Capital Gains Tax on property sales in the Philippines is misunderstood in two consistent ways. First, many sellers believe it is computed on profit — the difference between what they paid and what they sold for. It is not. Second, many sellers who price below the BIR zonal value believe this reduces their tax. It does not. The tax is computed on the higher of the actual selling price or the BIR zonal value, regardless of what either party paid originally or what the parties agreed to transact at.

This article walks through the complete computation step by step, using realistic hypothetical figures, explains where the zonal value comes from and how to find it, shows how the tax base is determined, and outlines what the BIR Form 1706 filing requires. Confirm the current CGT rate and filing deadline with the relevant BIR RDO at the time of your transaction — these are subject to change and should not be assumed from any secondary source.

Important note on rates: The CGT rate and DST rate applicable to property sales are set by the National Internal Revenue Code and may be amended by subsequent legislation. The figures used in this article reflect prevailing rates as of the article’s publication date. Always confirm current rates with the BIR before filing.

CGT is computed on the higher of three values: the actual selling price stated in the Deed of Absolute Sale, the BIR zonal value for the property’s location at the time of sale, or the assessed value of the property as set by the local Assessor’s Office. In practice, for most Metro Manila property transactions, the selling price or the zonal value is the operative figure — the assessed value is typically lower than both.

The first step in the computation is to identify all three values and determine which is highest. This requires: the agreed selling price from the Deed of Absolute Sale, the BIR zonal value for the property’s specific location (from the BIR Revenue District Office or the BIR’s online zonal value database), and the assessed value from the most recent tax declaration for the property.

For this worked example, assume a residential property in a mid-market Metro Manila location with the following values: agreed selling price PHP 4,500,000, BIR zonal value PHP 3,800,000 per sqm × 50 sqm lot area = PHP 190,000 — note that zonal value is typically expressed per square metre of lot area for land, and the computation applies to the lot area. For condominium units, the zonal value application may differ — confirm with the relevant RDO.

For simplicity in this worked example, assume the selling price is PHP 4,500,000 and the zonal value-based computation produces a total of PHP 3,500,000. The selling price is higher. The tax base is PHP 4,500,000.

Capital Gains Tax is imposed at six percent of the tax base. This rate applies to individual sellers of real property classified as a capital asset — property not used in business. Most residential property sold by individual owners qualifies as a capital asset for this purpose.

CGT = Tax Base × 6%

CGT = PHP 4,500,000 × 6% = PHP 270,000

This is the CGT due on the transaction. It is the seller’s obligation — though, as discussed in the net proceeds article in this series, it is frequently negotiated between the parties.

Documentary Stamp Tax (DST) is a separate tax also based on the higher of selling price, zonal value, or assessed value. The DST rate should be confirmed with the BIR at the time of filing. As a planning reference, DST has historically been applied at 1.5 percent of the tax base — confirm this rate is current before filing.

DST = Tax Base × applicable rate (confirm with BIR)

DST (at 1.5% for illustration) = PHP 4,500,000 × 1.5% = PHP 67,500

DST is conventionally paid by the buyer, though — as with CGT — the parties may negotiate a different allocation.

CGT must be filed and paid within 30 days of the date of the notarized Deed of Absolute Sale. DST must be filed and paid within five days following the close of the month in which the taxable document was executed. These are BIR-set deadlines — confirm the current requirements with the relevant RDO, as they are subject to amendment.

Late filing triggers: a 25 percent surcharge on the tax due, a 20 percent annual interest on the unpaid amount, and a compromise penalty. These additions can substantially increase the total tax obligation — a CGT of PHP 270,000 filed one year late could attract surcharges and interest bringing the total obligation to PHP 400,000 or more depending on the specific calculations.

CGT on real property sales is filed using BIR Form 1706 (Capital Gains Tax Return for Onerous Transfer of Real Property Classified as Capital Assets). The form requires: the taxpayer identification number (TIN) of the seller, the complete description and location of the property, the selling price, the zonal value, the assessed value, the computed CGT amount, and the payment details.

The BIR Form 1706 must be filed at the Revenue District Office that has jurisdiction over the property’s location — not the seller’s residential RDO, and not any other RDO. A filing at the wrong RDO will be rejected, and refiling at the correct RDO will restart the deadline calculation from the date of the valid filing, which may trigger late-filing penalties if time has elapsed.

Documents required for filing BIR Form 1706 include: the original notarized Deed of Absolute Sale, a certified true copy of the title, the most recent tax declaration, proof of the property’s zonal value (from the RDO or BIR website), government-issued IDs for the seller, and the seller’s TIN. Additional documents may be required depending on the transaction’s specific characteristics — confirm the complete current list with the relevant RDO before filing.

After CGT and DST are paid and the returns are filed, the BIR processes the filing and, when satisfied that the tax has been correctly computed and paid, issues the Certificate Authorizing Registration (CAR). The CAR is the document that authorizes the Registry of Deeds to process the title transfer. Without it, the title transfer cannot proceed.

The CAR processing time ranges from three weeks to three months at Metro Manila RDOs under normal conditions, as described in the title transfer timeline article in this series. Active follow-up with the RDO after filing — checking the status of the CAR application regularly — is the most reliable way to move the process along.

All figures are illustrative. CGT rate, DST rate, and filing deadlines should be confirmed with the relevant BIR RDO at the time of transaction.