Day: July 2, 2019

By: Atty. Jeremy O. Panganiban

The answer depends on whether the condominium corporation will hold title to the land or will merely lease it from another person/entity.

This is because if it will own the private land, the capital stock of the condominium corporation must be 60% Filipino owned so as not to contravene the prohibition under the Philippine Constitution in relation to the Condominium Act, as amended.

However, if the condominium corporation merely leases the land from another person/entity, particularly from the developer or landowner, then there is no legal impediment for the condominium project, not the land, to be entirely owned by foreigners and, accordingly, there will be no limit to the foreign ownership of the Condominium Corporation, this on the basis of the opinion issued by the Securities & Exchange Commission.

By: Atty. Jeremy O. Panganiban

There are two modes of planning for one’s death as a good way of helping your potential heirs keep the real properties within the family.

The first one is putting up a close corporation: You can set up, and transfer your real properties (land and building) to a “family” corporation. This is essential if you have acquired several pieces of real estate. The transfer to the company that will be put up is tax-free. Moreover, you continue to have control over your assets while you are still alive through the corporation. This is because your real properties will be converted into shares of stock and will practically make you the controlling stockholder with your potential heirs owning a minimum of one share of stock each.

However, you can later on distribute a substantial amount of your shares of stock thru a Deed of Assignment to your potential heirs, which transfer used to be subject to 5% capital gains tax for shares of stock worth not over P100,000.00, and 10% in excess of P100,000.00 under the old Tax Reform Code of 1997; but, with the enactment of the TRAIN law with effectivity date of January 1, 2018, a final tax of 15% on capital gains on the sale or other disposition of shares of stock not traded through the local stock exchange is imposed. Your potential heir also needs to pay 1.5% documentary stamp tax and 75% of 1% transfer tax which remain unchanged. The good thing about this is that the assets can be preserved and retained since what your potential heirs can sell if they opt out of the corporation are their shares of stock and not the real properties due to their transformation into corporate assets.

In putting up your family corporation, under the old Corporation Code, there must be at least 5 incorporators but not more than 15. With this, the 5 incorporators should be composed of at least 4 potential heirs and then yourself. If you have potential heirs who are foreigners, their shareholdings must not exceed 40% of the total capital stock.

The second mode of retaining real properties within the family is by executing a last will and testament which under Philippine laws may either be a “notarial will” which must comply with the formalities required by law in order to be probated; or a “holographic will” which must be entirely written, dated and signed by you in your own handwriting. In executing a last will and testament, you can prohibit the sale, disposition or encumbrance of your real properties within a period of 20 years from the time of your demise. By doing so, your potential heirs’ hands are tied and cannot sell to anyone their respective portion of their inheritance over your properties during the prohibited period.

By: Atty. Jeremy O. Panganiban

The Tax Reform for Acceleration and Inclusion Act (TRAIN, for brevity) took effect on January 1, 2018, instituting further reforms and amendments to the Tax Reform Code of 1997, as amended. The taxes that were improved and simplified include estate tax.

Specifically, estate tax is now at a flat rate of 6% based on the amount in excess of P5,000,000.00 for decedents who died on or after the effectivity date of the new law.

The allowable deductions to the estate in order to get the net estate of a citizen or resident are, to wit: (1) P5 million as standard deduction; and (2) P10,000,000.00 as deduction for the family home.

It bears stressing that funeral expenses and medical expenses incurred by the decedent were removed as allowable deductions. What is more, the requirement to secure a certification from the Punong Barangay for the decedent’s home so as to be considered as a family home for estate tax purposes has been deleted.

In contrast, for deductions allowed to non-resident estates, there is a standard deduction of P500,000.00; and a proportionate deduction on: (a) claims against the estate; (b) claims of the decedent against insolvent persons; and (c) for unpaid mortgages upon or any debt/outstanding obligation relative to the property.

Futhermore, the new law has increased the gross value of an estate, for which a return is required to be filed, to P5 million. This must be supported by a statement duly attested to by a Certified Public Accountant. In addition, the time for filing an estate tax return is now one year from the time of the decedent’s death. The requisite notice of death to be submitted to the Bureau of Internal Revenue has been removed.

However, an estate, consisting of registrable property like stocks, real property, motor vehicle or other similar property is still required to have an estate tax return, regardless of value.

Likewise, under the new law, payment by installment on the estate tax due is allowed subject to the following requisites: (a) there is insufficient cash to pay the total estate tax due; (b) payment by installment must be made within 2 years from the statutory date; and (c) it is not subject to civil penalty and interest. Finally, unlike in the old tax law, bank deposits are now withdrawable. To be sure, the funds from the decedent’s bank account can now be withdrawn subject to the automatic deduction of 6% withholding tax, and the same funds shall be excluded from the gross estate for purposes of computing the estate tax.

By: Atty. Jeremy O. Panganiban

The common documents known to realtors like me are Contracts to Sell which we term as CTS, for brevity, and the all popular Deed of Absolute Sale which we name DOAS by way of abbreviation. In contrast, a Deed of Exchange is an often neglected, unused, and uncommon document to real estate brokers and lawyers alike.

In a not so technical point of view, a Deed of Exchange is a document by which a property is transferred for another property. But it is also a mode of transfer by which property is exchanged in place of another property sold by mistake. To illustrate, this second definition and its purpose gain importance and relevance when the seller and the buyer agree to sell to the buyer “Lot A.” Yet, what is actually indicated and sold in the DOAS through oversight is “Lot B,” which is also owned by the same seller. To rectify the error, a DOAS should not be executed or else there will be a duplication of transactions. Instead, a replacement or swap/switch between Lot B for Lot A is made through the facility of a Deed of Exchange.

In order to have a better understanding of this mode of transfer, quoted hereunder is a sample form taken from the Real Estate Brokers Association of the Philippines (REBAP) which I revised a bit, as follows:

I am hoping that this information will assist you in understanding and appreciating real estate law and contracts in the Philippines.

By: Atty. Jeremy O. Panganiban

In recent years, I have encountered clients who are unaware and oblivious of vital information, both before, and after buying a condominium unit in the Philippines that has serious repercussions and legal ramifications. So here are some of the things that you must know before investing your money in Philippine condo units:

1. Check out the layout plan of the unit; and model unit

When buying during the pre-selling stage, it is important that you must have an idea as to what the unit will look like when built/completed. At this point, brochures and other paraphernalia showing the layout plan must be availed of. You must also scrutinize and visit the model unit.

To protect yourself, keep the brochures/documents pertaining to the plans, and take photographs of the model unit, if you must, because these will be very useful the moment that the unit which you bought does not meet your expectations and does not conform to the plans shown to you.

In regard to this, I have a client who priorly bought a penthouse which was still to be built who assumed that it will have an unobstructed view of the city scape. However, to his dismay, when the project was completed and he was given a tour of the unit he chose, the penthouse’s design obstructed his view of the skyline. This placed him in a predicament where he already paid the down payment and had the unit amortized. Yet, he decided not to take the unit anymore since it did not suit his expected preference.

2. Ask for the taxes and expenses that accompany the purchase of the unit

Except for the reservation fee, down payment and installment payment, buyers are usually not cognizant and are not apprised of the nature and rates of the taxes and expenses involved in buying their preferred unit. For buyers of condo units sold for the first time, a withholding tax of 5%-6%; a 1.5% documentary stamp tax, and a 0.75% to 0.85% transfer tax are imposed. Not to mention, under current tax laws (Tax Reform for Acceleration and Inclusion Act), if the selling price is more than P2.5 million (Philippine Currency) for house and lot, or more than P1.5 million (Philippine Peso) for lot only, a 12% value added tax is passed on by the developer to the buyer. Add to this is a 2% to 5% business tax for developers which are corporate entities which is again passed on to the buyer. Then the buyer also has to shoulder the registration fees for the transfer of title in his/her name.

These taxes are commonly not disclosed and are collectively described as miscellaneous expenses. In this light, you must scrutinize the terms of payment and ask what you are paying for.

3. Look for the previous Certificate Authorizing Registration

In case of resale, before you buy the condo unit from the first owner, request for a copy of the previous Certificate Authorizing Registration. This is essential in order to determine whether the price of the resale is higher or lower than the first sale. Moreover, the Bureau of Internal Revenue sometimes demands a copy of it. You might encounter a problem if you do not have a copy since the payment process will be stalled without the previous Certificate Authorizing Registration in your possession. However, once the process is completed, you will be given a new Certificate Authorizing Registration, which you must safely keep for future use in the event you decide to sell the unit you purchased.

4. Get to know the association dues and maintenance dues

Once there is a turn over of the unit, the buyer who is now described as a unit owner automatically becomes a member of the condominium corporation/association who has certain obligations to meet. One of the obligations is paying the monthly association dues which range from P5,000.00 to P10,000.00 depending on the value of the unit purchased or the nature of the project (low-end, mid-end, high-end). Sometimes, the association or condominium corporation collects special assessments which the unit owner must also pay.

Failure to comply with the concomittant obligations especially that of paying the association dues may result in expulsion of the unit owner as a member of the association/condominium corporation and, worse, a lien on the unit will be constituted, and its eventual auction sale could ensue and the buyer will then lose owning the unit unless he redeems it within 6 months to 1 year from the date the certificate of sale is registered with the Registry of Deeds.

In this connection, the buyer must examine the master deed, and declaration of restrictions of the project during pre-selling; and get a good grasp of the by-laws as well of the condominium corporation once it is formed.

5. Pay the real property tax in advance which is due in March of every year

There is one more tax which buyers must prioritize, that is, the real property tax. To begin with, you must pay the real property tax before the end of December of the year preceding its due date because there is a 10% to 20% discount given by certain local government units. What is more, I learned that a client did not pay the real property tax for 5 years on the subdivision lot she bought which almost led to its inclusion for tax delinquency sale. Once the sale pushes through the parcel of land concerned will become the property of the local government unless the lot owner redeems it within 1 year from the date the certificate of sale is registered with the Registry of Deeds.

While non-payment of this tax seems fatal, the amount of the tax due is however negligible and easy to pay, so I advise you to update its payment regularly and on time to avoid the problem of losing your property or, better yet, pay it in advance to avail of the discount. Furthermore, real property tax covers not only private lands but also extends to condo units that is why you must request from the developer or the processor of your papers not only the owner’s copy of your Condominium Certificate of Title but also a Declaration of Real Property commonly known as tax declaration. This document will be the basis in determining the amount of, and in paying, the real property tax for the condo unit.