Corporate Law & Property Transfer: Requirements for Using Inherited Land as Corporate Property

Below is a comprehensive discussion of the legal considerations, processes, and requirements for using inherited land as corporate property in the Philippines. This overview touches on constitutional mandates, statutory provisions, and practical steps involved in transferring and registering inherited property under a corporate name. Note that while this guide provides a broad legal framework, consulting with a qualified Philippine attorney or legal professional is strongly advised for specific cases.

1. Constitutional and Statutory Framework

1.1. Constitutional Limits on Land Ownership

The 1987 Philippine Constitution imposes strict limitations on land ownership in the Philippines:

  • Filipino Ownership Requirement
    Article XII, Section 7 of the Constitution restricts land ownership to Filipino citizens, or to corporations or associations with at least sixty percent (60%) Filipino equity.

  • Implication for Corporations
    A corporation that intends to own land must be considered a “Philippine national,” meaning at least 60% of its outstanding capital stock must be owned by Filipinos. If the Filipino ownership falls below the 60% threshold, the corporation cannot legally hold land title in the Philippines.

1.2. Governing Laws and Regulations

  1. New Civil Code of the Philippines (Republic Act No. 386)

    • Governs succession and inheritance.
    • Outlines how property passes to heirs and the rights/obligations of heirs.

  2. Corporation Code of the Philippines (Revised Corporation Code, R.A. 11232)

    • Governs the creation, organization, and powers of corporations.
    • Provides for how property may be contributed or transferred to corporations as part of capital subscription or subsequent transfer.

  3. Land Registration Laws

    • Presidential Decree No. 1529 (Property Registration Decree) for titling and transfer processes.
    • Rules of the Land Registration Authority (LRA) which detail administrative procedures for property transfers.

  4. Tax Laws

    • National Internal Revenue Code (NIRC), particularly on estate tax, capital gains tax (CGT), and documentary stamp tax (DST).
    • Bureau of Internal Revenue (BIR) rules on estate settlement, issuance of Electronic Certificate Authorizing Registration (eCAR), and other procedural requirements.

2. Inherited Land: Basic Concepts

When a property owner dies, their land does not automatically become corporate property even if the heirs are majority shareholders of a corporation. Instead, the following must occur:

  1. Settlement of the Estate

    • The heirs (whether via a will or intestate succession) must first settle the estate. Estate settlement can be done judicially (through court proceedings) or extrajudicially (agreement among all heirs, provided there is no will or there is a single will uncontested).
    • Estate taxes must be paid to the BIR within the prescribed period. Late payment may incur penalties and interest.

  2. Issuance of New Title in the Heirs’ Names

    • Once the estate is settled and the taxes are paid, the Register of Deeds will issue a Transfer Certificate of Title (TCT) in favor of the heirs.

  3. Heirs’ Authority over the Inherited Property

    • Only after the estate is settled can the heirs legally exercise full ownership rights over the inherited land, which then enables them to transfer or convey it to a corporation.

3. Pathways for Using Inherited Land in a Corporation

There are generally two main routes for placing inherited land under corporate use or ownership:

3.1. Contributing the Property to the Corporation as Capital

Often referred to as a property-for-shares exchange, the heirs (as stockholders or potential stockholders) may contribute the inherited property to the corporation in exchange for shares of stock. Key points:

  1. Authorized Capital Stock

    • The corporation’s Articles of Incorporation must have sufficient authorized capital stock to accommodate the shares that will be issued in exchange for the land.

  2. Deed of Assignment

    • The heirs execute a Deed of Assignment or a similar legal document indicating that, in exchange for shares, they are transferring ownership of the inherited land to the corporation.

  3. Board Approval and SEC Filing

    • The Board of Directors must approve the property-for-shares transaction.
    • An updated General Information Sheet (GIS) and other documents may need to be filed with the Securities and Exchange Commission (SEC) to reflect changes in shareholdings and capital contributions.

  4. Taxes and Transfer Fees

    • Capital Gains Tax (CGT) or Creditable Withholding Tax (CWT): Usually 6% on property sold or transferred, unless exempt or subject to special provisions.
    • Documentary Stamp Tax (DST): Generally 1.5% of the consideration or fair market value, whichever is higher.
    • Local Transfer Taxes: Paid to the local government unit (LGU) where the property is located.
    • Registration Fees: Fees for registering the deed with the Register of Deeds and issuing a new TCT in the name of the corporation.

  5. Foreign Equity Restrictions

    • Ensure that the corporation remains at least 60% Filipino-owned if the land is to be titled in the name of the corporation.

3.2. Selling or Donating the Property to the Corporation

Alternatively, heirs may transfer ownership of inherited property to a corporation through either a sale or a donation:

  1. Sale

    • A Deed of Absolute Sale is executed between the heirs (as sellers) and the corporation (as buyer).
    • Appropriate taxes (CGT/CWT, DST, and local transfer taxes) and fees apply.

  2. Donation

    • If heirs donate the property, a Deed of Donation is executed.
    • Donation triggers donor’s tax, computed under the applicable schedule in the National Internal Revenue Code.

  3. Property Registration

    • After the deed is notarized and taxes are paid, the Register of Deeds will cancel the TCT in the heirs’ names and issue a new TCT in the corporation’s name.

  4. Restrictions on Foreign-Owned Corporations

    • Same rule: if the corporation is more than 40% foreign-owned, it cannot own land in the Philippines.

4. Step-by-Step Procedure for Transfer of Inherited Land to a Corporation

  1. Estate Settlement

    • Pay estate taxes and secure the BIR’s Electronic Certificate Authorizing Registration (eCAR) for the transfer of the property from the deceased to the heirs.

  2. Issuance of Title in the Heirs’ Names

    • Present the eCAR and other necessary documents (e.g., extrajudicial settlement agreement, Certificate of Payment of estate taxes, etc.) to the Register of Deeds for issuance of a new TCT in the heirs’ names.

  3. Decision on Mode of Transfer to Corporation

    • Determine if the property will be:
      a) Contributed to the corporation in exchange for shares,
      b) Sold to the corporation, or
      c) Donated to the corporation.

  4. Execute the Deed (Assignment, Sale, or Donation)

    • Prepare and notarize the relevant deed.
    • For property-for-shares transactions, the corporation’s board resolution is typically required.
    • Ensure compliance with the Revised Corporation Code for any increase in capital stock or issuance of new shares, if necessary.

  5. Compute and Pay Taxes

    • Capital Gains Tax or Creditable Withholding Tax for sales or assignment
    • Donor’s Tax for donations
    • Documentary Stamp Tax
    • Local Transfer Tax to the LGU
    • Secure another eCAR from the BIR for the corporation’s acquisition.

  6. Register the Transfer with the Register of Deeds

    • Present all required documents (the newly secured eCAR, notarized deed, proof of payment of taxes, etc.).
    • A new TCT will be issued in the name of the corporation.

  7. Update the Tax Declaration

    • Go to the Assessor’s Office of the municipality/city where the property is located to update the Real Property Tax Declaration under the corporation’s name.

  8. Post-Transfer Requirements

    • File relevant updates with the SEC (e.g., updated GIS to reflect the change in shareholdings, if property was contributed as capital).
    • Maintain updated corporate books to reflect the acquired asset or the shares issued in exchange.

5. Special Considerations

  1. Foreign Equity Compliance

    • Corporations must strictly maintain the required Filipino ownership ratio. If the corporation’s Filipino equity drops below 60%, it must dispose of the land or reconfigure shareholdings to comply with constitutional requirements.

  2. Restrictions on Certain Lands

    • Lands of the public domain, agrarian reform lands, or lands subject to special laws (e.g., ancestral domains under the Indigenous Peoples’ Rights Act) may have additional requirements or restrictions.

  3. Use of Long-Term Lease Instead

    • If the corporation does not meet the 60-40 Filipino-foreign equity ratio, an alternative is long-term leasing of the land from the heir-owners rather than direct ownership. Under certain laws, foreigners or majority-foreign-owned corporations may lease private lands for up to 50 years (renewable for 25 years) in some instances.

  4. Mortgage and Financing Issues

    • Lenders usually require the property to be in the name of the borrower. If the corporation needs financing secured by the property, the transfer and titling must be fully completed beforehand.

  5. Penalties for Non-Compliance

    • Delays or non-payment of estate taxes incur significant penalties.
    • Misrepresentation or circumvention of foreign ownership restrictions can result in nullification of the land transfer or corporate sanctions.

  6. Due Diligence

    • Heirs and corporations must conduct due diligence—verify the chain of title, the absence of liens or encumbrances, and the accuracy of property boundaries.

6. Practical Tips and Best Practices

  • Engage Professionals Early

    • A licensed attorney, an accountant, and a tax consultant should be involved at the outset to avoid costly mistakes.

  • Prepare Necessary Documents in Advance

    • The BIR and Register of Deeds processes can be streamlined by having complete documents (death certificate, titles, tax clearances, extrajudicial settlement agreements, corporate board resolutions, etc.).

  • Monitor Deadlines

    • Estate taxes must be filed and paid generally within one year from the decedent’s date of death (with possible extensions).
    • Transfer taxes and registration must also be paid within the prescribed local government deadlines to avoid penalties.

  • Careful Valuation

    • The fair market value (FMV) or zonal value is key to determining taxes due.
    • Having an official appraisal or at least verifying BIR zonal valuations can avoid inaccurate tax assessments.

  • Maintain Corporate Books Properly

    • If the property is contributed as capital, reflect the issuance of shares in the corporation’s Stock and Transfer Book.
    • The corporation’s balance sheet should reflect real property assets accurately.

  • Check Special Titles

    • If the inherited property has a Torrens Title, confirm if it is free from liens, encumbrances, or adverse claims.
    • Verify if it is an agricultural, commercial, or residential lot to ensure alignment with the corporation’s intended use.

7. Conclusion

Using inherited land as corporate property in the Philippines involves navigating constitutional land-ownership restrictions, complying with estate settlement requirements, paying the proper taxes, and following strict procedural steps with the BIR, the SEC, and the Register of Deeds. Heirs who wish to convert their inherited land into a corporate asset can do so through capital contributions, sales, or donations—provided the corporation is qualified to own land under Philippine law (i.e., at least 60% Filipino-owned).

The process can be time-consuming and paperwork-intensive. Early preparation, diligent compliance with legal and tax obligations, and consultation with legal and financial professionals are crucial. By satisfying all requirements, heirs and corporations can ensure a smooth transfer and a valid corporate title over inherited land in the Philippines.

Disclaimer

This material is intended for informational purposes only and does not constitute legal advice. Laws, regulations, and procedures may change, and their interpretation can vary depending on specific facts and circumstances. Always consult a qualified Philippine attorney or legal adviser for guidance tailored to your individual situation.

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.

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