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The 7000+ islands of the Philippines are a popular destination for expats, who might be tempted by the thought of owning property there. But wherever there’s property, there are taxes. Read on for a look at what property taxes you will face in the Philippines.
A property tax is any tax that you pay on property that you buy, sell, own or rent. Property in the Philippines means not just buildings, but land and even machinery as well. There are a number of taxes to pay if you have property in the Philippines, the key ones of which are outlined below.
There are taxes that you have to pay as a buyer or seller of property, and there’s a tax to pay each year you own a property as well. If you rent, you may have to pay tax to your landlord as part of your rental payments, too.
Foreigners face some different rules when it comes to buying property in the Philippines, but they pay taxes in the same way as Filipinos.
(Source 1 February 2018)
Property taxes can be broken down into:
- Sales taxes: paid when you buy or sell property
- Maintenance taxes: paid regularly by owners or tenants
Here’s a look at each of them in turn.
These are the sales taxes you have to pay in the Philippines:
- Documentary stamp tax
- Transfer tax
- Registration fee
- Outstanding real estate taxes
- Capital gains tax
(Source 1 February 2018)
Known elsewhere as stamp duty, the buyer has to pay this tax on property purchases. Technically, it’s charged on the necessary documents that a property sale entails, but in practice, it’s simply the largest tax that the buyer faces on the transaction.
- The rate is 1.5%
- It’s charged on the highest out of three values: either the sales price, the ‘fair market value’ or the ‘zonal value’
There’s also a different tax in the Philippines on the transfer itself.
- The rate is between 0.5% -0.75%, varying between municipalities
- Paid on the highest of the three values listed above
This is a fee that’s paid to get the property ownership officially registered.
- The rate varies according to the type of property
- It’s typically around 0.25% of the sale price
The buyer is responsible for picking up the tab if any of the property’s yearly tax bill (explained in detail below) remains unpaid.
The seller pays capital gains tax when the sale is made.
- Capital gains tax is only payable on ‘capital assets’, not on ‘ordinary assets’. If the property is used in trade or business, it’s an ‘ordinary asset’ and hence not liable for capital gains tax. Normal residential properties might well be classified as ‘capital assets’ - so you might have to pay if you’re not professionally involved with the property.
- If the property is your principal residence, but you use the money from the sale to buy (or build) another principal residence, then you might also be allowed an exemption from capital gains tax. But in that case, you’ll probably have to deposit the money securely with a bank and not reclaim it until the new property is yours. Read the small print on the government website.
- It’s charged at 6% of the highest of those three values listed above - this is unlike capital gains tax in many countries, where it’s only payable on the profit made from a sale.
- It needs to be paid within 30 days of the transaction.
|Documentary stamp tax
|Outstanding real estate taxes
|Capital gains tax
There’s only one real maintenance tax on property in the Philippines, although if you rent out a property you may also have to pay income tax on the rent you receive.
This tax, known as RPT for short, is paid yearly by property owners or administrators.
- It’s paid to the local government unit, and you generally have to pay at the local government office or treasury.
- It’s charged on property of all sorts, which includes land, buildings and even machinery.
- You have to pay before the end of January each year - or, if you pay in installments, on a quarterly basis with payments by the end of March, June, September and December. Check locally, but it might be cheaper to pay the full bill in January. Your local office might offer other discounts too.
- Your local government may add a special educational fund (SEF) of 1% on top of this payment.
- They may also add up to 5% if you own ‘idle land’ that isn’t being used as much as it could be.
- Watch out for fines if you pay late. The bill attracts interest of 2% each month it’s overdue, and this can go on accumulating for 3 years.
It’s calculated by applying a local rate to the assessed value of the property. Here’s what that means:
- The local rate is 2% within the Metro Manila area, and 1% in the provinces.
- The assessed value is a certain percentage of the ‘fair market value’ - the officially estimated worth of the property. The percentage depends on the size of the property as well as its function: it’s 20% on residential land, for instance, 10% for a small residential building, or as high as 80% for very large commercial property.
Property owners in the Philippines may also have to pay tax on any rental income they receive if they let out their property.
- While the tax is the owner’s responsibility, the owner can charge it to the tenant as part of their regular rental payments.
- Depending on the rental price, either a 3% ‘percentage tax’ or 12% VAT may also be chargeable.
- There are various exemptions depending on how much the property is rented for, and the circumstances of the buyer.
- If you pay all of your yearly RPT at once before the January cutoff, you might be able to get a discount of up to 20%.
- A few types of property are exempted from real property tax, such as charities and churches.
- As mentioned above, some lessors don’t have to pay rental income tax or VAT.
When buying a property, you should check with your notary regarding the proper payment of the taxes, and you can check the Board of Inland Revenue’s website as well. Don’t pay late or you may face fines.
Capital gains tax has to be paid within 30 days of the sale.
Real property tax has to be paid in full before the end of January if you want the cheapest rate, or otherwise in quarterly installments.
For sales taxes and rental income tax, check with the Board of Inland Revenue to find the forms you’ll need to fill out and confirm payment methods. They have dedicated sections on the sites below:
Real property tax is a local tax and usually has to be paid at the local office, so this is one tax you might need to make a trip for.
Some taxes in the Philippines might need to be paid over the counter at an office, but it may be possible to pay others online. If you don’t currently live in the Philippines, that means you’ll need to take care to avoid the hefty markups that can come with transferring money internationally if you use a bank.
Wise can provide the perfect solution. Rather than marking the exchange rate up by as much as 4-5%, as some banks do, Wise only ever uses the mid-market exchange rate - the only rate that’s fair. And it only charges one simple fee, stated upfront, so you know exactly how much the transfer will cost from the start.
Whether you’re looking to pay a bill directly or simply to transfer money to your own bank account in the Philippines, Wise usually works out a lot cheaper than an international bank transfer or a traditional money transfer service. Take a look now and see if you could save money with Wise.
Taxes are a handful to deal with in any country and can get especially complex if you’re living life internationally, so it pays to know the full picture. Good luck with your property in the Philippines.
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