Prudent Procedure for Final Payment on a Purchase of Real Property :
Recently, an associate related a stressful transaction they encountered and all could have been avoided if this procedure was followed. As we all know, when selling a real property, be it a condominium, house and lot, office space, warehouse, or residential lot, the taxes that need to paid on the sale is something that both parties have to be clear about and understand so as to avoid any issues and penalties !
Capital Gains Tax is normally for the account of the Seller, while Documentary Stamps Tax is for the account of the Buyer, although there are some unique cases we seldom encounter.
The Capital Gains Tax is normally payable within a month from notary date and Documentary Stamps Tax is payable on the 5th of the following month. Delay of payment on Capital Gains Tax and Documentary Stamps Tax are subject to sizeable penalties.
We know that coming into a transaction, being prudent is a must, not because you don’t trust the other party but simply putting everything in place to avoid any unnecessary problems and delay, which we all don’t need.
What we normally advise both parties are the following :
1) Seller gets NET amount of sale which means Capital Gains Tax, Value Added Tax ( if applicable ), Business Tax ( if applicable ) and Broker’s Professional Fees are deducted by the Buyer from the full payment.
2) Buyer prepares Manager’s Check for Capital Gains Tax payable to the Bureau of Internal Revenue, such amount is deducted from the full payment to the Seller. This way, there won’t be any need for a three day clearing should the Buyer have a different bank from the Seller and also no need to wait to have the Seller prepare the Manager’s Check for Capital Gains Tax. The following day, Capital Gains Tax can be paid already.
3) Buyer prepares Manager’s Check for Documentary Stamps Tax which is for Buyer’s account. The following day, Documentary Stamps Tax can be paid already.
4) Buyer prepares Manager’s Check for Broker’s Professional Fees which is for the Seller’s account. Such amount is also deducted from the full payment due the Seller. ( I’ve had instances where a 10% retention fee was held by the Buyer until the new title is delivered to them. There are also instances wherein the Seller prefers to release the Professional Fees when the Certificate Authorizing Registration is released by the Bureau of Internal Revenue. )
Take note that a Buyer’s primary objective in purchasing a Real Property, aside from possession of the property, is to transfer the Title to Buyer’s name soonest.
Should the Seller be a Corporation subject to Value Added Tax, the VAT payment is also prepared and made payable to the Bureau of Internal Revenue. Such amount is also deducted from the full payment due the Seller. Take note that the VAT payment is payable on the 20th of the following at the City where the Corporation is registered.
Unfortunately, my associate had no control on the procedure and was at the mercy of the Seller, They had to go through a different process and the necessary payments for taxes wasn’t deducted and the Seller took time to pay their obligations for all parties involved.
This is unacceptable as there is no reason for any delay since the full proceeds are coming from the Buyer who has every right to assure themselves of a smooth transaction.
The processing of documents were delayed and my associate who worked so hard to fix the complicated documentation still has to collect from the Unethical Seller ! Add to he fact that the lawyer of the Buyer got involved just to get the necessary check payments in order to begin processing the transfer and to avoid penalty which they almost had to deal with. ( Take note, there is no excuse for the Seller to hold payment for necessary taxes to be paid as the FUNDS or PAYMENT came from the Buyer !
For your information, the above payments are all Bureau of Internal Revenue related and is necessary to process the Certificate Authorizing Registration which is very important in order to give clearance for the Register of Deeds to issue a new title.
Have a great day !
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Robert G. Sarmiento Properties
Professional Affiliation :
Real Estate Broker’s Association of the Philippines
President, Greenhills Chapter 2008, 2009
Philippine Association of Real Estate Brokers
San Juan Mandaluyong Chapter 1998, 1999
PRC # 6569
AIPO # 000897
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