Thinking of selling a property or some shares of stock in the Philippines? Before you close the deal, it's important to understand Capital Gains Tax (CGT)—a tax that applies to the profit you make from selling certain types of assets.
In this guide, we’ll break down what CGT is, when it applies, the applicable tax rates, and how to compute and file it correctly.
What is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax imposed on the profit (or “gain”) from the sale or exchange of capital assets. In the Philippines, it mainly applies to:
Real property located in the Philippines
Shares of stock not traded through the Philippine Stock Exchange (PSE)
Capital Assets vs. Ordinary Assets
A capital asset is generally any property held by the taxpayer not used in trade or business. Examples:
A residential lot you inherited or bought but don’t use for business
Unlisted shares of stock held for investment
An ordinary asset, on the other hand, is one used in business (e.g., inventory, office buildings, company-owned vehicles). These are not subject to CGT but may be subject to regular income tax or expanded withholding tax.
1. Capital Gains Tax on Real Estate
Applies when you sell or exchange real property classified as a capital asset, located in the Philippines.
Tax Rate:
6% of the gross selling price or fair market value, whichever is higher
Example:
You sell a residential lot for ₱2,000,000. The BIR’s zonal value is ₱2,500,000.
Tax base = ₱2,500,000 (higher value)
CGT = ₱2,500,000 x 6% = ₱150,000
CGT must be paid within 30 days from the date of sale.
2. Capital Gains Tax on Stocks (Non-Traded)
Applies when you sell shares of stock in a domestic corporation that are not traded on the stock exchange.
Tax Rate:
15% of the net capital gain (i.e., selling price – acquisition cost – related expenses)
Example:
You sell shares for ₱500,000 that you originally bought for ₱300,000.
Capital gain = ₱200,000
CGT = ₱200,000 x 15% = ₱30,000
File CGT return within 30 days of sale and submit supporting documents.
Exemptions from Capital Gains Tax
You may be exempt from CGT in certain situations:
Sale of Principal Residence
Under RA 10963 (TRAIN Law), sale of your principal family home is exempt if:
Proceeds are used to buy/build a new home within 18 months
You notify the BIR within 30 days using a sworn declaration
You haven’t availed of this exemption in the last 10 years
This exemption can be claimed once every 10 years.
How to File and Pay Capital Gains Tax
Required BIR Forms:
BIR Form 1706 – For real property CGT
BIR Form 1707 – For shares of stock CGT
Required Documents:
Deed of Sale or Deed of Exchange
Tax Declaration and/or Certificate Authorizing Registration (CAR)
Proof of payment (e.g., official receipt from bank or BIR)
Sworn declarations, if applicable
Deadlines:
File and pay within 30 days from the date of sale or transaction
Penalties for Late Filing
Failure to file or pay CGT on time may result in:
25% surcharge on the tax due
12% interest per annum
Compromise penalties
Important Tips
Always check the zonal value of the property with the BIR—it may be higher than your selling price
Have your documents prepared and notarized correctly
For real estate transactions, secure a Certificate Authorizing Registration (CAR) from the BIR before transferring the title
For stocks, prepare a computation of capital gain with supporting receipts
Final Thoughts
Whether you're selling property or unlisted stocks, Capital Gains Tax is a crucial part of the transaction. Knowing how it works ensures that your sale is legally compliant, and helps you avoid delays and penalties from the BIR.
If you're unsure how to compute or file, consider working with a real estate broker, lawyer, or tax consultant to guide you through the process.
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