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Posted by: Joanne Almaden in Real Estate Financing, Real Estate Laws On:September 20, 2015 Last updated: April 1,
2018 https://philpropertyexpert.com/the-basic-taxes-involved-in-a-sale-of-real-estate-property/
It has been said that one can only be sure about two things in this life –
death and taxes. But we’re gonna have to talk about first one some other
time. In this post, we’ll be talking about taxes. More specifically, the
taxes involved in a sale of real estate property.
Seller’s Responsibility:
Buyer’s Responsibility:
1. Transfer Tax
2. Registration Fee
INCOME TAX
The proceeds from the sale of real properties held primarily for sale to
customers in the ordinary course of trade or business or sale of real
properties classified as ordinary assets of the seller who is not habitually
engaged in real estate business, shall be included in the seller’s global
income. This forms part of the seller’s other income subject to 30%
regular income tax or 2% minimum corporate income tax if the seller is a
corporation or a graduated tax rate at a maximum rate of 32% if the
seller is an individual.
Ordinary assets are assets which qualify in any of the following types of
property:
real estate properties used in business which are subject to the allowance for
depreciation
real estate properties which are used for normal course of business by the tax
payer
Please note that real estate sales that are exempt from VAT based on
the above threshold shall be subject to 3% percentage tax. However, if
the seller is a VAT-registered person, the sale of his ordinary asset shall
be subject to VAT even if the sales made are within the prescribed
threshold.
The tax base of 12% output VAT is the highest among the (1)selling
price, (2)Bureau of Internal Revenue (BIR) zonal value, and (3)assessed
value by the provincial/city assessor and the time of payment will depend
whether the sale is an installment sale or a cash sale.
The sale of a principal residence is exempt from capital gains tax. The
said principal residence pertains to the seller’s family home or the
dwelling house, including the land on which it is situated, where the
husband and wife or an unmarried individual, whether or not qualified as
head of family, and members of his family reside. In order for the sale to
be qualified as exempt, the following conditions should be met:
1. The entire proceeds from the sale of the principal residence should be fully
utilized in acquiring or constructing a new principal residence within 18
calendar months.
4. If the proceeds from the sale have not been fully utilized, the portion of the
gain from the sale is subject to 6% capital gains tax.
5. The buyer of the principal residence should withhold from the seller of the
principal residence the supposed 6% capital gains tax. This amount should be
placed in an escrow agreement between the concerned Revenue District
Office and the seller.
An entity exempt from the payment of income tax under existing investment
incentives and other special laws
– from BIR
The amount of tax is either fixed or based on the par or face value of the
document or instrument. In the case of the sale of real estate properties,
the rate shall be 1.5% based on the highest among the (1)selling price,
(2)Bureau of Internal Revenue (BIR) zonal value, and (3)assessed value
by the provincial/city assessor.
TRANSFER TAX
Transfer tax is the tax imposed on any mode of conveying the ownership
of a real property, either through sale, donation, barter, or any other
mode. The tax rate varies depending on the location of the real property
as presented below:
If the property is located in the province, tax must not exceed 50% of the 1%
of the tax base stated above.
If the property is located in Metro Manila or any cities in the Philippines, tax
must not exceed 75% of the 1% of the tax base state above.
Penalty of the failure to pay is 25% of the amount due plus interest of 2% per
month, not to exceed 72%.
Further, the tax is based on the highest among the property’s (1)selling
price, (2)Bureau of Internal Revenue (BIR) zonal value, and (3)assessed
value by the provincial/city assessor.
Thus, when the real estate sold is a capital asset to the seller, no
creditable withholding tax shall be imposed and his income from the sale
of real estate will be subject to capital gains tax.
Under the tax rules, the following are the percentages to be withheld:
The seller/transferor is habitually engaged in the real estate 1.5% ₱500,000 and below
business as per proof of registration with the HLURB or the
HUDCC or other satisfactory evidence (for example, he/it
consummated during the preceding year at least six taxable real 3.0% Over ₱500,000 but not more
estate transactions, regardless of amount) than ₱2,000,000
The seller/transferor is exempt from creditable withholding tax in Exempt Not applicable
accordance with Section 2.57.5 of Revenue Regulations No. 2-98
In summary: