REVENUE REGULATIONS NO.

8-98 (August 25, 1998)

INCOME TAXATION OF SALE, TRANSFER OR EXCHANGE OF REAL PROPERTY

The Revenue Regulations govern the tax treatment on the sale, transfer or exchange of real property and for this purpose revised the date and venue for the filing of required tax returns and payment of taxes due on transactions involving real properties classified as capital assets and ordinary assets. Capital Gains A final tax of six percent (6%) is imposed on capital gains presumed to have been realized by the seller from the sale, exchange or other disposition of real properties located in the Philippines which are classified as capital assets. This tax rate also applies to pacto de retro sales and other forms of conditional sales. The tax is computed based on the gross selling price or fair market value of the property as determined by the BIR Commissioner in accordance with Section 6(E) of the Tax Code. In case of disposition of real property made by an individual to the government or to any of its political subdivisions or agencies or to government-owned or controlled corporations, the seller may elect to compute the tax on the gain derived from such sale under the normal income tax rate, or under a final capital gains tax of six percent (6%). The capital gains tax of 6% must be paid within thirty (30) days following each sale or disposition. The Capital Gains Tax Return shall be filed by the seller and payment made to an Authorized Agent Bank (AAB) located within the BIR Revenue District Office having jurisdiction over the place where the property being transferred is located.

Ordinary Assets The sale of real property considered as an ordinary asset is subject to creditable withholding tax. The withholding tax is computed based on the gross selling price, or total amount of consideration, or the fair market value, whichever is higher, paid to the seller for the sale, transfer or exchange of real property considered as ordinary asset. The buyer is constituted as the withholding agent, and thus, is liable to deduct such tax from his payment to the seller of the property, and remit these taxes to the BIR.

The following withholding tax rates will apply: Where the seller/transferor is habitually engaged in the real estate business as per proof of registration with the HLURB or HUDCC, if the selling price is P500,000 or less 1.5%

More than P500,000 but not more than P2.0 Million More than P2.0 Million Where the seller/transferor is not habitually engaged in the real estate business

3.0% 5.0%

7.5% Where the seller/transferor is exempt from creditable withholding tax Exempt

Creditable withholding taxes deducted and withheld by the buyer on the sale, transfer or exchange of real property classified as ordinary asset should be paid upon the filing of the return with the Authorized Agent Bank (AAB) located within the BIR Revenue District Office having jurisdiction over the place where the property being transferred is located. Payment must be made within ten (10) days following the end of the month in which the transaction occurred. However, taxes withheld in December shall be filed on or before January 25 of the following year. In the case of Large Taxpayers, the creditable withholding tax shall be remitted twenty five (25) days after the close of the month in which the transaction occurred. Presentation of the Capital Gains Tax Return or Creditable Withholding Tax Return with a bank validation evidencing full payment of the capital gains tax or the creditable withholding tax due, as the case may be, is required before the BIR Revenue District Office where the property being transferred is located will issue the corresponding Tax Clearance (TCL) or Certificate Authorizing Registration (CAR).