20/03/2026
What are the taxes imposed on a real estate transaction?
When handling real estate transactions in the Philippines, the applicable taxes depend heavily on whether the property is classified as a Capital Asset (property not used in trade or business) or an Ordinary Asset (property held for sale or used in a trade or business, such as by developers).
โHere is a breakdown of the typical taxes imposed during a property transfer:
โ1. Taxes on Capital Assets
โWhen a private individual sells a property, it is usually treated as a capital asset.
โCapital Gains Tax (CGT): A flat rate of 6% applied to the Gross Selling Price (GSP), the Fair Market Value (FMV), or the BIR Zonal Valueโwhichever is highest. This is customarily shouldered by the seller.
โDocumentary Stamp Tax (DST): 1.5% (or โฑ15 for every โฑ1,000) of the GSP, FMV, or Zonal Value, whichever is highest. While the law allows either party to pay, market practice typically assigns this to the buyer.
โLocal Transfer Tax: Ranks between 0.50% (for provincial properties) and 0.75% (for properties in cities and Metro Manila) of the GSP or FMV, whichever is higher. This is paid by the buyer to the local government treasurer's office.
โ2. Taxes on Ordinary Assets
โIf the property is being sold by a corporation, a real estate dealer, or is used for business, it is an ordinary asset. The CGT is replaced by the following:
โCreditable Withholding Tax (CWT): Ranges from 1.5% to 6%, depending on the seller's business status and the property's selling price. This is withheld by the buyer and remitted to the BIR.
โValue-Added Tax (VAT): 12% of the gross selling price or FMV. This applies if the property is not strictly for socialized housing and the sale price exceeds the current BIR VAT-exemption thresholds. While levied on the seller, the cost is almost always passed on to the buyer.
โAdditional Transaction Costs
โBeyond the strict taxes, clearing a title transfer requires a few standard fees:
โRegistration Fee: Approximately 1% of the selling price or zonal value, paid by the buyer to the local Registry of Deeds.
โNotarial Fees: Usually 1% to 2% of the property's selling price to have the Deed of Absolute Sale legally notarized.
โUnpaid Real Property Tax (RPT): While an annual tax rather than a transaction tax, any unpaid RPT (which can be up to 1% in provinces or 2% in Metro Manila) must be fully settled and cleared before the BIR will issue the Certificate Authorizing Registration (CAR).
WHAT ASSETS ARE VATABLE?
The application of Value-Added Tax (VAT) thresholds depends entirely on whether the property is classified as a Capital Asset or an Ordinary Asset under Philippine tax law.
โ1. Capital Assets (No VAT)
โIf the property is a Capital Asset (e.g., a privately owned property not used in trade or business), VAT does not apply, and therefore thresholds do not matter.
The sale of a capital asset is strictly subject to the 6% Capital Gains Tax (CGT). You will never charge or pay VAT on a capital asset transaction, regardless of how high the selling price is.
โ2. Ordinary Assets (Subject to VAT Thresholds)
โIf the property is an Ordinary Asset (e.g., held for sale or lease by a developer, dealer, or corporation), the transaction is generally subject to 12% VAT, unless the selling price falls below the government's specific VAT exemption thresholds.
โUnder the Tax Code (as amended by the TRAIN and CREATE Laws), the Bureau of Internal Revenue (BIR) adjusts these thresholds every three years based on the Consumer Price Index.
The current thresholds were implemented via Revenue Regulations (RR) No. 1-2024, which took effect on January 1, 2024.
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