with identifying the Revenue District Office (RDO) code. In the zoning system used by the BIR in the Philippines, each RDO holds taxpayer records within its territory. Since there’s no centralized system and the Philippines contains multiple RDOs, knowing the RDO code is essential for tax purposes.

If you are unsure of your RDO code, hotlines are available for inquiries. However, if the lines are busy, visit the local municipality’s RDO. Then, get the TIN verification slip, fill in your full name, birth date, and address (for married women, include your maiden name), and present it to the BIR officer, who will give you your TIN, RDO code, and RDO location.

2. Visit the BIR’s website for zonal valuation

Next, visit the BIR’s official website, where the zonal value classification for cities, municipalities, and provinces, including the zonal value in Manila, is listed. Entering the site, use the RDO number to navigate the various RDOs.

3. Download the Excel file

The website provides a ZIP file you can download. This file contains an Excel sheet, which houses the appropriations and annual valuations, together with the historical zonal valuation (BIR land value) from 1988.

After downloading and extracting the ZIP file, you’ll find a Department Order (bearing the signatures of the Commissioner of Internal Revenue and Secretary of Finance), definitions of pertinent terms, property classification legends, and tables showing values for different property types based on their locations.

Remember that you can also visit or call the nearest BIR office to receive this information.

Need assistance with your zonal value in the Philippines?

Do you want to know more about zonal value in the Philippines? Or do you want to talk with an expert to determine your property’s zonal value? Our expert team will ensure you don’t have to navigate the complexities alone, saving you time, money, and energy.

Kindly drop your details below or email us at hello@ownpropertyabroad.com. We’ll gladly provide the expertise you need to manage your property’s zonal value in the Philippines.

Conclusion

In summary, understanding the zonal value in the Philippines is crucial for any property owner or investor. This value, set by the Bureau of Internal Revenue (BIR), has implications for the taxes foreigners must pay. It can change rapidly, so staying updated on zonal value classifications and changes to the land zonal value is important.

Thankfully, with access to the right resources and agencies, keeping up with shifts in the zonal value in the Philippines doesn’t have to be overwhelming. Just remember to stay informed, seek help when needed, and regularly check the latest guidelines on zonal value Philippines. With this information, foreigners will be well-prepared to handle the ins and outs of property ownership in the Philippines.

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