How to Transfer Land/Condo Title in the Philippines – Step by Step Process

How to Transfer Land/Condo Title in the Philippines – Step by Step Process

HOW TO TRANSFER PROPERTY AND TAX REGISTRATION

 

STEP 0: DEALING WITH THE SELLER

Document: Certified True Copy of the TCT/OCT, 1 copy [P273.35, from the Registry of Deeds]

-Visit Property Location

-Ask the Seller for Certified True Copy of the Original Certificate of Title / Transfer Certificate of Title, also referred to as the “Blue Copy” (This document will give you very useful details, such as name and address of the registered owner, location of the property, all the annotations on the title [mortgages, encumbrances, judgments involving the property, the like]. It will also tell you how recently the copy was requested and released by the Registry of Deeds, so you can be assured of its accuracy. You can countercheck with the LRA website if they did release such a copy by using the control number.)

 

 

STEP 1: PREPARATION OF DOCUMENTS

 

Document:

-Notarized Deed of Absolute Sale, at least 4 Original Copies

-Notarized Affidavit of No Improvement (if parcel of land), 1 Original Copy

-Notarized Certificate of Management (if Condominium), 1 Original Copy

 

Then comes the preparation of the Deed of Sale. It is definitely better to have a professional prepare these documents for you, but of course you can also prepare them yourself. If the property is only a piece of land, with no buildings or other improvements on it, you also have to prepare an Affidavit of No Improvement. If the property is a Condominium Unit you need to obtain a Certificate of Management from the building’s admin. Have all these notarized.

 

As for the Deed of Sale, 1 Original Copy will be submitted to the BIR, 1 Original copy should be retained by the Seller, and at least 2 Original Copies should be retained by the Buyer.

 

Document: Acknowledgment Receipt, at least 4 Original Copies

 

Have both Seller and Buyer sign an Acknowledgment Receipt, stating the amount received, and the property for which it was given. This does not need to be notarized.

 

As with the Deed of Sale, 1 Original Copy will be submitted to the BIR, 1 Original copy should be retained by the Seller, and at least 2 Original Copies should be retained by the Buyer.

 

Document: Latest Tax Receipt, 1 Original Copy from the seller, make at least 1 photocopy

 

Ask the Seller to provide you the receipt of the latest tax payment made. You will know from this if the realty tax payment is up to date, how much you would need to pay to get a tax clearance, if any is needed.

 

Document: Original Owner’s Duplicate of the Title

 

Ask the Seller to give you the owner’s duplicate. This is not the Blue Copy, but the actual OCT/TCT in the seller’s possession.

 

Document: Photocopy of Buyer’s and Seller’s IDs, at least 5 copies

 

Prepare at least 5 photocopies of both Seller’s and Buyer’s VALID IDs. This includes driver’s license, SSS, GSIS, passport, TIN, and other government-issued IDs.

 

 

STEP 2: ACQUIRING DOCUMENTS FROM THE CITY HALL

 

Document: Certified True Copy of Latest Tax Declaration, at least 2 Copies [P50.00 each, from the City Assessor’s Office], make at least 2 photocopies

 

The Seller can request these documents himself, or he can give the Buyer/Attorney-in-fact an authorization letter, so the Buyer can acquire it in his stead. One copy will be retained by the BIR when you apply for a Certificate Authorizing Registration [CAR], and one copy will be for the Registry of Deeds, when you have your property registration transferred.

If the Seller chooses to let the Buyer obtain the copy, the Buyer will need the following:

An authorization letter signed by the Seller / Registered Owner [also called a Letter Request]

1 photocopy of a valid ID of the Buyer / Requesting Party [from Step 1]

1 photocopy of the OCT/TCT, or the Tax Declaration, or a Tax Receipt

This will only take 30-45 minutes.

 

Document: Certificate of No Improvement, 1 Copy [P50.00 each, from the City Assessor’s Office], make at least 2 photocopies

 

If the property is only a parcel of land, with no buildings or improvements, you have to obtain a Certificate of No Improvement. You will need the following:

 

Notarized Affidavit of No Improvement [See Step 1]

1 photocopy of a valid ID of the Buyer / Requesting Party [See Step 1]

1 photocopy of the Latest Tax Declaration [See previous part]

After receiving the certified true copy of the tax declaration in the previous part, you can already request for the certificate of no improvement. This will take at least 1 day, so you have to come back on the next business day.

 

 

STEP 3: OBTAINING THE CERTIFICATE AUTHORIZING REGISTRATION [CAR]

 

The BIR RDO

 

If either or both Seller and Buyer don’t have a TIN yet, tell them you need to obtain a TIN for a sale of land. They will give you BIR Form 1904.

If either or both DO have a TIN, but don’t have a pre-filled Form 1904 yet, ask for a Form 1904, fill it up, and then tell them you’re there to obtain a CAR.

If both Seller and Buyer already have a TIN AND a pre-filled Form 1904, you should tell them you’re trying to get a CAR, or that you’re paying Capital Gains Tax. They will direct you to an ONETT Officer.

 

Document: TIN of Seller and Buyer, 1 Original Copy [from the BIR RDO]

Document: Notarized Deed of Sale, 1 Original Copy [From Step 1]

Document: Certified True Copy of OCT/TCT, aka Blue Copy [From Step 0]

Document: Certificate of No Improvement, 1 Original Copy [From Step 2]

Document: Certified True Copy of the Latest Tax Declaration, 1 copy [From Step 2]

Document: Acknowledgment Receipt, 1 Original Copy [From Step 1]

 

The ONETT Officer will assess the all the documents, and then will prepare a computation of the Capital Gains Tax, Documentary Stamp Tax, and Certification Fee. You will be given an ONETT Computation Sheet, which will provide the amounts to be paid, the deadlines, and the subsequent forms you will need to fill out.

 

 

STEP 4: PAYING YOUR TAXES C/O BIR

 

The ONETT Officer will direct you to pay your taxes to whichever bank accepts tax payments, within the jurisdiction of the RDO.. BUT BEFORE YOU PROCEED TO THE BANK, you must fill up three forms first, through eBIRForms [see BIR website].

 

For the 3 Forms (eBIR 1706, eBIR 2000-OT and eBIR 0605), some BIR offices (like Taguig) has an affiliated computer shop beside their office that offers this kind of service which is optional if you want to make the work easier instead of downloading the BIR software/program. They asked for Php180 for a 4 set of forms.

 

Document: eBIR Form 1706, Capital Gains Tax, print 4 copies

Document: eBIR Form 2000-OT, Documentary Stamp Tax, print 4 copies

Document: eBIR Form 0605, Payment Form for the Certification Fee, print 4 copies

 

These forms MUST BE ELECTRONICALLY FILLED UP.

 

There is a downloadable program from the BIR website that will enable you to do this. The bank WILL NOT ACCEPT a manually filled form, so be sure to do this step.

 

You may ask the ONETT Officer where to pay these taxes in any bank within property location.

 

Three copies of each form will be retained by the bank, and one copy will be returned to you after being stamped. The bank will also give you a copy of the deposit slip as your receipt. At this point, the following forms should be in your possession:

 

Form 1904 TIN of Seller and Buyer, 1 Original Copy each [from the BIR]

Notarized Deed of Sale, 1 Original Copy [From Step 1]

Certified True Copy of OCT/TCT [Blue Copy], 1 Original Copy [From Step 0]

Certificate of No Improvement, 1 Original Copy [From Step 2]

Certified True Copy of the Latest Tax Declaration [Yellow], 1 Original copy [From Step 2]

Acknowledgment Receipt, 1 Original Copy [From Step 1]

eBIR Form 1706, Capital Gains Tax, 1 Original Copy [From Step 4]

Bank Receipt for Capital Gains Tax Payment, 1 Original Copy [From Step 4]

eBIR Form 2000-OT, Documentary Stamp Tax, 1 Original Copy [From Step 4]

Bank Receipt for Documentary Stamp Tax Payment, 1 Original Copy [From Step 4]

eBIR Form 0605, Payment Form for the Certification Fee, 1 Original copy [From Step 4]

Bank Receipt for Certification Fee Payment, 1 Original Copy [From Step 4]

 

As directed by the ONETT Officer, you have to prepare 2 sets of photocopies of ALL these documents. Then you have to return to the ONETT Officer who made the initial assessment The officer’s name should appear in the ONETT Computation Sheet given to you in STEP 3.

 

After receiving the documents, the ONETT Officer will give you a receipt, and tell you that the documents will be ready within 5 working days. However, they will advise you to call before you pick up the CAR, because there might be a delay, like ours that took 14 business days due to pandemic situation, backlogs, etc.

 

Upon claiming the CAR, you will be asked to pay P15.00, and will receive the following documents:

 

1 Original Copy of the CAR to be given to the RD/LRA, Brown Color

1 Owner’s Original Duplicate of the CAR, Blue Color

1 Original Deed of Sale, with BIR Stamp on the back pages

1 Original eBIR Form 1706

1 Original Bank Receipt for Form 1706

1 Original eBIR Form 2000-OT

1 Original Bank Receipt for Form 2000-OT

1 Original eBIR Form 0605

1 Original Bank Receipt for Form 0605

 

 

 

STEP 5: PAYMENT OF TRANSFER TAXES C/O CITY HALL

 

This step is one of the crucial part  since you only have 60days to pay your taxes upon signing of the Deed of Absolute Sale, otherwise you’ll be penalized:

 

Document: Tax Clearance Certificate, 2 Copies [P50.00 each, from the City Treasurer’s Office]

 

After receiving the CAR, the next step is to get a tax clearance. You need the following Documents

 

1 photocopy of the Latest Tax Declaration [From Step 2. Do not give your remaining Original copy, a photocopy will suffice]

1 photocopy of the Certificate of No Improvement [From Step 2]

1 photocopy of the Latest Tax Receipt [From Step 1]

1 photocopy of the buyer / requesting party’s ID [From Step 1]

They will give you a printout stating that the property in question has no outstanding realty tax liabilities with the City Government. Otherwise, you might have to pay the outstanding amount to get a clearance.

 

Document: Transfer Tax Receipt, 1 Original Copy [from the City Treasurer’s Office]

 

After getting the tax clearance, ask the ever-present ushers for the window for the transfer tax

 

They will require some documents particularly those  with BIR Stamp:

1 Original CAR, either the Brown or Blue copy [From Step 4]

1 photocopy of the CAR

1 Original eBIR Form 1706 [From Step 4]

1 Original Bank Receipt for Form 1706 [From Step 4]

1 Original eBIR Form 2000-OT [From Step 4]

1 Original Bank Receipt for Form 2000-OT [From Step 4]

1 Original eBIR Form 0605 [From Step 4]

1 Original Bank Receipt for Form 0605 [From Step 4]

1 Original Deed of Sale, the same one with the BIR Stamps on the back pages [From Step 4]

1 photocopy of the Deed of Sale

1 Original Tax Clearance Certificate [From previous part]

 

The officer will assess the amount of tax based on the documents presented, and you can pay then and there. It’s 1/2 of 1% of the Sale Price, Assessed Value, or Zonal Value, whichever is higher. The officer will retain the photocopy of the CAR, and the photocopy of the Deed of Sale, and will return all other documents. The officer will affix a stamp on the front page of your Deed of sale. You will receive a literal receipt, with the item “Transfer Tax” under “Nature of Collection”.

 

 

 

STEP 6: TRANSFERRING REGISTRATION OF PROPERTY C/O REGISTRY OF DEEDS

 

At this point, you should have the following documents:

1 Original Deed of Sale, with BIR Stamp on the back pages, and the City Treasurer’s Stamp on the front [From Step 5]

2 Photocopies of the Deed of Sale, with all the stamps visible

1 Original Owner’s Duplicate Copy of the Title [From Step 1]

1 Original Copy of the CAR to be given to the RD/LRA, Brown Color [From Step 4]

1 Original eBIR Form 1706 [From Step 4]

1 Original Bank Receipt for Form 1706 [From Step 4]

1 Original eBIR Form 2000-OT [From Step 4]

1 Original Bank Receipt for Form 2000-OT [From Step 4]

1 Original eBIR Form 0605 [From Step 4]

1 Original Bank Receipt for Form 0605 [From Step 4]

1 Original Copy of the Transfer Tax Receipt  [From Step 5]

1 Original Copy of the Tax Clearance Certificate [From Step 5]

1 Certified True Copy of the Latest Tax Declaration [From Step 2, they will require the Original]

2 Photocopies of the Buyer / Presenter’s Valid ID [From Step 1]

1 Original and Notarized Certificate of Management, if Condominium

 

Upon entering the office, the guard will ask what your business is. Tell him it’s for Transfer of Property, and he will provide you with a form. Fill up the form, and proceed to Window 1. They will assess your documents, and will pass it on to the next window. Your name will be called, and you will be given an assessment sheet, providing the amount you need to pay.

 

After payment, they will tell you the new Certificate of Title, in your name, will be available for pickup within 20 working days. It may take longer however you may check first with the LRA website if the title is ready for pickup. You will simply need the EPEB number provided in your receipt, and you will be able to see your title’s progress.

 

 

 

STEP 7: TRANSFER OF OWNERSHIP OF TAX DECLARATION C/O CITY ASSESSOR’S OFFICE

 

After receiving your Transfer Certificate of Title from the RD, you can proceed with the transfer of tax declaration. You must have the following documents:

 

New TCT/OCT [From Step 6]

1 Original Deed of Sale [Step 1]

1 Original CAR Owner’s Duplicate [Blue Copy, Step 4]

1 Original Bank Receipt for eBIR Form 1706 [Returned to you by the RD with the new TCT, Step 6]

1 Original Bank Receipt for eBIR Form 2000-OT [Returned to you by the RD with the new TCT, Step 6]

1 Original Transfer Tax Receipt [Returned to you by the RD with the new TCT, Step 6]

1 Original Real Property Tax Payment Receipt [Step 1]

1 Original Tax Clearance Certificate [Must have full payment for the entire year, Step 5]

Pictures of the House or 1 Photocopy of Certificate of No Improvement [Step 2]

1 Original and Notarized Certificate of Management, if Condominium

 

Go to any window and tell them your business. They will give you a payment order for Php 100.00, which you have to pay to the Treasury. After that, you have to photocopy all your documents [1 set], including the receipt given to you by the Treasury. The assessor will retain the photocopies and return the originals to you. They will ask you to return after 1 week with your original receipt to collect the new tax declaration.

 

And that’s it! Your property will now be registered under your name, and you will now be liable for real property taxes upon it.

 

THE DEBATE BETWEEN PRE-SELLING AND RFO

THE DEBATE BETWEEN PRE-SELLING AND RFO

 

 

How do you prefer to have your condominium or town house?  Do you want to be the first occupant, or do you not mind living in a place that was previously owned by other occupants?  Do you want to see the actual finished product before purchasing, or would you not mind investing in a building that’s yet to be finished?

Those are just some of the concerns often heard and talked about as clients scout for options regarding condominiums, house and lots, as well as town houses.   Good for real estate developers and clients, there are two types of properties available in the market. Let us give you some useful information on what these options are.

 

What is Pre-Selling?

The term “pre-selling” refers to the condominium units or townhouses/house and lots that are sold prior to its completion. Real estate developers wanted to cater to clients who might not exactly have the budget to purchase the finished unit but has money in the bank enough to pay for a spot in a physical property.

One setback in pre-selling units is that you don’t get to appreciate the finished infrastructure because you don’t really get to see it until it’s really done.  In fact, your expectations may be a tad different from what you will see when the final product is ready.

However, the good news is that there are dressed up and turn over condominium units, model townhouse units/ house and lots that your agent or broker can show you.  It means that you don’t really need to do guesswork or blind buy into something costly.

Given these considerations, you might also want to get in touch with a developer with a good track record in terms of infrastructure and design so that you can at least enjoy the aesthetics as you envisioned it to be.

 

Is RFO for you?

After the building or property has been completed, it will be sold and RFO or “Ready For Occupancy.”  If you need a roof on top of your head as soon as possible, then RFO is the way to go.

If you’re the type of client who wants to be guaranteed of quality in terms of construction and design before making a purchase, then RFO will allow you to examine the physical aspects – amenities and facilities — of your property.  It will be easier for you to judge whether you will push through with your investment if you have seen it.

The potential issue with RFO is that most of the good units or home properties with good views and prime spots have been sold during the pre-selling stage.  That would mean that the units that have been left will be your only choices.

 

Making your smart choice

Now that you’re well-versed in these terms, you can better weigh your options in case you’d like to invest in a real estate property.  Pre-selling is financially more accessible to most potential clients, but it has its risks.  RFO has lesser risks but indeed it’s heavier on the pocket.

Again, we advise you to get in touch with a real estate broker or a developer that has a good record that you can trust so that you will have more chances of making the right choice.

 

 

 

 

REAL ESTATE: RESILIENCY REDEFINED

REAL ESTATE: RESILIENCY REDEFINED

 

After the harsh onslaught of the pandemic, many people thought that the real estate industry would eventually go down the drain.  And why not?  Real estate selling starts with handing out of glossy flyers to people in crowded places like malls and thrives on actual visits around and out of town.  Unfortunately, all these were prohibited during the lockdown and caused somewhat of an economic turmoil and frustration not only in real estate, but in the realm of most businesses around the world.

 

A NEW MARKETPLACE

 

Fortunately, there was social media and digital ads.  Digitalization made it possible for real estate to operate on the web.  It did take some time before the industry could adjust to the new normal.  The digital transition was not easy, but doable, anyway.  After all, houses and living spaces are a necessity even during the time of the pandemic.  A little more than a year after the pandemic began, most real estate companies shifted from the usual interpersonal communication to the digital marketplace. And what made this work was keeping the clients constantly informed and updated with what’s going on.

 

A ONE-STOP LOCATION

 

In terms of updated services, real estate developments became more comprehensive and holistic in terms of what they offer.  Buildings have now combined residential, office, and commercial spaces, with the idea of safety and not just convenience.  The idea is that the less people leave the vicinity of the safety zone, the less chances of transmitting the virus and putting neighbors in danger.  Apparently, this idea is something that has not been thought of before the pandemic.  But now, it has become a selling point for developers.

 

CONTACTLESS SOFTWARES

 

No one wants to touch anything nowadays because pathogens stay on surfaces for days and these have elicited fear among people.  So as a solution, most condominium projects now have smart home features like using QR Codes which allows dwellers to move around without having to constantly touch objects and transmit the disease to others.  It does not really come off as costly, considering the safety and security that it offers.  We cannot stress it enough, that an ounce of prevention is always better than a pound of cure.

 

SOCIAL DISTANCE

 

The real estate industry identified a novel factor that now drives buyers to purchase properties: vast space.  With the new normal health protocol, people wanted to move out of congested areas because they feared COVID-19.  In effect, more and more potential buyers inquired about properties situated outside the metro.  Preferences were Laguna, Cavite, and Pampanga.   These are provinces not too far from the capital region.  Even Iloilo and Cebu were choice areas in the South for those who wanted to relocate or simply buy.  And because of the remote working conditions, most professionals were not deterred by the distance.  Still, safety was the primary consideration.

 

THE RAY OF LIGHT

 

The industry recovery in the first quarter of 2021 promises a brighter future in world of real estate.  For one, the demographics of buyers are now younger, coming from the 20–30-year-old brackets.  The health sector’s continuous push for physical distancing has encouraged a lot of people to go solo as much as they can, if that is the best way to save themselves from the perils of the pandemic.

 

The vaccines are here, and hopefully, as soon as we reach the point of herd immunity, there will be another shift in the industry.  The economy will adjust to a now normal and people will have access to bank loans, making it possible for them to buy properties again.  Thus, the real estate industry will surely see better days ahead.

 

 

 

 

Real Estate 101:  What’s the difference between General Brokerage and Project Selling?

Real Estate 101: What’s the difference between General Brokerage and Project Selling?

Brokerage Practice Philippines

Project Selling and General Brokerage Comparison

You’re determined to break into the real estate industry. Good for you!  But as you learn more about the industry, you hear terms like Project Selling and General Brokerage and wonder if there’s really a difference. We’ve created a simple table below to help you decide where you really think you are better suited. Here’s a breakdown of the difference between the two:

In this table, we focus first on the differences from the perspective of an agent:

 

Salesperson – Project Selling Salesperson – General Brokerage
If working for a developer, they are usually referred to as “in-house agents” Normally referred to as “property specialists” or “real estate salespersons” (if PRC-licensed)
Generally given an allowance Generally, earns on commission basis only
Usually assigned a sales quota Normally does not have a sales quota
Works in an office with regular working hours Flexible working hours. Can work in an office or from home (depending on the arrangement with the broker or realty corporation)
Can either be regular or contractual employees Generally, no employee-employer relationship exists between the agent and the broker
Work is normally limited to selling. Documentation and transfer of titles is done by the developer Generally more experienced than in-house agents as they know how to take care of the documentation and registration for the buyer and seller.

If assigned to a broker working for a specific developer (i.e. an in-house broker), agent is usually limited to selling property of the developer only.

If assigned to a broker that works for (or owns) a realty corporation that is accredited with multiple developers, agent can sell properties of developers the broker is accredited with (i.e. “sell-all”)

Entitled to commissions

If under an in-house broker, commission rate is dictated by the developer.If under a “sell-all” broker, commission rate will vary per developer Rate is dependent on agreed arrangement with broker (rates are usually higher)
Must obtain DHSUD ( formerly known as HLURB) accreditation, regardless if agent is doing project selling or “sell-all”. Not required to obtain DHSUD ( formerly known as HLURB)  accreditation as long as properties being handled are FSBO (For Sale By Owner). Otherwise, both broker and agent must secure  accreditation in order to do project selling.
Must be assigned to a licensed broker in order to be able to sell properties
Under RESA law (RA 9646), a person can only be called a “real estate salesperson”, if they obtain a PRC (Professional Regulation Commission) license and is assigned to a licensed broker

 

Next, let’s look at project selling and general brokerage from a broker’s point of view:

 

Broker – Project Selling Broker – General Brokerage
Must pass the broker’s licensure exam in order to be PRC-licensed. Once the license has been issued by the PRC, the broker will be able to operate and manage a real-estate business, aside from selling and/or leasing properties.
Must undergo continuing professional education (CPD) courses
Answerable to the Real Estate Code of Ethics as required by the PRC
Must obtain DHSUD ( formerly known as HLURB)  accreditation, regardless if broker is doing project selling or “sell-all”. Not required to obtain DHSUD ( formerly known as HLURB)  accreditation as long as properties being handled are FSBO (For Sale By Owner).
If working for a developer, can only sell property of the developer.If working for a realty corporation accredited with multiple developers, can sell all properties the realty corporation is accredited with. Can sell / lease all types of properties.

 

In the case of project-selling, the broker (or realty corporation) should be accredited by the developer(s).

Usually assigned a sales quota Normally does not have a sales quota
Works in an office with regular working hours More flexible, can work from home. May optionally maintain an office if the broker owns the realty corporation.
Brokers have more freedom with their work arrangement with the developer or realty corporation.Does not have any employer-employee relationship with in-house agents. Generally, no employee-employer relationship exists between the broker and the agents
Work is normally limited to selling. Documentation and transfer of titles is done by the developer. More experienced than in-house agents/brokers in terms of general knowledge in real estate, as they know the required documentation and registration procedures for both the buyer and seller. They are more exposed to dealing with the BIR, the Assessor’s office, and the Registry of Deeds.
Entitled to commissions. Cannot share commissions with unlicensed real estate practitioners but can only give a “referral fee” instead.
If an in-house broker, commission rate is dictated by the developer.If a “sell-all” broker, commission rate will vary per developer Commission rates are typically anywhere from 3% to 5%.
Cannot use the salesperson of another broker without prior consent of the broker the agent is currently accredited with.

 

Hopefully, this will give you a better idea where you would like to focus on. Some people like to have a narrow focus in what work they do. If you fall under this category, maybe project selling is better for you as a start, or if you simply want to get your feet wet in the real estate industry. But if you like to have variety in what you work with, and like taking on challenges, then general brokerage may just be up your alley.

 

Real Estate 101:  What is Inheritance Tax and Estate Tax? What’s the Difference?

Real Estate 101: What is Inheritance Tax and Estate Tax? What’s the Difference?

 

 

Real Estate 101:  What is Inheritance Tax and Estate Tax? What’s the Difference?

Real Estate 101: What is Inheritance Tax and Estate Tax? What’s the Difference?

 

There’s an old saying that’s been used countless times in movies and TV. The line goes something like, “There are two things you cannot escape in life: Death and Taxes”. In some countries, this is even referred to (colloquially) as “Death Taxes”. Definitely dark humor, but in reality, it has a ring of truth to it.

A large number of people work very hard to secure a good future for their loved ones and provide for all their needs. They may also hope to leave some kind of lasting legacy when the inevitable end comes. It can take many forms such as real estate, money, personal belongings of value (e.g. family heirlooms, jewelry, paintings, cars), or various assets that can be passed on to loved ones. This is all fine and good. Until the time comes for the lawful heirs to come claim their inheritance. This is when taxes rear their ugly head (as if the passing of a loved one wasn’t hard enough).

Anyone who has inherited something from someone who passed away by way of being included in a will may be required to pay inheritance tax. But before we can proceed, we need to define first what is meant by “estate”. Someone’s estate can include property, as well as everything else of value the deceased party owned at the time of death.

 

Inheritance Tax vs Estate Tax

Simply put, inheritance tax is a tax imposed by the government on the beneficiary of the inheritance (i.e. The person(s) receiving the asset or estate). This is in no way tax levied on the property itself, but rather, it is a tax on the transmission (or turn-over) of the estate of the deceased to one or more heirs. One of the most common questions that arise is “who pays the inheritance tax?”. Some countries put the sole responsibility of paying the inheritance tax on the lawful heirs, while the estate tax is paid out from the estate’s funds. However, in the Philippines, they are one and the same. From this point forward, we will be using Inheritance Tax and Estate Tax interchangeably since they really mean the same thing under Philippine law.

For example, if several beneficiaries are the recipient of a particular property (let’s say an office building), inheritance or estate tax will be computed for each beneficiary. This means that each beneficiary is responsible for paying for their own tax.

The estate tax return must be filed with the Bureau of Internal Revenue (BIR) if the gross value of the estate (consisting of registered property, vehicles, shares of stock, jewelry, money, etc.) has a gross value of more than Php200,000. That being said, it may actually make more sense to distribute inheritance before the time of death (which can sometimes be tricky, because death doesn’t abide by anyone’s schedule)

 

Non-resident inheritance tax

If any of the heirs are non-residents (i.e. migrate to another country), they also need to file an estate tax return. If the executor of the will lives in the Philippines, the estate tax return can be filed with an authorized agent bank of the specific Revenue District Office (RDO) where the executor lives.  However, in case there is no executor in the Philippines, for example if the deceased was not a Philippine resident, then the tax return should be filed under the jurisdiction of RDO No. 39 South Quezon City.

 

How is inheritance tax computed?

So now we delve into the computation of the inheritance tax. The inheritance tax is computed against the net value of the assets included in the estate. The net value is sometimes referred to as the “gross estate”, which refers to all property including real property, personal property, tangible property (such as bonds or shares of stock), or intangible property (such as patents, trademarks or copyrights). Also. This is computed using the Fair Market Value (FMV) at the time of death. FMV is the reasonable price at which one could sell the estate to an interested buyer.

Since we already discussed non-resident inheritance tax, let’s also consider the possibility that the deceased wasn’t living in the Philippines (a non-resident, or not a Philippine citizen) at the time of death. Only the part of the gross estate that is situated in the Philippines is considered taxable.

This tax must be settled within six (6) months from the date of death before distribution of the inheritance to the beneficiaries can proceed. Otherwise, the beneficiaries may face penalties, unless an extension is granted by the commissioner. If you could prove to the commissioner that payment by the due date would impose undue hardship on the estate or any of the heirs, the due date could be extended up to 5 years if the case is settled through courts, and up to 2 years, if handled extrajudicially. In the Philippines, a graduated tax rate determines inheritance taxes. Estates with a net value of less than Php 200,000 are exempted from paying inheritance tax while those valued at a higher amount may be required to pay a tax rate of anywhere from 5% up to 20%. In general, late payments incur a 25% initial penalty and accrue 20% annual interest on the amount. If any fraud is involved, the amount leaps to 50%.

 

Is there any way to reduce the amount of inheritance tax?

This is another common question asked by beneficiaries of an estate. The most common method is to apply as many deductions on the inheritance tax as possible.  This will lower the FMV of the estate, which can help put the value of the estate at a lower tax tier or threshold. It is always a good idea to examine which deductions can be applied to the estate. Below is a short list (i.e. not comprehensive) of deductions that might be applicable:

 

Deduction What is this?
ELIT (Expenses, Losses, Indebtedness, and Taxes) Funeral expenses, other claims against the estate, judicial expenses of interstate proceedings, unpaid mortgages, claims of the deceased against insolvent individuals
Transfers for public use The amount of all bequests, legacies, devises or transfers to or for the use of the Philippine Government, or any political subdivision thereof, for exclusively public purposes
Family Home The lower number between the family home’s FMV or Php 1 million, and the family home must be certified by the barangay captain of the locality
Standard deduction The amount of Php 1 million
Medical expenses Expenses incurred by the deceased within a year prior to their death, which has to be supported with receipts, for a maximum deduction of Php 500,000.

 

 

Estate Tax Amnesty

One of the most recent developments regarding tax amnesty at the time of this writing is the Tax Amnesty Act signed by President Rodrigo Duterte. This provides a 2-year period for taxpayers to settle estate tax obligations through a tax relief over properties with outstanding tax estate liabilities. The Tax Amnesty Act started on June 15, 2019, and will cover the unpaid estate taxes of any decedent who passed away on or before December 31, 2017.

Those with unsettled estate taxes starting from January 2018 to date can still benefit from the Estate Tax Amnesty through the amendments made under the TRAIN Law. It states that a tax rate of 6% will be imposed on the total net estate value of the decedent.

Useful Links:

Tax Amnesty Act – https://www.officialgazette.gov.ph/2019/02/14/republic-act-no-11213/

TRAIN Law – https://www.bir.gov.ph/index.php/train.html

 

POGO and the Philippine Real Estate Industry in this Pandemic times

POGO and the Philippine Real Estate Industry in this Pandemic times

POGO and the Philippine Real Estate Industry in this Pandemic time

“The ultimate measure of a man is not where he stands in moments of comfort and convenience but where he stands in times of challenge and controversy.” – Martin Luther King Jr.

The POGO Exodus

 

COVID-19 has been dubbed “the great equalizer”.  It doesn’t distinguish between rich or poor, good or evil, young or old, the powerful and the weak, nor does it care about national borders or governments.  It is simply a virulent, invisible force of nature that has spread to nearly every corner of the modern world as we know it.  Unceremoniously shutting down big and small businesses and companies alike.  The pandemic has impacted nearly all industries where human contact and interaction is an essential part of daily operations.  And the gaming and amusement industry is no exception to this.

 

You may ask, what does this have to do with the real-estate industry?  It has been no secret that the Philippines, through the PAGCOR (Philippine Amusement and Gaming Corporation) has welcomed POGOs (Philippine Offshore Gaming Operators) with open arms despite being a controversial or touchy subject matter for a lot of Filipinos.  The government has touted the country as an ideal destination for online casinos due to. According to PAGCOR, there are 56 PAGCOR-licensed POGOs as of June 2019.  And it has been estimated that at least 30 POGO firms are operating illegally in the Philippines. In fact, 265 Chinese nationals were arrested as the result of a raid of an illegal gambling operation in Las Pinas City on May 15, 2020. The illegal POGO was operating out of a rented hotel, even despite the pandemic and quarantine lock-down.

 

POGOs have come to the Philippines in droves bringing with them thousands of Chinese nationals that operate the lucrative offshore gambling businesses.  This huge influx of Chinese nationals of course needed somewhere to stay, and the real estate industry was suddenly rife with opportunity as POGOs started snatching up properties in close proximity to their operations so they could quickly ferry their employees to work.  Not only that, a study by KMC Savills Inc. has revealed that POGOs have utilized an estimated 800,000 square meters (or 8,600,000 square feet) of office space to house their operations.

 

This proved to be a big opportunity for those in the real estate industry. Chinese POGOs were willing to pay higher than the normal rate to lease property in locations near their operations. Property owners were now more than happy to lease out their property with preference for Chinese nationals working at POGOs. However, the downsides would soon rear its ugly head.

 

Those living in exclusive subdivisions now suddenly had a growing community of noisy Chinese nationals as their neighbors. Complaints and horror stories of property damage began to increase as a significant number of the Chinese nationals apparently had little respect for the property they were living in, as well as a general lack of household cleanliness and regard for property upkeep. Another sad by-product of the POGO real estate gold rush was the artificial shortage of property for Filipino families looking for fairly priced property. Rumors about local tenants being evicted or their lease not being renewed in order to give way to Chinese nationals started to spread as well.

 

Fast forward to March 21, 2020.  In a bid to combat the Covid-19 outbreak, the PAGCOR orders all gambling operations to cease operations until further notice.  Needless to say, POGO operations suddenly ground to a screeching halt. Except for those operating illegally, all legitimate POGOs found themselves in a bad financial situation.  Gambling operations typically run 24×7 and thereby employs a large number of employees. Now these employees are unable to go to work due to the government-imposed quarantine measures. Surprisingly, PAGCOR even went so far to suspend work-at-home setups for those under their jurisdiction to ensure compliance.  POGO licenses and services providers found to be non-compliant now faced possible cancellation of their license and accreditation, and will be reported to the authorities. On top of this, POGOs are currently under scrutiny for unpaid taxes with the BIR (Bureau of Internal Revenue), as well as controversies surrounding a growing number of “sex-dens” servicing foreign workers.

 

The pandemic in the Philippines still appears to be nowhere near “flattening the curve” as experts put it.  To date, at least two POGOs have already left the country and more are now poised to leave the Philippines according to PAGCOR Chairperson and CEO Andrea Domingo.  An unspecified number of POGOs have also filed for the cancellation of their licenses, while others have yet to file their official exit.  PAGCOR claims that the primary reason for this is not just the impact of the pandemic, but due to “more appealing tax rates” and “friendlier environments” as decision-makers behind the POGOs re-evaluate their options.

 

With all of this in mind, the most likely scenario is that POGOs are on their way out.  And with them goes the potential for cashing in on significantly higher lease rates. Just barely a year ago, POGOs overtook BPOs (Business Process Outsourcing) in real estate utilization and contributed over 6.4 Billion Pesos in taxes. Now, it is only a matter of time before the POGO real estate deep well dries out.