If you are planning to buy or sell a property in the Philippines, you need to be aware of the BIR zonal value of the property. This is a value assigned by the Bureau of Internal Revenue (BIR) to real estate properties for taxation purposes. It is also used as a basis for computing the fair market value of the property, which is important for determining the taxes and fees involved in the transaction.
In this article, we will explain what the BIR zonal value is, how it is determined, how it is used, and what strategies you can use to benefit from it as a buyer or seller.
What is the BIR Zonal Value?
The BIR zonal value, also known as zonal valuation, 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.
The BIR commissioner has the authority to divide the Philippines into different zones or areas and determine the fair market value of real properties located therein upon consultation with competent appraisers both from the private and public sectors. The BIR zonal value is updated periodically to reflect the changes in the market conditions and property values.
How is the BIR Zonal Value Used?
The BIR zonal value is used primarily for two purposes:
- To compute the fair market value of the property
- To compute the internal revenue taxes related to the property transaction
Computing the Fair Market Value of the Property
The fair market value (FMV) of a property is the price at which it would sell in an open and competitive market. It is used as a basis for determining the taxable base of various taxes and fees involved in buying or selling a property, such as capital gains tax, documentary stamp tax, donor’s tax, estate tax, transfer tax, and registration fee.
The FMV of a property is determined by whichever is higher of:
- The gross selling price/consideration as shown in the duly notarized document of sale or transfer of real property; or
- The FMV as determined by the BIR commissioner; or
- The FMV as shown in the schedule of values of the provincial and city assessors.
The FMV as determined by the BIR commissioner is based on the BIR zonal value of the property. The FMV as shown in the schedule of values of the provincial and city assessors is based on their valuation methods and standards.
Computing the Internal Revenue Taxes Related to the Property Transaction
The internal revenue taxes related to buying or selling a property are computed based on the FMV of the property, which in turn is based on the BIR zonal value. These taxes 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. 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 the 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.
- Donor’s tax: A tax imposed on donations or gifts made by a living person to another person or entity. The rate is 6% of the FMV.
- Estate tax: A tax imposed on transfers of properties belonging to a deceased person to his/her lawful heirs and beneficiaries. The rate is 6% of the selling price or zonal value whichever is higher.
- Transfer tax: A tax imposed by local government units on transfers of real properties within their jurisdiction. The rate varies depending on location but usually ranges from 0.5% to 0.75%.
- 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%.
What Strategies Can You Use to Benefit from BIR Zonal Value?
As a buyer or seller of a property in the Philippines, you can use some strategies to benefit from BIR zonal value. Here are some tips:
- Compare different zones and locations: Since BIR zonal values vary depending on zones and locations, you can compare different options and find the best one for you based on your budget and preferences. For example, you can look for properties in zones with lower BIR zonal values to save on taxes and fees, or you can look for properties in zones with higher BIR zonal values to increase your property value and potential returns.
- Negotiate the selling price: Since the selling price is one of the factors that determine the FMV of the property, you can negotiate with the other party to agree on a reasonable and favorable price. For example, as a buyer, you can try to lower the selling price to reduce your tax liabilities, or as a seller, you can try to increase the selling price to maximize your profits.
- Check the latest BIR zonal values: Since BIR zonal values are updated periodically, you should check the latest ones before buying or selling a property. You can use online resources such as the BIR website to search for the BIR zonal values for selected locations. You can also call or visit your nearest BIR office to get the information.
- Consult a professional: Since buying or selling a property involves complex and technical processes and calculations, you should consult a professional such as a real estate broker, appraiser, lawyer, or accountant to help you with the transaction. They can advise you on the best strategies and practices to benefit from BIR zonal value and comply with tax laws and regulations.
The BIR zonal value of properties in the Philippines is an important factor that affects the fair market value and tax implications of buying or selling a property. By understanding what it is, how it is determined, how it is used, and what strategies you can use to benefit from it, you can make informed and smart decisions when dealing with real estate transactions in the Philippines.
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