deed of assignment bir

Overview of Certificate Authorizing Registration in the Philippines

By: Garry S. Pagaspas

Certificate Authorizing Registration (CAR) in the Philippines is one issued by the Bureau of Internal Revenue (BIR) in relation to transfers of certain properties in the Philippines. Hereunder are some of its features for easy reference.

A mandatory tax clearance  for the transfer of title

Certificate authorizing registration (CAR) in the Philippines is in effect a tax clearance issued by the Bureau of Internal Revenue (BIR) relative to the transfer of certain properties. Once issued, it would mean that applicable taxes on such transfers of properties are being paid – capital gains tax in the Philippines, documentary stamp tax in the Philippines, creditable withholding tax in the Philippines,  and certification fees, whichever is applicable.

It is a mandatory requirement and the title of the property will not be transferred in the absence of such CAR. Requirement for certificate authorizing registration on real properties (e.g. land and condominium units) is imposed under Section 58(E) of the Philippine Tax Code, as amended. For the Registry of Deeds, it will not issue a new transfer certificate of title (TCT) or condominium certificate of title (CCT) in the name of the buyer in the absence of the CAR.

With respect to the certificate authorizing registration on shares of stock, it is the BIR regulation that imposes the same. The Corporate Secretary of a stock corporation in the Philippines will not issue a new stock certificates in the name of the buyer in the absence of the certificate authorizing registration from the BIR.

Applies to specific transfers of properties only

Not all property transfers are required certificate authorizing registration in the Philippines. It only applies to the following properties:

• Real properties covered by transfer certificate of title (TCT);
• Condominiums covered by condominium certificate of title (CCT);
• Shares of stock of a domestic stock corporation in the Philippines

CAR application requirements and process

As to requirements for securing certificate authorizing registration (CAR) in the Philippines, it would depend on type of property – land, condominium unit, shares of stock. For land and condominium, it would depend on whether the same is a capital asset or ordinary asset of the seller. The complete list is available with the BIR One Time Transactions (ONETT). Hereunder are some major requirements:

Sale of shares of stock:

• Capital gains tax return
• BIR Form No. 2000 – ONETT – Documentary Stamp Tax Return
• Certification fee of P100
• Legal document of transfer – e.g. Deed of Assignment
• Copy of the Stock Certificate to be transferred
• Copy of latest audited financial statements
• Copy of the latest General Information Sheet
• Copy of the articles of incorporation and by-laws of the corporation
• Copies of the documents on the previous acquisition of such shares of stock

Sale of real property:

• Capital gains tax return, if applicable
• Proof of withholding , if ordinary asset
• Legal document of transfer – e.g. Deed of Assignment or Deed of Absolute Sale
• Copy of the transfer certificate of title (TCT) or condominium certificate of title (CCT)
• Copy of the latest tax declaration
• Sketch of property location
• Copies of the documents on the previous acquisition of such property

Based on the above documents, the BIR revenue officers will process the CAR application and upon finding the same in order, the certificate authorizing registration (CAR) in the Philippines will be released within approximately a week or two. I suggest you closely monitor the progress of the application and make a follow-up from time to time while the application is pending. Upon the release of the certificate authorizing registration, you can now proceed with the Registry of Deeds for the transfer of title of real properties or with the Corporate Secretary for the issuance of new stock certificates.

Penalties for failure to secure certificate authorizing registration

Penalties in relation to certificate authorizing registration will be imposed by the BIR upon the late filing and payment of the related taxes – capital gains tax in the Philippines, withholding taxes in the Philippines, documentary stamp tax in the Philippines. The usual 25% one-time surcharge (50% if fraudulent), 20% interest, and compromise penalties based on the  basic amount ranging from P200 to P50,000. Corporate Secretary who will transfer a shares of stock and issue a new Stock Certificate without the certificate authorizing registration is also exposed to liability.

(Garry S. Pagaspas is a Resource Speaker with Tax and Accounting Center, Inc. He is a Certified Public Accountant and a degree holder in Bachelor of Laws engaged in active tax practice for more than seven (7) years now and a professor of taxation for more than four (4) years now. He had assisted various taxpayers in ensuring tax compliance and tax management resulting to tax savings rendering tax studies, opinions, consultancies and other related services. For comments, you may please send mail at ga************@ta************.org .)

Disclaimer : This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances.

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Deed of Assignment: Everything You Need to Know

A deed of assignment refers to a legal document that records the transfer of ownership of a real estate property from one party to another. 3 min read updated on January 01, 2024

Updated October 8,2020:

A deed of assignment refers to a legal document that records the transfer of ownership of a real estate property from one party to another. It states that a specific piece of property will belong to the assignee and no longer belong to the assignor starting from a specified date. In order to be valid, a deed of assignment must contain certain types of information and meet a number of requirements.

What Is an Assignment?

An assignment is similar to an outright transfer, but it is slightly different. It takes place when one of two parties who have entered into a contract decides to transfer all of his or her rights and obligations to a third party and completely remove himself or herself from the contract.

Also called the assignee, the third party effectively replaces the former contracting party and consequently assumes all of his or her rights and obligations. Unless it is stated in the original contract, both parties to the initial contract are typically required to express approval of an assignment before it can occur. When you sell a piece of property, you are making an assignment of it to the buyer through the paperwork you sign at closing.

What Is a Deed of Assignment?

A deed of assignment refers to a legal document that facilitates the legal transfer of ownership of real estate property. It is an important document that must be securely stored at all times, especially in the case of real estate.

In general, this document can be described as a document that is drafted and signed to promise or guarantee the transfer of ownership of a real estate property on a specified date. In other words, it serves as the evidence of the transfer of ownership of the property, with the stipulation that there is a certain timeframe in which actual ownership will begin.

The deed of assignment is the main document between the seller and buyer that proves ownership in favor of the seller. The party who is transferring his or her rights to the property is known as the “assignor,” while the party who is receiving the rights is called the “assignee.”

A deed of assignment is required in many different situations, the most common of which is the transfer of ownership of a property. For example, a developer of a new house has to sign a deed of assignment with a buyer, stating that the house will belong to him or her on a certain date. Nevertheless, the buyer may want to sell the house to someone else in the future, which will also require the signing of a deed of assignment.

This document is necessary because it serves as a temporary title deed in the event that the actual title deed for the house has not been issued. For every piece of property that will be sold before the issuance of a title deed, a deed of assignment will be required.

Requirements for a Deed of Assignment

In order to be legally enforceable, an absolute sale deed must provide a clear description of the property being transferred, such as its address or other information that distinguishes it from other properties. In addition, it must clearly identify the buyer and seller and state the date when the transfer will become legally effective, the purchase price, and other relevant information.

In today's real estate transactions, contracting parties usually use an ancillary real estate sale contract in an attempt to cram all the required information into a deed. Nonetheless, the information found in the contract must be referenced by the deed.

Information to Include in a Deed of Assignment

• Names of parties to the agreement
• Addresses of the parties and how they are binding on the parties' successors, friends, and other people who represent them in any capacity
• History of the property being transferred, from the time it was first acquired to the time it is about to be sold
• Agreed price of the property
• Size and description of the property
• Promises or covenants the parties will undertake to execute the deed
• Signatures of the parties
• Section for the Governors Consent or Commissioner of Oaths to sign and verify the agreement

If you need help understanding, drafting, or signing a deed of assignment, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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Content Approved by UpCounsel

• Define a Deed
• Contract for Deed California
• Contract for Deed in Texas
• Assignment Law
• Deed Contract Agreement
• Assignment Of Contracts
• Legal Assignment
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Deed of Assignment | Assignor | Assignee

Assign your property to another with a "deed of assignment".

Transfer your property to another person

Last updated on 16 November 2023

1. What is a Deed of Assignment? 

A Deed of Assignment is a contract where the owner (the “assignor”) transfers ownership over property to another person (the “assignee”) by way of assignment. The assignee steps into the shoes of the assignor and assumes all the rights and obligations to the property.

2. When do you need a Deed of Assignment?

A Deed of Assignment is used when the owner wants to transfer ownership (and the rights and obligations) over property to another person.

3. What information do you need to create the Deed of Assignment?

To create your Deed of Assignment you’ll need the following minimum information:

• The type of assignor (e.g. individual or business) as well as name and details (e.g. nationality and address).
• The type of assignee (e.g. individual or business) as well as name and details (e.g. nationality and address).
• Brief description of the property to be assigned.

4.  How much is the document?

The document costs PHP 400 for a one-time purchase. Once purchased you have unlimited use and revisions of this type of document.

You can also avail of Premium subscription at PHP 1,000 and get (a) unlimited use of our growing  library  of documents (from affidavits to contracts); and (b) unlimited use of our “ Ask an Attorney ” service, which lets you consult an expert lawyer anytime for any legal concern you have.

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Deed of Assignment of Stock Subscription

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A Deed of Assignment of Stock Subscription is a written document used to transfer shares of stock of a corporation from the registered owner (the "assignor") to another person (the "assignee"). It should specify the names of the parties , the date of the transfer , the number of the stock certificate that represents the shares to be transferred, and the number of shares that will be transferred.

Only shares that have been fully paid are transferable. This means that if the assignor has not yet paid the full amount of the subscription, then the shares under the subscription cannot be transferred .

In order to transfer the shares, the stock certificate should be endorsed by the owner or any person legally authorized to make the transfer. Indorsement means signing the back of the stock certificate.

Finally, the transfer of shares will only be valid between the parties until it is recorded in the books of the corporation.

How to use this document

This document can be used by the registered owner of shares of stock of a corporation to transfer the shares (or part of the shares) to another person. It assumes that the purchase price for the shares has been fully paid .

The user should complete the document by entering the information required in the document. Once it is completed, the assignor and the assignee should sign the document .

This Deed of Assignment also includes an Acknowledgment. An Acknowledgment is an act of a person before a notary public stating that the signature on a document was voluntarily affixed by him and he executed the document as his free and voluntary act . Acknowledging a document before a notary public turns the document into a public document . Public documents are generally self-authenticating, meaning no other evidence will be needed to prove the execution of the document.

The Documentary Stamp Tax ("DST") and other applicable taxes, such as the Capital Gains Tax , should also be paid to the Bureau of Internal Revenue ("BIR") by the assignor or the assignee. The DST is required to be paid for any issuance or transfer of shares. The BIR shall issue a Certificate Authorizing Registration ("CAR") once the DST and other taxes are paid.

The assignor or assignee can then present the document, together with the endorsed stock certificate and the CAR , to the Corporate Secretary so the transfer can be recorded in the books of the corporation .

Applicable law

The Revised Corporation Code and the general laws of contracts and obligations found in the Civil Code govern the transfer of shares. However, other laws, their rules and regulations, and SEC rules may affect the conduct and transactions of the Corporation such as but not limited to the 1987 Constitution of the Philippines , the Securities Regulation Code, the Foreign Investment Act, the Republic Act 8179, specifically the Foreign Investment Negative List, the Anti-Money Laundering Act, and the Anti-Dummy Law may affect the ownership requirements of a corporation, depending on the business of the corporation. Tax laws may also affect the transfer of the shares.

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Other names for the document:

Deed of Assignment, Deed of Assignment of Shares, Deed of Assignment of Stock, Deed of Assignment of Shares of Stock, Deed of Transfer of Stock Subscription

Country: Philippines

General Business Documents - Other downloadable templates of legal documents

• Acknowledgement Receipt
• Minutes of the Meeting of the Stockholders
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• Secretary's Certificate
• Minutes of the Meeting of the Board of Directors
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• Notice of Meeting
• Letter of Consent of Nominee
• Business Name Change Letter
• Release, Waiver, and Quitclaim (One-Way)
• Notice of Dishonor for Bounced Check
• Withdrawal of Consent of Nominee
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• Subscription Agreement for Shares of Stock
• Breach of Contract Notice
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• Other downloadable templates of legal documents

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How to Compute Documentary Stamp Tax (DST) on Transfer of Real Property

July 5, 2011 Vic 19 Comments

How to compute Documentary Stamp Tax (DST) on transfer of real property in the Philippines? When we sell or buy real property , we execute a contract or deed of absolute sale, where the selling price, parties, details of property and other stipulations are stated. The deed of sale is a document, and it is included by the tax code, regulated by the Bureau of Internal Revenue (BIR), as a document subject to documentary stamp tax. Now if you are selling or buying real property (i.e., land and improvement therein), the following guidelines, steps, procedures and other information in computing DST should help you.

What is a Documentary Stamp Tax?

Documentary Stamp Tax (DST) is a tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto.

What is the BIR Form used in filing DST?

For filing and payment of DST on sale or transfer of real property, the form to be used is BIR Form No. 2000-OT (Documentary Stamp Tax Return/Declaration for One Time Transactions). One time transactions include transfer of Real Property classified as capital asset, transfer of Real Property classified as ordinary asset, and transfer of shares of stock not traded through the local stock. Please click here to download the Form .

Who are required to file BIR Form 2000-OT?

This return shall be filed in triplicate by the following person making, signing, issuing, accepting or transferring the document or facility evidencing transaction:

1. Every natural or juridical person, resident or non-resident, for sale, barter, exchange or other onerous disposition of shares of stock in a domestic corporation, classified as capital asset , not traded in the local stock exchange; 2. Every withholding agent/buyer/seller on the sale, transfer or exchange of real property classified as capital asset . The “sale” includes pacto de retro sale and other forms of conditional sale; and 3. Every withholding agent/buyer/seller on the sale, transfer or exchange of real property classified as ordinary asset.

Whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax.

How to Compute DST on transfer of real property?

In computing the DST on transfer of real property or Deed of Sale and conveyance of real property, the following DST tax rate is used:

1.5% x Selling Price/Consideration or Fair Market Value, whichever is higher

Notes: -The 1.5% rate is based on the DST fractional rate of Php15 per P1,000 taxable amount or P15/1,000. -When the sale is thru mortgage foreclosure sale or when one of the contracting parties is the Government, the tax herein imposed shall be based on the actual consideration. -In case of sale of real property paid under installment payment or deferred payment basis, the payment of documentary stamp tax (DST) shall accrue upon the execution of the Deed of Absolute Sale but the basis for the imposition -Per Revenue Regulations No. 13-2004, the following instruments, documents and papers shall be exempt from the DST:  Transfer of property pursuant to Section 40(C)(2) of the National Internal Revenue Code of 1997, as amended.

Sample computation of DST on transfer of real property

Example: A residential lot in Pasig City with a floor area of 200sqm has a Selling Price of P3 Million. The Deed of Sale stipulated that the buyer shall shoulder DST. The following are the fair market value information of the real property:

1. Fair Market Value as determined by BIR Commissioner (Zonal Value/BIR Rules): 1a. Land: P1,600,000 (let us say BIR Zonal value is P8,000/sqm [200 x 8,000=1,600,000]) 1b. Improvement: P1,200,000

2. Fair Market Value as determined by Provincial/City Assessor’s (per latest Tax Declaration): 2a. Land: P1,400,000 2b. Improvement: P1,300,000

Question: How much is the DST?

Answer/solution:

Step 1. Determine the highest fair value (FMV):

Total FMV1 (1a + 1b): P2,800,000 Total FMV2 (2a + 2b): P2,700,000 Total FMV3 (1a + 2b): P2,900,000 Total FMV4 (2a + 1b): P2,600,000

The Highest FMV is FMV3: P2,900,000. This is the FV we will use in the step 2.

Step 2. Determine the higher between FMV and Selling Price:

FMV = P2,900,000 Selling Price = P3,000,000

The higher value is the selling price P3,000,000. This is our tax base for computing DST.

Step 3. Calculate DST.

DST = P3,000,000 x 1.5% DST = P45,000

When and where to file and or pay the BIR Form 2000-OT?

The return shall be filed and the tax paid wit hin five (5) days after the close of the month when the taxable document was made, signed, issued, accepted or transferred.

The return shall be filed with and the tax paid to the Authorized Agent Bank (AAB) within the territorial jurisdiction of Revenue District Office (RDO) where the seller/transferor is required to be registered or where the property is located in case of sale of real property. In places where there are no AAB’s, the return shall be filed directly with and tax paid to the Revenue Collect ion Officer (RCO) or duly Authorized City or Municipal Treasurer within the RDO where the seller/transferor is required to be registered or where the property is located in case of real property.

For the attachments required, please see BIR Form 2000-OT. For computing Capital Gains Tax on transfer of real property, classified as capital asset, in the Philippines, please read our article “ How to Compute Capital Gains Tax on Sale of Real Property “.

Source: BIR Revenue Regulations No. 13-2004, BIR website , BIR Form 200-OT, NIRC of the Philippines

Disclaimer: This article was published for informational use only. Subsequent and new laws, regulations, issuances and rulings may render the whole or part of the article obsolete or incorrect. For more clarifications and inquiries, please the visit the BIR RDO in your jurisdiction.

Victorino Q. Abrugar is a marketing strategist and business consultant from Tacloban City, Philippines. Vic has been in the online marketing industry for more than 7 years, practicing problogging, web development, content marketing, SEO, social media marketing, and consulting.

July 5, 2011 at 1:31 pm

Nice Vic. This is the tax type that is common but neglected by some. Common to brokers and realtors but neglected by some real property owners who seldom sells, but because buyers cannot transfer title under their name without the Certificate Authorizing Registration (CAR), then, they became aware as soon as they process with the BIR for such CAR. For sellers, you can pass this tax to buyers because any of the parties may be held liable, or that they can agree on who should pay this tax.

July 5, 2011 at 4:20 pm

Thanks Gar, this is actually a supporting article on our post about registering real property in the Philippines. BTW, you can register at Gravatar ot get a gravatar so that you can have a photo beside you comments everywhere in the blogosphere. You can also make your gravatar the logo of your firm. 🙂

July 7, 2011 at 2:01 am

Thanks Vic. Finally, I found the gravatar and made one.

August 20, 2011 at 11:32 am

I have a question maybe you can help me. We bought a house and lot in 2009 for installment in one of Sta. Lucia subdivisions and then we wanted to transfer our payment to PAG-IBIG. One requirement when applying housing loan in PAG-IBIG is transfer of title.

My question is: Who should pay for DST? Me or Sta. Lucia?

Also, about the capital gain tax on your other article, is it applicable in my case. Will I shoulder the capital gain tax or not?

August 22, 2011 at 2:07 am

Please see my view below.

My question is: Who should pay for DST? Me or Sta. Lucia? Ans. DST could be contractual which means that the parties may agree who will shoulder. Please check it out on the contract, though in practice, it is the buyer who shoulders but the seller normally takes care of the remittance. Check also with them, they might have taken cared of this already.

Also, about the capital gain tax on your other article, is it applicable in my case. Will I shoulder the capital gain tax or not? Ans. On the sale to you, capital gains tax (CGT) does not apply because the property is an ordinary asset on the part of Sta. Lucia, the seller. Normal income tax applies and not CGT. Nevertheless, CGT is imposed upon the seller and not the buyer.

August 22, 2011 at 12:11 pm

Thanks for your answers. Sometimes it’s hard to know these things especially if you are first-time buyer.

March 28, 2017 at 7:44 am

Hi Sir. Vic, Our broker was asking us to pay for the CGT for the property that we’ve bought from Sunvar.And Sunvar is engage in a real property business, therefore the property that they sold is considered as an ordinary asset? does this mean there would be no more taxes to be paid? since the normal income tax for this will be shouldered by the seller? please answer..thank you in advance.

August 25, 2011 at 2:24 pm

Yes Gil. Tax is not that is easy the way it was intended by them. it would take sometime to learn the technical aspect of it.

January 13, 2012 at 4:28 am

We are planning on buying the apartment unit we are currently renting. My question is, is the property being sold consider as capital asset or ordinary asset? The lessor is a registered property corporation but is not registrated under HLURB. The nature of their business is home rental. Thanks

January 14, 2012 at 6:20 am

IMO, if you’re the buyer and you will use it for residential purposes, then it’s a capital asset for you.

January 16, 2012 at 9:43 am

The seller is asking us the buyer to shoulder the capital gain tax. We are not sure if the property is subject to 6% capital gain tax or it be subjected to corporate tax since the company selling the property is a real property company engaged in leasing, which I’ve read in one of the article in this site that property held by real estate dealer, developer are considered as ordinary asset.

January 28, 2012 at 11:16 pm

When is a seller required to pay Vat when selling real property?

August 12, 2012 at 7:08 am

Sir im planning to buy a lot to be loaned at pagibig from my friend, who will shoulder for the CGT? me as buyer or the seller?

May 21, 2013 at 2:28 pm

Hi, I am planning to buy a residential house and lot through bank financing. Who will shoulder the capital gains tax? And I believe I’m the one who will shoulder the DST, right? Thanks!

August 7, 2015 at 7:53 am

BIR Form to use for Transfer Tax Payment, please reply asap…

January 12, 2016 at 8:19 am

Hi , I’m planning to go into build and sell of apartment and register the business as a real estate developer at HLURB. I plan to buy a vacant lot and execute a deed of assignment . Question 1. If the bought property is not yet transferred to me, do i need to pay CGT? Question 2. If I subdivide the property into 4 lots, since there was no property transfer yet, is the property still be in the name of the original owner? I was advised since I will be in the business of buy and sell of properties, I need not transfer the title to me. I will just execute Deed of Assignment. Is this an acceptable practice?

August 18, 2016 at 3:03 am

Good morning! I just wanna ask what is the tax base of DST for Lease Contract? is it Net of VAT & Withholding Tax? Or Gross Amount of contract?

October 24, 2018 at 2:12 am

Can you share more information regarding penalties, surcharge and compromise? Also, if we execute the DOAS, when should we file it to BIR to avoid such penalties.

November 27, 2018 at 6:08 am

Hello Paolo. BIR Form No. 2000-OT shall be filed and the applicable tax shall be paid within five (5) days after the close of the month when the DOAS was made, signed, issued, accepted or transferred. For example if your DOAS is made on November 10, 2018, you have to file the return and pay the tax on or before December 5, 2018.

When it comes to penalties, there are 3 kinds of penalties imposed on late filing and payment of tax, namely Interest, Surchange, and Compromise. Basically, interest is 20% per anum, surchange is 25% outright, and compromise will be determined by the BIR examiner. It is better to visit the BIR in your area to let them compute your penalties since in some RDOs, you cannot file your tax return without an official computation of penalties from a revenue officer.

You may check this page from the BIR for more details of tax penalties.

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(a.1.1) Mayor's Business Permit/PTR issued by the LGU; (a.1.2) Lease Contract, if applicable; (a.1.3) DTI Certificate of Registration of Business Name, if a business trade name shall be used; (a.1.4) Certificate of Authority if Barangay Micro Business Enterprises (BMBE) registered-entity, if applicable; (a.1.5) Proof of Registration/Permit to Operate with Board of Investment (BOI)/ Board of investment for Autonomous Region for Muslim Mindanao (BOl- ARMM), Philippine Export Zone Authority (PEZA), Bases Conversion Development Authority (BCDA) & Subic Bay Metropolitan Authority (SBMA), if applicable; (a.1.6) FranchiseAgreement, if applicable; (a.1.7) Sworn Statement of Capital, if applicable; (a.1.8) Working Permit for non-resident; (a.1.9) Waiverof husband to claim additional exemption, if applicable; (a.1.10) Marriage Contract, if applicable; and (a.1.11) Birth Certificates of declared dependents, if applicable. (a.2) For Trust-In addition to the requirements under a.1 (1 to 7), photocopy of the trust agreement;

(c.1.1) Copy of SEC Registration and Articles of Incorporation/Articles of Partnerships, as the case maybe; (c.1.2)DTI Registration of business trade name, if applicable; (c.1.3) Lease Contract, if applicable; (c.1.4) Certificate of Authority, if BMBE-registered entity; (c.1.5) Franchise Agreement, if applicable; (c.1.6)-License to Do Business in the Philippines, in case of resident foreign corporation; (c.1.7) Proof of Registration/Permit to Operate with BOI, SBMA, BCDA, PEZA, if applicable.

1. Name of the taxpayer; 2. Registered/Residence Address; 3. Business Trade Name; 4. TaxpayerType; 5. RDO Code; 6. TIN including the Branch Code extension number; 7. Date of registration and generation/issuance of COR; 8. Particular Tax Types which the taxpayer is required to file returns/pay taxes di thereon, if any and the particular tax rate (0% or 12%) if subject to VAT; 9. Particular tax incentives granted and the line of business for which the ta incentive has been granted and the period covered by such tax incentive it applicable; 10. Registration Certificate Number with the SEC, DTI, CDA, BOI, SBMA, CDA BCBA, or any other applicable government agency under which the entity/ association has accredited itself in order to avail of certain tax incentives or preferential tax rates; 11. Line of Business and its Philippine Standard Industry Code (PSIC) including the Philippine Central Product Classification (PCPC) for the classification standards of goods and/or services for sale. If the line of business per PSIC Table is "unclassified", specify the description of the specific line of business; 12. Name of RDO/approving officer; and 13. Date of signing/approval.

(B.1) His gross sales or receipts for the past twelve (12) months, other than those that are exempt under Sec. 109(1) (A) to (U) of the Code, as amended, have exceeded One million five hundred thousand pesos (P1,500,000.00); or (B.2) There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12) months, other than those that are exempt under Sec. 109(1 )(A) to (U) of the Code, as amended, will exceed One million five hundred thousand pesos (P1.500.000.00).

(C.1) Those persons subject to other percentage taxes under Title V of the Code, as amended; (C.2) Those whose transactions are VAT-exempt as enumerated under Sec. 109 of the Code, as amended; (C.3) Marginal Income Earners as herein defined.

(D.1) Any person who is VAT-exempt under Sec. 109(1 )(V) of the Code, as amended, i.e., sale or lease of goods or properties or the performance of services other than the transactions mentioned in Sec. 109(1 )(A) to (U) of the Code, as amended, the gross annual sales and/or receipts do not exceed the amount of One million five hundred thousand pesos (P1,500,000.00) not otherwise required to register for VAT may elect to be VAT-registered by registering with the RDO that has jurisdiction over the head office of that person. (D.2) Any person who is VAT-registered but enters into transactions which are exempt from VAT (mixed transactions) may opt that the VAT apply to his transactions which would have been exempt under Sec. 109(1) of the Code, as amended. (D.3) Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed Ten million pesos (P10,000,000.00) derived from the business covered by the law granting the franchise may opt for VAT registration. This option, once exercised, shall be irrevocable.

Guest Article: BIR Provides Clarification and Guidance on Tax-Free Exchanges of Properties

Posted on april 22, 2022, 4 mins read.

We are delighted to share a Guest Article from our Partner Law Firm, ZGLaw.

ZGLaw , formerly Zambrano & Gruba, is a full-service law firm representing and advising a wide array of local and foreign clients in the Philippines. In the past years, ZGLaw has been consistently recognized by its peers and legal publications for its Tax practice, as well as its practice in Banking & Finance, Mergers & Acquisition, and Dispute Resolution. In this article, the ZGLaw Team identifies the recent clarifications and guidelines issued by the BIR in relation to tax-free exchanges of properties in the Philippines.

For advice on this topic or in relation to other areas of the law in the Philippines, Contact ZGLaw or email the ZGLaw Team directly at [email protected] .

Introduction

Republic Act (RA) No. 11534, also known as the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE), is a game-changer, as it broadens the enumeration of the tax-free exchange transactions under Section 40(C)(2) of the Tax Code, and provides that prior Bureau of Internal Revenue (“BIR”) confirmation or tax ruling shall not be required in order to avail of the tax exemption.

Despite the earlier issuance of Revenue Regulations (RR) No. 5-2021 which implements the amendments under CREATE law, securing a Certificate Authorizing Registration (“CAR”) for tax-free exchange transactions remains to be a challenge both for the BIR and the taxpayers.

The guidelines under Revenue Memorandum Circular ( RMC) No. 19-2022 dated 04 February 2022 seeks to bridge this gap and further simplify the process.

In tax-free exchange transactions, the recognition of gain or loss is merely deferred.  Any gain or loss will only be recognized when the properties or shares are subsequently transferred.

RMC No. 19-2022 dated 04 Feb 2022 seeks to facilitate the issuance of the Certificate Authorizing Registration (CAR) on tax-free exchange transactions without the need for a prior BIR confirmation or ruling.  Further, RMC No. 19-2022 ensures that proper taxes due the Government are protected and collected upon the subsequent sale of the properties.

What Transactions are Covered?

Section 40(C)(2) of the Tax Code, as amended by CREATE law, covers the tax-free exchanges of properties involving (1) reorganization or (2) transfer to a controlled corporation.

The first type of transaction is reorganization , which refers to any of the following:

• The merger or consolidation where a corporation exchanges property solely for stock of a corporation which is also a party to the merger or consolidation;
• The acquisition of one corporation, in exchange solely for all or a part of its voting stock, or in exchange solely for all or part of the voting stock of a corporation which is in control of the acquiring corporation, of stock of another corporation if, immediately after the acquisition, the acquiring corporation has control of such other corporation, whether or not such acquiring corporation had control immediately before the acquisition;
• The acquisition by one (1) corporation of substantially all the properties of another corporation in exchange solely for all or part of its voting stock, or in exchange solely for all or part of the voting stock of a corporation which is in control of the acquiring corporation. In this kind of reorganization, the assumption by the acquiring corporation of the liability of the others shall be disregarded.
• Recapitalization, which is an arrangement whereby the stock and bonds of a corporation are readjusted as to amount, income, or priority or an agreement of all stockholders and creditors to change and increase or decrease the capitalization or debts of the corporation or both;
• Reincorporation, which means the formation of the same business with the same assets and stockholders surviving under a new charter.

The second type of covered transaction is the transfer to a controlled corporation , which means transfer of property to a corporation by a person, alone or with others, but not exceeding four (4) persons in exchange for stock or unit of participation in such a corporation. As a result of such transfer, the transferor, or transferors, collectively, gains or maintains control of said corporation. 

For purposes of tax-free exchanges of properties, “ control ” shall mean ownership of majority (at least 51%) of the total voting power of all classes of stocks entitled to vote. The collective, and not the individual, ownership of all classes of stocks entitled to vote of the transferor or transferors shall be used in determining the presence of control.

How to Determine Substituted Basis?

The substituted basis of properties shall be determined as provided for by Section 40(C)(5) of the Tax Code, as amended, as detailed below:

STOCK OR SECURITIES

For stock or securities, the substituted basis shall be computed as follows:

Original basis of the property, stock, or securities to be transferred

            LESS:

                        Money received, if any

                        Fair Market Value of other property received, if any

            PLUS:

                        The amount treated as dividend of the shareholder, if any

                        The amount of gain that was recognized on the exchange, if any.

Meanwhile, the basis for property received as ‘boot’ shall be its fair market value. “Boot” refers to the money received, and other property received more than the stock or securities received by the transferor on a tax-free exchange.

If the transferee of property assumes a liability of the transferor, such assumption of liability shall be treated as money received by the transferor if such liability is part of the consideration to the exchange.

PROPERTY IN THE HANDS OF THE TRANSFEREE

For property transferred in the hands of the transferee, the substituted basis shall be computed as follows:

            Original basis in the hands of the transferor

            The amount of the gain recognized to the transferor on the transfer.

What is the Original Basis of the Property to be Transferred?

The original basis of the property to be transferred for purposes of computing the substituted basis shall be as follows:

(a). The cost of the property, if acquired by purchase on or after March 1, 1913;

(b). The fair market price or value as of the moment of death of the decedent, if acquired by inheritance;

(c). The basis in the hands of the donor or the last preceding owner by whom the property was not acquired by gift, if the property was acquired by donation. If the basis, however, is greater than the fair market value of the property at the time of donation, then, for purposes of determining loss, the basis shall he such fair market value; or

(d). The amount paid by the transferee for the property, if the property was acquired for less than an adequate consideration in money or money’s worth.

(e). The adjusted basis of (a) to (d) above, if the acquisition cost of the property is increased by the amount of improvements that materially add to the value of the property or appreciably prolong its life less accumulated depreciation.

(f). The substituted basis, if the property was acquired in a previous tax-free exchange under Section 40(C)(2) of the Tax Code of 1997.

How is the Basis for Gain or Loss on the Subsequent Sale or Disposition of Properties Computed?

The substituted basis shall be the basis for determining gain or loss on a subsequent sale or disposition of properties subject of the tax-free exchange transactions.

How is the Substituted Basis of Properties Monitored?

To ensure proper monitoring of the substituted basis, RR  No. 18-2001 requires the parties to the tax-free exchange/reorganization to comply with the following requirements:

• Each corporation which is a party to the reorganization; and
• Every taxpayer, other than a corporation, party to the reorganization, who received stock or securities and other property or money upon a tax-free exchange in connection with a corporate reorganization.
• The parties shall include as a note to their respective audited financial statements for the taxable year in which the exchange occurred a statement to the effect that they hold such assets/shares acquired in a tax-free exchange and the year in which such exchanged occurred, and in the taxable years until the subject properties are subsequently transferred to another transferee.
• The parties shall cause to annotate, at the back of certificates of title and/or stock, the date the deed of exchange was executed, the original or historical cost of acquisition of the properties or shares of stock transferred, and the fact that no gain or loss was recognized as a result of such exchange.
• Within ninety (90) days from the date of the receipt of the CAR, a photocopy of such certificates of title and/or stock bearing the annotation of substituted bases of the real properties/shares of stock transferred/received in connection with the transaction, as duly certified by the Register of Deeds/Corporate Secretary, should be submitted to the Revenue District Office (“RDO”) which issued the CAR. Otherwise, the RDO shall refer the docket of the case to the Legal Division for appropriate action.
• The shareholders of the absorbed/transferor corporation and the surviving transferee corporation shall record in their respective books the mandatory accounting entries as prescribed by the regulations.

What is the Tax Treatment of Exchanges Made Pursuant to Section 40(C)(2) of the Tax Code, As Amended?

The transfers of properties in exchange for stocks shall be exempt from Capital Gains Tax (CGT), Creditable Withholding Tax (CWT), Income Tax (IT), Donor’s Tax (DT), Value-Added Tax (VAT), and Documentary Stamp Tax (DST) on conveyances of real properties and shares of stock.

However, the original issuance of shares in exchange for properties transferred shall be subject to DST (Section 174, Tax Code, as amended).

Where is the Venue for the Issuance of the CAR?

The parties to the transaction shall submit the documentary requirements to the RDO having jurisdiction over the place where the property is located, in case of a real property, or in case of shares of stock, the RDO where the issuing corporation is registered.

If the transaction involves transfer of multiple real properties and/or shares of stocks situated in various locations covered by different RDOs, the CAR shall be processed with the RDO having jurisdiction over the place where the transferee corporation is registered.

When does RMC 19-2022 take effect?

RMC 19-2022 has been effective since 04 February 2022.

About ZGLaw – Zambrano Gruba Caganda and Advincula Law

ZGLaw was founded in 1993 by the late Daisy G. Zambrano and Lily K. Gruba. Starting out as the legal department of a commercial bank, the practice quickly grew into litigation and labor. Lily served in government as Undersecretary for the Department of Finance in 1998. The tax and corporate practice was then established and continued to grow, with the Firm handling many landmark cases for local airlines, banks and real estate companies. Recently the Firm has been recognized for its M&A and transactional advisory work.

In 2017, ZGLaw formed an alliance with WongPartnership to become a member of the WPG Law Network. The WPG Law Network brings together a group of five prominent law firms across seven countries in a collaboration to provide clients with legal services in ASEAN, China and the Middle East.

ZGLaw continues to grow in size and in its practice fields whilst keeping its core values of excellence, diligence, innovation and service foremost.

For more information about ZGLaw or if you require legal services for your business here in the Philippines, visit www.zglaw.com and contact the ZGLaw Team directly.

CloudCfo – Cloud Accounting for Businesses in the Philippines

CloudCfo are the Cloud Accountants for the Philippines!

The CloudCfo Team of Accountants, Bookkeepers and Finance Experts leverages cloud accounting systems and other online solutions to provide cloud accounting services for businesses across the Philippines.

If you are interested in cloud accounting services for your business, Contact Us or email the Team directly at [email protected] .

DISCLAIMER: This article is strictly for general information purposes only. Nothing in this article constitutes or intends to constitute financial, accounting, regulatory or legal advice and must not be used as a substitute for professional advice. It is still necessary to consult your relevant professional adviser regarding any specific matter referenced above.

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