The cost depends on whether the shares are listed on the stock exchange. Listed shares sold through the exchange pay a stock transaction tax of 0.6% of the gross selling price, in lieu of capital gains tax, usually withheld by the broker. Shares in an unlisted company, such as a typical family or close corporation, instead pay a flat 15% capital gains tax on the net gain, plus documentary stamp tax on the transfer, plus notarial and BIR-processing costs before the transfer can be recorded in the corporation's books.
What transferring shares of stock costs depends almost entirely on one fork in the road: whether the shares are listed and traded on the Philippine Stock Exchange, or are shares in an unlisted company such as a family corporation or a close corporation. Listed shares sold through the exchange are subject to a stock transaction tax of six-tenths of one percent (0.6%) of the gross selling price, in lieu of capital gains tax, usually withheld and remitted by the broker. Shares that are not listed and traded — the far more common scenario for a small or family-owned Philippine corporation — are instead subject to a flat 15% capital gains tax on the net gain, plus documentary stamp tax on the transfer, plus the incidental costs of notarization and recording the transfer in the corporation’s own books.
Two Very Different Tax Regimes
The National Internal Revenue Code, as amended by the TRAIN Law (Republic Act No. 10963), treats these two situations completely differently, and mixing them up is the single most common mistake in estimating cost:
- Listed and traded shares — sold through the local stock exchange — are subject to a stock transaction tax of six-tenths of one percent (0.6%) of the gross selling price or gross value in money of the shares, under Section 127 of the Tax Code. This tax is paid by the seller, but the broker who executes the trade typically withholds and remits it, so the individual investor rarely deals with the BIR directly.
- Shares that are not listed or not traded through the exchange — which includes essentially every private, family-owned, or closely held Philippine corporation — are instead subject to capital gains tax, computed differently, as discussed below.
If the Shares Are Not Listed or Traded (the Typical Family or Close Corporation)
For a sale, exchange, or other disposition of shares in a company that is not listed and traded through the stock exchange, Section 24(C) of the Tax Code, as amended by the TRAIN Law, imposes a flat final tax of 15% on the net capital gain — that is, the excess of the selling price (or fair market value, if higher) over the seller’s cost basis in the shares. The same 15% rate applies whether the seller is an individual, under Section 24(C), or a domestic corporation, under Section 27(D)(2).
Two details commonly catch people off guard:
- The tax is based on fair market value, not just the stated price. If shares are sold for less than their fair market value, the BIR generally computes the gain (and, potentially, a separate tax exposure) based on the higher figure, not the artificially low contract price.
- Selling below fair market value can trigger donor’s tax exposure. Under Section 100 of the Tax Code, where property is transferred for less than adequate and full consideration, the difference between the fair market value and the price paid is treated as a gift for tax purposes — unless the transfer is a bona fide sale made in the ordinary course of business, at arm’s length, and free of donative intent. This matters a great deal in family shareholdings, where shares are sometimes sold to a relative or fellow shareholder at book value or par value rather than fair market value.
If the seller instead realizes a net capital loss — the shares are sold for less than their cost basis and fair market value — no capital gains tax is due on that particular sale, though the required BIR return and supporting computation generally still have to be filed to document the loss.
Documentary Stamp Tax on the Transfer
Separately from capital gains tax, the transfer of a certificate of stock is also subject to documentary stamp tax under the Tax Code, computed against the par value of the shares transferred. This applies on top of, not instead of, the capital gains tax discussed above, and is a routine cost of any share transfer regardless of the price agreed between the parties. Because the applicable per-share rate has been adjusted by past legislation, it is best confirmed against current BIR issuances or with your counsel at the time of the transaction, since using an outdated rate can result in an underpaid, and therefore incomplete, filing.
The BIR Certificate Authorizing Registration (eCAR)
Before a transfer of unlisted shares can be recorded, the parties must file the capital gains tax return and the documentary stamp tax return with the Bureau of Internal Revenue and obtain a Certificate Authorizing Registration (eCAR). In practice, a corporation’s stock and transfer agent, or its corporate secretary, will require the eCAR before recording the new owner in the stock and transfer book, even though the sale itself may already be binding as between buyer and seller once executed. This is the step that most often extends the real-world cost and timeline of a private share transfer beyond the tax computation itself, since the BIR review of the return and supporting documents, including proof of the shares’ fair market value, takes time.
Recording the Transfer in the Corporation’s Books
Under Section 62 of the Revised Corporation Code (Republic Act No. 11232), a transfer of shares is valid as between the parties from the moment the certificate is properly indorsed and delivered, but it is not valid as against the corporation or third persons until it is recorded in the books of the corporation, showing the names of the parties, the transaction date, and the number of the certificate and shares transferred. Until that recording happens, the corporation may continue to treat the seller, not the buyer, as the shareholder of record for purposes of dividends, voting, and notices. This is why, in practice, the transfer only becomes fully effective once the eCAR has been obtained and presented to the corporate secretary or stock and transfer agent for recording.
Other Costs to Budget For
- Notarial fees for the Deed of Sale, Assignment, or Deed of Transfer of Shares, which vary by notary and by the value of the transaction.
- Professional or liaison fees if a lawyer or accountant is engaged to prepare the BIR returns, compute the fair market value of unlisted shares, and process the eCAR application, since BIR requires supporting valuation documents (such as the corporation’s audited financial statements) for unlisted shares.
- Corporate housekeeping costs, such as updating the General Information Sheet filed with the Securities and Exchange Commission to reflect the new stockholder, and issuing a new stock certificate in the transferee’s name.
A Practical Step-by-Step Timeline for an Unlisted-Share Transfer
- 1. Agree on price and execute the Deed of Sale or Assignment of Shares, and have it notarized.
- 2. Determine the shares’ fair market value, typically from the corporation’s latest audited financial statements, since the BIR will require this to verify the capital gains tax computation.
- 3. File and pay the capital gains tax return with the Revenue District Office that has jurisdiction over the corporation’s registered address.
- 4. File and pay the documentary stamp tax return on the transfer.
- 5. Apply for and receive the eCAR from the BIR, submitting the notarized deed, tax returns, proof of payment, and supporting valuation documents.
- 6. Present the eCAR to the corporate secretary or stock and transfer agent to record the transfer in the stock and transfer book and issue a new certificate in the buyer’s name.
- 7. Update the corporation’s General Information Sheet with the SEC at its next filing to reflect the change in stockholders.
For listed shares traded through the exchange, this entire process collapses into the trade itself: the stock transaction tax is withheld by the broker, settlement happens through the exchange’s clearing system, and there is no separate capital gains tax return, eCAR application, or corporate book recording for the individual investor to worry about, since shares held through the Philippine Depository and Trust Corp. system are already dematerialized and centrally recorded.
Frequently Asked Questions
Do I pay capital gains tax if I sell unlisted shares at a loss? No. Capital gains tax under Section 24(C) applies only to a net gain. If the shares are sold for less than their cost basis and fair market value, no capital gains tax is due on that sale, though supporting documentation is still generally required.
What if I sell shares to a family member below fair market value? The difference between the fair market value and the price paid can be treated as a taxable gift under Section 100 of the Tax Code, unless the sale is a bona fide, arm's-length business transaction free of donative intent.
Is documentary stamp tax due even if the buyer and seller agree on a low price? Yes. Documentary stamp tax on a share transfer is computed against the shares' par value, not the agreed contract price, so it applies regardless of what the parties agreed to pay.
Is the sale valid even before the BIR issues the eCAR? The sale can be binding between buyer and seller once the deed is executed and the certificate is properly indorsed, but under the Revised Corporation Code it is not valid against the corporation or third persons until recorded in the corporation's books, which in practice requires the eCAR first.
This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.
If you have questions about your rights or options under Philippine law, our firm is available to assist. You may reach us via Viber or WhatsApp, call us at 0995 433 5550, or send an email to vivasnobles@gmail.com. We look forward to hearing from you.