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.