THE 25% PROPERTY TAX

Imagine selling a property and losing 25% of the gross proceeds to tax.

That can happen when Philippine real property is legally owned and sold by a foreign corporation incorporated outside the Philippines that is not engaged in business here.

Under Section 28(B)(1) of the Philippine Tax Code, a nonresident foreign corporation is generally subject to a 25% final income tax on gross income from Philippine sources.

On the gross amount received from the sale.

So if a property is sold for P100 million, the potential tax exposure could be P25 million—even if the company originally bought it for nearly the same amount.

The buyer generally withholds the tax from the amount payable to the foreign corporate seller and remits it to the BIR.

The transaction would not ordinarily be subject to the usual 6% capital gains tax or a separate regular corporate income tax. The 25% final withholding tax is already the applicable income tax.

Documentary stamp tax would still apply, together with local transfer tax, registration fees, and other transfer expenses.

Interestingly, the BIR documentation for the transfer may still place the payment under the general heading “Capital Gains Tax,” even though the legal basis and rate are different.

The lesson?

Before accepting a listing owned by a foreign company, do not automatically assume that the usual 6% CGT applies.

Sometimes, the difference between a 6% tax and a 25% tax begins with one line on the title.

Now you know. And knowing is half the battle.