Priced Net to Seller? Who Pays Capital Gains Tax, DST, and Transfer Tax (and Who's Liable)

Net to seller is common, but it doesn't change who the BIR holds liable. Here's who pays CGT, DST, and transfer tax, and when.

Who really pays capital gains tax in the Philippines when the price is quoted "net to seller"? The phrase is everywhere in Philippine listings, and it means the buyer has agreed to shoulder the taxes and fees. Does that put the seller in the clear? Not at all. Under the law, the seller remains liable for the capital gains tax, regardless of who ends up writing the check.

A net-to-seller deal is a private arrangement between buyer and seller. The BIR and the city treasurer are not parties to it, and they look to the person the law names as the taxpayer. This guide covers the three main taxes on a property sale, who the law says pays each one, what "net to seller" really changes, and how to protect yourself either way.

The Three Taxes in a Typical Property Sale

When an individual sells a house, lot, or condo that they don't use in business, three taxes come up: capital gains tax (CGT) and documentary stamp tax (DST), both paid to the BIR, and local transfer tax, paid to the treasurer of the city or municipality where the property is located.

On top of these are registration fees at the Registry of Deeds, notarial fees, and clearances such as real property tax and condo association dues. They are not taxes on the sale itself, but they belong in every closing budget.

Capital Gains Tax: Who Pays and How Much

CGT is a final tax of 6% under Section 24(D) of the National Internal Revenue Code. It is computed on whichever is highest: the gross selling price, the BIR zonal value, or the fair market value in the assessor's tax declaration.

Two things surprise sellers. First, CGT applies even if you sold at a loss, because it taxes a presumed gain, not your actual profit. Second, the base may not be your selling price. If you sell for ₱8 million but the zonal value is ₱10 million, CGT is computed on ₱10 million. [LINK: Zonal Value, Market Value, and What Your Neighbor Claims He Sold For]

The seller files BIR Form 1706 and pays within 30 days from notarization of the deed of absolute sale. The BIR will not issue the electronic Certificate Authorizing Registration (eCAR) until CGT and DST are paid, and without the eCAR, the title cannot be transferred.

Can the buyer agree to shoulder CGT? Yes, and in a net-to-seller deal, that is exactly what happens. But the agreement changes who writes the check, not who the BIR holds liable. More on that below.

One important caveat: CGT applies only to property classified as a capital asset. If the seller is a developer, is in the real estate business, or uses the property in trade or business, including collecting rent for leases, the sale is generally treated as a sale of an ordinary asset. That means creditable withholding tax and possibly VAT instead of CGT. Confirm the classification before anyone signs.

Documentary Stamp Tax: Usually the Buyer's, by Custom

DST on a sale of real property is ₱15 for every ₱1,000 of the tax base, or 1.5%. The base is the same as for CGT: the highest of selling price, zonal value, and fair market value.

The Tax Code allows DST to be paid by any party to the document and does not single out the buyer or the seller. In the Philippine market, the buyer customarily pays it. That is practice, not a rule, so write it into the contract.

DST is filed using BIR Form 2000-OT. The long-standing deadline was the 5th day of the month after notarization. Most practitioners simply pay CGT and DST together so the eCAR can be processed in one go.

Local Transfer Tax: Seller by Law, Buyer by Custom

Section 135 of the Local Government Code lets provinces impose a transfer tax of up to 0.5%, and cities and municipalities within Metro Manila up to 0.75%. The base is the total consideration or the fair market value, whichever is higher.

Here's the twist: Section 135 imposes the tax on the seller, donor, or transferor. Yet market custom has the buyer pay it, since it is part of registering the title in the buyer's name. That gap between law and practice is exactly why the contract should spell it out.

Transfer tax is generally due within 60 days from notarization, subject to the local ordinance. The Registry of Deeds needs proof of payment before it will register the sale.

Net to Seller: Who Is Really Liable?

In a net-to-seller deal, the seller names the amount they want to take home, and the buyer agrees to pay everything else: CGT, DST, transfer tax, registration fees, and sometimes the notarial fee. Sellers like it because the number is clean. Buyers accept it because it is common, especially for resale homes and inherited properties.

Here is the catch. Taxes are imposed by law, not by contract. A buyer and seller can agree on who bears the cost, but they cannot agree to change who the government holds responsible.

Capital gains tax stays the seller's liability. The CGT return is filed in the seller's name and under the seller's TIN. If the buyer promised to pay and missed the 30-day deadline, the surcharge, interest, and penalties are assessed against the seller.

DST can be pursued from either signatory. The Tax Code imposes DST on the persons making, signing, or accepting the document, so both parties to the deed are exposed if it goes unpaid.

Transfer tax is the seller's by law. Section 135 of the Local Government Code names the seller or transferor, so an unpaid transfer tax is the seller's problem on paper, even if the buyer agreed to pay it.

In plain terms: "net to seller" shifts who pays, not who is liable. If things go wrong, the seller's remedy is to go after the buyer for breach of contract, which is slow and costly, while the BIR's penalties keep running.

Net to seller also does not change the tax base. CGT and DST are still computed on the highest of the price in the deed, the zonal value, or the fair market value. Writing a lower price in the deed to cut taxes does not reduce the base below zonal value, and a deed that misstates the true price creates legal risk for both sides.

How to Protect Yourself in a Net-to-Seller Deal

First, state the gross price, the net amount to the seller, and exactly which taxes and fees the buyer will pay.

Second, set a deadline for the buyer to pay each tax, ideally well before the BIR deadline.

Third, have the taxes paid at signing, by manager's check payable to the BIR or the city treasurer, or hold that amount in escrow.

Fourth, the seller keeps copies of the filed returns and official receipts.

Fifth, the seller releases the owner's duplicate title only after the eCAR is issued.

Sixth, clarify who pays the broker's commission, which is a separate question from the taxes.

Who Pays Capital Gains Tax, DST, and the Rest: Quick Reference

Capital gains tax: 6% of the highest of selling price, zonal value, or fair market value. Paid to the BIR. The seller pays by law and by custom. Due within 30 days from notarization.

Documentary stamp tax: 1.5% of the same base. Paid to the BIR. The law allows any party to the deed to pay it; the buyer customarily does. Due by the 5th day of the month after notarization.

Local transfer tax: up to 0.75% in Metro Manila and up to 0.5% in the provinces. Paid to the city or municipal treasurer. The seller pays by law (LGC Sec. 135); the buyer customarily does. Generally due within 60 days from notarization.

Registration fees: per the LRA schedule. Paid to the Registry of Deeds. The seller bears them unless agreed otherwise (Civil Code Art. 1487); the buyer customarily does. Paid after the transfer tax.

Notarial fee: varies and is not fixed by law. Negotiable between the parties. Paid at signing.

Unpaid real property tax and association dues: paid by the seller as owner, to the LGU and the condo corporation, before closing.

A Worked Example

Say you sell a condo in Makati for ₱10,000,000. The zonal value is ₱9,000,000 and the tax declaration shows a fair market value of ₱6,000,000. The selling price is highest, so ₱10,000,000 is the base.

Capital gains tax at 6% comes to ₱600,000, paid by the seller. Documentary stamp tax at 1.5% is ₱150,000, and local transfer tax at 0.75% is ₱75,000, both customarily paid by the buyer. Registration fees follow the LRA schedule.

Now suppose the same unit sits in a zone valued at ₱12,000,000. CGT rises to ₱720,000 and DST to ₱180,000, even though the price didn't change. These figures are for illustration only, and actual amounts depend on the documents of your specific property.

What Happens If You Miss a Deadline

Late CGT or DST draws a surcharge, interest, and compromise penalties. More practically, the eCAR is delayed and the buyer cannot transfer the title.

Put It in Writing

Before signing, make sure the contract to sell or deed of sale answers these questions. Who pays CGT, DST, transfer tax, registration fees, and notarial fees? Is the price "net to seller," or are taxes on the seller's account? Who files each return, and by what date? Who delivers the real property tax receipts and the association dues clearance? Who keeps the original returns, receipts, and the eCAR?

A licensed broker should prepare this computation for you in writing before anyone signs. [LINK: Why You Should Work With a Licensed Broker in the Philippines]

Talk to REMAX Core About Your Sale

Every property is a little different: the zonal value, the seller's classification, an inherited title, a co-owner abroad. If you are about to buy or sell and want to know exactly what your side will pay, our team at REMAX Core in Makati can walk you through the computation and the paperwork before you commit. [LINK: Contact REMAX Core]

This article is general information and not legal or tax advice. Rates, deadlines, and procedures may change, so consult a professional about your specific situation. By Atty. Jill Gerodias Borja.

This article is general information, not legal or tax advice. Every situation is different; talk to us about yours.