Selling Assets and Capital Gains Taxes in the Philippines.

Jun 09, 2023

When selling assets in the Philippines, one important consideration is the Capital Gains Tax (CGT). This tax is imposed on the gains a seller makes from the sale of a capital asset such as real estate, stocks, and bonds. In this blog post, we will discuss the basics of CGT in the Philippines and what you need to know when selling assets.

What is Capital Gains Tax?

Capital Gains Tax is a tax on the profit or gains made from the sale of a capital asset. The tax is imposed on the difference between the selling price and the cost of the asset. In the Philippines, the CGT is imposed on the sale, exchange, or disposition of real property, shares of stock not traded in the stock exchange, and other capital assets not traded through a stock exchange.

How is Capital Gains Tax Computed?

The CGT is computed based on the net selling price, which is the selling price less the cost of the asset. The tax rate is a flat 6% of the net selling price or the fair market value, whichever is higher. The fair market value is determined by the Bureau of Internal Revenue (BIR) or the zonal value, whichever is higher. The zonal value is the value of the property as determined by the BIR based on its location and other factors.

Exemptions from Capital Gains Tax

There are some exemptions from CGT in the Philippines. For example, the sale of a principal residence or family home is exempt from CGT if the property has been owned and used by the seller as their principal residence for at least two years. The sale of properties acquired through inheritance or donation is also exempt from CGT.

Withholding Tax on Capital Gains

When selling assets in the Philippines, the buyer is required to withhold a certain percentage of the selling price as creditable withholding tax (CWT). For example, if the selling price is PHP 1,000,000, the buyer is required to withhold 6% or PHP 60,000 as CWT. The seller can then claim this amount as a credit against their income tax liability for the year.

How to Compute Withholding Tax on Capital Gains

The withholding tax on capital gains is computed based on the gross selling price, which is the selling price before deducting any expenses or taxes. The tax rate is a flat 6% of the gross selling price or the fair market value, whichever is higher. The buyer is required to remit the withholding tax to the BIR within ten days from the end of the month in which the transaction was made.

Conclusion

Selling assets in the Philippines can be a complicated process, especially when it comes to taxes. Understanding the basics of Capital Gains Tax and withholding tax can help you avoid any surprises and ensure that you comply with the law. If you need more information or assistance with selling assets, it is best to consult a tax professional or a lawyer.

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Disclaimer: This blog post is for informational purposes only and should not be construed as legal or tax advice. Please consult a tax professional or a lawyer for specific advice regarding your situation.