How to Compute the Internal Revenue Taxes Related to Your Property Transaction in the Philippines

<a href="http://Property tax by Nick Youngson CC BY-SA 3.0 Pix4free">Property tax by Nick Youngson CC BY-SA 3.0 Pix4free

If you are planning to buy or sell a property in the Philippines, one of the most important things you need to consider is the internal revenue taxes related to your property transaction. These are taxes imposed and collected by the national government through the Bureau of Internal Revenue (BIR) on various modes of transferring or acquiring real property, such as sale, exchange, donation, inheritance, or foreclosure.

The internal revenue taxes related to your property transaction are computed based on the fair market value (FMV) of the property, which in turn is based on the BIR zonal value. The BIR zonal value is an approved zonal schedule of fair market values on real property used by the BIR as a basis for the computation of internal revenue taxes. It is derived from the average prices of similar properties within a certain area or zone.

In this article, we will explain how to compute the internal revenue taxes related to your property transaction in the Philippines using different types of taxes and rates.

Types and Rates of Internal Revenue Taxes Related to Your Property Transaction

According to the BIR, the internal revenue taxes related to your property transaction include:

Capital Gains Tax

A tax imposed on the gains presumed to have been realized by the seller from the sale, exchange, or disposition of capital assets located in the Philippines. Capital assets are properties that are not used in trade or business, such as residential houses and lots, condominium units, stocks, bonds, and other securities. The rate is 6% of either (a) gross selling price/consideration; (b) FMV as determined by BIR; or (c) FMV as shown in the schedule of values by provincial/city assessor.

Documentary Stamp Tax

A tax imposed on documents, instruments, loan agreements, and papers evidencing acceptance, assignment, sale, or transfer of an obligation, right, or property incident thereto. The rate varies depending on the type and amount of transaction. For example, for the sale or transfer of real property, the rate is 1.5% of either (a) gross selling price/consideration; (b) FMV as determined by BIR; or (c) FMV as shown in the schedule of values by provincial/city assessor. For loan agreements secured by real property, the rate is 0.5% of either (a) loan amount; (b) FMV as determined by BIR; or (c) FMV as shown in the schedule of values by provincial/city assessor.

Donor’s Tax

A tax imposed on donations or gifts made by a living person to another person or entity. The rate ranges from 0% to 15% depending on the relationship between donor and donee and total net gifts made within one calendar year. For donations made between strangers (those who are not relatives), the rate is 30%³. For donations made between relatives (those who are related by blood or affinity within the fourth degree), the rate is based on a graduated table as follows:

Total net gifts within one calendar year

Not over Php 250,000

Over Php 250,000 but not over Php 400,000

Over Php 400,000 but not over Php 600,000

Over Php 600,000 but not over Php 1,000,000

Over Php 1,000,000 but not over Php 3,000,000

Over Php 3,000,000

Rate

10%

12%

15%

Note: For donations donated after the TRAIN Law is passed, will have to follow the new tax ratenof 6%.

Estate Tax

A tax imposed on transfers of properties belonging to a deceased person to his/her lawful heirs and beneficiaries. The rate ranges from 0% to 20% depending on net estate value. Net estate value is computed by deducting allowable deductions from gross estate value. Gross estate value is determined by adding up all properties owned by the decedent at the time of death, such as real properties, personal properties, bank accounts, insurance proceeds, etc. Allowable deductions include funeral expenses, judicial expenses, standard deduction, family home exemption, medical expenses, etc. The rate is based on a graduated table as follows:

Net Estate Value

Not over Php 5 million

Over Php 5 million but not over Php 10 million

Over Php 10 million but not over Php 15 million

Over Php 15 million but not over 20 Php million

Over Php 20 million

Rate

10%

15%

20%

Note for Estate Transfer after the TRAIN Law is passed, will have to follow thenew rate.

Transfer Tax

A tax imposed by local government units (LGUs) on transfers of real properties within their jurisdiction. The rate varies depending on location but usually ranges from 0.5% to 0.75% of either (a) gross selling price/consideration; (b) FMV as determined by BIR; or (c) FMV as shown in the schedule of values by provincial/city assessor.

Registration Fee

A fee charged by the Register of Deeds for registering deeds and other instruments relating to real properties. The fee varies depending on location but usually ranges from 0.25% to 0.5% of either (a) gross selling price/consideration; (b) FMV as determined by BIR; or (c) FMV as shown in the schedule of values by provincial/city assessor.

Computing the internal revenue taxes related to your property transaction in the Philippines is a crucial step in buying or selling a property. It can affect how much taxes and fees you need to pay or collect, as well as how much profit or loss you can make from the transaction. Therefore, you need to use reliable methods and sources to determine the FMV of your property based on the BIR zonal value.

You also need to consult a professional, such as a real estate broker, appraiser, lawyer, or accountant, to help you with the process and calculations. They can advise you on the best strategies and practices to comply with the tax laws and regulations.

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