How to File Capital Gains Tax (Form 1706/1707)
The Capital Gains Tax (CGT) is a tax imposed on the gains presumed to have been realized from the sale, exchange, or other disposition of capital assets in the Philippines. There are two main types: CGT on the sale of real property classified as a capital asset, which is taxed at 6% of the gross selling price or fair market value, whichever is higher; and CGT on the sale of shares of stock not traded in the stock exchange, which is taxed at 15% of net capital gains. This guide covers the complete process for filing and paying CGT using BIR Form 1706 (real property) and BIR Form 1707 (shares of stock).
Capital Gains Tax at a Glance
Real Property CGT
6% of the gross selling price or the current fair market value (zonal value or assessed value), whichever is higher. Filed using BIR Form 1706.
Shares of Stock CGT
15% of net capital gains from the sale of shares of stock not traded in the stock exchange. Filed using BIR Form 1707.
Filing Deadline
Within 30 days from the date of sale or disposition of the property or shares. Late filing incurs penalties, interest, and surcharges.
Two Types of Capital Gains Tax
Philippine tax law distinguishes between two types of capital gains subject to CGT. The type of asset sold determines which BIR form to use, the applicable tax rate, and the specific requirements.
Form 1706: Sale of Real Property
Capital Asset (Not Business Property)
Covers the sale, exchange, or disposition of real property (land, house, condominium) classified as a capital asset -- meaning it is not used in trade or business. This applies to individuals and certain entities.
- Tax Rate: 6% of gross selling price or FMV (whichever is higher)
- Deadline: Within 30 days from sale
- Filed at the RDO where the property is located
- Requires notarized Deed of Absolute Sale
Form 1707: Sale of Shares of Stock
Not Traded in the Stock Exchange
Covers the sale, barter, exchange, or other disposition of shares of stock in a domestic corporation that are not traded through the local stock exchange (PSE). This includes private company shares.
- Tax Rate: 15% of net capital gains
- Deadline: Within 30 days from sale
- Filed at the RDO of the seller
- Requires Deed of Sale of shares
CGT on Sale of Real Property (6%)
The capital gains tax on the sale of real property classified as a capital asset is imposed at a flat rate of 6% based on the gross selling price or the current fair market value at the time of sale, whichever is higher. The fair market value is determined as follows:
Zonal Value
The value determined by the BIR Commissioner for a specific area or zone. Zonal values are published in BIR Revenue Regulations and are periodically updated. You can check the zonal value at the BIR RDO where the property is located or on the BIR website.
Assessed Value (Fair Market Value per Tax Declaration)
The value appearing in the latest Tax Declaration issued by the local Assessor's Office. This is the fair market value as determined by the provincial or city assessor for real property tax purposes.
How to determine the tax base: Compare the gross selling price (the amount in the Deed of Sale) with the zonal value and the assessed value (from the Tax Declaration). The CGT is computed based on whichever is highest among the three. For example, if the selling price is P2,000,000, the zonal value is P2,500,000, and the assessed value is P1,800,000, the CGT is 6% of P2,500,000 = P150,000.
CGT on Sale of Shares of Stock (15%)
The capital gains tax on the sale of shares of stock in a domestic corporation not traded through the stock exchange is imposed at a flat rate of 15% of net capital gains. Net capital gains are computed as the selling price minus the cost or adjusted basis of the shares sold.
Computation Formula
Note: If the shares are sold at a loss (selling price is lower than cost), no CGT is due. However, the transaction must still be reported to the BIR.
Requirements for Filing CGT on Real Property (Form 1706)
| Document | Details |
|---|---|
| BIR Form 1706 | Capital Gains Tax Return for Onerous Transfer of Real Property Classified as Capital Asset (both taxable and exempt). Download from bir.gov.ph or get from the RDO. Must be accomplished in triplicate. |
| Notarized Deed of Absolute Sale | The original notarized deed or contract of sale executed between the buyer and seller. Must contain the agreed selling price, property description, and signatures of both parties. Bring the original and at least two photocopies. |
| Transfer Certificate of Title (TCT) / Condominium Certificate of Title (CCT) | Certified true copy of the owner's title from the Registry of Deeds. For untitled land, the original Certificate of Land Title or tax declaration may be used. |
| Tax Declaration of the Property | The latest tax declaration from the local Assessor's Office showing the assessed value and fair market value of the property. This is used to determine the tax base (compared to selling price and zonal value). |
| TIN of Buyer and Seller | Both the buyer and seller must have a valid TIN (Taxpayer Identification Number). If the buyer does not have a TIN, they must register with the BIR before the transaction can be processed. |
| BIR Zonal Value Certification | A certification of the BIR zonal value of the property at the time of sale. Obtainable from the RDO where the property is located. The BIR also publishes zonal values on its website. |
| Documentary Stamp Tax (DST) Payment | Proof of DST payment (BIR Form 2000-OT). DST on sale of real property is P15 for every P1,000 (or fraction thereof) of the selling price or fair market value, whichever is higher. DST must be paid within 5 days from the end of the month when the document was signed. |
Requirements for Filing CGT on Shares (Form 1707)
| Document | Details |
|---|---|
| BIR Form 1707 | Capital Gains Tax Return for Onerous Transfer of Shares of Stock Not Traded Through the Local Stock Exchange. Download from bir.gov.ph or get from the RDO. Must be accomplished in triplicate. |
| Deed of Sale of Shares | The notarized deed or agreement evidencing the sale, exchange, or transfer of shares. Must state the number of shares, par value, selling price, and details of both parties. Original and photocopies required. |
| Audited Financial Statements of the Corporation | The latest audited financial statements (AFS) of the corporation whose shares are being sold. This is needed to determine the book value of the shares and validate the selling price against the fair market value. |
| TIN of Buyer and Seller | Both the buyer (transferee) and seller (transferor) must have valid TINs. If the buyer is a foreign national or entity, the applicable TIN or tax treaty provisions must be observed. |
Step-by-Step: Filing CGT on Sale of Real Property
The following steps outline the complete process for filing and paying Capital Gains Tax on the sale of real property classified as a capital asset. The seller is primarily liable for the CGT, but in practice, the buyer and seller may agree on who shoulders the tax.
Execute the Deed of Absolute Sale
The buyer and seller execute a Deed of Absolute Sale (or Deed of Conditional Sale, as applicable) before a notary public. The deed must contain the complete description of the property, the agreed selling price, the identities and TINs of both parties, and any other terms and conditions of the sale. The deed must be notarized to be valid for BIR filing purposes.
Tip: Ensure the selling price stated in the deed accurately reflects the transaction. The BIR will compare this against the zonal value and assessed value, and will use whichever is highest as the tax base. Understating the price may result in penalties.
Compute the Capital Gains Tax
Determine the tax base by comparing the gross selling price, the BIR zonal value, and the assessed value (fair market value from the tax declaration). The CGT is 6% of whichever is highest. You can verify the zonal value at the RDO where the property is located or through the BIR website.
Formula:
CGT = 6% x (Gross Selling Price OR Zonal Value OR Assessed Value, whichever is highest)
Fill Out BIR Form 1706
Download BIR Form 1706 from the BIR website (bir.gov.ph) or get a copy from the RDO. Fill out the form completely with the following information:
- TIN, name, and address of both the seller and buyer
- Description of the property (location, area, TCT/CCT number)
- Date of sale and date of notarization
- Gross selling price, zonal value, and assessed value
- Computed capital gains tax amount
- Whether exemption is being claimed (e.g., sale of principal residence under Section 24(D)(2) of the NIRC)
Prepare the form in triplicate -- one for the BIR, one for the taxpayer, and one for the Authorized Agent Bank (AAB).
File at the RDO Where the Property is Located
Submit the accomplished BIR Form 1706 together with all the required documents to the Revenue District Office (RDO) that has jurisdiction over the location of the property. The RDO will review the documents, verify the zonal value, and assess the CGT due. Take note that CGT on real property is always filed at the RDO where the property is situated, not the RDO of the seller.
Pay the CGT Within 30 Days from Sale
After filing the return, pay the computed Capital Gains Tax at any Authorized Agent Bank (AAB) within the RDO's jurisdiction, or through the Revenue Collection Officer (RCO) if there is no AAB in the area. Payment must be made within 30 days from the date of sale or disposition. You may also pay online through eFPS (Electronic Filing and Payment System) or authorized online payment channels.
Important: Late payment will result in a 25% surcharge on the unpaid amount, plus 12% interest per annum computed from the due date until fully paid, plus a compromise penalty. File and pay on time to avoid these additional costs.
Pay the Documentary Stamp Tax (DST)
In addition to CGT, the sale of real property is also subject to Documentary Stamp Tax (DST) under BIR Form 2000-OT. The DST rate is P15 for every P1,000 (or fraction thereof) of the consideration or fair market value, whichever is higher. The DST must be paid within 5 days following the close of the month when the document was signed or executed.
Get Certificate Authorizing Registration (CAR) for Title Transfer
After paying the CGT and DST, apply for a Certificate Authorizing Registration (CAR) from the BIR. The CAR is a document issued by the BIR certifying that all internal revenue taxes due on the transfer have been paid. This certificate is required by the Registry of Deeds before a new title can be issued in the buyer's name. Processing of the CAR typically takes 5 to 20 working days, depending on the RDO.
After getting the CAR: Present the CAR, deed of sale, and other documents to the Registry of Deeds to have the title transferred to the buyer. Then update the tax declaration at the local Assessor's Office to reflect the new owner.
Complete Example: The Reyes Family Sells Their Lot
The Reyes family owns a 200 sqm residential lot in Quezon City that they inherited from their parents. The lot is classified as a capital asset (not used in trade or business). They found a buyer, Mr. Tan, who agreed to purchase the lot for P3,000,000. Here is how they computed and filed the Capital Gains Tax:
Determined the Tax Base
The Reyes family compared the three values to determine the highest:
Highest value: Zonal Value at P3,600,000. This becomes the tax base.
Computed the Capital Gains Tax
Computed the Documentary Stamp Tax
Filed and Paid at the RDO
The Reyes family went to the RDO in Quezon City where the property is located. They submitted the accomplished BIR Form 1706, the notarized Deed of Absolute Sale, TCT, Tax Declaration, and proof of zonal value. They paid the CGT of P216,000 and the DST of P54,000 at the Authorized Agent Bank. After 10 working days, they received the Certificate Authorizing Registration (CAR) and proceeded to the Registry of Deeds to have the title transferred to Mr. Tan.
Cost Summary for the Reyes Family
Note: The buyer and seller may negotiate who shoulders which taxes and fees. By default, CGT is for the seller and DST may be split. Transfer tax and registration fees are typically shouldered by the buyer. Actual costs vary.
Frequently Asked Questions
Who is liable to pay Capital Gains Tax?
The seller is primarily liable for the payment of Capital Gains Tax. However, the buyer and seller may agree in their contract on who will shoulder the CGT. In practice, the parties often negotiate the allocation of taxes as part of the sale agreement. If the seller fails to pay, the BIR may hold the buyer solidarily liable.
Is the sale of my principal residence subject to CGT?
The sale of a principal residence by a natural person may be exempt from CGT under Section 24(D)(2) of the National Internal Revenue Code, provided that: (1) the proceeds are fully utilized in acquiring or constructing a new principal residence within 18 months from the date of sale; (2) the exemption is availed of only once every 10 years; and (3) the BIR Commissioner is duly notified within 30 days from the date of sale. An escrow agreement with an authorized agent bank must be established for the proceeds.
What is the deadline for filing and paying CGT?
The CGT return must be filed and the tax paid within 30 days from the date of sale or disposition of the property or shares. Late filing incurs a 25% surcharge on the unpaid amount, plus 12% interest per annum from the due date until fully paid, and a compromise penalty.
What if the selling price is lower than the zonal value?
The BIR will use the zonal value (or the assessed value, whichever is higher) as the tax base if it exceeds the selling price. This is to prevent undervaluation of properties to avoid taxes. Even if the actual transaction price is lower, the CGT is computed on the higher value among the selling price, zonal value, and assessed value.
Are shares of stock traded in the PSE subject to CGT?
No. Shares of stock traded through the Philippine Stock Exchange (PSE) are not subject to CGT. Instead, they are subject to a stock transaction tax of 6/10 of 1% (0.6%) of the gross selling price or gross value in money of the shares sold, which is automatically withheld by the broker. CGT (15%) only applies to shares sold in private transactions (not traded through the PSE).
What is a Certificate Authorizing Registration (CAR)?
A CAR (also known as eCAR for electronically issued CARs) is a certification from the BIR that all taxes related to the transfer of property have been paid. The CAR is required by the Registry of Deeds before a new Transfer Certificate of Title (TCT) can be issued in the name of the buyer. Without a CAR, the title cannot be transferred. Processing time is typically 5 to 20 working days after complete submission of requirements.
Can I file CGT online?
Yes, you can file the CGT return electronically through the BIR's eBIRForms system or eFPS (Electronic Filing and Payment System). However, you will still need to submit the supporting documents (deed of sale, title, tax declaration, etc.) to the RDO for processing of the CAR. Online payment can also be made through authorized payment channels.
Important Reminders
- File within 30 days: The CGT return must be filed and the tax paid within 30 calendar days from the date of sale or disposition. Do not wait for the title transfer process to start -- file the CGT immediately after the deed is executed.
- Use the highest value as tax base: Always compare the selling price, zonal value, and assessed value. The CGT is computed on whichever is highest. Check the current zonal value at the RDO before computing.
- Pay DST separately: The Documentary Stamp Tax is a separate obligation from the CGT. Both must be paid before the BIR will issue a Certificate Authorizing Registration (CAR).
- Both buyer and seller need TINs: The BIR requires the TINs of both parties. If the buyer does not have a TIN, they must register with the BIR first.
- Keep all receipts and documents: Retain copies of the filed return, proof of payment (Official Receipt), the CAR, and all supporting documents. These may be needed for future tax audits or property transactions.
- Principal residence exemption: If you are selling your principal residence and plan to buy a new one within 18 months, you may be exempt from CGT. Notify the BIR Commissioner within 30 days from the sale and set up an escrow account for the proceeds.
- Penalties for late filing: Late payment results in a 25% surcharge, 12% annual interest, and a compromise penalty. These can significantly increase the total amount due. File and pay on time.
- Installment sales: For sales on installment, the CGT is still due within 30 days from the execution of the deed, based on the full selling price or fair market value -- not just the initial payment received.
Need Help?
Contact BIR
- BIR Hotline: (02) 8538-3200
- Email: contact_us@bir.gov.ph
- Website: www.bir.gov.ph
- Facebook: @BIRgovph
- Office Hours: Monday to Friday, 8:00 AM to 5:00 PM
Disclaimer
This guide is provided for general informational purposes only. The requirements, steps, fees, and procedures mentioned here may vary depending on the BIR you visit. We recommend visiting your nearest BIR first to confirm the specific requirements and process before preparing your documents.