From the coffee you buy to the house and lot near Metro Manila that you invested in, you need to pay for taxes.
Taxes are inevitable, and owning a property is not an exception. As Uncle Ben in Spiderman said, “with great power comes great responsibility.” The same is true for owning real estate properties. With all the perks of being a property owner come financial responsibilities. But do not worry about missing any of them and incurring liabilities. Awareness and information are key.
In this blog, we discuss how houses are taxed in the Philippines. Also below are other common taxes that property owners are required to pay. Knowing all kinds of taxes and when to pay them might just save you future interests and penalties, which cost higher if neglected.
What is real property tax?
A property owner is required to pay an annual tax on his property called Real Property Tax or commonly known as amilyar.
According to Section 232 of the Local Government Code, “a province or city, or municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvement not hereinafter specifically exempted.”
Under this law, the local government unit has the authority to create and collect their sources of funds for essential public services such as education, public welfare, healthcare, road maintenance, housing, etc., and one of their main sources is the Real Property Tax.
Based on Section 233 of the Local Government Code, the Real Property Tax rate depends on the location of the property. In the case of a city or municipality within Metro Manila, the rate is (2%) of the assessed value, and for properties located in a province, the rate is (1%) of the assessed value.
Aside from the Real Property Tax, property owners must also be aware of additional taxes levied on them by the government. The local government is given the power to charge additional tax added on the basic real property tax for the Special Education Fund, which is (1%) (Section 235, Additional Levy on Real Property for the Special Education Fund) levied on the assessed value of the real property and additional ad valorem tax on idle lands not exceeding (5%) (Section 236, Additional Ad Valorem Tax on Idle Lands).
How to compute the real property taxes?
The formula to compute the Real Property Tax (RPT) is Real Property Tax = RPT rate x assessed value. The Real Property Tax rate is determined by the location of the property. On the other hand, the assessed value is the property’s taxable value which can be defined as the fair market value multiplied by the assessment level of a property based on Section 218 of the Local Government Code.
For example, Gabriel Perez owns a house and lot in Camella Sierra Metro East, which is located in Rizal. The market value of the house and lot is Php 6,000,000, the residential land valued at Php 3,500,000, and the structure at Php 2,500,000.
First, identify the assessed value of the property.
- Assessed value of land: residential land (Php3,500,000) x assessment level (20%) = Php700,000
- Assessed value of structure: residential land (Php2,500,000) x assessment level (40%) = 1,000,000
- Total Assessed Value of the Property: A + B = Php1,700,000
Next, multiply the total assessed value with the tax rate levied on provinces (1%).
- Real Property Tax: C x Provincial RPT rate (1%) = Php17,000
The total basic real property tax is Php 17,000, but Gabriel Perez must also compute for the Special Education Fund, which is (1%) of the total assessed value of the property.
- Special Education Fund: C x (1%) = Php17,000
Hence, the total tax to be paid by Gabriel Perez is Php34,000, and if he pays on or before the deadline, he could score a discount from the Municipal Treasurer.
What is the schedule and how to pay for real property taxes?
Real Property Tax or amilyar can be paid in full before January 31 of the year or quarterly instalments. Here are the deadlines to take note of:
- 1st Quarter: On or before March 31
- 2nd Quarter: On or before June 30
- 3rd Quarter: On or before September 30
- 4th Quarter: On or before December 31
Local governments offer discounts if the basic real property tax and special education fund are paid on or before the deadlines. For instance, for the Province of Rizal, the Local government offers a (10%) discount.
Property owners may pay their taxes at the Land Tax Division of the Treasurer’s Office of their local government unit.
What happens when you do not pay your property taxes in the Philippines?
Failure of the property owner or duly authorized representative to pay for the basic Real Property Tax and Special Education Fund upon expiration of the deadlines will subject the taxpayer to a penalty rate of 2% on the amount to be paid. The local government treasurer may declare a property as delinquent for the failure of payment.
What is Estate Tax?
When a person dies, his properties are transferred to his heirs. In the Philippines, the process of transferring properties to the heirs of the decedent is subject to what we call the Estate Tax. The Bureau of Internal Revenue is responsible for managing the Estate Tax.
Estate Tax must be filed or processed within (1) year from the death. The heirs or duly authorized representative therein must file for the estate tax return and pay the amount on BIR or its agencies.
There shall be levied, assessed, collected, and paid upon the transfer of the net estate as determined in accordance with Sections 85 and 86 of every decedent, whether resident or nonresident of the Philippines, a tax rate of six percent (6%) based on the value of such net estate. (Section 84, Rates of Estate Tax)
How to compute for the Estate Tax?
Under the Tax Reform for Acceleration and Inclusion or TRAIN Law, the estate of every decedent, resident, or nonresident of the Philippines that has a property in the country is subject to (6%) and computed by multiplying the net estate (less all allowable deductions based on Republic Act 10963/Train Law)
For example, Mr. X dies, the gross estate under his possession at the time of his death is Php 7,000,000, and allowable deductions amount to Php 1,000,000.
- Net Estate: Gross Estate (Php7,000,000) – Allowable Deductions (Php1,000,000) = Php 6,000,000
- Estate Tax: A x (6%) = Php 360,000
The estate tax to be filed by the heirs or any duly authorized representative of Mr. X is Php 360,000.
How to process the Estate Tax?
The estate tax return must be filed within (1) year from the decedent’s death. There are cases that the Commissioner may grant an extension of filing no more than 30 days. The return is filed in any of the Authorized Agent Bank of the Revenue District Office with jurisdiction over the decedent’s place of residence when they died.
For a nonresident in the Philippines, the representative or executor must file the estate tax return with the Office of the Commissioner at the Revenue District Office No.39, South Quezon City.
What happens when an estate tax is not paid in the Philippines?
Failure to pay the estate tax before the deadline will result in interests and penalties. In February 2019, President Rodrigo Duterte approved the Tax Amnesty Act of 2019, which grants taxpayers the opportunity to settle unpaid estate taxes without penalties to lessen the number of delinquencies and cases which cover estates of decedents who died on or before December 31, 2017. The period of availing of the Tax Amnesty Act was recently extended until June 14, 2023
A home is a legacy we leave behind, and it is essential to plan how the transfer of such legacy can be seamless for our loved ones.
Learn more about the country’s favorite and trusted home builder that has been providing quality homes to Filipino families. Browse Camella’s catalog of house and lot in the Philippines or visit our buyer’s guide to know how you can secure a property for sale.