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Ricbak

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Ricbak

If a person buys a piece of titled land do they have to pay capital gains tax?

I expect the reply might be " consult a lawyer or speak with the BIR" but just wondering whether any board members have been involved in a similar situation. 

Thanks

Ricbak

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Dafey

When real estate is being sold in the Philippines there will always be Capital Gains. This is the government getting a cut in every transaction. Very often the selling price is 'misquoted' on the paperwork to lessen the hit on Capital Gains. (yes...that's illegal but it is common when houses are changing hands here)

That being said Capital gains can be paid by the seller or the buyer or even split. It's negotiable in that aspect.

@Davaoeno will probably weigh in here and is probably the most informed about real estate on the forum...always has heads up advice!

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to_dave007

By law (tax law..  administered by the BIR) the Capital Gains Tax is SUPPOSED to be paid by the seller..  the one who actually made the money via capital gain.  That's the theory.

In practice, the seller frequently doesn't pay the capital gains (if he can get away with it).. unless its set as condition in agreement to buy the property.

But since a CAR (Certificate Authorizing Registration) must be issued by the BIR BEFORE the buyer can get the land title registered, if the seller hasn't paid the Capital gains Tax it becomes a barrier for the buyer to get his land title.. which he may want.  This places the buyer in the situation of either (a) demanding the seller pay the capital gains..  which many sellers will ignore..  or (b) simply paying the capital gains himself..  which..  is exactly how the seller successfully transfers this tax obligation from seller to buyer.

The moral of the story..  make sure capital gains is addressed in your agreement to buy the property, and hold back some of the payment price until payment of cap gains tax is confirmed.

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Headshot
10 minutes ago, to_dave007 said:

make sure capital gains is addressed in your agreement to buy the property, and hold back some of the payment price until payment of cap gains tax is confirmed.

Or like we did, write into the contract that the capital gains will be deducted from the amount paid to the seller. Then you can take care of it yourself and not worry about it. We actually had our lawyer (Vicente Roco) take care of this and all of the other legwork involved in transferring the title, so we didn't have to deal with it at all. It is important to get a good lawyer (like Vicente) who knows the laws and can ascertain the amount needed for the capital gains tax or it just doesn't work. Getting a bad lawyer is just as bad as having problems with a problematic seller. Buying our properties went off without a hitch because we had Vicente working for us.

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Davaoeno

A bit more information about capital gains tax in the Philippines.

First of all it is not a capital gains tax. It is a straight forward percentage fee that is charged regardless if the property is sold for a capital gain or a capital loss.

The fee is 6% to the BIR plus 1.5% doc stamp

How is the fee calculated?  The BIR will charge the fee on the higher of 1]-  the declared sale price  or 2] the zonal value which the BIR has established for that property .  It used to be that the zonal value was very low but starting last year the BIR has raised the zonal values by a huge amount . Sometimes they are higher than the actual sale price .  [ I sold 2 condos in Cebu a couple of months ago and the zonal value on which I had to pay tax was about 40% higher than the actual selling price. 

I know that in some jurisdictions you can challenge a zonal value/ government assessed value but here there is no such process and you are stuck with whatever the BIR says .

 

It is very important to file the transfer with the BIR asap . YOu have I believe 30 days after the date of notarization. The penalty is 25% plus 30% a year interest.

About 3 years ago I bought a boarding house and did not file in time. The penalty plus interest was going to be 160,000.  The people at BIR told me to go back to the seller and get a new Deed of Sale. I did and only had to pay 10,000 for legal fees for the new notarization.

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Davaoeno

I started a new thread just about capital gains tax since this matter comes up quite often [ and is not the same as we are used to in other countries ]

 

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