Foreigners are not allowed to own land in the Philippines. Foreigners are only allowed to lease private land for 50 years, renewable once for a maximum of 25 years.
Ownership is generally evidenced by:
i) Transfer certificate of title (TCT) – mother title for land
ii) Condominium certificate of title (CCT) – for condominiums and townhouse properties
Foreign Property Ownership
Foreigners are not able to buy land in the Philippines. However, foreigners can invest in the Philippines residential property market. Methods of property ownership for foreigners are:
i) having a Filipino spouse,
ii) as a Philippine corporation, and
iii) property without land such as a condominium.
a. Capital Gains Tax
From the Bureau of Internal Revenue, capital gains presumed to be realized from the sale of a real property not categorized as ordinary asset, are subject to a tax of six percent (6%) based on the highest among the i) selling price, ii) Bureau of Internal Revenue (BIR) zonal value, and iii) assessed value by the provincial/city assessor.
b. Transfer Tax
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:
i) If the property is located in the province, tax must not exceed 50% of the 1% of the tax base stated above.
ii) If the property is located in Metro Manila or any cities in the Philippines, tax must not exceed 75% of the 1% of the tax base state above.
c. Creditable Withholding Tax
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 Housing & Land Use Regulatory Board (HLURB) or the Housing & Urban Development Co-ordinating Council (HUDCC) or other satisfactory evidence (for example, he/it consummated during the preceding year at least six taxable real estate transactions, regardless of amount)
PHP 500,000 and below
Over PHP 500,000 but not more than PHP 2,000,000
|5.0%||Over PHP 2,000,000|
The seller/transferor is not habitually engaged in the real estate business (but the real estate sold is an ordinary asset)
The seller/transferor is exempt from creditable withholding tax in accordance with Section 2.57.5 of Revenue Regulations No. 2-98
d. Income Tax
According to the Bureau of Internal Revenue, 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.
e. Estate Tax
Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition.
|More than||Less than||The tax shall be||Plus|
|PHP 200,000||PHP 500,000||0||5%|
|PHP 500,000||PHP 2,000,000||PHP 15,000||8%|
|PHP 2,000,000||PHP 5,000,000||PHP 135,000||11%|
|PHP 5,000,000||PHP 10,000,000||PHP 465,000||15%|
|PHP 10,000,000||PHP 1,215,000||20%|
Source: Bureau of Internal Revenue
a) Real Property Tax
An annual ad valorem tax is levied on real property such as land, buildings, machinery and other improvements attached to real property. The total tax rates vary by municipality/local government unit. A range of 1% to 2% of assessed value can be imposed on residential, commercial and industrial properties.
b) Special Education Tax Fund
One percent of assessed value in addition to the basic real estate tax.