TAXATION GUIDELINESS FOR PROPERTY RESALE
There are countless articles online on taxes you will face when you buy real estate property,but there is significantly less information that cover taxes for sellers. Now let’s say the resale of your property is effectively done deal, but now you’re feeling at a loss on the next step. We’ve got you covered. As a seller, here is a guide on the taxes you will need for a property resale.
Value Added Tax(VAT)-Real estate is VATable in certain circumtances,namely if the seller is VAT registered or the property is considered an ordinary asset. Ordinary assets are defined as a property that is used in the nature of the business or in the trade of the individual. VAT registration is also necessary if a person’s gross annual sales and/or receipts exceed P1,919,500.00 per year. In these cases, 12% VAT is imposed.
Creditable Withholding Tax (or CWT)- Creditable Withholding Tax is applied to ordinary assets and is the advance income tax of the seller. This means that before filling the income tax return the seller is able to remit part of his or her income tax liability through the buyer when they withhold and remit the same. The tax base for this depends on 2 key factors. Namely:
If the seller is habitually engaged in the real estate business. In this case their CWT rate depends on the property’s selling price. If the propety is sold at:
a. P500,000 and below= 1.5% Tax Rate
b. Greater than P500,000 but below P2 Million=3% Tax Rate
c. Greater than P2 Million=5% Tax Rate
Conversely, if the seller is NOT habitually engaged in real estate business their CWT rate is fixed at 6%.
Documentary Stamps Tax (or DST)- The Documentary Stamps Tax refers to the taxes levied on all documents necessary for the sale or transfer of property. The DST is 1.5% of whichever is highest between the property’s selling price, zonal value or fair market value.
Transfer Tax- The Transfer Tax is the tax imposed on different forms of transfer of real property ownership such as sale,donation,barter, etc. The rate varies from 0.5 to 0.75% of the zonal value or selling price of the property,whichever is higher and depending on the municipality rules of the property.