Legal Issues in Cryptocurrency-Related Real Estate Transactions (Philippine Context)

Cryptocurrency’s growing popularity has led to its exploration in various fields, including real estate. In the Philippines, while there is no outright prohibition on using cryptocurrency as a medium of exchange, numerous legal considerations arise when transacting real estate using digital currencies such as Bitcoin, Ether, or other virtual assets. This article presents an overview of all key legal issues, regulatory frameworks, and best practices relating to cryptocurrency-related real estate transactions in the Philippines.

1. Regulatory Framework for Cryptocurrencies in the Philippines

1.1 Bangko Sentral ng Pilipinas (BSP) Regulations

BSP Circular No. 944 (Series of 2017)
- The BSP recognizes “virtual currency” (VC) as any type of digital unit used as a medium of exchange or a form of digitally stored value.
- It regulates Virtual Currency Exchanges (VCEs)—entities that convert fiat currency (e.g., Philippine peso) to virtual currencies (and vice versa).
- While the BSP does not endorse any specific cryptocurrency, it imposes registration and reporting requirements on VCEs.
- The primary objective is to prevent money laundering, terrorist financing, and consumer protection risks.
BSP Circular No. 1108 (Series of 2021)
- Broadens the regulatory framework for Virtual Asset Service Providers (VASPs).
- Requires VASPs to secure Certificates of Authority to operate from the BSP.
- Includes expanded guidelines on anti-money laundering (AML), cybersecurity, risk management, and consumer protection.

In essence, the BSP allows the use and trade of cryptocurrencies, but it emphasizes that any entity dealing with cryptocurrency exchanges or wallets must comply with licensing and reporting requirements. Although the BSP has not issued specific guidance on real estate transactions paid in cryptocurrency, these existing rules still apply whenever cryptocurrency is used as a medium of exchange.

1.2 Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF)

Anti-Money Laundering Act of 2001 (AMLA), as amended
- Real estate transactions in the Philippines are covered under “covered transactions” if they exceed certain thresholds, and suspicious transaction reporting can be triggered if a transaction appears anomalous or lacks economic justification.
- Cryptocurrency-related transactions are particularly scrutinized for potential money laundering or illicit financing because of their pseudo-anonymous nature.
AMLC Regulatory Issuances
- The Anti-Money Laundering Council (AMLC) monitors transactions involving virtual currencies.
- VASPs must maintain Know-Your-Customer (KYC) procedures and report large or suspicious transactions to the AMLC.

As a result, parties engaging in cryptocurrency-based real estate deals must ensure robust KYC/AML measures—verifying the identities of parties and documenting the source of the cryptocurrency funds.

2. Enforceability of Contracts and Payment Considerations

2.1 Capacity to Contract and Legal Form Requirements

Under Philippine law (Civil Code of the Philippines), a contract is valid if it has:

Consent of the contracting parties;
Object certain (the property being sold);
Cause (consideration, i.e., price).

Cryptocurrency as Consideration

While the law does not explicitly prohibit using cryptocurrency as a form of payment or consideration, it is not officially recognized as “legal tender.”
Transactions in cryptocurrency remain permissible so long as both parties agree. However, to ensure the deed of absolute sale and other related documents will be accepted by local registries and government offices, parties commonly express the purchase price in Philippine pesos (the country’s legal tender).

2.2 Documentation of the Sale Price

Deed of Absolute Sale: For the Land Registration Authority (LRA) to register the transfer of title, the Deed of Sale typically must state the purchase price in Philippine pesos.
The actual transfer of cryptocurrency may occur separately between the parties (i.e., the crypto payment is a factual arrangement), but from the standpoint of government offices, the official transaction value is customarily declared in Philippine pesos.

2.3 Volatility and Valuation Issues

Because cryptocurrencies are volatile, fixing a price in cryptocurrency can lead to disputes if the crypto’s value swings significantly between the execution of the contract and the actual payment date.
As a practical solution, many contracts include a formula or reference exchange rate pegged against Philippine pesos (or U.S. dollars). For example:

“The equivalent PHP value will be based on the prevailing exchange rate published by [a mutually agreed crypto exchange] on the date of payment.”
Both parties should agree on how to handle drastic fluctuations.

3. Tax Implications

3.1 Capital Gains Tax and Documentary Stamp Tax

Capital Gains Tax (CGT): In the sale of real property located in the Philippines, the seller typically owes a 6% capital gains tax (based on the gross selling price or the zonal value, whichever is higher).
Documentary Stamp Tax (DST): The buyer owes a documentary stamp tax of 1.5% based on the actual consideration or the property’s fair market value, whichever is higher.

Even if the transaction is paid in cryptocurrency, the Bureau of Internal Revenue (BIR) still computes CGT and DST based on the property’s peso-equivalent selling price. The Deed of Sale must reflect this.

3.2 VAT and Local Taxes

For commercial real estate or properties developed by real estate dealers, the sale might be subject to Value-Added Tax (VAT) if thresholds are met.
Local transfer taxes (e.g., transfer tax paid to the city or municipality) also apply, calculated in pesos.

3.3 Tax on Cryptocurrency Gains

If the seller receives cryptocurrency and later converts it to pesos (or another fiat currency), any gains realized from that conversion could be subject to appropriate taxes.
The BIR has released several guidance clarifications (though not always specific to real estate) stating that income derived from cryptocurrency trades or exchanges is subject to income tax.
Sellers should keep documentation of the date and value when they receive cryptocurrency and the date and value of conversion to peso to determine any gain or loss for tax reporting.

4. Compliance With Real Estate Laws and Regulations

4.1 Registration Requirements

Land Registration Authority (LRA): For a valid transfer of title, the deed must be notarized and registered with the LRA through the Register of Deeds.
The Register of Deeds generally does not concern itself with the mode of payment (cash, check, or cryptocurrency) as long as the Deed of Sale is valid, notarized, and meets legal requirements.

4.2 Notarization and Documentation

Notarization requires that the contracting parties appear before a notary public, prove identity, and sign the deed.
In practice, a deed reflecting a price in cryptocurrency alone might be viewed skeptically by some notaries, who may insist on a PHP-denominated transaction value for clarity and compliance with standard forms.
For total transparency, parties may note that “payment shall be delivered in cryptocurrency (____), converted at an agreed-upon rate on date of payment.” However, the formal Deed of Sale typically states a peso amount.

4.3 Brokerage and Agency

Brokers and agents dealing with real estate transactions paid in cryptocurrency should ensure compliance with real estate brokerage laws and license requirements under the Professional Regulation Commission (PRC).
They must also remain mindful of AML obligations, particularly if they facilitate the flow of funds or direct connections to VASPs.

5. Money Laundering and Fraud Risks

5.1 Know-Your-Customer and Source of Funds

Given the pseudonymous nature of cryptocurrency, sellers often require proof of source of funds to mitigate money-laundering risks.
Real estate transactions can trigger “covered transactions” if the property value is above PHP 7.5 million (under the AMLA implementing rules for real estate), mandating scrutiny and reporting if suspicious indicators arise.

5.2 Enhanced Due Diligence

Sellers should perform enhanced due diligence, ensuring that the crypto used to pay for the property is lawfully acquired.
Buyers may be asked to provide transaction histories, wallet addresses, or third-party verifications if the amounts are substantial.

5.3 Potential Liability

Failure to comply with AML/CTF measures can expose parties (including sellers and brokers) to penalties.
If a transaction is deemed suspicious and not reported, relevant parties could face administrative or criminal liability.

6. Practical and Contractual Considerations

6.1 Risk Allocation

Price Fluctuation Clause: Include a provision addressing cryptocurrency volatility, such as a lock-in period or reference to a recognized exchange rate.
Security and Escrow Arrangements: Parties may opt to use crypto escrow services or hold funds in stablecoins (cryptocurrencies pegged to a stable asset) before final payment to reduce market risk.

6.2 Dispute Resolution

If a buyer pays in cryptocurrency and a dispute arises (e.g., the seller refuses to sign the deed after receiving partial payment), enforcing these agreements can become complicated because of the intangible and transnational nature of crypto.
Philippine courts can enforce contracts, but proving payment in cryptocurrency might require blockchain transaction proofs, witness testimony, or expert verification.

6.3 Consumer Protection

Philippine laws protect consumers against deceptive, unfair, or fraudulent practices.
Because cryptocurrency transactions can be complex, parties must ensure that all representations about the currency’s value, transaction fees, or the buyer’s ability to pay are transparent and honest.

7. Future Developments

Legislative Updates: Congress or the BSP could, in time, refine or introduce more explicit rules specifically for high-value cryptocurrency purchases (e.g., real estate).
Digital Asset Frameworks: The Philippine Securities and Exchange Commission (SEC) has been studying regulations for digital assets. While much of their focus is on token offerings and security tokens, future rulings could indirectly impact real estate tokenization or fractional ownership.
Tokenized Real Estate: Emerging technology enables fractional ownership of property via tokenized real estate platforms. If such platforms gain traction locally, BSP and SEC guidelines might expand to cover them.

8. Best Practices and Recommendations

Engage Qualified Professionals
- Consult lawyers experienced in both real estate and cryptocurrency regulations.
- Work with licensed real estate brokers for property transactions.
- If using VASPs, ensure they are BSP-registered.
Clearly Document the Transaction
- State the official purchase price in Philippine pesos in the Deed of Sale.
- Include a contract addendum or memorandum of agreement referencing the cryptocurrency payment and the applicable exchange rate.
Implement Robust KYC/AML Checks
- Sellers, brokers, and agents should have procedures to verify the buyer’s identity and the source of cryptocurrency.
- Keep records of all transaction details (wallet addresses, transaction IDs, exchange rate references).
Consider Volatility Mitigation
- Use stablecoins or escrow services to reduce short-term price fluctuations.
- Agree on a definitive snapshot exchange rate for the day of the transaction.
Tax Compliance
- Keep precise records for tax filing and consult with a tax professional, especially if the seller intends to convert cryptocurrency to fiat or if capital gains are realized.
- Ensure timely payment of CGT, DST, local transfer taxes, and any applicable VAT.
Use Reputable Cryptocurrency Platforms
- Payment and conversion should be done through BSP-registered VASPs.
- Avoid unregulated platforms to reduce risks of fraud, hacking, or non-compliance.

Conclusion

While cryptocurrency-related real estate transactions are neither expressly prohibited nor explicitly regulated as a unique category in the Philippines, they operate within the broader legal frameworks governing property, obligations and contracts, taxation, and anti-money laundering. The Bangko Sentral ng Pilipinas has set out guidelines for Virtual Asset Service Providers, and these rules primarily focus on consumer protection and preventing illicit financial activities. For real estate transactions, the key legal issues revolve around:

Enforceability and documentation (ensuring the deed of sale is recognized and states the price in Philippine pesos);
Tax implications (proper reporting and payment of CGT, DST, and other taxes);
AMLC compliance (source-of-funds verification and suspicious transaction reporting); and
Practical considerations (dealing with crypto’s volatility, potential escrow solutions, and dispute resolution).

As the digital economy continues to evolve, it is crucial for parties in the real estate market—buyers, sellers, brokers, and legal professionals—to stay updated on changes to BSP Circulars, AML rules, and BIR issuances. By proactively addressing these regulatory, tax, and operational challenges, stakeholders can harness the benefits of cryptocurrency in real estate transactions while mitigating legal risks.