With its growing economy, affluent metro sectors, many job opportunities, perfect climate, and hospitable people, many individuals flock to the Philippines and invest in properties. Moreover, buying and selling or flipping have become a very productive and prolific business model in the country.
While very promising in the potential gains and returns on your investment should you decide to join the buy and sell property trade, or if you are just looking to liquidate a few of your long-term assets, do note that capital gains on selling properties can come at a hefty price. Listed below is everything you need to know about tax rules when it comes to buying and selling of properties in the pearl of the orient.
Costs of Buying a Property
In order to buy a house in the Philippines, you will need to pay for taxes, including documentary stamp tax, transfer tax, title registration fee, and incidental expenses.
Documentary stamp tax constitutes 1.5% of the total selling price listed, fair market value, or zonal value, whichever amounts to higher. This tax is to be paid to the Bureau of Internal Revenue. In addition, all documents, instruments, contracts, or other papers that acknowledge and serve as a proof for the transfer or transaction requires a documentary stamp tax.
Transfer tax is 0.5% to 0.75% of the selling price, fair market value, or zonal value listed on the property, whichever is higher and must be paid to the Bureau of Internal Revenue as well. The purchase of property means a transfer in ownership. Note that each municipality, city, or province may have its own tax laws. To be sure, do confirm and double check with your local authorities where the property is located.
The title registration fee refers to a calibrated table of fees usually based on 0.25% of the selling price of the property or its fair market value, whichever is higher. This tax must be paid to the Land Registration Authority of the Philippines.
The incidental expenses are essentially an expense buffer and refer to miscellaneous or other notarial expenses that may arise.
Noteworthy, though not a tax, you will also have to pay the legal fees of any trusted lawyer or professional like an accounting to firm with specialty services to mediate the transfer. You may also need the help of an accounting professional to evaluate your financial health and check if you can truly afford the property. Most of the time, it will help to pay a little extra for comfort and convenience.
Cost of Selling a Property
The cost of selling properties in the Philippines include the following taxes or expenses: capital gains tax, broker’s commission expense, developer’s commission expense, and incidental expenses.
The capital gains tax refers to any tax costing a percentage of the profit you will gain from the sale of a property. The going rate is 6% of the gross selling price of the home, fair market value or zonal value, whichever costs higher. This will greatly affect the pricing of your home to ensure that you still gain a profit after the sale. This fee is paid directly to the BIR or Bureau of Internal Revenue.
The broker’s commission is how much you pay to the broker who sells your house if you have one. The going rate is usually 5%-10% of the gross selling price of the house but do note that you can sell and negotiate on your own. This commission expense must also be factored into the selling price of your property if you choose to work with a realty firm.
Incidental expenses include notary expenses and other expenses that may arise, such as creating marketing ads to show off your property on social media and various channels. Noteworthy, you may also need to hire a lawyer to mediate the sale and draft contracts. You may also need the help of an accounting or auditing professional to check the past paper work.
Additionally, if you are not up to date with Real Property Taxes, as the original owner, you must pay off all unpaid Real Property Taxes before the sale of the property.
If you need help with buying and selling of a property in the Philippines, don’t hesitate to give our team a call. We can assess your financial health to evaluate if you can truly afford to purchase the property. Similarly, we can help sellers check their past paperwork and facilitate with your local city hall to determine if the property is without arrears with real estate taxes paid on time. Touch base with us for a free 30 minute consultation.
