Selling property in the Philippines, whether you’re a local or a foreigner residing abroad, involves a distinct set of taxes and costs that sellers must understand and budget for. While the process is generally well-defined, navigating the various governmental agencies and financial obligations requires careful planning. This comprehensive guide will detail the primary expenses involved, current tax rates as of mid-2025 (subject to change), and other practical considerations for sellers.
It’s crucial to note that Philippine tax laws and regulations, particularly those related to real estate, can be complex and are periodically updated. Recent legislative changes, such as Republic Act No. 12001 (standardizing real property valuation), Republic Act No. 11976 (Ease of Paying Taxes Act), and Republic Act No. 12066 (reforming tax incentives), though primarily impacting other areas, underscore the dynamic nature of the country’s tax landscape. Therefore, engaging with a reputable real estate broker or, more importantly, a specialized real estate lawyer in the Philippines is highly recommended to ensure compliance and avoid potential pitfalls.
I. Primary Taxes Levied on the Seller
In the Philippines, the bulk of the tax burden for a real estate sale typically falls on the seller. The main taxes you’ll encounter are:
1. Capital Gains Tax (CGT)
- Nature and Rate: The Capital Gains Tax (CGT) is a final tax imposed on the presumed gain derived from the sale, exchange, or other disposition of real property classified as a “capital asset.” This means the property is not used in trade or business and is not held for sale by a real estate dealer. The rate is a flat 6% of the higher of:
- The gross selling price stated in the Deed of Absolute Sale (DOAS).
- The Fair Market Value (FMV), as determined by the Bureau of Internal Revenue (BIR) Zonal Valuation.
- The Assessed Value determined by the Provincial/City Assessor. The highest of these three values will be used as the tax base.
- Who Pays: The seller is primarily responsible for paying the CGT.
- Payment Deadline and Form: CGT must be paid within 30 days from the date of the notarization of the Deed of Absolute Sale. It is paid through BIR Form 1706 (Capital Gains Tax Return for Individual).
- Final Tax: CGT is a “final tax,” meaning no further income tax reporting on the gain from this specific transaction is required from the seller.
- Exemptions to CGT (Principal Residence): A significant exemption exists for the sale of a principal residence. If the property being sold is the seller’s principal residence and certain conditions are met, the sale may be exempt from CGT. These conditions include:
- The seller is a citizen or resident alien.
- The proceeds from the sale are fully utilized in acquiring or constructing a new principal residence within 18 calendar months from the date of sale.
- The seller notifies the Commissioner of Internal Revenue (CIR) of their intention to avail of the exemption within 30 days from the date of sale through a sworn declaration.
- The exemption can only be availed once every 10 years.
- If the proceeds are not fully utilized, the unutilized portion will be subject to CGT.
- The historical cost or adjusted basis of the old principal residence will be carried over to the new principal residence.
- Ordinary Asset vs. Capital Asset: It’s crucial to distinguish if the property is a “capital asset” or an “ordinary asset.”
- If the property is an ordinary asset (e.g., inventory of a real estate developer, or property used in business by an individual habitually engaged in real estate), CGT does not apply. Instead, the transaction may be subject to Creditable Withholding Tax (CWT), and the gain must be declared in the seller’s annual income tax return. CWT rates vary (1.5% to 6%) depending on the seller’s classification and the transaction’s nature. This distinction is vital for developers and frequent sellers.
2. Documentary Stamp Tax (DST)
- Nature and Rate: DST is a tax imposed on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale, or transfer of an obligation, rights, or property incident thereto. For real property sales, the rate is 1.5% (or ₱15 for every ₱1,000) of the higher of the gross selling price or the BIR zonal value/assessed value.
- Who Pays: While the National Internal Revenue Code (NIRC) makes both parties (seller and buyer) liable, it is customary practice in the Philippines for the buyer to shoulder the DST. However, this is subject to the agreement between the parties in the Deed of Sale.
- Payment Deadline and Form: DST must be paid within 5 days after the end of the month the Deed of Absolute Sale was signed. It is paid using BIR Form 2000-OT (one-time transaction).
3. Value-Added Tax (VAT)
- Nature and Rate: VAT is a business tax imposed on the sale, barter, exchange, or lease of goods or properties, or services in the course of trade or business. The standard rate is 12%.
- Applicability: VAT generally applies if:
- The seller is VAT-registered or required to be VAT-registered based on their annual turnover (gross sales/receipts exceeding ₱3 million as of current thresholds).
- The property being sold is a non-residential property or a residential property (lot, house and lot, or condominium unit) whose selling price exceeds certain thresholds. For 2025, residential lots exceeding ₱3,600,000 and residential house-and-lot/condominium units exceeding ₱15,000,000 (subject to inflation adjustment) are generally subject to VAT.
- Exemptions: Sales of residential dwellings below the VAT threshold, or sales by individuals not engaged in real estate business (i.e., selling a capital asset) are typically exempt from VAT.
- On top of CGT/CWT: If applicable, VAT is imposed on top of CGT or CWT, as they tax different aspects of the transaction.
- Who Pays: The seller is usually the one who incurs the VAT, but it is often passed on to the buyer as part of the gross selling price.
4. Local Transfer Tax (LTT)
- Nature and Rate: This is a local government unit (LGU) tax imposed on the sale, donation, barter, or any other mode of transferring ownership of real property. The rate varies depending on the LGU (province, city, or municipality) where the property is located.
- Provinces: Up to 0.5% of the higher of the gross selling price or the FMV.
- Cities and municipalities in Metro Manila: Up to 0.75% of the higher of the gross selling price or the FMV.
- Who Pays: Customarily paid by the buyer, but like DST, this can be subject to contractual agreement.
- Payment Deadline and Location: The deadline for payment varies by local ordinance but is typically within 60 days from the date of notarization of the Deed of Sale. Payment is made at the City or Municipal Treasurer’s Office where the property is located.
II. Other Significant Costs for the Seller
Beyond the direct taxes, sellers should anticipate several other costs that contribute to the total expense of selling a property in the Philippines:
1. Real Estate Broker’s Commission
- Rate: If you engage a licensed real estate broker, their professional fee or commission typically ranges from 3% to 5% of the gross selling price.
- Payment Structure: Commissions are generally paid upon the successful sale and transfer of the property, often on a “no sale, no commission” basis.
- Who Pays: Customarily, the seller pays the broker’s commission.
- Value of a Broker: While this is a significant cost, a good broker brings invaluable expertise, market reach, negotiation skills, and can streamline the complex selling process, especially for foreign sellers.
2. Legal Fees (Attorney’s Fees)
- Scope of Services: Engaging a lawyer is highly recommended for drafting and reviewing the Deed of Absolute Sale, conducting due diligence, ensuring all legal requirements are met, assisting with tax computations, and overseeing the entire transfer process to protect the seller’s interests. This is particularly crucial for foreign sellers navigating an unfamiliar legal system.
- Fee Structure: Lawyers may charge based on an hourly rate, a fixed fee for specific services (e.g., drafting a DOAS), or a percentage of the property value or sale price.
- Typical Range: Fees can vary widely depending on the complexity of the transaction, the property’s value, the law firm’s reputation, and location (Metro Manila rates are generally higher than provincial rates). For straightforward transactions, a fixed fee for drafting and review might range from tens of thousands of pesos, but full end-to-end assistance can run into hundreds of thousands, especially for high-value properties.
- Who Pays: The seller typically covers their own legal fees.
3. Notarial Fees
- Purpose: The Deed of Absolute Sale (DOAS) must be notarized to be a public document and legally binding. The notary public authenticates the document and the identities of the signatories.
- Rate: Notarial fees are usually a small percentage of the property’s selling price or a fixed fee, often ranging from 0.1% to 1% of the property value, or based on a sliding scale per document.
- Who Pays: Often shared between seller and buyer, or simply paid by the party responsible for initiating the notarization (usually the seller).
4. Certificate Authorizing Registration (CAR) Processing Fees
- Importance: The CAR is a critical document issued by the BIR. It certifies that all national internal revenue taxes (CGT/CWT, DST, and any applicable VAT) related to the property transfer have been duly paid. Without the CAR, the Register of Deeds will not transfer the title to the buyer’s name.
- Costs: While not a separate “tax,” there are usually processing fees and miscellaneous costs associated with obtaining the CAR from the BIR, including filing fees, cost of certified true copies of documents, and potentially transportation costs.
- Process: The seller (or their representative/lawyer) files the necessary tax returns and pays the corresponding taxes to the BIR RDO (Revenue District Office) where the property is located. Once taxes are settled and documents submitted, the BIR processes and issues the CAR.
5. Real Property Tax (RPT) and Association Dues (if applicable)
- RPT: The seller is responsible for ensuring all annual real property taxes (also known as Amilyar) are paid up-to-date until the date of sale or transfer of possession. The buyer typically asks for a tax clearance certificate.
- Association Dues: For properties within subdivisions or condominiums, outstanding homeowners’ association or condominium corporation dues must be settled by the seller up to the turnover date. A clearance from the association is usually required.
6. Utilities and Other Bill Clearances
- The seller is generally responsible for settling all outstanding utility bills (electricity, water, internet, etc.) up to the date of turnover. Clearances from these utility providers might be required for the buyer.
7. Miscellaneous and Contingency Fees
- These can include small fees for obtaining certified true copies of documents, barangay (village) clearances, survey plans, and other unforeseen administrative costs that might arise during the process. It’s wise to budget a small contingency fund (e.g., 0.5% – 1% of the selling price) for these.
III. Who Pays What (Customary vs. Legal Obligation)
While the law specifies who is liable for certain taxes, local custom often dictates who actually shoulders the cost. It’s crucial for sellers to clarify and explicitly state these responsibilities in the Deed of Absolute Sale to avoid disputes.
- Seller’s Usual Burden: Capital Gains Tax (CGT), Real Estate Broker’s Commission, Legal Fees (for seller’s lawyer), Notarial Fees (often shared), outstanding Real Property Taxes and Association Dues.
- Buyer’s Usual Burden: Documentary Stamp Tax (DST), Local Transfer Tax (LTT), Registration Fees (paid to the Register of Deeds for title transfer), Legal Fees (for buyer’s lawyer), and miscellaneous expenses for title processing.
- VAT: If applicable, VAT is typically included in the gross selling price, meaning the seller remits it to the BIR but effectively passes the cost to the buyer.
IV. Special Considerations for Foreign Sellers
While the taxes and costs are largely the same for foreign and local sellers, foreigners residing abroad face additional practicalities:
- Physical Presence vs. Power of Attorney (POA): While it’s generally required to be physically present in the Philippines to sign the Deed of Absolute Sale before a Notary Public, foreign sellers can execute a Special Power of Attorney (SPA). This SPA grants a trusted individual (e.g., a lawyer, family member, or friend) in the Philippines the authority to act on your behalf in the sale.
- SPA Requirements: If executed abroad, the SPA must typically be notarized in your country of residence and then apostilled (if your country is a signatory to the Hague Apostille Convention) or authenticated by the Philippine Embassy or Consulate in that country. It then needs to be translated into English or Filipino by a certified translator in the Philippines if originally in another language.
- Fund Repatriation: Foreign sellers will need to consider how to repatriate the proceeds from the sale. While the Philippines has relatively liberal foreign exchange policies, it’s advisable to consult with a financial advisor and your bank regarding the best mechanisms for transferring large sums internationally and any associated banking fees.
- Currency Fluctuations: Selling in Philippine Pesos (PHP) means that the value of your proceeds in your home currency will be subject to exchange rate fluctuations between the time of sale and repatriation.
- Tax Residency: Your tax residency status (Philippine resident vs. non-resident) can have implications for certain tax treatments, though for property capital gains, the 6% rate generally applies regardless of residency for individual sellers of capital assets. However, always confirm with a Philippine tax expert.
V. The Certificate Authorizing Registration (CAR): The Crucial Link
The CAR is the linchpin that connects tax compliance with the legal transfer of title. The entire transfer process cannot be completed without it. After all national taxes (CGT/CWT, DST, VAT if applicable) are paid to the BIR, the seller or their representative applies for the CAR at the RDO where the property is located. The BIR will issue the CAR only after verifying full payment and submission of all required documents. Once the CAR is obtained, it is submitted to the Local Treasurer’s Office to secure the tax clearance from the LGU (confirming Local Transfer Tax and RPT payments). Finally, the CAR, along with the notarized Deed of Absolute Sale, the Transfer Tax Receipt, and the original owner’s title, are presented to the Register of Deeds to cancel the old title and issue a new Transfer Certificate of Title (TCT) in the buyer’s name.
Selling property in the Philippines involves a series of mandatory taxes and associated costs that sellers must be fully prepared for. The major taxes include Capital Gains Tax (6%), Documentary Stamp Tax (1.5%), and potentially Value-Added Tax (12%). Additionally, Local Transfer Tax (up to 0.75%) is typically paid by the buyer but is a transaction cost. Beyond taxes, sellers should budget for real estate broker’s commissions (3-5%), legal fees, notarial fees, and various administrative costs.
For foreign sellers, managing the process from abroad necessitates a clear understanding of the need for a Special Power of Attorney and careful planning for fund repatriation. While the percentages may seem straightforward, the complexities of BIR zonal valuations, exemptions, and the precise sequence of payments and document submissions underscore the invaluable role of experienced legal counsel and, if desired, a licensed real estate broker. By anticipating these costs and seeking professional guidance, sellers can ensure a compliant, efficient, and financially successful property divestment in the dynamic Philippine real estate market.
