The proceeds from the sale of real properties held primarily for sale to customers in the ordinary course of trade or business or sale of real properties classified as ordinary assets of the seller who is not habitually engaged in real estate business, shall be included in the seller’s global income. This forms part of the seller’s other income subject to 30% regular income tax or 2% minimum corporate income tax if the seller is a corporation or a graduated tax rate at a maximum rate of 32% if the seller is an individual.
Ordinary assets are assets which qualify in any of the following types of property:
There shall be imposed a 12% value-added tax (VAT) on real estate sales of those who are engaged in the business of selling, developing, leasing or sub-leasing of real property and those licensed to engage in real estate brokerage business based on their commission. However, in pursuance to RR No. 4-07, even if the real property is not primarily held for sale to customers or held for lease in the ordinary course of trade or business but the same is used in the trade or business of the seller, the sale thereof shall be subject to VAT being a transaction incidental to the taxpayer’s main business.
Further, a person should register as a VAT entity if his gross annual sales and/or receipts exceed ₱1,919,500.00 in a year.
The tax base of 12% output VAT is the highest among the (1)selling price, (2)Bureau of Internal Revenue (BIR) zonal value, and (3)assessed value by the provincial/city assessor and the time of payment will depend whether the sale is an installment sale or a cash sale.
Capital gains presumed to be realized from the sale of a real property not categorized as ordinary asset is subject to a tax of six percent (6%) based on the highest among the (1)selling price, (2)Bureau of Internal Revenue (BIR) zonal value, and (3)assessed value by the provincial/city assessor.
Conditionally exempt from paying Capital Gains Tax:
The sale of a principal residence is exempt from capital gains tax. The said principal residence pertains to the seller’s family home or the dwelling house, including the land on which it is situated, where the husband and wife or an unmarried individual, whether or not qualified as head of family, and members of his family reside. In order for the sale to be qualified as exempt, the following conditions should be met:
For the last condition above, the 6% equivalent amount shall only be released once all the preceding conditions are met. The escrow agency shall require the seller of the principal residence a certification before it can release the amount to the seller of the principal residence.
Further, the following are also exempted from paying capital gains tax:
– from BIR
The documentary stamp tax is an excise tax levied on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, rights, or property incident thereto.
The amount of tax is either fixed or based on the par or face value of the document or instrument. In the case of the sale of real estate properties, the rate shall be 1.5% based on the highest among the (1)selling price, (2)Bureau of Internal Revenue (BIR) zonal value, and (3)assessed value by the provincial/city assessor.
Transfer tax is the tax imposed on any mode of conveying the ownership of a real property, either through sale, donation, barter, or any other mode. The tax rate varies depending on the location of the real property as presented below:
Further, the tax is based on the highest among the property’s (1)selling price, (2)Bureau of Internal Revenue (BIR) zonal value, and (3)assessed value by the provincial/city assessor.
Creditable withholding tax (CWT) is the tax which is withheld by the buyer/withholding agent from his payment to real estate dealers, developers, operators and persons or entities who are considered to be habitually engaged in real estate business, and which tax is creditable against the income tax payable of the seller.
Thus, when the real estate sold is a capital asset to the seller, no creditable withholding tax shall be imposed and his income from the sale of real estate will be subject to capital gains tax.
Under the tax rules, the following are the percentages to be withheld:
|The seller/transferor is habitually engaged in the real estate business as per proof of registration with the HLURB or the HUDCC or other satisfactory evidence (for example, he/it consummated during the preceding year at least six taxable real estate transactions, regardless of amount)||1.5%||₱500,000 and below|
|3.0%||Over ₱500,000 but not more than ₱2,000,000|
|The seller/transferor is not habitually engaged in the real estate business (but the real estate sold is an ordinary asset)||6.0%||Any amount|
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