Property-Related Taxes in Philippines
Tax Rate on Rental Income |
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| Monthly Income | US$1,500 | US$6,000 | US$12,000 |
| Tax Rate | 25% | 25% | 25% |
Nonresidents (i.e., those whose stay in the country does not exceed 180 days) are liable to tax on their Philippine-sourced income. Married couples are required to compute their individual income tax liability separately but must file a joint tax return.
Resident and non-resident aliens who conduct business or trade in the Philippines face a maximum final tax rate of 20% on income that is subject to final taxation, typically from passive investments. On the other hand, non-resident aliens who are not involved in any business or trade in the Philippines are taxed at a flat rate of 25%.
Acquisition and ownership of land in the Philippines is restricted to Philippine citizens or corporations (at least 60% of equity must be owned by Filipinos). Foreign investors may acquire ownership of land, residential houses and lots, or commercial buildings and lots by establishing or investing in a Philippine corporation, provided their equity does not exceed 40% of the total capital. Foreign investors may also own condominium units or townhouses, as long as the land on which the property is built is owned by a Filipino or a corporation with at least 60% Filipino ownership.
Income Tax
Computation of taxable income and applicable income tax rates do not depend on whether they are engaged in business in the country or not.
Income Tax Rates for Nonresident Foreigners Engaged in Trade or Business
| Taxable Income, PHP | Tax Rate |
| Up to 250,000 | 0% |
| 250,000 – 400,000 | 15% on the band over US$5,000 |
| 400,000 – 800,000 | 20% on the band over US$8,000 |
| 800,000 – 2,000,000 | 25% on the band over US$16,000 |
| 2,000,000 – 8,000,000 | 30% on the band over US$160,000 |
| Over 8,000,000 | 35% on all income over US$160,000 |
| Source: Global Property Guide | |
Depreciation costs can be set against income for the purpose of income tax. Approved methods include the straight-line method, declining balance method, sum-of-the-years-digits method, unit of production method, and the operating day method.
Rental Income Tax
You are generally taxed at a flat 25% final tax on gross rental income (no deductions allowed). Short-term rentals (e.g., Airbnb) might be argued as “business” if regularly conducted or marketed, potentially subject to other tax treatments (e.g., 30% withheld under certain interpretations or different treaty rates)
You must register with the BIR and file returns if earning rental income in the Philippines.
Corporate Taxation
Income and capital gains earned by companies are taxed at a flat rate of 25%. Income-generating expenses are deductible when calculating taxable income.
Value Added Tax (VAT)
A 12% VAT is imposed on residential property leases that satisfy certain conditions. The VAT burden is generally shouldered by the tenants.
Capital Gains Tax
The Philippines classifies properties as either ordinary assets or capital assets to determine the applicable capital gains taxation.
Capital Gains Tax for Ordinary Assets
Ordinary assets are properties used in trade or business, such as rental properties. Capital gains from the sale of real property treated as ordinary assets are included in aggregate income and taxed at progressive rates. Taxable capital gains are computed by deducting acquisition costs and incidental expenses from the gross selling price or fair market value of the property.
Capital Gains Tax for Capital Assets
Capital assets are properties not used in trade or business. The Philippines imposes a Capital Gains Tax, which is essentially a transaction tax on selling or transferring real estate properties classified as capital assets. This tax is levied at a flat rate of 6% on the property’s gross selling price or market value.
Property Buying and Selling Costs/Taxes
| Transaction Costs | ||
| Who Pays? | ||
| Transfer Tax | 0.50% - 0.75% | buyer |
| Notary Fee | 1.00% | buyer |
| Registration Fee | 1.00% | buyer |
| Stamp Tax | 1.50% | seller |
| Capital Gains Tax | 6.00% | seller |
| Real Estate Agent Fee | 3.00% - 5.00% | seller |
| Costs Paid by Buyer | 2.50% - 2.75% | |
| Costs Paid by Seller | 10.50% - 12.50% | |
| ROUNDTRIP TRANSACTION COSTS | 13.00% - 15.25% | |
| Source: Global Property Guide, PWC, KPMG | ||
Property Holding Taxes
Real Estate Tax
Real estate tax is levied on Philippine real property, with the applicable rate varying depending on the location. The maximum rate for cities and municipalities within Metro Manila is 1%, while the maximum rate for cities and municipalities outside Metro Manila is 2%. The owner has the option to pay the tax in four equal installments on or before the last day of each calendar quarter.
Calculating the Property’s Assessed Value
The tax is levied on the property’s assessed value (a prescribed percentage of the current fair market value depending on the actual use and zoning of the property). In computing for the taxable value, the property’s fair market value is determined, and the assessment percentage is applied. The resulting amount is the tax base where the real estate tax rate is applied.
Assessment Levels on Buildings and Other Improvements
| Fair Market Value, PHP (US$) | Assessment Level |
| Up to 175,000 (US$3,500) | 0% |
| 175,000 - 300,000 (US$6,000) | 10% |
| 300,000 - 500,000 (US$10,000) | 20% |
| 500,000 - 750,000 (US$15,000) | 25% |
| 750,000 - 1 million (US$20,000) | 30% |
| 1 million - 2 million (US$40,000) | 35% |
| 2 million - 5 million (US$100,000) | 40% |
| 5 million - 10 million (US$200,000) | 50% |
| Over 10 million (US$200,000) | 60% |
Assessment Levels on Land
| Classification | Assessment Level |
| Residential | 20% |
| Agricultural | 40% |
| Commercial/Industrial | 50% |
| Mineral | 50% |
| Timberland | 20% |
| Source: Global Property Guide | |
Property owners are required to file a sworn statement declaring the true (current and fair market value) of their property once every three years. The filing period is from January 1 to June 30 annually.
Special Education Fund (SEF)
The local government where the property is located may collect a special education fund (SEF) at a flat rate of 1%, which is levied on the property’s assessed value. This tax is levied annually.
