Buying Real Estate In The Philippines Presented by: Robert L. Wolff, Esq. P.O. Box 381 Dumaguete City, Negros Oriental Philippines 6200 [email protected] NY (518) 325-6015 PH 09266485273
Jul 22, 2015
Buying Real Estate In The
Philippines
Presented by: Robert L. Wolff, Esq.
P.O. Box 381
Dumaguete City, Negros Oriental
Philippines 6200
[email protected] (518) 325-6015
PH 09266485273
Disclaimer
I am not an attorney admitted to practice law in the
Philippines. I am an attorney admitted to practice law in
New York. Fortunately I have a friend who is a
Philippine lawyer that can give advice.
The following is not legal advice, but rather comments and
observations.
For answers to legal issues raised by this presentation,
you need to consult an attorney admitted to practice law in
the Philippines.
Where Are Retirees Retiring
The Philippines is one of the top retirement destinations in the world for retirees.
Many of the retirees that move to the Philippines would prefer to own their homes, rather than rent.
For a non-citizen, the Philippines restrict their ability to own real state.
Unfortunately, these restrictions can create problems for a non-citizen attempting to acquire real property in the Philippines.
Before they buy property, non-citizens should take the time to understand the real property rules of the Philippines.
Right to Own Philippine Property
The right to own real property in the Philippines is not the same as in the United States (U.S.). As a general rule, in the U.S., anyone can purchase real property –citizen and non-citizen. This is not the case in the Philippines. There are limitations placed on a non-citizen’s ability to buy real estate. The following is a summary of the more important rules applicable to the purchase of real estate in the Philippines.
What is the Constitutional provision on foreign
ownership of land in the Philippines
Section 7, Article XII of the 1987 Constitution states - Save in case of
hereditary succession, no private lands shall be transferred or
conveyed except to individuals, corporations or associations qualified to
acquire or hold lands of the public domain.
General Rule- only a Filipino Citizen, or a Corporation or Partnership
at least 60% of the capital of which is owned by Filipinos, or a Trust
with a Philippine Trustee are entitled to acquire land in the Philippines.
What is the purpose for this Constitutional prohibition?
The primary purpose of the Constitutional provision is to preserve real property in the Philippines for Filipino Citizens.
Note - the Supreme Court in the case of “United Church Board for World Ministries v. Sebastian” reiterated the consistent ruling that if land is invalidly transferred to an alien who subsequently becomes a Filipino citizen or transfers it to a person or entity qualified under the Philippine constitution to own real property, the flaw in the original transaction is considered cured and the title of the transferee is rendered valid.
This is a very important legal point.
What are the exceptions to the restriction on foreigners’ acquisition of
land in the Philippines?
1. Purchase by a former natural-born Filipino citizen subject to
the limitations prescribed by Batas Pambansa 185 and R.A
8179
2. Acquisition before the 1935 Constitution
3. Purchase of not more than 40% interest in a condominium
project
4. Acquisition through hereditary succession if the foreigner is
a legal or natural heir
5. Special Visas(SRRV) for foreigners allowing 100% condo
and townhouse ownership
6. Filipinos who are married to aliens who retain their Filipino
citizenship, unless by their act or omission they have
renounced their Filipino citizenship
What is meant by ownership on the basis of hereditary
succession?
When foreigner is married to a Filipino citizen, and the Filipino spouse dies, the non-Filipino as the natural heir will become the legal owner of the property subject to the Compulsory Heir Rule. Under the compulsory heir rule, other heirs may share in the ownership of the property. Children, as legal heirs, may also own real property even if he or she does not hold Filipino citizenship.
Hereditary Succession refers to intestate succession where the person dies without leaving a Last Will and Testament.
The Hereditary Succession rules do not apply to the transfer of land by a Last Will and Testament, or by a Trust. Note - Title to real property can not be transfered by will to a non- citizen spouse.
Land ownership by former Filipino citizens?
At one time, Filipinos who were naturalized as U.S.
citizens were deemed to have lost their Filipino citizenship.
Now, former Filipinos who became naturalized citizens of
foreign countries are deemed not to have lost their
Philippine citizenship. Thus they can enjoy all the rights
and privileges of a Filipino regarding land ownership in the
Philippines.
Torrens System
The Torrens system of land registration is used in the Philippines. The Torrens system was adapted to assure a buyer that if he buys a land covered by an Original Certificate of Title (OCT) or the Transfer Certificate of Title (TCT) issued by the Registry of Deeds, the same will be absolute, indefeasible and imprescriptibly.
Note - the registration of the land under Torrens system in the name of one person does not bar evidence to show that the land is owned by another person. For example, the land is held in trust for another.
Deed
The Deed of Absolute Sale is the document showing legal
transfer of real estate proper ownership. The Deed of
Absolute Sale is then taken to the Registry of Deeds to be
officially recorded AFTER paying the documentary stamp,
transfer tax and registration fees. The Registry of Deeds
will then issue a Certificate of Title.
Always verify from the Registry of Deeds the authenticity
of a Transfer Certificate of Title before buying a property.
If the seller only has tax declaration, be extra cautious and
check with neighbors, the Barangay captain or anyone in
the community to verify the seller’s/owner’s true identity
and property history.
Documents Needed To File Deed
Documents needed when transferring the title to the
new owner:
Certified true copy of the certificate of title
Notarized copies of the Deed of Sale
Latest tax declaration for the property
Certificate from the Bureau of Internal Revenue that
the capital gains tax and documentary stamps have
been paid
Receipt of the payment of the transfer tax and
registration fees
Birth certificate of Buyer. Depending where the
property is located, there may be other
requirements.
Closing Cost for Purchase of Real Estate
This is the standard sharing of expenses between the buyer and the seller when transferring the real estate property title (TCT-Transfer Certificate of Title or CCT- Condominium Certificate of Title) to a new owner. As a general rule, the SELLER pays for the:
Capital Gains Tax equivalent to 6% of the selling price of the Deed of Sale or the zonal value, whichever is higher. (Withholding Tax if seller is a corporation.)
Unpaid real estate taxes due (if any).
Electric, water, interest, etc. bills.
Agent’s/Broker’s commission.
The BUYER pays for the cost of registration:
The Documentary Stamp Tax-1.5% of the selling price or zonal value or fair market value, whichever is higher.
Transfer Tax- 0.5% of the selling price, or zonal value or fair market value, whichever is higher.
Incidental and miscellaneous expenses incurred during the registration process.
Standard Practice
The above sharing of expenses is the standard
practice in the Philippines. However, buyers and sellers
can mutually agree on other terms as long as it is done
during the negotiation period (before the signing of the
Deed of Sale). It is often advisable for the buyer to have
some of the purchase price held in escrow to cover the
seller’s expenses not paid at closing.
For example, to pay the capital gains tax if being
paid by the seller.
Calculation of Tax
In the Philippines, the tax is based on the gross
selling price or zonal value (current fair market value)
whichever is higher.
The capital gain from the sale of a principal residence can
be deferred if the sale proceeds are fully used for the
acquisition or construction of a new principal residence
within 18 months of the date of sale.
This exemption can be used only once every ten years.
This exemption does not apply to the purchase of a principal
residence prior to sale.
The adjusted basis or cost of the property is its cost plus,
expenses of acquisition
Registration Process
If you are not doing it yourself, be sure to get
someone who knows what they are doing help you
with the registration process (sometimes for a fee).
Watch out for lost titles and right of way issues and so-
called FIXERS. Many Fixers will take your money and
not do what they said they would do.
What are the property rights of a foreigner
married to a Filipino citizen?
1. A foreigner can legally own a house or building in the
Philippines as long as he or she does not own the land
on which the structure is built.
1. Title to the house or building can be a document like
Deed of Sale, can contain the name of the foreigner-
spouse, except for the title to the underlining land.
Foreigner Married To Or Living With A Philippine
Citizen
When a foreigner buys real property in the Philippines,
caution should be taken when considering taking title to
Philippine real estate in the name of the Philippine
spouse or girlfriend. In the event of problems with the
Philippine spouse or girlfriend, the foreign national may
have limited rights to the assets or none at all. The law
is not always fair.
This is why foreigners often use leases, corporations,
trusts and other legal documents to protect their
financial interest in real estate purchased in the
Philippines.
For Leasing of Philippine Real Estate Property
A foreign person, corporation and or trust may enter into a
lease agreement with Filipino landowners for an initial
period of up to 25 years, and renewable for another 25
years.
Main drawback to a lease you do not acquire ownership
of the property.
Using a Philippine Corporation
To Buy Real Estate
To take ownership to a private land, residential house and lot,
commercial building and lot, foreign persons or corporations can form a
Philippine corporation.
The corporation is to be 40% foreign-owned (maximum) and 60%
Filipino-owned (minimum), and not less than 5 incorporators and 5
directors who are Filipino.
There must be a stated amount of paid in capital, in the bank
account of the corporation when applying for approval of the
incorporation of the corporation.
A foreign national may be sole person on the bank account,
allowing him or her control ( in my opinion limited control) over the
funds derived from the corporation and the income or sale of the
assets or property.
There are other requirements not discussed herein.
Trusts and Asset Protection
There are many good reasons to create a trust to hold
real estate and other assets in the Philippines, such
as;
If the Trust is funded prior to marriage to a Filipino or
Filipina, assets are not subject to the Philippine
Absolute Community Property Rules that treat one half
of the assets owned prior to marriage, as owned by
the new spouse when they say I DO.
A Trust avoids having to put title to real property in
the name of a girlfriend, wife, third party or corporation.
A Trust provides Asset Protection and avoids
probate.
Using a Trust
Most attorneys in the Philippines do not use a Trust to allow a foreign-citizen to acquire real property in the Philippines, but if the trustee of a trust is a Filipino or Filipino entity, the law allows the trust to hold real estate.
The law only requires that the controlling trustee be a Philippine citizen, which can be an individual or an entity.
Often the trust is done in conjunction with tax, estate and asset protection planning.
Don’t forget, there are forms you may need to file the IRS if you are a U.S. citizen creating a trust in the Philippines.
Options to Acquire Real Property
Put title of the real property in the name of your wife, girlfriend or third party. In the event of problems with the Philippine spouse or girlfriend, you may have limited rights to the real property or none at all.
Lease the property. Problem with a lease is that there is no benefit from future appreciation of the property. If you own the property, you benefit from the future appreciation.
Create a corporation. Need to meet the limitations of non-citizen ownership of corporations in Philippines, such as the 40/60 equity ownership rule, five Filipino directors, etc. The sanme basic rule applies if a partnership is used.
Create a trust to purchase the property. Need a Philippine Trustee-individual or corporation. An advantage of a trust is that it can also be used for asset protection planning and as a means of avoiding probate.
Something to Think About –
An Investment Trust
An Investment Trust is designed to pool the money
of several individuals for the purpose of making an
investment.
For example, five individuals pool their money to buy
a piece of real property, the trust then improves and
sub-divides the property, which is then sold as
individual lots.
The trust provides a way to spread the cost of an
investment among several investors and a way to
share profits.
Reasons to Create a Trusts
avoidance of probate of assets in the
Philippines and else when property or assets are
held by the trust,
you do not have to put the title of real property
in the name of your girlfriend, wife or a third
party.
asset management,
asset protection, and an
Investment tool.
What To Do When Things Go Bad with;
The Wife
The Girlfriend
A Third Party Holding the Title of the Real Property
IRS Circular 230
Pursuant to Internal Revenue Service Circular 230, we hereby inform you that the advice set forth herein with respect to U.S. federal tax issues, or other legal issues were not intended or written by Robert L. Wolff to be used as legal advice, and cannot be used by you or anybody else for the purpose of (i) avoiding any penalties that may be imposed on you or any other person under the Internal Revenue Code (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein or (iii) as legal advice. You are advise to seek advice based on your particular circumstances from an independent tax advisor or attorney.