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Description

Capital Gains Tax is a tax imposed on the gains presumed to have been realized by the seller from the sale,
exchange, or other disposition of capital assets located in the Philippines, including pacto de retro sales and other
forms of conditional sale.

Final Capital Gains Tax for Onerous Transfer of Real Property Classified as Capital Assets (Taxable and Exempt)

Tax Form

BIR Form 1706 Final Capital Gains Tax Return (For Onerous Transfer of Real Property Classified as Capital Assets -
Taxable and Exempt)

Documentary Requirements

1) One original copy and one photocopy of the Notarized Deed of Sale or Exchange

2) For manually issued title (red title), a certified true copy of the Original Certificate of Title (OCT), Transfer
Certificate of Title (TCT), or Condominium Certificate of Title (CCT) in case of a condo unit

For electronically issued title (blue title), a photocopy of the Original Certificate of Title (OCT), Transfer Certificate
of Title (TCT), or Condominium Certificate of Title (CCT) in case of a condo unit

3) Certified True Copy of the tax declaration on the lot and/or improvement during nearest time of sale

4) Certificate of No Improvement issued by the Assessors office where the property has no declared
improvement, if applicable or Sworn Declaration/Affidavit of No Improvement by at least one (1) of the
transferees

5) Copy of BIR Ruling for tax exemption confirmed by BIR, if applicable

6) Duly approved Tax Debit Memo, if applicable

7) Sworn Declaration of Intent as prescribed under Revenue Regulations 13-99, if the transaction is tax-exempt

8) Documents supporting the exemption

9) Special Power of Attorney (SPA) from the transacting party if the latter is not one of the parties to the Deed of
Transfer

Additional requirements may be requested for presentation during audit of the tax case depending upon existing
audit procedures.

Procedures
File the Capital Gains Tax return in triplicate (two copies for the BIR and one copy for the taxpayer) with the
Authorized Agent Bank (AAB) in the Revenue District where the property is located. In places where there are no
AAB, the return will be filed directly with the Revenue Collection Officer or Authorized City or Municipal Treasurer.

One-Time Transaction (ONETT) taxpayers shall mandatorily use the eBIRForms in filing all of their tax returns. They
may opt to submit their tax returns manually using the eBIRForms Offline Package in the RDO where the property
is located or electronically through the use of the Online eBIRForms System. (Sec. 3(2) RR No. 6-2014)

Tax Rates

For real property - 6%.

Deadline

Within 30 days after each sale, exchange, transfer or other disposition of real property.

[return to index]

Capital Gains Tax for Onerous Transfer of Shares of Stocks Not Traded Through the Local Stock Exchange

Tax Form

BIR Form 1707 - Capital Gains Tax Return (For Onerous Transfer of Shares of Stocks Not Traded Through the Local
Stock Exchange)

Documentary Requirements

1) One original copy and one photocopy of the Notarized Deed of Sale/ Exchange of shares of stock

2) Photocopy of the Deed of Acquisition or proof of cost/ fair market value of the stocks at the time of acquisition

3) Photocopy of certificate of shares of stock

4) Photocopy of evidences of expenses related to sale

5) Photocopy of Audited Financial Statements duly certified by an independent certified public accountant with
computation of fair market value per share at the time of sale.

6) Duly approved Tax Debit Memo, if applicable

7) Special Power of Attorney (SPA) from the transacting party if the latter is not one of the parties to the Deed of
Transfer

Additional requirements may be requested for presentation during audit of the tax case depending upon existing
audit procedures.

Procedures
File the Capital Gains Tax return in triplicate (two copies for the BIR and one copy for the taxpayer) with the
Authorized Agent Bank (AAB) in the Revenue District where the seller or transferor of stocks is registered. In places
where there are no AAB, the return will be filed directly with the Revenue Collection Officer or Authorized City or
Municipal Treasurer.

One-Time Transaction (ONETT) taxpayers shall mandatorily use the eBIRForms in filing all of their tax returns. They
may opt to submit their tax returns manually using the eBIRForms Offline Package in the RDO where the seller or
transferor of stocks is registered or electronically through the use of the Online eBIRForms System. (Sec. 3(2) RR
No. 6-2014)

Tax Rates

For Shares of Stocks Not Traded in the Stock Exchange

- Not over P100,000 - 5%


- Any amount in excess of P100,000 - 10%

Deadline

Within 30 days after each sale or disposition of shares of stocks or real property. In case of installment sale, the
return shall be filed within 30 days following the receipt of the first down payment and within 30 days following
the subsequent installment payments. Only one return shall be filed for multiple transactions within the day.

Annual Capital Gains Tax for Onerous Transfer of Shares of Stocks Not Traded Through the Local Stock Exchange

Tax Form

BIR Form 1707A - Annual Capital Gains Tax Return (For Onerous Transfer of Shares of Stocks Not Traded Through
the Local Stock Exchange)

Procedures

File the Capital Gains Tax return in triplicate (two copies for the BIR and one copy for the taxpayer) with the
Authorized Agent Bank (AAB) in the Revenue District where the seller or transferor of stocks is registered. In places
where there are no AAB, the return will be filed directly with the Revenue Collection Officer or Authorized City or
Municipal Treasurer.

Tax Rates

For Shares of Stocks Not Traded in the Stock Exchange

- Not over P100,000 - 5%


- Any amount in excess of P100,000 - 10%

Deadline

Individual Taxpayers On or before April 15 of each year covering all stock transactions of the preceding taxable
year
Corporate Taxpayers On or before the fifteenth (15) day of the fourth (4) month following the close of the
taxable year covering all transactions of the preceding taxable year

Note: For onerous transfer of real property other than capital asset (including taxable and exempt), a creditable
withholding tax based on the gross selling price/total amount of consideration or the fair market value determined
in accordance with Section 6(E) of the Code, whichever is higher, paid to the seller/owner for the sale, transfer or
exchange of real property, other than capital asset, shall be imposed upon the withholding agent/buyer. (sec. 3 (j),
RR NO. 6-2001)

Related Revenue Issuances

Revenue Regulations (RR) Nos. 2-1998, 8-1998, 4-1999, 13-1999, 7-2003, 17-2003, 30-2003, 4-2008, 6-2008, 5-
2009, 6-2013, 6-2014

Revenue Memorandum Order (RMO) Nos. 15-2003, 22-2016, 55-2016

Revenue Memorandum Circular (RMC) No. 50-2003

OPM-AS-APMD 2017-06-06

OPM-AS-APMD 2017-06-01

Codal Reference

Sec. 24C, Sec. 24D, Sec. 27D(2), Sec. 27D(5), Sec. 28(A)(7)(c), Sec. 28(B)(5)(c) and Sec. 39A of the National Internal
Revenue Code (NIRC)

Frequently Asked Questions

1) What is meant by capital asset?

Capital asset means property held by the taxpayer (whether or not connected with his trade or business), but does
not include

a) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of
the taxpayer if on hand at the close of the taxable year; or
b) property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business; or
c) property used in the trade or business of a character which is subject to the allowance for depreciation provided
in subsection (F) of Sec. 34 of the Code; or
d) real property used in trade or business of the taxpayer.

2) What is meant by ordinary asset?

Ordinary asset refers to all properties specifically excluded from the definition of capital assets under Sec. 39 (A)(1)
of the NIRC.
3.) What is meant by "Stock classified as Capital Asset"? (Sec 2(a) of RR 6-2008)

This refers to stocks and securities held by taxpayers other than dealers in securities.

4.) What is meant by "Dealer in Securities"? (Sec 2(b) of RR 6-2008)

Dealer in Securities refers to a merchant of stocks or securities, whether an individual, partnership or corporation,
with an established place of business, regularly engaged in the purchase of securities and the resale thereof to
customers; that is one, who as merchant buys securities and re-sells them to customers with a view to the gains
and profits that may be derived therefrom. "Dealer in securities" means any person who buys and sells securities
for his/her own account in the ordinary course of business (Sec. 3.4, SRC).

5.) What is meant by real property?

Real property shall have the same meaning attributed to that term under Article 415 of Republic Act No. 386,
otherwise known as the Civil Code of the Philippines.

6.) What does a real estate dealer refer to?

A real estate dealer refers to any person engaged in the business of buying and selling or exchanging real
properties on his own account as a principal and holding himself out as a full or part-time dealer in real estate.

7.) What does a real estate developer refer to?

Real estate developer refers to any person engaged in the business of developing real properties into subdivisions,
or building houses on subdivided lots, or constructing residential or commercial units, townhouses and other
similar units for his own account and offering them for sale or lease.

8.)What does a real estate lessor refer to?

Real estate lessor refers to any person engaged in the business of leasing or renting real properties on his own
account as a principal and holding himself out as a lessor of real properties being rented out or offered for rent.

9.) Who are considered engaged in the real estate business?

Taxpayers who are considered engaged in the real estate business refer collectively to real estate dealers, real
estate developers and/or real estate lessors. A taxpayer whose primary purpose of engaging in business, or whose
Articles of Incorporation states that its primary purpose is to engage in the real estate business shall be deemed to
be engaged in the real estate business.

10.) Who are considered not engaged in the real estate business?

Taxpayers who are considered not engaged in the real estate business refer to persons other than real estate
dealers, real estate developers and/or real estate lessors.

11.) Who are considered habitually engaged in the real estate business?

Real estate dealers or real estate developers who are registered with the Housing and Land Use Regulatory Board
(HULRB) or HUDCC
12.) How can you determine whether a particular real property is a capital asset or an ordinary asset?

a) Real properties shall be classified with respect to taxpayers engaged in the real estate business as follows:

i) All real properties acquired by the real estate dealer shall be considered as ordinary assets.

ii) All real properties acquired by the real estate developer, whether developed or undeveloped as of the time of
acquisition, and all real properties which are held by the real estate developer primarily for sale or for lease to
customers in the ordinary course of his trade or business or which would properly be included in the inventory of
the taxpayer if on hand at the close of the taxable year and all real properties used in the trade or business,
whether in the form of land, building, or other improvements, shall be considered as ordinary assets.

iii) All real properties of the real estate lessor, whether land, building and/or improvements, which are for
lease/rent or being offered for lease/rent, or otherwise for use or being used in the trade or business shall likewise
be considered as ordinary assets.

iv) All real properties acquired in the course of trade or business by a taxpayer habitually engaged in the sale of
real property shall be considered as ordinary assets.

Note: Registration with the HLURB or HUDCC as a real estate dealer or developer shall be sufficient for a taxpayer
to be considered as habitually engaged in the sale of real estate.

If the taxpayer is not registered with the HLURB or HUDCC as a real estate dealer or developer, he/it may
nevertheless be deemed to be engaged in the real estate business through the establishment of substantial
relevant evidence (such as consummation during the preceding year of at least six (6) taxable real estate sale
transactions, regardless of amount; registration as habitually engaged in real estate business with the Local
Government Unit or the Bureau of Internal Revenue, etc.

A property purchased for future use in the business, even though this purpose is later thwarted by circumstances
beyond the taxpayers control, does not lose its character as an ordinary asset. Nor does a mere discontinuance of
the active use of the property change its character previously established as a business property. (Sec 3(a)(4)of RR
7-2003)

b) In the case of taxpayer not engaged in the real estate business, real properties, whether land, building, or other
improvements, which are used or being used or have been previously used in trade or business of the taxpayer
shall be considered as ordinary assets.

c) In the case of taxpayers who changed its real estate business to a non-real estate business, real properties held
by these taxpayer shall remain to be treated as ordinary assets.

d) In the case of taxpayers who originally registered to be engaged in the real estate business but failed to
subsequently operate, all real properties acquired by them shall continue to be treated as ordinary assets.

e) Real properties formerly forming part of the stock in trade of a taxpayer engaged in the real estate business, or
formerly being used in the trade or business of a taxpayer engaged or not engaged in the real estate business,
which were later on abandoned and became idle, shall continue to be treated as ordinary assets. Provided
however, that properties classified as ordinary assets for being used in business by a taxpayer engaged in business
other than real estate business are automatically converted into capital assets upon showing proof that the same
have not been used in business for more than two years prior to the consummation of the taxable transactions
involving said properties
f) Real properties classified as capital or ordinary asset in the hands of the seller/transferor may change their
character in the hands of the buyer/transferee. The classification of such property in the hands of the
buyer/transferee shall be determined in accordance with the following rules:

i) Real property transferred through succession or donation to the heir or donee who is not engaged in the real
estate business with respect to the real property inherited or donated, and who does not subsequently use such
property in trade or business, shall be considered as a capital asset in the hands of the heir or donee.

ii) Real property received as dividend by the stockholders who are not engaged in the real estate business and who
do not subsequently use such property in trade or business, shall be considered as a capital asset in the hands of
the recipients even if the corporation which declared the real property dividends is engaged in real estate
business.

iii) The real property received in an exchange shall be treated as ordinary asset in the hands of the case of a tax-
free exchange by taxpayer not engaged in real estate business to a taxpayer who is engaged in real estate
business, or to a taxpayer who, even if not engaged in real estate business, will use in business the property
received in exchange.

g) In the case of involuntary transfers of real properties, including expropriations or foreclosure sale, the
involuntariness of such sale shall have no effect on the classification of such real property in the hands of the
involuntary seller, either as capital asset or ordinary asset as the case may be.

13.) What is the basis in the valuation of property?

The value of the real property will be based on the selling price, fair market value as determined by the
Commissioner (zonal value) or the fair market value as shown in the schedule of values of the Provincial or City
Assessor, whichever is higher.

If there is no zonal value, the taxable base is whichever is higher of the gross selling price per sales documents or
the fair market value that appears in the latest tax declaration.

If there is an improvement, the FMV per latest tax declaration at the time of the sale or disposition, duly certified
by the City/Municipal Assessor shall be used. No adjustments shall be added on the said value, provided that the
tax declaration bears the upgraded fair market value of the said property pursuant to Section 219 of R.A. No. 7160,
otherwise known as the Local Government Code of 1991 and the last paragraph of the Local Assessment
Regulations No. 1-92 dated October 6, 1992.

In case the tax declaration being presented was issued three (3) or more years prior to the date of sale or
disposition of the real property, the seller/transferor shall be required to submit a certification from the
City/Municipal Assessor whether or not the same is still the latest tax declaration covering the said real property.
Otherwise, the taxpayer shall secure its latest tax declaration and shall submit a copy thereof duly certified by the
said Assessor. (RAMO 1-2001)

For shares of stocks, it will be based on the net capital gains realized from the sale, barter, exchange or other
disposition of shares of stocks in a domestic corporation, considered as capital assets not traded through the local
stock exchange.

14.) What is meant by "Net Capital Gains"? (Sec 2(o) of RR 6-2008)

"Net Capital Gain" means the excess of the gains from sales or exchanges of capital assets over the losses from
such sales or exchanges.
15.) What are the rules for the determination of amount and recognition of gain or loss in the sale, barter, or
exchange of shares of stock not traded through the Local Stock exchange? (Sec 7(c ) of RR 6-2008)

(A.) Determination of Selling Price. In determining the selling price, the following rules shall apply:

(a.1) In the case of cash sale, the selling price shall be the total consideration per deed of sale.
(a.2) If the total consideration of the sale or disposition consists partly in money and partly in kind, the selling price
shall be sum of money and the fair market value of the property received.
(a.3) In the case of exchange, the selling price shall be the fair market value of the property received.
(a.4) In case the fair market value of the shares of stock sold, bartered, or exchanged is greater than the amount of
money and/or fair market value of the property received, the excess of the fair market value of the shares of stock
sold, bartered or exchanged over the amount of money and the fair market value of the property, if any, received
as consideration shall be deemed a gift subject to the donor's tax under sec. 100 of the Tax Code, as amended.

(B.) Definition of "fair market value" of the Shares of Stock.

(b.1) In the case of listed shares which were sold, transferred or exchanged outside of the trading system and/or
facilities of the Local Stock Exchange, the closing price on the day when the shares are sold, transferred, or
exchanged. When no sale is made in the Local Stock Exchange on the day when the Listed shares are sold,
transferred, or exchanged, the closing price on the day nearest to the date of sale, transfer or exchange of the
shares shall be the fair market value. Sec 2 of RR 6-2013
(b.2) In the case of shares of stock not listed and traded in the local stock exchanges, the value of the shares of
stock at the time of sale shall be the fair market value. In determining the value of the shares, the Adjusted Net
Asset Method shall be used whereby all assets and liabilities are adjusted to fair market values. The net of adjusted
asset minus the liability values is the indicated value of the equity.

The appraised value of real property at the time of sale shall be the higher of

(1) The fair market value as determined by the Commissioner, or


(2) The fair market value as shown in the schedule of valued fixed by the Provincial and City Assessors, or
(3) The fair market value as determined by Independent Appraiser.

(b.3) In the case of a unit of participation in any association, recreation or amusement club (such as golf, polo, or
similar clubs), the fair market value thereof shall be its selling price or the bid price nearest published in any
newspaper or publication of general circulation, whichever is higher.

(C.) Determination of Gain or Loss from Sale or Disposition of Shares of Stock. The gain from the sale or other
disposition Stock. The gain from the sale or other disposition of shares of stock shall be the excess of the
amount realized therefrom over the basis or adjusted basis for determining gain, and the loss shall be the excess of
the basis or adjusted basis for determining loss over the amount realized. The amount realized from the sale or
other disposition of property shall be the sum of money received plus the fair market value of the property (other
than money) received, if any.

16.) What are the applicable tax rates of Capital Gains Tax under the National Internal Revenue Code of 1997?

a) Real Properties - 6 %

b) For Shares of Stocks not Traded in the Stock Exchange, on the net Capital Gains

- Not over P100,000 - 5%


- Any amount in excess of P100,000 - 10%
17.) Who are required to file the Final Capital Gains Tax return?

Every person, whether natural or juridical, resident or non-resident, including estates and trusts, who sells,
transfers, exchanges or disposes real properties located in the Philippines classified as capital assets, including
pacto de retro sales and other forms of conditional sales or shares of stocks in domestic corporations not traded
through the local stock exchange classified as capital assets.

18.) What is the procedure in the filing of Final Capital Gains Tax return?

File the Final Capital Gains Tax return in triplicate (two copies for the BIR and one copy for the taxpayer) with the
Authorized Agent Bank (AAB) in the Revenue District where the seller or transferor is registered, for shares of
stocks or where the property is located, for real property. In places where there are no AAB, the return will be filed
directly with the Revenue Collection Officer or Authorized City or Municipal Treasurer.

19.) Who/what are considered exempt from the payment of Final Capital Gains Tax?


Dealer in securities, regularly engaged in the buying and selling of securities
An entity exempt from the payment of income tax under existing investment incentives and
other special laws
An individual or non-individual exchanging real property solely for shares of stocks resulting in
corporate control
A government entity or government-owned or controlled corporation selling real property
If the disposition of the real property is gratuitous in nature
Where the disposition is pursuant to the CARP law

20.) Who are conditionally exempt from the payment of Final Capital Gains Tax?

Natural persons who dispose their principal residence, provided that the following criteria are met:


The proceeds of the sale of the principal residence have been fully utilized in acquiring or
constructing new principal residence within eighteen (18) calendar months from the date of sale
or disposition;
The historical cost or adjusted basis of the real property sold or disposed will be carried over to
the new principal residence built or acquired;
The Commissioner has been duly notified, through a prescribed return, within thirty (30) days
from the date of sale or disposition of the persons intention to avail of the tax exemption;
Exemption was availed only once every ten (10) years; and
There is no full utilization of the proceeds of sale or disposition. The portion of the gain
presumed to have been realized from the sale or disposition will be subject to Capital Gains Tax.
In case of sale/transfer of principal residence, the Buyer/Transferee shall withhold from the seller
and shall deduct from the agreed selling price/consideration the 6% capital gains tax which shall
be deposited in cash or managers check in interest-bearing account with an Authorized Agent
Bank (AAB) under an Escrow Agreement between the concerned Revenue District Officer, the
Seller and the Transferee, and the AAB to the effect that the amount so deposited, including its
interest yield, shall only be released to such Transferor upon certification by the said RDO that
the proceeds of the sale/disposition thereof has, in fact, been utilized in the acquisition or
construction of the Seller/Transferors new principal residence within eighteen (18) calendar
months from date of the said sale or disposition. The date of sale or disposition of a property
refers to the date of notarization of the document evidencing the transfer of said property. In
general, the term Escrow means a scroll, writing or deed, delivered by the grantor, promisor or
obligor into the hands of a third person, to be held by the latter until the happening of a
contingency or performance of a condition, and then by him delivered to the grantee, promise or
obligee.

21.) What is a Certificate Authorizing Registration?

Certificate Authorizing Registration (CAR) is a certification issued by the Commissioner or his duly authorized
representative attesting that the transfer and conveyance of land, buildings/improvements or shares of stock
arising from sale, barter or exchange have been reported and the taxes due inclusive of the documentary stamp
tax, have been fully paid.

With the implementation of the Electronic Certificate Authorizing Registration (eCAR) System, the CAR shall now
be electronically generated.

22.) What is eCAR System?

eCAR stands for Electronic Certificate Authorizing Registration. A web-based facility that automates the generation
of CAR with barcode, eCAR will also enable electronic linkage between the BIR and the Land Registration Authority.
(Participant Guide)

eCARs shall have a validity of three (3) years reckoned from the date of issuance for purposes of presenting the
same to the Registry of Deeds. Otherwise, the eCAR shall be deemed permanently expired and therefore of no
force and effect. The Large Taxpayers (LT) Division Chiefs/RDOs or ARDOs shall issue a new eCAR to the taxpayer in
case the latter fails to present the eCAR to the Registry of Deeds within the three (3) year validity period. In case of
lost eCAR within the validity period, the RDOs/ LT Division Chiefs shall not issue a new eCAR but instead reprint the
same eCAR and issue to the requesting taxpayer. On both cases, a certification fee prescribed under Executive
Order No. 197 in the amount of One Hundred Pesos (P100.00) shall be charged to the taxpayer/authorized
representative for each released eCAR issued/reprinted, after affixture of P15.00 Documentary Stamp Tax on
Certificates (Sec. 188 of the NIRC of 1997).

23.) How do we determine the fair market value of shares of stocks not traded through the Local Stock Exchange?

In determining the value of the shares, the Adjusted Net Asset Method shall be used whereby all assets and
liabilities are adjusted to fair market values. The net of adjusted asset minus the adjusted liability value is the
indicated value of the equity.

For purposes of this item, the appraised value of real property at the time of sale shall be the highest among the
following:

(a) The fair market value as determined by the Commissioner, or

(b) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors, or

(c) The fair market value as determined by Independent Appraiser. (RR NO. 6-2013)