TAXES 101

What are the additional expenses which I have to shoulder when I purchase a property?

The additional expenses which you have to pay for include taxes, fees, and association dues.

What are the applicable taxes and fees when I purchase a property?

The typical taxes/transaction cost in the sale of real property from the developer to a buyer are the following:

  • Income/Creditable Withholding Tax

The developer is subject to a 30% income tax payable to the Philippine Bureau of Internal Revenue (BIR) on income derived from the sale of property. As a general rule, the buyer is required to withhold 5% of the purchase price, zonal value or TD value of the property, whichever is higher, to be credited to the income tax of the developer. The developer may cause such withholding to be made on behalf of the buyer and remitted to the BIR.

  • Value-added Tax

Value-added tax at the rate of 12% of purchase price, zonal value or TD value of the property, whichever is higher, is payable on each sale of real property to the BIR.

  • Documentary Stamp Tax

Documentary stamp tax at the rate of 1.5% of the purchase price, zonal value, or TD value of the property, whichever is higher, is payable on the execution of the DOS to the BIR.

  • Local Transfer Tax

Local transfer tax is imposed by the local government unit where the property is located generally at the rate of 50% of 1% of the purchase price, zonal value, or TD value of the property, whichever is higher.

Registration fees are payable to the Register of Deeds where the property is located at the rate of P8,796.00 for the first P1.7million plus P90.00 for every P20, 000.00 or fraction thereof in excess of P1.7 million.

How much will my association dues be?

The typical association due cost for lot is P25/sqm, for condominiums is P75-90/sqm.

What additional expenses will I have to shoulder if I re-sell my property?

The typical expenses in the re-sell of real property are the following:

  • Income Tax

If the Seller is a corporation, or individual who is a Philippine resident, engaged in the real estate business, such Seller is subject to a 30% income tax payable to the BIR on income derived from the sale of property. As a general rule, the buyer is required to withhold 5% of the purchase price, zonal value or TD value of the property, whichever is higher, to be credited to the income tax of the Seller.

If the Seller is a corporation, or individual (whether or not a Philippine resident), not engaged in the real estate business and the property was not used in the ordinary course of the corporation’s or individual’s business, the property is a capital asset and the sale is subject to a 6% capital gains tax based on purchase price, zonal value or TD value of the property, whichever is higher.

  • Value-Added Tax

If the Seller is a corporation or individual engaged in the real estate business, the sale is subject to value-added tax at the rate of 12% of purchase price, zonal value or TD value of the property, whichever is higher.

If the Seller is a corporation or individual not engaged in the real estate business and the property was not used in the ordinary course of the corporation’s business, the sale is not subject to value-added tax.

  • Documentary Stamp Tax

Documentary stamp tax at the rate of 1.5% of the purchase price, zonal value, or TD value of the property, whichever is higher, is payable upon the execution of the DOS to the BIR.

  • Local Transfer Tax

Local transfer tax is imposed by the local government unit where the property is located generally at the rate of 50% of 1% of the purchase price, zonal value, or TD value of the property, whichever is higher.

  • Registration Fees

Registration fees are payable to the Registry of Deeds where the property is located at the rate of P8,796.00 for the first P1.7million, plus P90.00 for every P20,000.00 or fraction thereof in excess of P1.7 million.

Sale of Shares in a Corporation Owning Real Property

The sale of shares is typically subject to the following transaction costs:

  • Capital Gains Tax

The sale of shares, whether the Seller is an individual or corporation, is generally subject to a final tax at the rate of 5% for the first P100, 000 of net gain derived from the sale, and 10% on the net gain in excess thereof.

  • Documentary Stamp Tax

Documentary stamp tax on the transfer of shares are payable at the rate of 0.75 for every 200.00, or fraction thereof, based on the par value of the shares.

Other Modes of Unloading Property

Assets (whether shares or real property) may be disposed of through donation or inheritance. The transfer of property through donation is subject to donor’s tax at graduated rates which is imposed on the fair market value of the property. In the case of real property, the fair market value at the time of the donation shall be whichever is the higher of the zonal value and the TD value of the property. The donor’s tax upon a donor who was a citizen or resident at the time of donation shall be credited with the amount of any donor’s tax of any character and description imposed by the authority of a foreign country, subject to certain limitations.

The transfer of property through inheritance is subject to estate tax based on the total value of the net estate. The net estate is the total gross estate of the deceased less allowable deductions. In the case of real property, the fair market value at the time of death shall be whichever is the higher of the zonal value and the TD value of the property. The estate tax imposed under Philippine tax laws shall be credited with the amounts of any estate tax which the nonresident may have paid to the authority of a foreign country, subject to certain limitations.

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