Quick Answer
Documentary Stamp Tax (DST) is a tax imposed on documents, instruments, and loan agreements that evidence the transfer of a right, obligation, or property, and it applies whenever Philippine real estate changes hands. For a sale or transfer of real property, DST is 1.5% of whichever is highest among the gross selling price/consideration, the Fair Market Value (FMV) as determined by the BIR, or the FMV per the provincial or city assessor’s schedule of values — while loan agreements secured by real property are taxed separately, at 0.5% of the highest of the loan amount, BIR FMV, or assessor’s FMV.
<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.
What Are the Types and Rates of Internal Revenue Taxes on a Philippine Property Transaction?
According to the BIR, the internal revenue taxes related to your property transaction include:
What Is Capital Gains Tax on a Property Transaction?
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.
What Is the Documentary Stamp Tax on a Property Transaction?
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.
What Is Donor’s Tax on a Property Transaction?
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
0%
5%
8%
10%
12%
15%
Note: For donations donated after the TRAIN Law is passed, will have to follow the new tax ratenof 6%.
What Is Estate Tax on a Property Transaction?
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
0%
5%
10%
15%
20%
Note for Estate Transfer after the TRAIN Law is passed, will have to follow thenew rate.
What Is Transfer Tax on a Property Transaction?
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.
What Is the Registration Fee on a Property Transaction?
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.
Frequently Asked Questions
What is Documentary Stamp Tax (DST) on a property sale in the Philippines?
DST is a tax on documents, instruments, and loan agreements that evidence the transfer of a right, obligation, or property. On the sale or transfer of real property, it is computed at 1.5% of whichever is highest: the gross selling price/consideration, the Fair Market Value (FMV) as determined by the BIR, or the FMV per the provincial/city assessor’s schedule of values.
How is DST calculated on a loan secured by real property?
For loan agreements secured by real property, DST is 0.5% of whichever is highest among the loan amount, the FMV as determined by the BIR, or the FMV per the assessor’s schedule of values — a lower rate and a different base than the 1.5% DST charged on an outright sale or transfer of the property itself.
What Fair Market Value (FMV) is used to compute DST?
FMV for DST purposes is based on the BIR zonal value — an approved schedule of fair market values that the BIR derives from the average prices of similar properties within a given zone. DST is then computed on whichever is highest among the gross selling price/consideration, the BIR-determined FMV, or the FMV per the provincial/city assessor’s schedule of values.
How does Documentary Stamp Tax differ from Capital Gains Tax on a property sale?
Both taxes are computed on the same three benchmarks — gross selling price/consideration, BIR-determined FMV, and the assessor’s schedule of values — using whichever is highest, but the rates differ: Capital Gains Tax on capital assets (such as a residential house/lot or condo unit not used in trade or business) is 6%, while DST on the sale or transfer of real property is 1.5%.
Besides Capital Gains Tax and DST, what other charges apply when transferring Philippine real estate?
A property transfer can also involve Transfer Tax, an LGU-imposed charge of 0.5%-0.75% of the highest of gross selling price/consideration, BIR FMV, or assessor’s FMV (rate varies by location); and a Registration Fee charged by the Register of Deeds, at 0.25%-0.5% of the same three-value basis, also varying by location.
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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