Everything You Need To Know About Real Property Tax In The Philippines4 min read
January’s about to end, and so does your deadline for full payment of Real Property Tax.
Locally known as amilyar, it’s one of those financial obligations that may be overlooked due to other more demanding bills and responsibilities. However, neglecting your Real Property Tax (RPT) can lead to serious legal ramifications, so it’s always best to be informed and prepare ahead of your annual RPT.
What is real property tax?
Real property tax is a tax placed on properties that you own, rent, buy, or sell. It covers the immovable properties such as buildings, lands, and it extends to machinery and improvements. This tax must be paid yearly. Failure to do so will bring your properties for public sale or auction.
The Local Government Unit (LGU) takes charge of imposing the law—collection and penalties, and appraising your properties to see how much you need to pay. This is the LGU’s way to earn revenues as provided under RA 7160.
How to compute real estate property taxes
Here’s the formula to calculate RPT in the Philippines:
Real Property Tax Rate x Assessed Property Value = Real Property Tax
Fair Market Value x Assessment Level = Assessed Property Value
The variables of the equation are defined as:
- Real property tax rate: The standard rate in Metro Manila is 2%, while it’s 1% in the provinces.
- Assessed property value: The product of fair market value and by assessment level, which can charge a maximum of 20% to residential structures and 50% to industrial/commercial establishments.
- Additional tax rates will apply to your properties on top of the RPT. These are:
- Special Education Fund: An annual 1% tax may be added by the local government for the project use of school boards.
- Excise tax on idle lands: Assessed lands that remain uncultivated or unused may incur you an additional 5% ad valorem tax per year. Exemptions apply.
Payment schedule of RPT
There are two schedule options to pay for RPT. If you choose to pay in full (one whole year), payment is collected on or before January 31. However, a taxpayer can opt to have four installments strictly following the schedule below.
- Quarter 1: Before/on March 31
- Quarter 2: Before/on June 30
- Quarter 3: Before/on September 30
- Quarter 4: Before/on December 31
Penalties for late or non-payment of property taxes
The retaliations of payment failure are the following:
- A different rate is charged to taxpayers if they made late payments or, worse, failed to pay. It starts at least 2% per month on the unpaid amount and at most 72% (36 months).
- Failure to pay for the RPT will result in foreclosure and LGU will auction it off as a property of delinquent taxpayers.
What are the possible property tax deductions?
Here are some pro tips to lower your tax:
- Paying RPT in full before the end of January may give you up to 20% discount
- If you have legally tax-exempted properties (see below)
- Apply for idle land ad valorem tax exemption
Different types of real property taxes
Aside from RPT, these are also other property taxes you should be aware:
1. Sales Tax
- Capital gains tax. This is charged only to capital assets at a rate of 6% and must be paid within 30 days.
- Documentary stamp tax. The largest tax a buyer will face during property sale. At a rate of 1.5%, it’s charged on the documents related to the highest assessed value.
- Outstanding real estate taxes. The buyer must pay what is unpaid from the property’s annual tax bill.
- Registration fee. Ownership registration comes at 0.25% but may vary according to property type.
- Transfer tax. This is also charged on the highest assessed value of the property at a rate between 0.5% and 0.75%.
2. Maintenance Tax
- Rental income tax. This amounts to 12% VAT or 3% tax and can legally be charged by the owner to his tenants as part of their rental obligations. Exemptions may apply.
- Real property tax. This is paid by owners or administrators of residential buildings, commercial spaces, etc.
Real properties exempted from taxes
Under Section 234 of the Local Government Code of the Philippines, tax exemption applies to the following properties:
- Religious institutions
- Lots utilized solely used for charitable, educational, or religious causes
- Properties used by local water districts
- Corporations owned and controlled by the government
- Equipment and machinery used for environmental protection and pollution management
How do I pay my property taxes in the Philippines?
Payments are usually processed by Treasurer’s Office of the Local Government Unit, or simply visit the physical office. However, there are also cities allowing online payment such as Manila and Makati.
Is there a refund for overpaid taxes?
Refund or credit is available to those who overpaid or incorrectly paid taxes if it is within 2 two years from the adjustment or reduction date. The application must be submitted to the treasure office in 60 days.
Are property tax and real estate tax the same?
Yes, they are the same.
What are the machinery and improvements?
Machinery is a type of property that includes apparatuses, appliances, equipment, instruments, machines that are either movable or not. Improvements refer to repair, renovation, or replacement of parts of a property that involved labor and capital expenditures.