On taxes on the purchase of real estate

The best investment on earth is land,” said Louis J. Glickman, an American real estate investor and philanthropist.

Never has a truer word been spoken for investing in real estate in the Philippines. In its report entitled “Top 10 Forecast for 2019”, Colliers International, a commercial real estate services organization based in Canada, predicted strong demand for commercial and residential space, with the growing number of Chinese offshore gaming employees, professionals local and foreign. food and beverage and furniture tenants.

“Over the years, the Philippine real estate market has never been more buoyant as it continuously soars thanks to the country’s bullish economy and strong investment inflows which are triggering a positive ripple effect in all real estate sectors,” local property solutions portal Filipino Homes said. .

“Therefore, it wouldn’t be surprising if real estate investing is still one of the best opportunities available… [N]This is the best time to get involved.

Global Property Guide, however, indicated that investing in real estate in the Philippines can lead to high transaction costs.

“[G]Ross Rental yields in Metro Manila remain good, ranging from 7.01 percent on the smallest 45 sqm condominium units. at 7.16 percent on 80 m². condominiums”.

“This does not mean that foreign investors should necessarily rush to invest in Manila, as transaction taxes (called ‘capital gains taxes’, but not really) and (if observed) official taxes on the income applicable to non-resident investors, are high.”

Here are the taxes that may be imposed on the purchase of real estate in the Philippines.

One of these taxes may include the Capital Gains Tax (CGT), which is a final tax assessed on the deemed gain derived by Philippine citizens, resident aliens, estates and trusts from the sale or the exchange of real estate classified as fixed assets. The current rate of CGT is 6% of the gross sale price or the current fair market value, as determined by the tax commissioner, whichever is greater.

Capital gains presumed to have been realized on the sale or alienation of a residence of a natural person, the proceeds of which are entirely used to acquire or build a new principal residence within 18 calendar months from from the date of this sale or alienation, are exempt from CGT, however.

Potential investors may also have to pay property taxes (RPT), which must not exceed 1% of the assessed value of a property located in a province or 2% of this assessed value in a city or municipality of the Metro Manila. In this regard, immovable property should be valued on the basis of its actual use – the purpose for which the property is mainly or principally used by the possessors of it, regardless of its location and the people who use it.

The RPT can also be imposed on equipment, instruments and machinery found on the building, whether attached, permanently or temporarily.

The following properties are exempt from RPT assessment:

immovable property owned by the Republic of the Philippines or any of its political subdivisions, except where beneficial use has been granted to a taxable person, with or without consideration;

charitable institutions, churches, parsonages, mosques, covenants and all lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes;

machines and equipment directly and exclusively used for the supply and distribution of water and/or the production and transmission of electrical energy;

real estate belonging to duly registered cooperatives; and

machinery and equipment used for pollution control and environmental protection.

Documentary stamp duty (DST), a tax imposed either on the transaction or on the document facilitating said transactions, as provided for by the national tax code and the law on trains, may be imposed on the purchase of a Property.

DST on deeds of sale, transfers and gifts of immovable property is imposed as follows: (a) P15, where the consideration or value received or contracted to be paid for such immovable property, after due consideration of any encumbrance , does not exceed P1,000; and (b) P15, for each additional P1,000 or fraction thereof in excess of P1,000. The parties may agree who will be liable for DST or how they may share the cost thereof.

Transfer tax is another chargeable tax for such a sale.

Thus, the province may impose a tax on the sale, gift, barter or any other transfer of ownership or title of an immovable at a rate not exceeding 50% of the 1% of the purchase price or fair market value, whichever is greater. The transfer of immovable property in accordance with the Comprehensive Agrarian Reform Act is, however, exempt from transfer tax.

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