Years spent working hard abroad, away from the motherland, becomes motivating if we have a big goal in mind. It can be a picture of our children graduating in college, traveling to different places, going on beach adventures, owning a commercial building as investment, or settling down in a home near a beach where we can sing videoke over barbeque with our family anytime we want.
The Philippines can offer that kind of environment, where everything is more affordable—whether college education, vacations, or owning a house—since each dollar you earn can be multiplied fifty times more when you spend in Philippine pesos. For that reason, many would wish to buy property in PH. Also, buying property in the Philippines from a secondary owner can be much cheaper compared to buying from corporate developers, since you can negotiate for the price with the property owners to suit your budget. But this kind of opportunity comes with higher risk; thus, it will be wise to do due diligence to make sure you have all the rights on the property you’ll invest in.
Here are some of our suggested steps to follow and documents you will need to help reduce financial risks when buying properties from individuals in the Philippines:
1. Verify if the property is not incumbered to another person
Get a copy of the current Certified True Copy (CTC) of the land title from the Office of the Registry of Deeds or Land Registration Authority. You can request for the CTC of the land title online through the Land Registration Authority eSerbisyo.
If you wish to verify in person, you can Google the location of the Registry of Deeds that has jurisdiction over the location of the property you wish to buy. Somehow, Google Maps is almost accurate. Each city, barangay, or province in the Philippines has a corresponding Office of the Registry of Deeds, under the supervision of the Land Registration Authority, which houses and monitors the registration and update of all the original titles of land and automobiles. Getting the latest certified true copy of the land title from the Registry of Deeds nearest the location of the property you wish to buy can help you validate if the property has no incumbrances, and the one selling the property is the present owner and has the full right to sell the property you are considering buying.
In requesting for the CTC, you will need to provide the title number or better yet, get a photocopy of the title from the seller. Once you get the recent certified true copy from the Registry of Deeds, check the last page if there are conditions or notes for any hindrances in transferring the property to a new owner. You can also ask the Registry of Deeds for the complete checklist of the requirements to transfer the land title to your name.
Also, check that the title of the property does not need to be divided, and that you will be getting the full portion of the land as stated in the title. For example, there are times that the owner of a 240sqm property wishes to sell 60sqm to four individuals, but there is only one title carrying the four units. In this case, the property needs to be submitted first to the Registry of Deeds for subdivision before ownership of the land can be transferred. Subdividing properties here in the Philippines can take more or less six months—that is, with regular follow up.
2. Find out if you were able to negotiate for a good price
Check the latest fair value of the land online as determined by the Philippine government (also referred to as zonal value) through the Bureau of Internal Revenue (BIR) website or from the value declared from the certified true copy of the tax declaration, which you can request from the Office of the City Assessor governing the city or province where the property is located.
3. Check if the property tax has been paid regularly
You can ask the seller for the copy of the latest real property tax receipt issued by the Local City Treasurer to determine that there are no property tax arrears that you will need to shoulder once you buy the property.
Every property owner in the Philippines has the obligation to pay for the property tax every January at the City Hall that has jurisdiction over where the land is located. Also check with the City Treasurer if you can be allowed tax discounts, as this can also save you about 10% of the property tax due if you pay before January of each year.
4. Pay the Documentary Stamp Tax before the fifth day following the month of sale
Upon signing the Deed of Absolute Sale for the property bought, take note that the buyer has the obligation to pay for the documentary stamp tax to the BIR accredited bank, together with the completely filled out BIR Form 2000 on or before the fifth day following the month of sale. This costs about 1.5% of the highest value among the three sources of value, which are:
- The Deed of Absolute sale,
- The zonal value as determined by the BIR as the fair value, or
- The amount in the tax declaration form, which you can get personally from the City Hall.
For example, you have bought the property at the price of PHP3 million, as stated in the Deed of Absolute sale; on the other hand, the BIR provided the zonal value at PHP5 million, and in the tax declaration, the value assessed by the City Assessor is PHP1 million. The documentary stamp tax will be about 1.5% of the PHP5 million zonal value, the highest determined fair value among the three, even if it is written in the Deed of Absolute sale that you have bought the property at PHP3 million.
Take note that late payment of the documentary stamp tax may entail around 25% surcharge, plus around 20% interest and compromise penalty from the BIR.
5. Determine who should shoulder the tax from capital gains
Part of the requirements in getting a Certificate Authorizing Registration (CAR) of the transfer of property from the BIR is the presentation of proof of payment of the 6% capital gains tax. Thus, it has been the practice in the Philippines that the buyer of the property deducts—or we also say withholds—the capital gains tax from the payment of the total selling price of the seller. This will have to be remitted to the BIR accredited bank, together with the BIR Form 1706 or 1606 to make sure that the copy of the proof of payment is already with the buyer.
There are also times that the buyer shoulders the 6% tax on behalf of the seller, but it depends on the agreement between the buyer and seller, if the buyer is willing to pay the 6% capital gains tax on top of the selling price.
You can also go to BIR to ask for assistance on the computation of tax to be paid, or ask assistance from CPAs, lawyers, or a licensed real estate broker.
The author, Carmela J. Valbuena-Paano, CPA,MBA, is a CPA in public practice and a professor of accounts, tax, and business. Her practice ranges from providing assistance in business registration, accounting service, tax services, payroll services, and other management advisory services. If you have any questions on PH taxation, registering your business, and other topics related to her expertise, message us on Facebook or send us an email at [email protected].
