The Philippines is a rapidly developing country in Southeast Asia, with a growing economy and a young, skilled workforce. As a result, it has become an attractive destination for foreign investors, particularly acquiring real estate in the Philippines. However, investing in or buying property in the Philippines as a foreigner can be a complex process, with a range of legal requirements and considerations to keep in mind.

Investment regulations in the Philippines are designed to promote foreign investment while protecting the country’s national interests. Foreign investors must comply with certain foreign investment regulations, including obtaining the necessary permits and approvals from government agencies.

By understanding the legal requirements and considerations associated with their investment, foreign investors can make informed decisions and minimize their risks.

In this blog post, we will explore the legal requirements and considerations that foreigners need to be aware of when investing or buying property in the Philippines.

Land Ownership Restrictions for Foreigners in the Philippines

Foreigners are not allowed to own land in the Philippines, with the exception of acquiring a condominium unit. The Philippine Constitution places strict limitations on land ownership by foreigners in the country. The primary restriction is that non-Filipinos are not allowed to own land in the Philippines, with the exception of acquiring a condominium unit. According to the Philippine Condominium Act, a foreigner can acquire ownership of up to 40% of the units in a condominium project. This means that if a condominium project has 100 units, a foreigner can purchase up to 40 of those units.

However, while foreigners cannot own land in the Philippines, they can still acquire the right to use and enjoy land through other means. One of these means is through a long-term lease. Foreigners can enter into a lease agreement with the owner of the land for up to 50 years, with the option to renew for an additional 25 years.

Foreigners can also invest in land development projects in the Philippines. They can do so by investing in a Philippine corporation that is engaged in the development of real estate projects. In this case, the foreign investor does not own the land directly, but they can still benefit from the appreciation of the property value and the profits from the sale of the developed property.

It is important for foreigners to be aware of these restrictions when considering investing or buying property in the Philippines. Working with a reputable real estate lawyer and conducting thorough due diligence can help ensure that the transaction is legal and secure.

Owning Land through a Philippine Corporation

Another means for foreigners to acquire land in the Philippines is through a Philippine corporation. Foreigners can set up a corporation in the Philippines and own up to 40% of the shares. The remaining 60% of the shares must be owned by Filipino citizens. The Philippine corporation can then purchase land in the country, with the foreigner as a shareholder.

It is important to note that the use of a Philippine corporation to own land in the country has some additional legal considerations. For example, the corporation must be regularly maintained and registered with the Securities and Exchange Commission (SEC). It must also comply with the requirements of the Philippine Constitution, which places certain restrictions on foreign ownership of businesses in certain industries, such as media and education.

Once the corporation is established, it can purchase and own land in the Philippines. The foreign investor can then use the land for their intended purpose, such as building a house or a commercial building, and can enjoy the benefits of ownership.

In addition, the use of a Philippine corporation to own land may have tax implications. The corporation will be subject to income tax, value-added tax, and other taxes, and the foreign investor may be subject to withholding tax on dividends or other income derived from the corporation. 

As such, it is important for foreigners to seek the assistance of a reputable real estate lawyer and a tax specialist when considering the use of a Philippine corporation to own land in the country. By doing so, they can ensure that the transaction is legally compliant and that they are aware of any tax implications or legal requirements associated with their investment.

Special Investor’s Resident Visa (SIRV)

The Philippine government also offers a Special Investor’s Resident Visa (SIRV) for foreigners who want to invest in the country. This visa is granted to foreign investors who have invested at least USD$75,000 in the country. With this visa, the foreigner can stay in the Philippines indefinitely and enjoy certain tax exemptions.

To qualify for the SIRV, foreign investors must make an investment of at least USD$75,000 in any of the following areas:

1. Publicly-listed companies in the Philippines;
2. Government securities;
3. Peso time deposits in banks in the Philippines; and
4. Investments in companies or enterprises that are engaged in any of the following industries or sectors: export-oriented businesses, manufacturing and services, agriculture, mining, tourism, and infrastructure and other development projects as determined by the appropriate government agency.

Once the investment has been made, the investor can apply for the SIRV. The SIRV is initially valid for six months, and can be extended for up to two years at a time. After five years of continuous residency in the Philippines under the SIRV program, the investor can apply for permanent residency.

The SIRV program offers several benefits to foreign investors, including:

1. Long-term residency in the Philippines, allowing investors to stay in the country for an extended period of time without the need to apply for a visa renewal;
2. The ability to work in the Philippines, provided that the investor obtains a valid work permit from the appropriate government agency;
3. The opportunity to invest in and profit from the Philippine economy, which is one of the fastest-growing in the region.

It is important to note that the SIRV program has some specific requirements and limitations. For example, the investment must be made in one lump sum, and cannot be withdrawn for the duration of the visa. The investor must also maintain the investment for the duration of their residency in the Philippines under the SIRV program.

In addition, the SIRV program has some restrictions on the types of investments that qualify, and the visa does not grant the investor the right to own land in the Philippines.

The SIRV program is a useful tool for foreign investors who want to make a substantial investment in the Philippines and enjoy the benefits of long-term residency in the country. However, investors should carefully consider the requirements and limitations of the program, and seek the assistance of a reputable immigration lawyer and investment advisor before making any decisions.

Tax Considerations

When buying property in the Philippines, foreigners need to be aware of the tax implications. Foreigners are subject to a higher capital gains tax rate of 6% compared to Filipino citizens who are only taxed at a rate of 4%. Additionally, there is a Documentary Stamp Tax (DST) of 1.5% of the selling price or fair market value of the property.

Here are some of the key tax considerations that foreign investors should keep in mind:

• Income Tax

Foreign investors who earn income from their investment in the Philippines may be subject to income tax. The income tax rate varies depending on the type of income earned and the taxpayer’s tax residency status.

• Value-Added Tax (VAT)

Value-Added Tax (VAT) is a tax on the sale of goods and services in the Philippines. Most transactions are subject to a 12% VAT, but there are certain exemptions and special rules for specific industries.

If the property is considered a commercial property or is sold by a VAT-registered seller, then Value-Added Tax (VAT) may apply. The current VAT rate in the Philippines is 12% of the gross selling price or fair market value, whichever is higher.

For example, if a foreign investor buys a commercial property for PHP 10 million, they would be subject to VAT of PHP 1.2 million (12% of PHP 10 million).

• Capital Gains Tax (CGT)

When a foreign investor sells a property in the Philippines, they may be subject to capital gains tax on property sales. Capital Gains Tax (CGT) rate is generally 6% of the gross selling price or fair market value, whichever is higher.

The tax is paid by the seller and is based on the net gain from the sale, which is the difference between the selling price and the acquisition cost of the property.

For example, if a foreign investor bought a property for PHP 5 million and sold it for PHP 10 million, their net gain would be PHP 5 million. They would then be subject to CGT of PHP 300,000 (6% of PHP 5 million).

• Documentary Stamp Tax (DST)

When a property is sold or transferred, the Deed of Sale must be stamped with Documentary Stamp Tax (DST). This tax is imposed on certain documents, such as deeds of sale, leases, and mortgages. The tax rate varies depending on the type of document.

The current rate for DST is 1.5% of the selling price or fair market value, whichever is higher. This tax is usually paid by the buyer, although it can be negotiated to be paid by the seller in some cases.

For example, if a foreign investor buys a property for PHP 10 million, they would be subject to DST of PHP 150,000 (1.5% of PHP 10 million).

• Transfer Tax

When a property is transferred from one owner to another, the new owner may be subject to transfer tax. The tax rate varies depending on the location of the property and the type of transaction.

• Real Property Tax (RPT)

Real Property Tax (RPT) is an annual tax paid by property owners to the local government where the property is located. The amount of RPT is based on the assessed value of the property, which is determined by the local government.

Foreign investors may also be subject to withholding tax on certain types of income, such as dividends, interest, and rental income. The withholding tax rate varies depending on the type of income and the taxpayer’s tax residency status.

Foreign investors should also be aware of their obligations under Philippine tax law. They must register with the Bureau of Internal Revenue (BIR) and obtain a Tax Identification Number (TIN). They must also file tax returns and pay taxes on time to avoid penalties and interest charges.

It is important to note that the tax laws and regulations in the Philippines are subject to change, and foreign investors should consult with a tax expert or a reputable lawyer to ensure that they are complying with all relevant tax laws and regulations.

Legal Assistance

When investing in or buying property in the Philippines, foreign investors should seek the assistance of a reputable lawyer who is familiar with the country’s laws and regulations. A lawyer can provide invaluable guidance and advice on a range of legal issues, including:

• Property Ownership

A lawyer can help foreign investors navigate the complexities of property ownership in the Philippines. This includes advising on the different types of property ownership, such as freehold or leasehold rights in the Philippines, and ensuring that all legal requirements are met when purchasing or transferring property.

• Investment Regulations

There are certain investment regulations that foreign investors must comply with when investing in the Philippines. A lawyer can help investors understand these regulations and ensure that they are in compliance with all legal requirements.

• Tax Considerations

As mentioned earlier, there are several tax considerations that foreign investors should be aware of when investing in the Philippines. A lawyer can provide guidance on tax implications and help investors comply with all relevant tax laws and regulations.

• Contract Review

A lawyer can review and advise on contracts related to property purchase or investment, ensuring that the terms are fair and legal.

• Dispute Resolution

In the event of a dispute, a lawyer can provide legal representation and help investors resolve the issue in a timely and cost-effective manner.

By seeking the assistance of a lawyer, foreign investors can ensure that their investment in the Philippines is legally sound and that they are able to comply with all legal requirements. A lawyer can provide peace of mind and help investors avoid potential legal issues and pitfalls.

It is important for foreign investors to choose a lawyer who is knowledgeable and experienced in Philippine law, and who has a good reputation in the legal community. By doing so, they can ensure that they are receiving the best possible legal advice and representation.

Due Diligence

Before making any property purchase, it is important to conduct thorough due diligence. This includes verifying the ownership of the property, checking if there are any liens or encumbrances on the property, and reviewing the property’s history and title. 

Due diligence helps ensure that the property is legally available for purchase and that the transaction is legitimate.

Here are some key areas where due diligence is particularly important:

• Property Title

It is essential to verify that the seller has a valid and clear title to the property, free from any liens or encumbrances. This can be done by reviewing the property’s title documents and conducting a title search.

• Zoning and Land Use Regulations

Investors should confirm that the property is zoned for the intended use and that there are no restrictions or regulations that could affect the investment.

• Property Condition

A physical inspection of the property can help investors identify any potential issues, such as structural problems or environmental hazards.

• Legal Compliance

Investors should ensure that the property complies with all applicable laws and regulations, including building codes, environmental regulations, and zoning laws.

• Financial Analysis

Investors should conduct a financial analysis of the property to assess its potential profitability and return on investment.

By conducting due diligence, foreign investors can minimize their risks and make informed decisions about their investment. Due diligence can help investors identify potential problems before they arise, allowing them to take corrective action or negotiate better terms.

It is important to note that due diligence can be a complex and time-consuming process, particularly for foreign investors who may not be familiar with Philippine laws and regulations. For this reason, it is recommended that investors seek the assistance of a professional due diligence firm or a reputable lawyer who can guide them through the process and ensure that all legal requirements are met.

In conclusion

Investing or buying property in the Philippines as a foreigner can be a complex process, with a number of legal requirements and considerations to navigate. By working with a real estate lawyer, conducting due diligence, and being aware of the tax implications and land ownership restrictions, foreigners can make a secure and legal property purchase in the Philippines.

If you want to learn more about this topic, don’t hesitate to book a consultation with Sabrina Gel or visit the website by clicking here.

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