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 ($36,000) but the current BIR fair market value is ₱ 2.5 million ($45,000), your tax base would be ₱ 2.5 million ($45,000). The Capital Gains Tax due would be ₱ 2.5 million ($45,000) * 6% = ₱ 150,000 ($2,700).
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 ($360) 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 [emailprotected] for more information or assistance with property taxes in the Philippines.
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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 ($3.60) to ₱ 50,000 ($900). 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.
