You are on page 1of 2

THE ALLOWABLE DEDUCTIONS

FOR NONRESIDENT ALIEN


DECEDENT IN THE PHILIPPINES
I have been studying recently the
allowable deductions that can be
claimed by a nonresident alien
decedent
needed
in
the
computation
of
net
estate
taxable in the Philippines.
The ordinary deductions allowed
as deductions are the following:
(1) proportionate
deductions
on
Expenses, Losses, Indebtedness,
Taxes, etc. (ELITe) which include
the:
funeral expenses (actual or 5%
of the gross estate, whichever is
lower
but
not
to
exceed
P200,000),
judicial expenses,
claims against the estate,
claims against the insolvent
persons,
taxes and losses;
(2) Transfer for public use;
(3) Vanishing Deduction and
(4) net share of the surviving spouse
in the conjugal or community
property.
Proportionate
deductions
is
computed
as
Gross
Estate,
Philippines divided by Gross Estate,
World multiply by ELITe World.
While vanishing deduction is
computed as Value to take (FMV of
the properties at the time of
inheritance or the time of death of
the prior decedent, whichever is
lower) less Mortgage Paid assumed
(first deduction) equals the Initial
Basis less Proportionate Deduction
(second deduction) computed as
Initial Basis divided by Gross Estate,
Philippines
multiply
by
ELITe
(Allowed).
Initial
Basis
less
Proportionate Deduction equals to
Final Basis multiply by vanishing rate

(provided by the law) to get the


Vanishing Deduction.
The vanishing deduction rates is
based in the properties period from
receipt to decedent's death as
follows:
(1) within 1 year-100%;
(2) beyond 1 year to 2 years-80%;
(3) beyond 2 years to 3 years-60%;
(4) beyond 3 years to 4 years-40%;
and
(5) beyond 4 years to 5 years-20%.
RA 4917 and Standard deductions
are not allowed deductions for
nonresident alien decedent in the
computation of net estate taxable in
the country.
VANISHING DEDUCTIONS - Is an
amount allowed-to reduce the taxable
estate of a decedent where the
property:
a. received by him from prior decedent
by
gift,
bequest,
devise
and
inheritance, or
b. transferred to him by gift has been the
object
of
previous
transferred
deductions.

It is so called a vanishing deduction


because the rate of deduction gradually
diminishes
and
entirely
vanishes
depending upon the time interval
between the two (2) successive transfer.

Value to take (the lower the amount


of the fair market value of properties
xxxx
at the time of inheritance between at
the time of death of the decedent)
Less: Mortgage paid assumed (1st
deduction)
(xxxx)
Initial Basis
xxxx
Less: Proportionate deduction (2nd
deduction)
(xxxx)
Initial Basis
x ELITe +
Transfer for Public Use =
Proportionate deduction
Gross Estate
Final Basis
COMPUTATION OF VANISHING
DEDUCTION APPLICABLE TO
RESIDENT AND NONRESIDENT
CITIZEN DECEDENT
Vanishing deduction is one of the
ordinary deductions allowed as a
deduction in the computation of net
estate taxable of a resident and
nonresident citizen decedent in the
Philippines.
Vanishing deduction is computed with
the following format:

xxxx
Multiply by Vanishing deduction rate
(%)
xxxx
Vanishing deduction
xxxx
The vanishing deduction rates is based on the
period from receipt to decedent's death as
follows: (1) within 1 year-100%; (2) beyond 1
year to 2 years-80%; (3) beyond 2 years to 3
years-60%; (4) beyond 3 years to 4 years-40%;
and (5) beyond 4 years to 5 years-20%.