Taxes, Fees and Incidental Expenses Related to Selling / Buying Real Estate Properties in the Philippines

Purchasing or selling real estate in the Philippines, particularly in San Vicente, Palawan, involves several taxes, fees, and incidental expenses that buyers and sellers must account for. These costs are crucial to consider when planning your real estate transaction, as they can significantly impact the overall investment for buyers and the net proceeds for sellers.

In this guide, we will walk you through the different taxes and fees involved and provide real-world computations based on the following example:

• Actual Selling Price: ₱1,000,000
• Zonal Value: ₱500,000
• Assessed Value: ₱100,000

Since taxes and fees are computed based on the highest value among the Actual Selling Price, Zonal Value, or Assessed Value, we will use the Actual Selling Price of ₱1,000,000 for our calculations.

Essential Taxes and Fees for Real Estate Transactions

1. Capital Gains Tax (CGT)

• Rate: 6% of the highest value (Actual Selling Price, Zonal Value, or Assessed Value).
• Who Pays: Seller.

Capital Gains Tax is imposed on the sale of real estate property, even if no actual capital gain is realized. It is calculated based on the highest value among the three possible valuations.

Computation:
₱1,000,000 (Selling Price) x 6% = ₱60,000 for CGT

2. Documentary Stamp Tax (DST)

• Rate: 1.5% of the highest value (Actual Selling Price, Zonal Value, or Assessed Value).
• Who Pays: Buyer (unless negotiated otherwise).

Documentary Stamp Tax is applied to the legal documents that formalize the sale of the property, such as the Deed of Absolute Sale.

Computation:
₱1,000,000 (Selling Price) x 1.5% = ₱15,000 for DST

3. Transfer Tax

• Rate: 0.5% to 0.75% of the highest value (Actual Selling Price, Zonal Value, or Assessed Value), depending on the local government.
• Who Pays: Buyer.

Transfer Tax is a local tax required when transferring property ownership to a new buyer.

Computation:
₱1,000,000 x 0.75% = ₱7,500 for Transfer Tax

4. Registration Fee

• Rate: 0.25% to 0.5% of the highest value (Actual Selling Price, Zonal Value, or Assessed Value).
• Who Pays: Buyer.

The Registration Fee is paid to the Register of Deeds to officially record the property under the new owner's name.

Computation:
₱1,000,000 x 0.25% = ₱2,500 for Registration Fee

5. Notarial Fee

• Rate: 2% of the agreed selling price.
• Who Pays: Buyer or shared between buyer and seller.

Important Update: The notarial fee for real estate transactions in Palawan increased from 1% to 2% following the COVID-19 pandemic. This fee is paid to the notary public for notarizing the Deed of Absolute Sale, making it a legally binding document.

Computation:
₱1,000,000 (Selling Price) x 2% = ₱20,000 for Notarial Fee

Summary of Costs for the Buyer and Seller

For the Seller:

• Capital Gains Tax (CGT): ₱60,000

For the Buyer:

• Documentary Stamp Tax (DST): ₱15,000
• Transfer Tax: ₱7,500
• Registration Fee: ₱2,500
• Notarial Fee: ₱20,000

Total Estimated Buyer Costs:

₱15,000 (DST) + ₱7,500 (Transfer Tax) + ₱2,500 (Registration Fee) + ₱20,000 (Notarial Fee) = ₱45,000 (Buyer’s total costs, excluding incidental expenses)

Additional Costs for Buyers:

• Processing & Titling Service Fee: Typically ranges from ₱20,000 to ₱30,000 for handling the transfer of title.
• Surveying Costs: If a new survey is required, the cost can range from ₱40,000 to ₱60,000, depending on the property size and complexity.
• Minor Administrative Fees: Miscellaneous fees related to obtaining clearances and other necessary documentation.

Important Considerations: "NET of All Taxes, Fees, and Incidental Expenses"

Many real estate properties in San Vicente are offered as “NET of all taxes, fees, and incidental expenses”. This means that the buyer is responsible for covering all the taxes and fees related to the transaction, including Capital Gains Tax, Documentary Stamp Tax, Transfer Tax, and Registration Fees. In this scenario, the seller receives the agreed selling price without deductions.

Why This Matters:

If a property is sold on a NET basis, the buyer should be prepared to pay not only the selling price but also an additional ₱45,000 or more in taxes and fees, as outlined in the example. This can significantly increase the buyer’s total investment.

Plan for Real Estate Taxes and Fees in the Philippines

Understanding the taxes, fees, and incidental expenses involved in a real estate transaction is essential for both buyers and sellers. These costs can significantly affect the total price paid by the buyer and the net proceeds received by the seller. In San Vicente, Palawan, where property values are rapidly increasing due to infrastructure development and tourism growth, these costs can add up quickly.

By factoring in both the mandatory taxes (CGT, DST, Transfer Tax) and optional fees (survey, processing, etc.), buyers and sellers can make more informed decisions. The 2% notarial fee, which increased after the pandemic, is an important consideration when planning your transaction, as it adds to the buyer’s total cost.

With careful planning and a clear understanding of these financial obligations, buyers and sellers can navigate the real estate transaction process smoothly and ensure that their investment in Palawan’s booming property market is sound and well-calculated.

Please note that the taxes, fees, and incidental expenses quoted in this guide are subject to change without prior notice. Government agencies, such as the Bureau of Internal Revenue (BIR) and local government units, may adjust tax rates and fees at any time. The figures mentioned above are estimates provided for informational purposes only and may vary depending on specific circumstances or updates in tax regulations. We strongly advise consulting with a licensed real estate professional, lawyer, or tax expert to obtain the most accurate and up-to-date information before proceeding with any real estate transaction.

Historical Ownership Research

In the dynamic world of real estate, each transaction represents a substantial investment. For buyers, understanding the lineage of property ownership is more than a mere formality—it is a crucial step in protecting themselves from potential legal complications and financial setbacks. This is where Historical Ownership Research (HOR) comes into play. By tracing the ownership history of a property, HOR verifies its legitimacy and ensures that the title is free from encumbrances, hidden liabilities, and potential claims. This due diligence step is especially critical in attractive and rapidly developing locations like San Vicente, Palawan, where beachfront properties and commercial lots are in high demand.

This guide delves into the importance of conducting historical ownership research, outlines its key benefits, and explains the risks associated with skipping this essential process. Understanding the complexities of property ownership can save buyers from future legal battles, financial loss, and stress, making HOR a non-negotiable part of any real estate transaction.

Why Historical Ownership Research is Essential

Conducting Historical Ownership Research is an in-depth process that traces the history of property ownership from its original acquisition to the present. It uncovers the property's "story," ensuring that every transfer of ownership has been legitimate and legally binding. Here are some key reasons why HOR is indispensable:

1. Ensuring a Clear Title

A clear and undisputed title is the foundation of any successful real estate transaction. Historical Ownership Research confirms that the seller has legal ownership and the right to sell the property. It identifies any unresolved issues, such as adverse claims, liens, or mortgage encumbrances that could prevent a smooth transaction. This is particularly relevant in places like San Vicente, Palawan, where rapid property development and sales can sometimes lead to multiple conflicting claims on the same parcel of land.

2. Uncovering Previous Liabilities and Encumbrances

Previous owners may have left behind unresolved debts, unpaid taxes, or other legal obligations that could be passed on to the new buyer. HOR helps identify such liabilities early, giving buyers a chance to address these issues before finalizing the purchase. For example, if a property has an active mortgage or tax lien, the buyer can negotiate for the seller to settle these before closing the deal.

3. Validating the Legitimacy of Past Transfers

In some cases, properties change hands through informal agreements, inheritance disputes, or unregistered transfers, making it difficult to establish a clean ownership history. Historical Ownership Research reviews the legitimacy of every transfer, ensuring that each transaction was properly recorded and compliant with legal standards. This is particularly crucial in regions like Palawan, where family-owned lands may have been passed down through generations without formal documentation.

4. Identifying Overlapping Claims and Boundary Issues

In areas with high real estate demand, such as coastal regions or commercial hubs, boundary disputes and overlapping claims are common. HOR involves cross-referencing cadastral maps, survey plans, and ownership documents to verify that the property boundaries are clearly defined and free from disputes with neighboring lots.

5. Ensuring Compliance with Local Laws and Regulations

Certain properties, especially those near environmental conservation areas or protected zones, may have restrictions on development or usage. Historical Ownership Research includes verifying compliance with local regulations, ensuring that the property is not subject to limitations that could hinder future development.

The Step-by-Step Process of Historical Ownership Research

The process of conducting Historical Ownership Research involves several steps, each aimed at uncovering potential issues and verifying the property's legitimacy. Here’s a breakdown of the process to guide you through a successful investigation:

1. Document Retrieval and Compilation

Begin by collecting all relevant documents, such as:

• Original Certificate of Title (OCT) or Transfer Certificate of Title (TCT)
• Deed of Sale, Deed of Donation, or Deed of Transfer
• Tax Declarations and Tax Clearances
• Cadastral Maps and Survey Plans
• Environmental Compliance Certificates (ECC) if applicable

Gather these from the Registry of Deeds, Assessor’s Office, and other government agencies involved in property documentation. This provides a foundation for validating each transfer and ensures that you have a complete record to cross-check.

2. Verification of Ownership and Transfer Legitimacy

Each document should be examined meticulously to confirm its authenticity. Check for the following:

• Genuine Signatures: Ensure that all signatures on the documents match those of the rightful owners or their legal representatives.
• Notarization and Witnessing: Verify that documents are properly notarized and witnessed, as required by law.
• Consistency Across Records: Details such as names, lot numbers, and property descriptions should be consistent across all documents.

3. Cross-Check with the Registry of Deeds

Obtain a Certified True Copy of the property’s title from the Registry of Deeds to confirm that the original is free from annotations like mortgages, liens, or adverse claims. Ensure that the title number, owner’s name, and property details match those provided by the seller.

4. Investigate Historical Ownership Chain

Trace the chain of ownership back to the earliest known owner. Review each transfer for legal validity, checking for:

• Proper Conveyance Documents: Each transfer should be supported by a deed of conveyance (e.g., Deed of Sale, Deed of Donation).
• Legal Heirship: For properties acquired through inheritance, check that all legal heirs were included in the transfer.

5. Resolution of Discrepancies

If there are discrepancies, such as missing heirs or conflicting claims, additional legal documentation (e.g., Quit Claims or Affidavits of Waiver) may be required to clarify the property's ownership status. Seek legal advice to navigate these complexities.

Benefits of Conducting Thorough Historical Ownership Research

Investing time and resources in Historical Ownership Research offers several benefits, including:

• Risk Mitigation: By identifying and addressing potential issues early, HOR helps mitigate risks and prevents future legal complications.

• Financial Security: Resolving any financial liabilities associated with previous owners ensures that the new buyer does not inherit hidden debts or obligations.

• Smooth and Secure Transactions: Proper verification reduces the likelihood of post-purchase disputes, creating a smoother transaction process.

• Enhanced Property Value: Properties with a clear ownership history often command a higher market value, as buyers are willing to pay a premium for legal certainty.

Risks of Skipping Historical Ownership Research

Failing to conduct thorough Historical Ownership Research can expose buyers to significant risks, including:

1. Unresolved Legal Disputes

If a property has unresolved disputes or claims, new owners may find themselves embroiled in legal battles that are both time-consuming and costly.

2. Financial Liabilities

Unpaid taxes, mortgages, or liens can unexpectedly become the responsibility of the new owner, leading to financial strain and potential loss of investment.

3. Total Investment Loss

In extreme cases, properties acquired through fraudulent or improper transfers can result in the nullification of the sale, causing total loss of investment.

Protecting Your Investment Through Due Diligence

Whether you're purchasing a beachfront property in San Vicente, Palawan, or a commercial lot in a developing area, Historical Ownership Research is an essential step in ensuring that your investment is legally secure and free from unexpected liabilities. By tracing the property’s history, verifying each transfer, and resolving any discrepancies, HOR not only protects your financial interests but also provides peace of mind.

Engaging a licensed real estate broker or property lawyer who specializes in ownership research can further safeguard your transaction, making the journey of acquiring your dream property smooth and stress-free. Remember, in real estate, due diligence is not just about following legal procedures—it’s about protecting your future.