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Davaoeno

Capital gains tax on real estate transactions

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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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Headshot

That is true. Capital gains tax here is actually just a glorified sales tax (with adders). The Philippine government missed the concept of capital gains completely. Then again, because everybody creates two Deeds of Sale, BIR doesn't really know how much the property sold for anyway. A bad decision by BIR caused corruption of the system to the point where it would be difficult to get people to report the actual sale price for property transactions.

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49 minutes ago, Headshot said:

That is true. Capital gains tax here is actually just a glorified sales tax (with adders). The Philippine government missed the concept of capital gains completely. Then again, because everybody creates two Deeds of Sale, BIR doesn't really know how much the property sold for anyway. A bad decision by BIR caused corruption of the system to the point where it would be difficult to get people to report the actual sale price for property transactions.

They have different ideas across the board. Take business taxes, for instance. Portions of our business, our fee is mostly eaten up in expenses. We may make only $50 after expenses on a given job on which we have to charge $500. But then they charge us 3% income tax on that full $500. Then we have to pay the tax on airfare, hotels, food, etc... In the end we may get to keep $30 of that $500, while they get to keep more than we do. 

It's no wonder businesses seldom keep valid and accurate books.

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