Documentary Stamp Tax: The 1.5% Transfer Tax
Learn about the documentary stamp tax on conveyance of real property. Understand the DST rate, computation, exemptions, and filing requirements under the NIRC.
DST Rate on Sale of Real Property
“On all conveyances, deeds, instruments, or writings, other than grants, patents, or original certificates of adjudication issued by the Government, whereby any land, tenement, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to the purchaser, or purchasers, or to any other person or persons designated by such purchaser or purchasers, there shall be collected a documentary stamp tax, at the rates herein below prescribed, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of this Code, whichever is higher... Fifteen pesos (P15.00) on each One thousand pesos (P1,000), or fractional part thereof.”
What This Means
The documentary stamp tax on sale of real property is P15 for every P1,000 of consideration or fair market value, whichever is higher. effectively a rate of 1.5%. Like CGT, the tax base is the higher of the selling price or fair market value. DST is imposed on the DOCUMENT (deed of sale), not on the transaction itself, which is why it is called a "stamp" tax. It applies regardless of whether the property is a capital asset or ordinary asset.
- Rate: P15 per P1,000 = 1.5% of the higher value
- Tax base: selling price or FMV, whichever is higher (same rule as CGT)
- Applies to ALL sales of real property. capital or ordinary asset
- Imposed on the document (deed), not on the gain
- Fractional parts of P1,000 are taxed as if a full P1,000
Real-World Scenario
Juan sells his residential lot to Ana for P3,200,000. The BIR zonal value is P3,500,000. The assessed value per tax declaration is P2,800,000.
How much is the DST on this sale?
DST on Mortgages, Leases, and Other Real Estate Documents
“On every mortgage or pledge of lands, estate, or property, real or personal, heritable or movable, whatsoever, where the same shall be made as a security for the payment of any definite and certain sum of money lent at the time or previously due and owing or forborne to be paid, being payable, and on any conveyance, deed, or instrument, in which any debt or obligation is guaranteed or secured, the documentary stamp tax shall be: When the amount secured does not exceed Five thousand pesos (P5,000), Twenty pesos (P20.00); On each Five thousand pesos (P5,000), or fractional part thereof in excess of Five thousand pesos (P5,000), an additional Ten pesos (P10.00).”
What This Means
Real estate transactions often involve multiple documents, each potentially subject to its own DST. Mortgages have a separate DST rate based on the amount secured. Lease contracts exceeding one year are also subject to DST. Even promissory notes and loan agreements used in real estate financing carry their own DST. Brokers should advise clients that DST is not just on the deed of sale. the total DST burden includes all related documents.
- Mortgage DST: P20 for first P5,000 + P10 for every P5,000 thereafter
- Lease contracts over 1 year: DST based on total rent for the lease period
- Promissory notes: DST at P1.50 per P200 of face value
- Each document is taxed separately. a sale with mortgage has multiple DSTs
- Refinancing or restructuring a mortgage triggers new DST on the new mortgage
Real-World Scenario
Buyer Clara purchases a condo for P5,000,000. She takes out a bank loan of P4,000,000 secured by a real estate mortgage. The deed of absolute sale and the real estate mortgage are both notarized on the same day.
What are the total DST obligations from this transaction?
DST Exemptions for Real Estate
“The following instruments, documents, and papers shall be exempt from the documentary stamp tax: (a) Policies of insurance or annuities made or granted by a fraternal or beneficiary society... (l) Sale, barter, or exchange of shares of stock listed and traded through the local stock exchange... (o) Transfer of property pursuant to Section 40(C)(2) of the National Internal Revenue Code of 1997, as amended.”
What This Means
While DST exemptions for real estate are limited, key ones include: transfers of property to a controlled corporation in exchange for stock (tax-free exchange under Section 40(C)(2)), and certain government-mandated transfers. Socialized housing units priced at or below P580,000 are also DST-exempt under RA 7279. The TRAIN Law did NOT exempt real estate sales from DST. it only reduced DST on certain financial instruments. Brokers should note that donation of real property is subject to a DIFFERENT DST rate under Section 196.
- Tax-free exchanges under Section 40(C)(2) are DST-exempt
- Socialized housing (≤ P580,000 for lots, ≤ P750,000 for house & lot) exempt
- Transfers by operation of law (inheritance). estate settlement DST-exempt but subject to estate tax
- PEZA-registered entities may have DST incentives on certain transactions
- Donations of real property subject to DST at same rate as sale (Section 196)
Real-World Scenario
Mr. Reyes wants to transfer his 5 parcels of land (total value P50,000,000) to his newly incorporated company, Reyes Holdings Inc., in exchange for 100% of the company's shares. His lawyer advises this qualifies as a tax-free exchange under Section 40(C)(2).
Is DST due on this property-for-shares transfer?
Frequently Asked Questions
Who pays the DST on sale of real property. buyer or seller?
The NIRC does not specify who pays; it imposes the tax on the document itself. In Philippine practice, DST on the deed of sale is customarily shouldered by the seller (as part of seller's closing costs). However, this is not a legal requirement. parties may agree otherwise in the contract. DST on the mortgage document is typically paid by the buyer/borrower.
When is the DST due and where do I file?
DST must be paid within 5 days after the close of the month when the taxable document was made, signed, issued, accepted, or transferred. File using BIR Form 2000-OT at the BIR RDO where the property is located or through authorized agent banks. Late payment incurs 25% surcharge plus interest.
Is DST separate from the capital gains tax?
Yes, DST and CGT are completely separate taxes. CGT is a tax on the presumed gain from the sale (6% of higher value). DST is a tax on the DOCUMENT evidencing the transfer (1.5% of higher value). Both use the same tax base (selling price or FMV, whichever is higher) but are filed and paid separately using different BIR forms.