Capital Gains Tax

Description
Capital Gains Tax is a tax imposed on the gains presumed to have been realized by the
seller from the sale, exchange, or other disposition of capital assets located in the
Philippines, including pacto de retro sales and other forms of conditional sale.
Final Capital Gains Tax for Onerous Transfer of Real Property Classified as
Capital Assets (Taxable and Exempt)
Tax Form
BIR Form 1706 Final Capital Gains Tax Return (For Onerous Transfer of Real
Property Classified as Capital Assets -Taxable and Exempt)
Documentary Requirements
1) One original copy and one photocopy of the Notarized Deed of Sale or Exchange
2) Photocopy of the Original Certificate of Title; Transfer Certificate of Title; or
Condominium Certificate of Title in case of a condo unit
3) Certified True Copy of the tax declaration on the lot and/or improvement during
nearest time of sale
4) Certificate of No Improvement issued by the Assessors office where the property
has no declared improvement, if applicable or Sworn Declaration/Affidavit of No
Improvement by at least one (1) of the transferees
5) Copy of BIR Ruling for tax exemption confirmed by BIR, if applicable
6) Duly approved Tax Debit Memo, if applicable
7) Sworn Declaration of Intent as prescribed under Revenue Regulations 13-99, if the
transaction is tax-exempt
8) Documents supporting the exemption
Additional requirements may be requested for presentation during audit of the tax case
depending upon existing audit procedures.
Procedures
File the Capital Gains Tax return in triplicate (two copies for the BIR and one copy for
the taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where the

property is located. In places where there are no AAB, the return will be filed directly
with the Revenue Collection Officer or Authorized City or Municipal Treasurer.
One-Time Transaction (ONETT) taxpayers shall mandatorily use the eBIRForms in filing all of their tax returns.
They may opt to submit their tax returns manually using the eBIRForms Offline Package in the RDO where the
property is located or electronically through the use of the Online eBIRForms System. (Sec. 3(2) RR No. 6-2014)

Tax Rates
For real property - 6%.
Deadline
Within 30 days after each sale, exchange, transfer or other disposition of real property.
Capital Gains Tax for Onerous Transfer of Shares of Stocks Not Traded Through
the Local Stock Exchange
Tax Form
BIR Form 1707 - Capital Gains Tax Return (For Onerous Transfer of Shares of Stocks
Not Traded Through the Local Stock Exchange)
Documentary Requirements
1) One original copy and one photocopy of the Notarized Deed of Sale/ Exchange of
shares of stock
2) Photocopy of the Deed of Acquisition or proof of cost/ fair market value of the stocks
at the time of acquisition
3) Photocopy of certificate of shares of stock
4) Photocopy of evidences of expenses related to sale
5) Photocopy of Audited Financial Statements duly certified by an independent certified
public accountant with computation of fair market value per share at the time of sale.
6) Duly approved Tax Debit Memo, if applicable
Additional requirements may be requested for presentation during audit of the tax case
depending upon existing audit procedures.
Procedures
File the Capital Gains Tax return in triplicate (two copies for the BIR and one copy for
the taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where the

seller or transferor of stocks is registered. In places where there are no AAB, the return
will be filed directly with the Revenue Collection Officer or Authorized City or Municipal
Treasurer.
One-Time Transaction (ONETT) taxpayers shall mandatorily use the eBIRForms in filing all of their tax returns.
They may opt to submit their tax returns manually using the eBIRForms Offline Package in the RDO where the
seller or transferor of stocks is registered or electronically through the use of the Online eBIRForms System. (Sec.
3(2) RR No. 6-2014)

Tax Rates
For Shares of Stocks Not Traded in the Stock Exchange
Not
over
- Any amount in excess of P100,000 - 10%

P100,000

5%

Deadline
Within 30 days after each sale or disposition of shares of stocks or real property. In
case of installment sale, the return shall be filed within 30 days following the receipt of
the first down payment and within 30 days following the subsequent installment
payments. Only one return shall be filed for multiple transactions within the day.
Annual Capital Gains Tax for Onerous Transfer of Shares of Stocks Not Traded
Through the Local Stock Exchange
Tax Form
BIR Form 1707A - Annual Capital Gains Tax Return (For Onerous Transfer of Shares of
Stocks Not Traded Through the Local Stock Exchange)
Procedures
File the Capital Gains Tax return in triplicate (two copies for the BIR and one copy for
the taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where the
seller or transferor of stocks is registered. In places where there are no AAB, the return
will be filed directly with the Revenue Collection Officer or Authorized City or Municipal
Treasurer.
Tax Rates
For Shares of Stocks Not Traded in the Stock Exchange
Not
over
- Any amount in excess of P100,000 - 10%

P100,000

5%

Deadline
Individual Taxpayers On or before April 15 of each year covering all stock transactions
of the preceding taxable year
Corporate Taxpayers On or before the fifteenth (15) day of the fourth (4) month
following the close of the taxable year covering all transactions of the preceding taxable
year
Note: For onerous transfer of real property other than capital asset (including taxable
and exempt), a creditable withholding tax based on the gross selling price/total amount
of consideration or the fair market value determined in accordance with Section 6(E) of
the Code, whichever is higher, paid to the seller/owner for the sale, transfer or
exchange of real property, other than capital asset, shall be imposed upon the
withholding agent/buyer. (sec. 3 (j), RR NO. 6-2001)
Related Revenue Issuances
Revenue
Regulations
(RR)
Nos. 2-1998, 8-1998, 4-1999, 13-1999, 7-2003, 172003, 30-2003, 4-2008, 6-2008, 5-2009, 6-2013, 6-2014
Revenue Memorandum Order (RMO) No. 15-2003
Revenue Memorandum Circular (RMC) No. 50-2003
Codal Reference
Sec. 24C, Sec. 24D, Sec. 27D(2), Sec. 27D(5), Sec. 28(A)(7)(c), Sec. 28(B)(5)(c) and
Sec. 39A of the National Internal Revenue Code (NIRC)
Frequently Asked Questions
1) What is meant by capital asset?
Capital asset means property held by the taxpayer (whether or not connected with his
trade or business), but does not include
a) stock in trade of the taxpayer or other property of a kind which would properly be
included in the inventory of the taxpayer if on hand at the close of the taxable year; or
b) property held by the taxpayer primarily for sale to customers in the ordinary course of
his
trade
or
business;
or
c) property used in the trade or business of a character which is subject to the
allowance for depreciation provided in subsection (F) of Sec. 34 of the Code; or
d) real property used in trade or business of the taxpayer.

2) What is meant by ordinary asset?

Ordinary asset refers to all properties specifically excluded from the definition of capital
assets under Sec. 39 (A)(1) of the NIRC.
3.) What is meant by "Stock classified as Capital Asset"? (Sec 2(a) of RR 6-2008)
This refers to stocks and securities held by taxpayers other than dealers in securities.
4.) What is meant by "Dealer in Securities"? (Sec 2(b) of RR 6-2008)
Dealer in Securities refers to a merchant of stocks or securities, whether an individual,
partnership or corporation, with an established place of business, regularly engaged in
the purchase of securities and the resale thereof to customers; that is one, who as
merchant buys securities and re-sells them to customers with a view to the gains and
profits that may be derived therefrom. "Dealer in securities" means any person who
buys and sells securities for his/her own account in the ordinary course of business
(Sec. 3.4, SRC).
5.) What is meant by real property?
Real property shall have the same meaning attributed to that term under Article 415 of
Republic Act No. 386, otherwise known as the Civil Code of the Philippines.
6.) What does a real estate dealer refer to?
A real estate dealer refers to any person engaged in the business of buying and selling
or exchanging real properties on his own account as a principal and holding himself out
as a full or part-time dealer in real estate.
7.) What does a real estate developer refer to?
Real estate developer refers to any person engaged in the business of developing real
properties into subdivisions, or building houses on subdivided lots, or constructing
residential or commercial units, townhouses and other similar units for his own account
and offering them for sale or lease.
8.)What does a real estate lessor refer to?
Real estate lessor refers to any person engaged in the business of leasing or renting
real properties on his own account as a principal and holding himself out as a lessor of
real properties being rented out or offered for rent.

9.) Who are considered engaged in the real estate business?

Taxpayers who are considered engaged in the real estate business refer collectively to
real estate dealers, real estate developers and/or real estate lessors. A taxpayer whose
primary purpose of engaging in business, or whose Articles of Incorporation states that
its primary purpose is to engage in the real estate business shall be deemed to be
engaged in the real estate business.
10.) Who are considered not engaged in the real estate business?
Taxpayers who are considered not engaged in the real estate business refer to persons
other than real estate dealers, real estate developers and/or real estate lessors.
11.) Who are considered habitually engaged in the real estate business?
Real estate dealers or real estate developers who are registered with the Housing and
Land Use Regulatory Board (HULRB) or HUDCC
12.) How can you determine whether a particular real property is a capital asset or an
ordinary asset?
a) Real properties shall be classified with respect to taxpayers engaged in the real
estate business as follows:
i) All real properties acquired by the real estate dealer shall be considered as ordinary
assets.
ii) All real properties acquired by the real estate developer, whether developed or
undeveloped as of the time of acquisition, and all real properties which are held by the
real estate developer primarily for sale or for lease to customers in the ordinary course
of his trade or business or which would properly be included in the inventory of the
taxpayer if on hand at the close of the taxable year and all real properties used in the
trade or business, whether in the form of land, building, or other improvements, shall be
considered as ordinary assets.
iii) All real properties of the real estate lessor, whether land, building and/or
improvements, which are for lease/rent or being offered for lease/rent, or otherwise for
use or being used in the trade or business shall likewise be considered as ordinary
assets.
iv) All real properties acquired in the course of trade or business by a taxpayer
habitually engaged in the sale of real property shall be considered as ordinary assets.
Note: Registration with the HLURB or HUDCC as a real estate dealer or developer shall
be sufficient for a taxpayer to be considered as habitually engaged in the sale of real
estate.

If the taxpayer is not registered with the HLURB or HUDCC as a real estate dealer or
developer, he/it may nevertheless be deemed to be engaged in the real estate business
through the establishment of substantial relevant evidence (such as consummation
during the preceding year of at least six (6) taxable real estate sale transactions,
regardless of amount; registration as habitually engaged in real estate business with the
Local Government Unit or the Bureau of Internal Revenue, etc.
A property purchased for future use in the business, even though this purpose is later
thwarted by circumstances beyond the taxpayers control, does not lose its character as
an ordinary asset. Nor does a mere discontinuance of the active use of the property
change its character previously established as a business property. (Sec 3(a)(4)of RR
7-2003)
b) In the case of taxpayer not engaged in the real estate business, real properties,
whether land, building, or other improvements, which are used or being used or have
been previously used in trade or business of the taxpayer shall be considered as
ordinary assets.
c) In the case of taxpayers who changed its real estate business to a non-real estate
business, real properties held by these taxpayer shall remain to be treated as ordinary
assets.
d) In the case of taxpayers who originally registered to be engaged in the real estate
business but failed to subsequently operate, all real properties acquired by them shall
continue to be treated as ordinary assets.
e) Real properties formerly forming part of the stock in trade of a taxpayer engaged in
the real estate business, or formerly being used in the trade or business of a taxpayer
engaged or not engaged in the real estate business, which were later on abandoned
and became idle, shall continue to be treated as ordinary assets. Provided however,
that properties classified as ordinary assets for being used in business by a taxpayer
engaged in business other than real estate business are automatically converted into
capital assets upon showing proof that the same have not been used in business for
more than two years prior to the consummation of the taxable transactions involving
said properties
f) Real properties classified as capital or ordinary asset in the hands of the
seller/transferor may change their character in the hands of the buyer/transferee. The
classification of such property in the hands of the buyer/transferee shall be determined
in accordance with the following rules:
i) Real property transferred through succession or donation to the heir or donee who is
not engaged in the real estate business with respect to the real property inherited or
donated, and who does not subsequently use such property in trade or business, shall
be considered as a capital asset in the hands of the heir or donee.

ii) Real property received as dividend by the stockholders who are not engaged in the
real estate business and who do not subsequently use such property in trade or
business, shall be considered as a capital asset in the hands of the recipients even if
the corporation which declared the real property dividends is engaged in real estate
business.
iii) The real property received in an exchange shall be treated as ordinary asset in the
hands of the case of a tax-free exchange by taxpayer not engaged in real estate
business to a taxpayer who is engaged in real estate business, or to a taxpayer who,
even if not engaged in real estate business, will use in business the property received in
exchange.
g) In the case of involuntary transfers of real properties, including expropriations or
foreclosure sale, the involuntariness of such sale shall have no effect on the
classification of such real property in the hands of the involuntary seller, either as capital
asset or ordinary asset as the case may be.
13.) What is the basis in the valuation of property?
The value of the real property will be based on the selling price, fair market value as
determined by the Commissioner (zonal value) or the fair market value as shown in the
schedule of values of the Provincial or City Assessor, whichever is higher.
If there is no zonal value, the taxable base is whichever is higher of the gross selling
price per sales documents or the fair market value that appears in the latest tax
declaration.
If there is an improvement, the FMV per latest tax declaration at the time of the sale or
disposition, duly certified by the City/Municipal Assessor shall be used. No adjustments
shall be added on the said value, provided that the tax declaration bears the upgraded
fair market value of the said property pursuant to Section 219 of R.A. No. 7160,
otherwise known as the Local Government Code of 1991 and the last paragraph of the
Local Assessment Regulations No. 1-92 dated October 6, 1992.
In case the tax declaration being presented was issued three (3) or more years prior to
the date of sale or disposition of the real property, the seller/transferor shall be required
to submit a certification from the City/Municipal Assessor whether or not the same is still
the latest tax declaration covering the said real property. Otherwise, the taxpayer shall
secure its latest tax declaration and shall submit a copy thereof duly certified by the said
Assessor. (RAMO 1-2001)
For shares of stocks, it will be based on the net capital gains realized from the sale,
barter, exchange or other disposition of shares of stocks in a domestic corporation,
considered as capital assets not traded through the local stock exchange.

14.) What is meant by "Net Capital Gains"? (Sec 2(o) of RR 6-2008)

"Net Capital Gain" means the excess of the gains from sales or exchanges of capital
assets over the losses from such sales or exchanges.
15.) What are the rules for the determination of amount and recognition of gain or loss
in the sale, barter, or exchange of shares of stock not traded through the Local Stock
exchange? (Sec 7(c ) of RR 6-2008)
(A.) Determination of Selling Price. In determining the selling price, the following
rules shall apply:
(a.1) In the case of cash sale, the selling price shall be the total consideration per deed
of
sale.
(a.2) If the total consideration of the sale or disposition consists partly in money and
partly in kind, the selling price shall be sum of money and the fair market value of the
property
received.
(a.3) In the case of exchange, the selling price shall be the fair market value of the
property
received.
(a.4) In case the fair market value of the shares of stock sold, bartered, or exchanged is
greater than the amount of money and/or fair market value of the property received, the
excess of the fair market value of the shares of stock sold, bartered or exchanged over
the amount of money and the fair market value of the property, if any, received as
consideration shall be deemed a gift subject to the donor's tax under sec. 100 of the Tax
Code, as amended.
(B.) Definition of "fair market value" of the Shares of Stock.
(b.1) In the case of listed shares which were sold, transferred or exchanged outside of
the trading system and/or facilities of the Local Stock Exchange, the closing price on the
day when the shares are sold, transferred, or exchanged. When no sale is made in the
Local Stock Exchange on the day when the Listed shares are sold, transferred, or
exchanged, the closing price on the day nearest to the date of sale, transfer or
exchange of the shares shall be the fair market value. Sec 2 of RR 6-2013
(b.2) In the case of shares of stock not listed and traded in the local stock exchanges,
the value of the shares of stock at the time of sale shall be the fair market value. In
determining the value of the shares, the Adjusted Net Asset Method shall be used
whereby all assets and liabilities are adjusted to fair market values. The net of adjusted
asset minus the liability values is the indicated value of the equity.
The appraised value of real property at the time of sale shall be the higher of
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of valued fixed by the Provincial and
City
Assessors,
or
(3) The fair market value as determined by Independent Appraiser.

(b.3) In the case of a unit of participation in any association, recreation or amusement

club (such as golf, polo, or similar clubs), the fair market value thereof shall be its selling
price or the bid price nearest published in any newspaper or publication of general
circulation, whichever is higher.
(C.) Determination of Gain or Loss from Sale or Disposition of Shares of Stock. The
gain from the sale or other disposition Stock. The gain from the sale or other
disposition of shares of stock shall be the excess of the amount realized therefrom over
the basis or adjusted basis for determining gain, and the loss shall be the excess of the
basis or adjusted basis for determining loss over the amount realized. The amount
realized from the sale or other disposition of property shall be the sum of money
received plus the fair market value of the property (other than money) received, if any.
16.) What are the applicable tax rates of Capital Gains Tax under the National Internal
Revenue Code of 1997?
a) Real Properties - 6 %
b) For Shares of Stocks not Traded in the Stock Exchange, on the net Capital Gains
Not
over
- Any amount in excess of P100,000 - 10%

P100,000

5%

17.) Who are required to file the Final Capital Gains Tax return?
Every person, whether natural or juridical, resident or non-resident, including estates
and trusts, who sells, transfers, exchanges or disposes real properties located in the
Philippines classified as capital assets, including pacto de retro sales and other forms of
conditional sales or shares of stocks in domestic corporations not traded through the
local stock exchange classified as capital assets.
18.) What is the procedure in the filing of Final Capital Gains Tax return?
File the Final Capital Gains Tax return in triplicate (two copies for the BIR and one copy
for the taxpayer) with the Authorized Agent Bank (AAB) in the Revenue District where
the seller or transferor is registered, for shares of stocks or where the property is
located, for real property. In places where there are no AAB, the return will be filed
directly with the Revenue Collection Officer or Authorized City or Municipal Treasurer.
19.) Who/what are considered exempt from the payment of Final Capital Gains Tax?

Dealer in securities, regularly engaged in the buying and selling of securities

An entity exempt from the payment of income tax under existing investment
incentives and other special laws

An individual or non-individual exchanging real property solely for shares of

stocks resulting in corporate control
A government entity or government-owned or controlled corporation selling real
property
If the disposition of the real property is gratuitous in nature
Where the disposition is pursuant to the CARP law

20.) Who are conditionally exempt from the payment of Final Capital Gains Tax?
Natural persons who dispose their principal residence, provided that the following
criteria are met:

The proceeds of the sale of the principal residence have been fully utilized in
acquiring or constructing new principal residence within eighteen (18) calendar
months from the date of sale or disposition;
The historical cost or adjusted basis of the real property sold or disposed will be
carried over to the new principal residence built or acquired;
The Commissioner has been duly notified, through a prescribed return, within
thirty (30) days from the date of sale or disposition of the persons intention to
avail of the tax exemption;
Exemption was availed only once every ten (10) years; and
There is no full utilization of the proceeds of sale or disposition. The portion of
the gain presumed to have been realized from the sale or disposition will be
subject to Capital Gains Tax.
In case of sale/transfer of principal residence, the Buyer/Transferee shall withhold
from the seller and shall deduct from the agreed selling price/consideration the
6% capital gains tax which shall be deposited in cash or managers check in
interest-bearing account with an Authorized Agent Bank (AAB) under an Escrow
Agreement between the concerned Revenue District Officer, the Seller and the
Transferee, and the AAB to the effect that the amount so deposited, including its
interest yield, shall only be released to such Transferor upon certification by the
said RDO that the proceeds of the sale/disposition thereof has, in fact, been
utilized in the acquisition or construction of the Seller/Transferors new principal
residence within eighteen (18) calendar months from date of the said sale or
disposition. The date of sale or disposition of a property refers to the date of
notarization of the document evidencing the transfer of said property. In general,
the term Escrow means a scroll, writing or deed, delivered by the grantor,
promisor or obligor into the hands of a third person, to be held by the latter until
the happening of a contingency or performance of a condition, and then by him
delivered to the grantee, promise or obligee.

21.) What is a Certificate Authorizing Registration?

Certificate Authorizing Registration (CAR) is a certification issued by the Commissioner
or his duly authorized representative attesting that the transfer and conveyance of land,

buildings/improvements or shares of stock arising from sale, barter or exchange have

been reported and the taxes due inclusive of the documentary stamp tax, have been
fully paid.
With the implementation of the Electronic Certificate Authorizing Registration (eCAR)
System, the CAR shall now be electronically generated.
22.) What is eCAR System?
eCAR stands for Electronic Certificate Authorizing Registration. A web-based facility
that automates the generation of CAR with barcode, eCAR will also enable electronic
linkage between the BIR and the Land Registration Authority. (Participant Guide)
eCARs shall have a validity of one (1) year from date of issue. For other manually
issued CARs that are outstanding and not yet presented to the Register of Deeds, i.e.,
CARs more than one (1) year from the date of issuance which are due for revalidation
and expired CARs which are more than two (2) years from the date of issuance, are not
anymore valid for presentation to the Registry of Deeds. The said CARs shall be
replaced with an eCAR by the concerned Revenue District Offices or Large Taxpayers
Divisions. A certification fee shall be charged for each released eCAR issued/reprinted
after affixture of P15.00 Documentary Stamp Tax on Certificates (Sec 188 of the NIRC
of 1997) and the prescribed Certification Fee of One Hundred Pesos (P100.00) under
Executive Order No. 197 to the taxpayer/authorized representative.
23.) How do we determine the fair market value of shares of stocks not traded through
the Local Stock Exchange?
In determining the value of the shares, the Adjusted Net Asset Method shall be used
whereby all assets and liabilities are adjusted to fair market values. The net of adjusted
asset minus the adjusted liability value is the indicated value of the equity.
For purposes of this item, the appraised value of real property at the time of sale shall
be the highest among the following:
(a) The fair market value as determined by the Commissioner, or
(b) The fair market value as shown in the schedule of values fixed by the Provincial
and City Assessors, or
(c) The fair market value as determined by Independent Appraiser. (RR NO. 6-2013)