Professional Documents
Culture Documents
June 3, 2019
Property sellers are subject to capital gains tax rate of six percent on the sale of a real property.
With the TRAIN law, individual and domestic corporations must pay capital gains tax at 15
percent. Payment should be within 30 days after the sale of the capital assets.
For those who’ve sold a property or who are still selling their property, you may have been
surprised to find out that there are taxes that come with a newly purchased property—taxes that
the seller pays for, and not the buyer. Whether it’s your first time selling or whether it’s your
hundredth time, you’re still liable to pay for these taxes. The capital gains tax are one of these
inescapable taxes.
Capital gains laws in every country differ. What applies in America may not exactly be
applicable here in the Pearl of the Orient. So, here’s everything you need to know about the
capital gains law and capital gains tax in the Philippines.
These sections cover the whole breadth and depth of how the Philippines handles capital gains
taxes. The sections may not exactly be long, but they can be hard to digest, especially when
you’re not used to reading heavy legal documents. Luckily, we’ve managed to cut them down
into bite-sized chunks for you.
Who Pays Capital Gains Tax in PH, the Buyer or Seller?
Since capital gains tax is applied to the sale of capital assets, paying it is obviously the
responsibility of the seller. Again, it’s important to know if yours is a capital asset. This includes
properties under pacto de retro sales and other forms of conditional sale.
A pacto de retro sale is defined as a transaction wherein the seller has the right to repurchase
the property being sold to him or her. This is done in order to immediately transfer the title and
ownership of said property to the vendee a retro.
Conditional sales, on the other hand, are much like the average real estate standard offers;
however, the parties involved have set conditions for each other. Examples of these conditions
may be approved by a co-purchaser, the receipt and review of a survey showing that the
property complies with zoning regulations, a title search showing no unacceptable liens or
encumbrances, confirmation from the current mortgagee that the property is not in foreclosure,
etc.
However, this capital gains tax is only applicable to the properties located within the Philippines
and not those from abroad. So for those who’re selling condo units in Korea or a house and lot
in Australia, this tax is not applicable to you.
According to Section 24D, capital gains from the sale of real estate properties in the Philippines
have a capital gains tax of 6 percent, which is based on the gross selling price or current fair
market value–whichever one is higher of the two. This includes capital gains from the sale of
real estate property located in the Philippines classified as capital assets by individuals. Take
note that this capital gains is not subject to a holding period and is subject to special capital
gains tax rates.
To get the capital gains tax computation, you determine the higher value of the property, and
multiply the same with 6%. Keep in mind that the tax rate is 5% for the first P100,000 and 10%
in excess of P100,000 of the net capital gains. The cost of the shares and the related selling
expenses are in fact deductible.
Here’s a sample computation of capital gains tax on sale of property: if you’re selling a property
for a total of Php 2,400,000, then the capital gains tax will amount to Php 144,000. On the other
hand, if the current fair market value of the property amounts to Php 2,800,000 and not Php
2,400,000, then the total capital gains tax for the said property would then be Php 168,000 and
not Php 144,000.
This may be something inconsequential to people who just want to be rid of the property, but
probably not to those who’re hoping to turn their profit into an investment for something else.
Take note that the penalty for late payment of capital gains tax in the Philippines is 25 percent
surcharge on basic tax due (50% surcharge in cases of fraud or intent to evade tax) and 20
percent interest per annum.
The Commissioner of the BIR must be notified regarding the intention to allocate the money to
the new property and the seller must not have availed for this tax exemption in the last decade.
To prove that a property is used as a primary residence, the address must be the same as what
was filed in the owner’s latest Income Tax Return (ITR). Declaration of the property as a primary
residence will exempt the property from capital gains tax. However, sellers can only use such
exemptions once every 10 years.