Property-Related Taxes in Philippines
Tax Rate on Rental Income |
|||
| Monthly Income | US$1,500 | US$6,000 | US$12,000 |
| Tax Rate | 25% | 25% | 25% |
Non-resident individuals are generally subject to Philippine income tax only on Philippine-source income.
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 | |
A non-resident alien not engaged in trade or business in the Philippines is generally subject to a 25% final tax on gross Philippine-source income, including rents, subject to any applicable tax treaty.
Rental Income Tax
For a non-resident foreign individual who is not engaged in trade or business in the Philippines, Philippine-source rental income is generally subject to a 25% final tax on gross rental income.
Because the tax is imposed on gross income, ordinary property expenses are generally not deducted when calculating this 25% final tax.
Where the landlord instead qualifies as a non-resident alien engaged in trade or business in the Philippines, rental/business income may fall under the graduated net-income regime described above, with deductions determined under the ordinary tax rules.
Corporate Tax
The standard corporate income tax rate for a Philippine domestic corporation is 25% of net taxable income.
A reduced 20% corporate income tax rate is available to qualifying domestic corporations whose net taxable income does not exceed PHP 5 million and whose total assets do not exceed PHP 100 million, excluding the land on which the corporation's office, plant and equipment are situated.
Qualifying business expenses are generally deductible in determining net taxable income.
Rental income earned in the ordinary course of a corporation's business is generally included in corporate taxable income.
The tax treatment of a corporate real-estate disposal depends on whether the property is classified as a capital asset or an ordinary asset. Philippine real property classified as a capital asset can fall within the 6% final capital-gains-tax regime, whereas gains from ordinary assets are generally included in ordinary corporate taxable income.
Capital Gains Tax
Philippine real estate must be distinguished between capital assets and ordinary assets.
Capital Assets
The sale of Philippine real property classified as a capital asset is generally subject to a 6% final Capital Gains Tax.
Importantly, this 6% tax is imposed on the higher of the gross selling price, applicable zonal value, or fair market value, rather than on the seller's actual economic capital gain.
This treatment can also apply to a non-resident alien disposing of Philippine real property classified as a capital asset.
Ordinary Assets
Real estate held primarily for sale to customers, used in business, or otherwise classified as an ordinary asset is not generally subject to the 6% capital-gains regime.
Instead, gains from the disposal of ordinary assets are generally included in taxable income and taxed under the applicable ordinary income-tax regime. Creditable withholding tax can also apply to the transaction.
A rental property may constitute an ordinary asset where it is used in the taxpayer's trade or business, but the classification depends on the particular circumstances.
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 |
| Real Estate Agent Fee | 3.00% - 5.00% | seller |
| Costs Paid by Buyer | 2.50% - 2.75% | |
| Costs Paid by Seller | 4.50% - 6.50% | |
| ROUNDTRIP TRANSACTION COSTS | 7.00% - 9.25% | |
| Source: Global Property Guide, PWC, KPMG | ||
Property Holding Taxes
Real Property Tax
Philippine local governments levy an annual Real Property Tax (RPT) on land, buildings, machinery, and other taxable improvements.
The tax is calculated on the property's assessed value, rather than directly on its market value. The maximum basic RPT rate is 1% of assessed value for properties located in provinces and 2% for properties located in cities or municipalities within Metro Manila. The actual rate is determined by the relevant local government, subject to these statutory limits.
Property tax may generally be paid in four equal quarterly installments.
Assessed Value
The assessed value is determined by applying an assessment level to the property's fair market value. The applicable assessment level depends on the classification and actual use of the property.
For land, the maximum assessment levels are generally 20% for residential property, 40% for agricultural property, 50% for commercial property, 50% for industrial property, 50% for mineral land, and 20% for timberland.
Buildings and other improvements are subject to separate assessment rules depending on their classification, use, and fair market value.
For an ordinary residential investment property, a 20% assessment level provides a useful simplified basis for estimating the annual tax burden.
For example, for residential property located in a province, applying a 20% assessment level and the maximum 1% basic RPT produces a basic annual property tax equivalent to approximately 0.20% of the property's fair market value.
For residential property located in a city or municipality within Metro Manila, applying the same 20% assessment level and the maximum 2% basic RPT produces a basic annual property tax equivalent to approximately 0.40% of fair market value.
