Real Estate 101: Transfer Tax in the Philippines

Real estate property ownership in the Philippines may seem a daunting task for any newbie property owner. There are many steps you need to follow when you buy a property and that's why it can be confusing which you should do first.

Today, we will attempt to give you a bird's eye view of the real estate industry in the Philippines, with a focus on transfer tax. But before defining a transfer tax, a quick summary of the process of buying real estate and its legal transfer will be discussed.

Acquiring Real Property in the Philippines: The Registration Process

1. Both the Buyer and Seller must sign the Deed of Absolute Sale (DOAS).

This deed of sale signifies that both buyer and seller is ready to enter into a legal transaction and negotiation period about the conditions in exchange for a specific property involved.

This may involve determining the fair market value of the property's worth. There could also be unpaid real estate taxes and other miscellaneous expenses incurred by the seller. In this aspect as well the condition of how the buyer pays as part of his/her obligation to fulfill in the sale transaction.

2. The Buyer must have the Deed of Absolute Sale (DOAS) notarized.

Among the first registration fees that both buyer and seller must initially shoulder are notary fees. The Notary Public may charge varying amounts. Some law offices base their charge for the service on the land’s selling price, ranging from 1-2% of the said amount. Others have a fixed price, regardless of the service rendered.

3. The Seller must fill out and submit the Capital Gains Tax Return (Form 1706).

Upon settling the Capital Gains Tax, you must first complete the mandatory forms in triplicate copies. Part of the responsibilities as a seller is to give your due tax to the Bureau of Internal Revenue. As mandated by the said office, your capital gain tax is six percent of the selling price, which you can settle in two ways, directly to the Revenue District Office (RDO), or through an Authorized Agent Bank (AAB), which covers the property. This transaction must be done in a matter of 30 days after the sale of the property.

Once settled, there will be a receipt to be issued. As the seller, you must check whether it bears the following details: date of payment, the amount paid, the bank debit memo number, as well as other pertinent details found in a usual bank transaction. Alternatively, you can settle the said amount using the bureau’s eBIR online payment facilities.

4. The seller must turn over the Tax Return and payment slip/deposit slip to the Buyer after the seller submitted the documents and paid the registration fees.

5. The Buyer would use these documents to request the Certificate Authorizing Registration (CAR).

The CAR is proof that the required estate tax for the sale of the property has been paid. As the buyer, you need the CAR so you could transfer the Property Title to your name.

6. The Buyer needs to complete and forward the Documentary Stamp Tax Declaration/Return – One Time Transactions (Form 2000-OT) and pay one and a half percent (1.5%) Documentary Stamp Tax (DST) 

The cost of this tax can be computed by referring to the zonal value or fair market value of a real property, whichever is higher. Similar with the Capital Gain Tax, your documentary stamp tax can be settled to the Revenue District Office of the Bureau or on any of their affiliated agent banks.

7. The Buyer must ask for the original payment receipt or deposit slip and validated tax return. 

This occurs when the Seller has paid the Capital Gains Tax. The deposit slip is crucial for the next step as it signals that dues have been made and processes can continue for the real estate sale.

8. The Buyer must request the Certificate Authorizing Registration (CAR) from the BIR. 

Show the original copy of the payment receipt or deposit slip of Tax Returns of the Capital Gain and Documentary Stamp Tax to the BIR officer or Authorized Agent Bank officer. 

The issuance of CAR, a form of tax clearance, signifies the complete payment settlement of the mandatory taxes related to the transfer of the property.

9. Pay the Transfer Tax at the Local Assessor’s Office or City Treasurer, whichever is applicable. 

The following rates were based as of latest information garnered.

Different cities employ different rates and processes in terms of collecting their dues. For example, BGC enjoys 0.60% of the selling price, but other Metro Manila cities have 0.75%. Meanwhile Pasig requires the Certificate Authorizing Registration before you can pay the tax, when BGC can do otherwise.

10. Proceed to the registry of Deeds or Land Registration Authority, to settle fee such as registration fee and IT fee.

For most offices, similar to Pasig, have your CAR ready before you pay your dues. When this is done, you can wait for the release of your Property Title.

11. Once you get the Property’s Title from the Registry of Deeds, submit the following documents to the Local Assessor’s Office: 

• New Title

• Certified Copy of the Title (issued by the Registry of Deeds)

• CAR

• Tax Clearance (issued by the Assessor’s Office

• Authenticated Copy of the Tax Declaration of the Seller. Remember, the Tax Declaration must be still in the name of the Seller. (this is issued by the Assessor’s Office)

12. After submitting the said documents, request from the Assessor’s Office your new Tax Declaration that would already reflect your name (as the new owner).

If the property is located in Rizal:

• To request the new Tax Declaration, you must submit a Verified Copy of the new Title that’s already under your name (as the new owner).

• Without the Verified Copy, the Assessor’s office will reject your request the new Tax Declaration.

All You Need to Know Bout Transfer Tax in the Philippines

With the process now detailed above, you will now have an idea of where transfer tax comes in in terms of real property transactions. To give a more detailed explanation, we've come up with frequently asked questions about the topic and we will try to explain the intricacies of transfer tax.

1. What is transfer tax? 

Transfer tax owed to the Local Treasurer's Office is the tax imposed on the sale, barter, or any other method of transferring the real property ownership or title. The imposed amount is at the maximum rate of 50% of 1% of a property’s worth, or 75% of 1% in cities and municipalities within Metro Manila, depending on the specific local government unit.

Types of Transfer taxes

a. Estate Tax

- dues paid for a real estate property when a transfer of ownership occurs via inheritance. Your grandfather gave you twelve hectares? You have to pay 12-hectares worth of estate tax before you consider it yours.

b. Donor's Tax

- dues paid if you received a donated property. Both transfer taxes are payable to the Bureau of Internal Revenue (BIR)

2. Who is subject to transfer tax?

As a common practice, transfer tax is among the registration fees the buyer pays as part of his or her obligation for the property to be legally transferred to his or her name.

The following explains how the common practice occurs. The seller is accounted for the following:

• Withholding Taxes

• Capital Gains Tax

• Commission of the Agent and/or Broker

• Outstanding real estate taxes that are due

The buyer, on the other hand, takes care of the following:

• Transfer Taxes

• Registration Fees

• Documentary Stamps

• Incidentals and additional expenses during the registration process

However, in other cases, the buyer and seller can also mutually agree on who pays for what during the negotiation period, when the Deed of Sale (a.k.a. Deed of Absolute Sale) has not been signed yet. 

The Deed of Sale is the document needed for the lawful transfer of real estate property rights and is submitted to the Registry of Deeds for filing once the buyer pays the Documentary stamps, transfer tax and other registration fees for the aforesaid Land Title Transfer.

3. How is transfer tax calculated in the Philippines?

Since every property has its own fair market value, no two properties will share the same amount of transfer taxes. Hence, to calculate you need to get the Transfer tax can be calculated by determining the one percent of the total consideration of the property, including its fair market value. With this, you need to get the 50 percent of whichever is higher in order to settle your tax dues. This is according to Section 135 of the Local Government Code of 1991 (LGC).

4. When to pay?

Sellers must settle the tax within sixty (60) days of the deed or of the decedent’s death. You must also consider that within thirty (30) days, notaries must furnish the Provincial Treasurer’s Office with a copy of the deed transfer of ownership or title to a real property.

5. Where to pay?

You can settle your transfer tax at the City or Municipality and its respective Local Treasurer’s Office where the property is located.

6. How much is the title transfer fee in the Philippines?

While there is no exact amount for the title transfer fee per se. Here is a breakdown of the usual fees you need to prepare for.

• Withholding Tax: this is only executed when the seller is a corporation

• Capital Gains Tax: corresponding to 6% of the selling price specified in the zonal value or the Deed of Sale, whichever is higher

• Unpaid real estate taxes due, if there is any, or other unpaid taxes

• Commission of the licensed real estate broker

• Documentary Stamp Tax: frequently imposed at 1.5% of the seller’s price, or its fair market or zonal values, depending on which is higher

• Transfer Tax (Local Treasurer’s Office): this tax is for the barter, sale, or any other method of ownership or title of real property transfer, at the maximum rate of 50% of 1%, or 75% of 1% in cities and municipalities within Metro Manila, of a property’s worth.

• Transfer Tax (BIR): This may also be payable to the Bureau of Internal Revenue. As said by the BIR, when the property was/is donated, this is in the form of a donor’s tax. But if the property was transferred by way of inheritance, this is in the form of the estate tax.

• Registration Fee: commonly at 0.25% of the selling price, or zonal value or fair market value, subject on which is higher.

• Incidental and miscellaneous expenses incurred during the registration process, such as notary fees

Gateway to an Easier Transition of Transfer Certificate of Title

You might have noticed that it's not a walk in the park for you to legally acquire a property in the Philippines, may it be a residential or condominium certificate. But should you need all the help you can get, why don't you try enlisting title transfer companies or real estate brokers?

It's not too early to start retirement planning, and we at Lumina Homes want you to have the best options for an easy, hassle-free property acquisition. For more details, feel free to speak with our agents.