How to Pay the Transfer Tax in the Philippines

A transfer tax is a government levy on the transfer of ownership of real property from one person or entity to another. In the Philippines, this process encompasses a set of taxes levied by both the national and local governments, each with its own rules. Understanding these obligations is a part of any real estate transaction, whether it involves a sale, a gift, or an inheritance. The process ensures the government collects its due revenue and the new owner’s rights are legally recorded.

Distinguishing National and Local Transfer Taxes

When a property changes hands in the Philippines, the transaction triggers tax obligations at two different levels of government. The first is the Local Transfer Tax (LTT), which is imposed by the specific city or province where the property is situated. This tax applies to sales, donations, and inheritances, and the responsibility for paying it falls on the buyer or person receiving the property.

Separate from the LTT, the national government, through the Bureau of Internal Revenue (BIR), imposes its own set of taxes. The specific national tax depends entirely on the nature of the property transfer.

Capital Gains Tax

For properties transferred through a sale, the national government levies a Capital Gains Tax (CGT). This tax is calculated on the profit that the seller realizes from the transaction. If the property is sold by a developer or someone considered “habitually engaged in the real estate business,” the transaction may be subject to a 12% Value-Added Tax (VAT) instead of CGT. Sales of lower-value residential lots and dwellings are exempt from VAT.

Donor’s Tax

When a property is given away as a gift or donation, the transaction is subject to Donor’s Tax. This tax is imposed on the person making the gift, known as the donor, to account for the transfer of wealth outside of a sale or inheritance.

Estate Tax

When property is transferred to heirs following the death of the owner, the transaction is subject to Estate Tax. This tax is levied on the net value of the deceased person’s estate before it is distributed to the beneficiaries.

Documentary Stamp Tax

A Documentary Stamp Tax (DST) is also levied by the national government on the legal documents that record the transfer of property ownership, such as the deed of sale or donation. This tax is a prerequisite for the registration of the new title and applies to all transfer types.

Calculating the Applicable Taxes

The calculation method for transfer-related taxes varies depending on the specific tax. For the Local Transfer Tax (LTT), the rate is set by the local government unit. The tax is calculated on the property’s tax base, which is the highest value among the gross selling price, the fair market value from the city or provincial assessor, or the zonal value from the BIR. Provinces can charge a rate of up to 0.50%, while cities and municipalities within Metro Manila can impose a rate of up to 0.75%.

The Capital Gains Tax (CGT) is calculated at a fixed rate of 6%. This rate is applied to the highest value among the gross selling price, the BIR’s official zonal value, or the fair market value listed in the most recent tax declaration.

Both the Donor’s Tax and the Estate Tax are calculated using a flat 6% rate, but their tax bases differ. The Donor’s Tax is applied to the total value of the net gifts made by the donor during a calendar year.

The Estate Tax is calculated on the value of the decedent’s net estate. This is determined by taking the gross value of all properties owned by the deceased and subtracting allowable deductions. These deductions include a standard deduction, a family home deduction, and other valid obligations like claims against the estate.

The Documentary Stamp Tax (DST) is calculated at a rate of 1.5%. This tax is applied to the highest value among the gross selling price, the BIR’s zonal value, or the property’s fair market value.

Required Documentation for Tax Payment

Paying transfer taxes begins with assembling the correct paperwork. For nearly all property transfers, a core set of documents is required, including certified true copies of the property’s title (Original, Transfer, or Condominium Certificate of Title) and the latest Tax Declaration. The Taxpayer Identification Numbers (TINs) of all parties involved are also necessary.

The specific nature of the transfer dictates additional notarized documentation. Each type of transfer corresponds to a unique legal document that formalizes the transaction.

For Sale

When a property is sold, the central document is the notarized Deed of Absolute Sale. For tax purposes, the relevant BIR forms are the Capital Gains Tax Return and the Documentary Stamp Tax Return.

For Donation

In the case of a donation, the key document is the notarized Deed of Donation. The corresponding tax forms are the Donor’s Tax Return and the Documentary Stamp Tax Return.

For Inheritance

For property transferred through inheritance, the required document is a notarized Deed of Extrajudicial Settlement of Estate. A copy of the decedent’s Death Certificate is also required. The taxes are processed using the Estate Tax Return and the Documentary Stamp Tax Return.

The Payment and Registration Process

Once the taxes are calculated and documents are prepared, the payment and registration process can begin. The first step is settling national taxes with the Bureau of Internal Revenue (BIR) by submitting the appropriate forms and documents to the Revenue District Office (RDO) with jurisdiction over the property. Following the Ease of Paying Taxes Act, filings and payments should preferably be completed electronically, though manual filing at an Authorized Agent Bank (AAB) is an alternative. Upon payment, the BIR will issue a Certificate Authorizing Registration (CAR).

With the CAR from the BIR, the next step is to pay the Local Transfer Tax (LTT) at the Treasurer’s Office of the city or municipality. The taxpayer must present the CAR, the deed of transfer, and other required documents. This tax must be paid within 60 days from the date the deed was notarized, or for inherited properties, within 60 days from the date of the decedent’s death.

The final action is to register the property with the Registry of Deeds. All proofs of payment, the original owner’s duplicate title, and the CAR must be submitted. The Registry of Deeds will review all documents, cancel the old title, and issue a new Transfer Certificate of Title or Condominium Certificate of Title. To complete the process, the new owner must take the new title to the local Assessor’s Office to have the property’s Tax Declaration updated in their name.