Do you intend to check a property? Before making a substantial financial choice, it is necessary to familiarize yourself with the costs and taxes involved with owning real estate. In this article, taxes to pay when buying a lot in the Philippines will be addressed.
Real estate is something permanently affixed to or constructed on land, whether it be created natural or man-made.
With a gross value added of about 126 billion Philippine pesos as of the second quarter of 2021, the real estate sector is a significant contributor to the Philippine economy. Filipinos' purchasing and investment power in real estate have been steadily rising in recent years as a result of the country's expanding middle-class population and the consistent remittances sent home by overseas Filipino workers (OFWs).
All stakeholders must first be aware of the costs associated with who will cover the fees and tax to be paid when buying a land: the buyer, the individual seller, or the real estate developer. It is important to know who, what, and how much taxes to pay when buying a lot in the Philippines.
In the Philippines, the ultimate purchase price is not, and should not be, the only important value when purchasing and selling real estate holdings. Both the buyer and the seller must take these charges into account since they have an effect on the total transaction price. The imposed fees and taxes to pay when buying a lot in the Philippines are as follows:
Real Estate Taxes and Fees in the Philippines
For the account of the Seller:
Capital Gains Tax
Taxes paid on capital gains are referred to as CGT. It is based on the idea that the seller would profit from the sale of the asset if they offer it for sale for more than they paid for it. 6% of the selling price, zonal value, or fair market value, whichever is larger, is the CGT tax. It's vital to remember that the seller should be responsible for paying this tax.
Business Tax
Any company or business must consistently pay business taxes, so becoming familiar with the procedures can help you avoid unnecessary costs. Before fully entering the economic market, it is advised that start-ups get familiar with its many types and services. Doing so will assist prevent excessive tax fines or jail.
Types of Business Tax:
• VAT
Since it is collected from the seller whenever any of their services, leases, or commodities are sold, VAT, which is also regarded as an indirect tax, is one of the most often used taxes for all enterprises. All of these transactions are subject to a twelve percent (12%) VAT with each transaction sending a monthly payment to the BIR. Keep in mind that the payment amount is subtracted from the value assigned to the product's cost. However, the company will not be required to pay VAT if actual sales are less than anticipated.
• Excise tax
This is regarded as a VAT add-on. These are affixed to locally produced products, services, and leases and take effect when used or transferred to domestic sales. They are also included in companies that deal with the manufacture of tobacco, alcohol, and other leisure items.
• Percentage Tax
If your business is not registered for VAT, you must pay this tax, which is deducted from a set portion of your sales. It is also included in a firm if its total yearly sales and revenues are within the acceptable range.
• Income Tax
These types of business taxes are deducted from the net profits of your company. Your firm may be subject to the following two types of income taxes:
Individual Income Tax- If your company is a sole proprietorship, this is significant because the money you get is deemed "personal income" and must be reported on your individual tax return (ITR).
Corporate Income Tax - When your company is organized as a corporation, which is taxed on income as a separate entity, you will be subject to this tax. This implies that as a stock owner, you will pay more taxes on dividends.
• Import Tax
If the importing of products into the Philippines is the focus of your business. These consist of tools, supplies, and industrial machinery.
• Compensation Taxes
Business owners are responsible for providing for the welfare of their employees, which includes withholding and remitting income taxes to the proper government agencies, maintaining Philhealth or Medicare coverage, and demonstrating SSS contributions.
Taxes that are deducted from payments to employees and vendors are known as withholding taxes.
For the account of the Buyer:
Normally, the DST tax is imposed on the Deed of Absolute Sale signed by the buyer and seller. If the selling price, fair market value, or zonal value is higher, the DST is 1.5% of that amount. The tax to be paid when buying a land in the Philippines is the DST, which is an excise tax. The DST is established for all papers, records, and other items that serve as proof of the acceptance, sale, and transfer of the property. The buyer is accountable for the DST tax. The DST, for instance, is P30,000 for a PHP 2M property.
Transfer Tax
This tax is paid when the property's title is changed from the seller to the buyer, indicating the acquisition of new ownership through the sale of the property. Depending on where the property is located, the amount involved varies, but it typically ranges from 0.5% to 0.75% of the selling price or the zonal or fair market value, whichever number is higher.
Title Registration Fee
The registration of the new owner's title with the Register of Deeds in the county where the property is located in the last step. A buyer first has to obtain the required tax clearances from the Bureau of Internal Revenue. The amount due varies, and registration costs are often listed in a public table; nevertheless, on average, they amount to around 0.25 percent of the selling price.
In order to guarantee that the processing of documentation for what you acquired will go well, you as the buyer should set aside a sizeable sum of money in addition to what you paid for the property.
Property Tax
The Local Government Code of 1991, or Republic Act 7160, requires owners of residential properties to pay an annual real property tax to their local government unit that is calculated based on a fixed percentage of the value of the property. This obligation extends to property managers for commercial properties. Government-owned buildings, non-profit organizations, churches, cooperatives, and educational institutions are some of the entities that are free from real estate taxes.
The real property tax rate is 2% for the majority of Metro Manila's cities and municipalities and 1% for the provinces. The fair market value of a property is multiplied by the assessment level to determine its assessed property value, also known as its taxable value. Residential property can be assessed up to a maximum of 20%, whilst commercial and industrial property can be assessed up to a maximum of 50%. It is important to physically check with your city's treasury office as several localities have various tax rates.
All of us hope to fulfill the goal of owning a home. The law needs additional taxes for your purchase in order to contribute to the national revenue of the country, thus simply making the purchase is only half the battle. This proves that owning a property is a commitment you must be willing to accept and embrace.
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