Capital Gains Tax
The Bureau of Internal Revenue defines Capital Gains Tax as “a tax imposed on the gains presumed to have been realized by the seller from the sale, exchange, or other disposition of capital assets located in the Philippines, including pacto de retro sales and other forms of conditional sale.”
Under the National Internal Revenue Code, as amended by Republic Act No. 10963 also known as the TRAIN law, the rate for capital gains tax for real properties is six percent (6%). The tax forms that one shall fill up are either BIR Form 1706 for the final capital gains tax return for onerous transfer of real property classified as capital assets.
This capital gains tax is computed by multiplying 6% on the gross selling price stated in the notarized document. Thus, if your selling price is 1,000,000 php, your capital gains tax is 60,000 php. Be also aware of the deadline to pay the capital gains tax. Capital gains tax is due 30 days from notarization. If you fail to pay the BIR, then you shall be liable for surcharge and interest.
Documentary Stamp Tax
Documentary Stamp Tax, on the other hand, is defined by the Bureau of Internal Revenue as, “a tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto.”
The tax forms that shall be submitted are BIR Form 2000 for the Documentary Stamp Tax Declaration Return, or BIR Form 2000-OT for the Documentary Stamp Tax Declaration Return for One-Time Transactions.
The tax rates for documentary stamp tax depends upon the document to be stamped and its corresponding taxable base. For a complete list of the documents and their corresponding rates and tax base reference, you may check the BIR website to be guided. In the case of a real property transfer, however, the documentary stamp tax is 1.5%.
Thus, under the same scenario, if your gross selling price is 1,000,000 php, multiplying it with 1.5%, the documentary stamp tax shall be 15,000.00.Again,be mindful of the deadline to pay the documentary stamp tax. The Documentary stamp tax is due every 5th of the month following the month of notarization. Say, you have your deed of sale notarized on March 30th, your documentary stamp tax is due on April 5th. If you fail to pay the BIR, then you shall be liable for surcharge and interest.
Who pays the CGT and DST?
For capital gains tax, according to the National Internal Revenue Code or NIRC:
24 (D) Capital Gains from Sale of Real Property.–
(1) In General. –The provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, is hereby imposed upon capital gains presumed to have been realized from the sale..”.
The capital gains tax being a tax on the realized sale of the asset, it is the seller that is expected to pay. There are instances, however, where the parties can stipulate who pays the taxes. Say for example, the deed of sale specifically states “net of sale.” Meaning, the seller secures the payment of the sale free and clear from any taxes. While this is possible, the seller should still audit the transaction to ensure that the taxes are paid since the BIR can go after the seller if the capital gains are not paid since by law, it is imposed upon the sale of the property made by the seller.
For documentary stamp tax, according to the National Internal Revenue Code or NIRC:
SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers. –Upon documents, instruments, loan agreements and papers, and upon acceptances, assignments, sales and transfers of the obligation, right or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following Sections of this Title, by the person making, signing, issuing, accepting, or transferring the same wherever the document is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines, and the same time such act is done or transaction had: Provided, That whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party who is not exempt shall be the one directly liable for the tax.
From the above, similar to a capital gains tax, it is the person transferring the property that is liable for the documentary stamp tax.It is more common, however, that the buyer pays for the documentary stamp tax. This obligation, however, must be clear in the contract. This way, parties are notified who pays the taxes. In the same example above or “net of sale,” where the seller secures the payment of the sale free and clear from any taxes, while this is possible, the seller should still audit the transaction to ensure that the taxes are paid since the BIR can go after the seller if the documentary stamp tax are not paid since by law, it is imposed upon the person transferring the property.
Where can you file and pay CGT and DST?
For DST, the return is filed with and shall be paid to the Authorized Agent Bank (AAB) within the territorial jurisdiction of Revenue District Office (RDO) where the seller/transferor/donor is required to be registered or where the property is located in case of sale of real property.
The Capital Gains Tax Return (BIR Form No. 1706) shall be filed and paid within thirty (30) days following the sale, exchange or disposition of real property, with any Authorized Agent Bank (AAB) or Revenue Collection Officer (RCO) of the Revenue District Office (RDO) having jurisdiction over the place where the property being transferred is located.
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