How Much Is Capital Gains Tax in the Philippines?

Capital Gains Tax (CGT) is a levy on the profit derived from the sale of capital assets. In the Philippines, this tax specifically targets gains from certain transactions, differing significantly from ordinary income tax. It applies to the increase in value of particular assets when they are sold, exchanged, or disposed of.

CGT is not universally applied to all asset sales but instead focuses on specific capital assets. The rates and calculation methods vary depending on the nature of the asset transferred.

Capital Gains Tax on Real Property

The capital gains tax on real property in the Philippines applies to the sale, exchange, or disposition of land and/or buildings classified as capital assets. This is a final tax, meaning it is the sole tax imposed on the transaction. The fixed rate is six percent (6%) of the selling price.

The tax base for real property CGT is the highest of the gross selling price, the fair market value determined by the Commissioner of Internal Revenue, or the fair market value determined by the provincial or city assessor. For instance, if a property sells for ₱5,000,000 but its zonal value is ₱6,000,000, the 6% tax applies to the ₱6,000,000. This approach ensures the tax is collected on the property’s maximum recognized value.

As a final tax, sellers generally cannot deduct expenses or the original cost basis of the property to reduce the tax amount. This simplifies the computation but means the entire gross value, subject to the “highest of” rule, is taxed. Other related costs, such as documentary stamp tax and transfer taxes, are separate obligations.

Exemptions from the 6% CGT on real property exist. A significant exemption applies to the sale of a principal residence. To qualify, proceeds must be fully utilized in acquiring or constructing a new principal residence within eighteen calendar months from the date of sale. The seller must also notify the Bureau of Internal Revenue (BIR) of their intention to avail of this exemption within 30 days from the date of sale.

This principal residence exemption can only be availed once every ten years. If the entire proceeds are not reinvested, the unutilized portion remains subject to the 6% capital gains tax. Other exemptions include properties acquired by the government through expropriation or those transferred to the government in exchange for public shares.

To prepare for this tax, sellers need specific documents. These include the Deed of Sale, the Tax Declaration for the land and improvements, and the Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT). These documents are used to determine the selling price and the property’s declared values. Preparation also involves understanding the requirements for the Certificate Authorizing Registration (CAR) and completing BIR Form 1706, the Capital Gains Tax Return for Onerous Transfer of Real Property Classified as Capital Asset.

Capital Gains Tax on Shares of Stock

Capital Gains Tax applies to the sale, exchange, or disposition of shares of stock in a domestic corporation not traded through the local stock exchange. This distinguishes them from shares traded on the Philippine Stock Exchange, which are subject to a different stock transaction tax. This section focuses exclusively on these unlisted shares.

The fixed final tax rate for capital gains from the sale of unlisted shares is fifteen percent (15%) of the net capital gain. This rate applies uniformly regardless of the amount of the gain. This tax is considered final, with no further income tax imposed on the gain.

The “net capital gain” for unlisted shares is calculated by deducting the cost basis and any selling expenses from the gross selling price or the fair market value, whichever is higher. For example, if shares were purchased for ₱100,000 and sold for ₱150,000, with selling expenses of ₱5,000, the net capital gain is ₱45,000. The 15% tax applies to this ₱45,000.

Certain transactions involving unlisted shares may be exempt from capital gains tax. This includes shares transferred as part of specific tax-free exchanges or corporate reorganizations, provided they meet tax law conditions. These exemptions are typically designed to facilitate business restructuring without immediate tax burdens.

To prepare for this tax, sellers should have the Deed of Sale or equivalent transfer document, stock certificates, and documentation proving the original cost basis. Records of any selling expenses are also necessary for accurate calculation. The relevant tax form is BIR Form 1707, the Capital Gains Tax Return for Onerous Transfer of Shares of Stocks Not Traded Through the Local Stock Exchange.

Filing and Payment Procedures

After calculating capital gains tax and preparing forms, specific procedures must be followed for filing and payment. Adhering to the correct deadlines and submission points is important for compliance. These steps are distinct from the calculation process and focus solely on the administrative requirements.

For real property, the filing and payment deadline is within thirty (30) days from the date of sale. This is a strict deadline, and late payments can incur penalties. For shares of stock not traded through the local stock exchange, individuals have two options: within 30 days after each transaction, or on or before April 15 of the next year for cumulative gains within a calendar year.

Tax returns and supporting documents are filed with the Revenue District Office (RDO). For real property, this is the RDO with jurisdiction over the property’s location. For shares of stock, it is the RDO with jurisdiction over the seller’s residence or business address. Payments can be made at Authorized Agent Banks (AABs) or through online payment channels recognized by the BIR.

When submitting the CGT return, several supporting documents are required. For real property, these include a copy of the Deed of Absolute Sale, the latest Tax Declaration for land and improvements, and a copy of the Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT). For shares of stock, copies of the Deed of Sale and stock certificates are needed.

The Certificate Authorizing Registration (CAR) is a pivotal document for real property transactions. After capital gains tax and other related taxes are paid and returns processed, the BIR issues the CAR. This certificate is indispensable because the Register of Deeds will not transfer property ownership without it. Obtaining the CAR involves submitting tax returns, payment forms, and supporting documents to the RDO for validation and issuance.

After filing and payment, the BIR validates the submitted documents. For real property, this validation leads to the CAR’s issuance, allowing the new owner to register the property. For shares of stock, successful filing and payment complete the tax obligation.