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ESTATE TAX RETURN

1. Who are required to file the Estate Tax return?


a) The executor or administrator or any of the legal heirs of the decedent or
non-resident of the Philippines under any of the following situation:
- In all cases of transfer subject to Estate Tax;
- Where though exempt from Estate Tax, the gross value of the estate
exceeds two hundred thousand P 200,000.00; and
- Where regardless of the gross value, the estate consists of registered or
registrable property such as real property, motor vehicle, share of stocks or
other similar property for which a clearance from the Bureau of Internal
Revenue (BIR) is required as a prerequisite for the transfer of ownership
thereof in the name of the transferee. (part II par.(1.#3) of RMC No. 34-2013)
b) Where there is no executor or administrator appointed, qualified and
acting within the Philippines, then any person in actual or constructive
possession of any property of the decedent must file the return.
c) The Estate Tax imposed under the Tax Code shall be paid by the executor
or administrator before the delivery of the distributive share in the
inheritance to any heir or beneficiary. Where there are two or more executors
or administrators, all of them are severally liable for the payment of the tax.
The estate tax clearance issued by the Commissioner or the Revenue District
Officer (RDO) having jurisdiction over the estate, will serve as the authority
to distribute the remaining/distributable properties/share in the inheritance
to the heir or beneficiary.
d) The executor or administrator of an estate has the primary obligation to
pay the estate tax but the heir or beneficiary has subsidiary liability for the
payment of that portion of the estate which his distributive share bears to
the value of the total net estate. The extent of his liability, however, shall in
no case exceed the value of his share in the inheritance.
2. What are included in gross estate?

For resident alien decedents/citizens:

a) Real or immovable property, wherever located


b) Tangible personal property, wherever located

c) Intangible personal property, wherever located

For non-resident decedent/non-citizens:

a) Real or immovable property located in the Philippines


b) Tangible personal property located in the Philippines
c) Intangible personal property - with a situs in the Philippines such as:
- Franchise which must be exercised in the Philippines
- Shares, obligations or bonds issued by corporations organized or
constituted in the Philippines
- Shares, obligations or bonds issued by a foreign corporation 85% of the
business of which is located in the Philippines
- Shares, obligations or bonds issued by a foreign corporation if such shares,
obligations or bonds have acquired a business situs in the Philippines ( i. e.
they are used in the furtherance of its business in the Philippines)
- Shares, rights in any partnership, business or industry established in the
Philippines
3. What are excluded from gross estate?

GSIS proceeds/ benefits

Accruals from SSS

Proceeds of life insurance where the beneficiary is irrevocably


appointed

Proceeds of life insurance under a group insurance taken by employer


(not taken out upon his life)

War damage payments

Transfer by way of bona fide sales

Transfer of property to the National Government or to any of its


political subdivisions

Separate property of the surviving spouse

Merger of usufruct in the owner of the naked title

Properties held in trust by the decedent

Acquisition and/or transfer expressly declared as not taxable

4. What will be used as basis in the valuation of property?

The properties subject to Estate Tax shall be appraised based on its fair
market value at the time of the decedent's death.

The appraised value of the real estate shall be whichever is higher of


the fair market value, as determined by the Commissioner (zonal
value) or the fair market value, as shown in the schedule of values
fixed by the Provincial or City Assessor.

If there is no zonal value, the taxable base is the fair market value that
appears in the latest tax declaration.

If there is an improvement, the value of improvement is the


construction cost per building permit or the fair market value per latest
tax declaration.

5. What are the allowable deductions for Estate Tax Purposes?


Applicable for deaths occurring after the effectivity of RA 8424 which is
January 1, 1998
For a citizen or resident alien
A. Expenses, losses, indebtedness and taxes
(1) Actual funeral expenses (whether paid or unpaid) up to the time of
interment, or an amount equal to five percent (5%) of the gross estate,
whichever is lower, but in no case to exceed P200,000.
(2) Judicial expenses of the testamentary or intestate proceedings.
(3) Claims against the estate.
(4) Claims of the deceased against insolvent persons where the value of the
decedents interest therein is included in the value of the gross estate; and,
(5) Unpaid mortgages, taxes and casualty losses
B. Property previously taxed (Vanishing Deduction) (Section 86(2) of the NIRC
as amended by Republic Act No. 8424)

An amount equal to the value specified below of any property forming a part
of the gross estate situated in the Philippines of any person who died within
five (5) years prior to the death of the decedent, or transferred to the
decedent by gift within five (5) years prior to his death, where such property
can be identified as having been received by the decedent from the donor by
gift, or from such prior decedent by gift, bequest, devise or inheritance, or
which can be identified as having been acquired in exchange for property so
received:
One hundred percent (100%) of the value, if the prior decedent died within
one (1) year prior to the death of the decedent, or if the property was
transferred to him by gift within the same period prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one
(1) year but not more than two (2) years prior to the death of the decedent,
or if the property was transferred to him by gift within the same period prior
to his death;
Sixty percent (60%) of the value, if the prior decedent died more than two
(2) years but not more than three (3) years prior to the death of the
decedent, or if the property was transferred to him by gift within the same
period prior to his death;
Forty percent (40%) of the value, if the prior decedent died more than three
(3) years but not more than four (4) years prior to the death of the decedent,
or if the property was transferred to him by gift within the same period prior
to his death; and
Twenty percent (20%) of the value, if the prior decedent died more than four
(4) years but not more than five (5) years prior to the death of the decedent,
or if the property was transferred to him by gift within the same period prior
to his death;
These deductions shall be allowed only where a donors tax or estate tax
imposed was finally determined and paid by or on behalf of such donor, or
the estate of such prior decedent, as the case may be, and only in the
amount finally determined as the value of such property in determining the
value of the gift, or the gross estate of such prior decedent, and only to the
extent that the value of such property is included in the decedents gross
estate, and only if in determining the value of the estate of the prior
decedent, no Property Previously Taxed or Vanishing Deduction was allowable

in respect of the property or properties given in exchange therefor. (Section 6


& 7 of RR 2-2003)
C. Transfers for public use
D. The family home - fair market value but not to exceed P1,000,000.00
The family home refers to the dwelling house, including the land on which it
is situated, where the husband and wife, or a head of the family, and
members of their family reside, as certified to by the Barangay Captain of
the locality. The family home is deemed constituted on the house and lot
from the time it is actually occupied as a family residence and is considered
as such for as long as any of its beneficiaries actually resides therein. (Arts.
152 and 153, Family Code)
E. Standard deduction A deduction in the amount of One Million Pesos
(P1,000,000.00) shall be allowed as an additional deduction without need of
substantiation.
F. Medical expenses All medical expenses (cost of medicines, hospital bills,
doctors fees, etc.) incurred (whether paid or unpaid) within one (1) year
before the death of the decedent shall be allowed as a deduction provided
that the same are duly substantiated with official receipts. For services
rendered by the decedents attending physicians, invoices, statements of
account duly certified by the hospital, and such other documents in support
thereof and provided, further, that the total amount thereof, whether paid or
unpaid, does not exceed Five Hundred Thousand Pesos (P500,000).
G. Amount received by heirs under Republic Act No. 4917-Any amount
received by the heirs from the decedents employer as a consequence of the
death of the decedent-employee in accordance with Republic Act No. 4917 is
allowed as a deduction provided that the amount of the separation benefit is
included as part of the gross estate of the decedent.
H. Net share of the surviving spouse in the conjugal partnership or
community property
For a non-resident alien
A. Expenses, losses, indebtedness and taxes
B. Property previously taxed
C. Transfers for public use

D. Net share of the surviving spouse in the conjugal partnership or


community property
No deduction shall be allowed in the case of a non-resident decedent not a
citizen of the Philippines, unless the executor, administrator, or anyone of
the heirs, as the case may be, includes in the return required to be filed in
the Section 90 of the Code the value at the time of the decedents death of
that part of his gross estate not situated in the Philippines.
Please note that the allowable deductions will vary depending on the law
applicable at the time of the decedents death.
6. What does the term "Funeral Expenses" include? (Sec 6 (A)(1) of RR 22003)
The term "FUNERAL EXPENSES" is not confined to its ordinary or usual
meaning. They include:
(a) The mourning apparel of the surviving spouse and unmarried minor
children of the deceased bought and used on the occasion of the burial;
(b) Expenses for the deceaseds wake, including food and drinks;
(c) Publication charges for death notices;
(d) Telecommunication expenses incurred in informing relatives of the
deceased;
(e) Cost of burial plot, tombstones, monument or mausoleum but not their
upkeep. In case the deceased owns a family estate or several burial lots, only
the value corresponding to the plot where he is buried is deductible;
(f) Interment and/or cremation fees and charges; and
(g) All other expenses incurred for the performance of the rites and
ceremonies incident to interment.
Expenses incurred after the interment, such as for prayers, masses,
entertainment, or the like are not deductible. Any portion of the funeral and
burial expenses borne or defrayed by relatives and friends of the deceased
are not deductible. Actual funeral expenses shall mean those which are
actually incurred in connection with the interment or burial of the deceased.
The expenses must be duly supported by official receipts or invoices or other
evidence to show that they were actually incurred.

7. What does the term "Judicial Expenses" include? (Sec 6 (A)(2) of RR 22003)
Expenses allowed as deduction under this category are those incurred in the
inventory-taking of a assets comprising the gross estate, their
administration, the payment of debts of the estate, as well as the distribution
of the estate among the heirs. In short, these deductible items are expenses
incurred during the settlement of the estate but not beyond the last day
prescribed by law, or the extension thereof, for the filing of the estate tax
return. Judicial expenses may include:
(a) Fees of executor or administrator;
(b) Attorneys fees;
(c) Court fees;
(d) Accountants fees;
(e) Appraisers fees;
(f) Clerk hire;
(g) Costs of preserving and distributing the estate;
(h) Costs of storing or maintaining property of the estate; and
(i) Brokerage fees for selling property of the estate.
Any unpaid amount for the aforementioned cost and expenses claimed
under Judicial Expenses should be supported by a sworn statement of
account issued and signed by the creditor.
8. What are the requisites for deductibility of claims against the Estate? (Sec
6(A)(3) of RR 2-2003)
(a) The liability represents a personal obligation of the deceased existing at
the time of his death except unpaid obligations incurred incident to his death
such as unpaid funeral expenses (i.e., expenses incurred up to the time of
interment) and unpaid medical expenses which are classified under a
different category of deductions pursuant to these Regulations;
(b) The liability was contracted in good faith and for adequate and full
consideration in money or moneys worth;

(c) The claim must be a debt or claim which is valid in law and enforceable in
court;
(d) The indebtedness must not have been condoned by the creditor or the
action to collect from the decedent must not have prescribed.
9. How do we determine the fair market value of the unlisted stocks? (RR
NO. 6-2013) (Annex U)
In determining the value of the shares, the Adjusted Net Asset Method shall
be used whereby all assets and liabilities are adjusted to fair market values.
The net of adjusted asset minus the adjusted liability value is the indicated
value of the equity.
For purposes of this item, the appraised value of real property at the time of
sale shall be the highest among the following:
(a) The fair market value as determined by the Commissioner, or
(b) The fair market value as shown in the schedule of values fixed by the
Provincial and City Assessors, or
(c) The fair market value as determined by Independent Appraiser.
DONORS TAX
1. Who are required to file the Donors Tax Return?
Every person, whether natural or juridical, resident or non-resident, who
transfers or causes to transfer property by gift, whether in trust or otherwise,
whether the gift is direct or indirect and whether the property is real or
personal, tangible or intangible.
2. What donations are tax exempt?
A. In the Case of Gifts made by a Resident (Sec. 101 (A), NIRC as amended)

Dowries or donations made on account of marriage before its


celebration or within one year thereafter, by parents to each of
their legitimate, recognized natural, or adopted children to the
extent of the first P10,000

Gifts made to or for the use of the National Government or any


entity created by any of its agencies which is not conducted for
profit, or to any political subdivision of the said Government

Gifts in favor of an educational and/or charitable, religious,


cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philantrophic organization or
research institution or organization, provided not more than 30%
of said gifts will be used by such donee for administration
purposes

B. In the Case of Gifts Made by a Nonresident not a Citizen of the


Philippines (Sec. 101 (B), NIRC as amended)

Gifts made to or for the use of the National Government or any


entity created by any of its agencies which is not conducted for
profit, or to any political subdivision of the said Government

Gifts in favor of an educational and/or charitable, religious,


cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philantrophic organization or
research institution or organization, provided not more than 30%
of said gifts will be used by such donee for administration
purposes

C. Tax Credit for Donor's Taxes Paid to a Foreign Country (Sec. 101 (C), NIRC
as amended)

In General. - The tax imposed by this Title upon a donor who was
a citizen or a resident at the time of donation shall be credited
with the amount of any donor's tax of any character and
description imposed by the authority of a foreign country.

Limitations on Credit. - The amount of the credit taken under this


Section shall be subject to each of the following limitations:

- The amount of the credit in respect to the tax paid to any country shall not
exceed the same proportion of the tax against which such credit is taken,
which the net gifts situated within such country taxable under this Title bears

to
his
entire
net
gifts;
and
- The total amount of the credit shall not exceed the same proportion of the
tax against which such credit is taken, which the donor's net gifts situated
outside the Philippines taxable under this title bears to his entire net gifts.
3. What are the bases in the valuation of property?
If the gift is made in property, the fair market value at that time will be
considered the amount of gift.
In case of real property, the taxable base is the fair market value as
determined by the Commissioner of Internal Revenue (Zonal Value) or fair
market value as shown in the latest schedule of values fixed by the provincial
and city assessor (MV per Tax Declaration), whichever is higher. (Sec. 88 and
102, NIRC as amended)
If there is no zonal value, the taxable base is the fair market value that
appears in the tax declaration at the time of the gift
4. For purposes of Donors Tax, what does the term Net Gift mean?
For purposes of the donors tax, NET GIFT shall mean the net economic
benefit from the transfer that accrues to the donee. Accordingly, if a
mortgaged property is transferred as a gift, but imposing upon the donee the
obligation to pay the mortgage liability, then the net gift is measured by
deducting from the fair market value of the property the amount of mortgage
assumed. (sec. 11, RR No. 2-2003)
5. Under R.A. No. 7166, any contribution in cash or in kind to any candidate
or political party or coalition of parties for campaign purposes shall not be
subject to the payment of any gift tax. What instance will it be subject to
Donors Tax?
Those contributions in cash or in kind NOT duly reported to the Commission
on Elections (COMELEC) shall not be subject to donors tax.
Section 99 (C) of the Tax Code, as amended, provides that any contribution
in cash or in kind for campaign purposes shall be governed by R.A. No. 7166
or the Election Code.
Section 13 of the R.A. No. 7166 specifically states that any provision of law to
the contrary notwithstanding any contribution in cash or kind to any
candidate or political party or coalition of parties for campaign purposes,
duly reported to the Commission shall not be subject to the payment of any

gift tax (donors tax). Accordingly, the BIR can impose donors tax on
contributions of this nature. (Q-14, RMC No. 63-2009)
6. For purposes of Donors Tax, is a legally adopted child considered
stranger?
A legally adopted child is entitled to all the rights and obligations provided by
law to legitimate children, and therefore, donation to him shall not be
considered as donation made to stranger. (sec. 10, RR No. 2-2003)
7. For purposes of Donors Tax, are donations between businesses considered
donations made between strangers?
Donation made between business organizations and those made between an
individual and a business organization shall be considered as donation made
to a stranger. (sec. 10, RR No. 2-2003)
8. Are gratuitous donations to Homeowners Associations subject to Donors
Tax?
Gifts, donations, and other contributions received by the Homeowners
Associations (Associations) are subject to the payment of donors tax
pursuant to Section 98 and 99 of the Tax Code, as amended. Endowment or
gifts received by such associations are not exempt from donors tax
considering that gifts to Associations are not qualified for exemption under
Section 101(A)(3) of the Tax Code. (II, RMC No. 53-2013)
9. Is an onerous donation or donation in exchange for goods, services or use
or lease of properties to Homeowners Association subject to Donors Tax?
Pursuant to RMC No. 9-2013, Associations are subject to the corresponding
internal revenue taxes imposed under the Tax Code of 1997 on their income
of whatever kind and character. In this regard, contributions to associations
in exchange for goods, services and use of properties constitute as other
assessments/charges from activity in exchange for the performance of a
service, use of properties or delivery of an object. As such, these fees are
income on the part of the associations that are subject to income tax under
Section 27 of the Tax Code, as amended. (III, RMC No. 53-2013)
10. What is the proper treatment for transactions involving transfer of
property other than real property referred to in Section 24 (D) for less than
adequate and full consideration?

Where property, other than real property referred to in Section 24 (D) of the
NIRC, as amended, is transferred for less than adequate and full
consideration in money or moneys worth, then the amount by which the fair
market value of the property exceeded the value of the consideration shall,
for the purpose of Donors Tax, be deemed a gift, and shall be included in
computing the amount of gifts made during the calendar year. (Sec. 100,
NIRC, as amended)
11. What entities are considered exempted from Donors Tax under special
laws?
The list below consists of entities considered Donors Tax exempt under
special laws including, but not limited to the following:

Rural Farm School (Sec. 14, R.A. No. 10618)

Peoples Television Network, Incorporated (Sec. 15, R.A. No.


10390)

Peoples Survival Fund (Sec. 13, R.A. No. 10174)

Aurora Pacific Economic Zone and Freeport Authority (Sec. 7, R.A.


No. 10083)

Girl Scouts of the Philippines (Sec. 11, R.A. No. 10073)

Philippine Red Cross (Sec. 5, R.A. No. 10072)

Tubbataha Reefs Natural Park (Sec. 17, R.A. No. 10067)

National Commission for Culture and the Arts (Sec. 35, R.A. No.
10066)

Philippine Normal University (Sec. 7, R.A. No. 9647)

University of the Philippines (Sec. 25, R.A. No. 9500)

National Water Quality Management Fund (Sec. 9, R.A. No. 9275)

Philippine Investors Commission (Sec. 9, R.A. No. 3850)

Ramon Magsaysay Award Foundation (Sec. 2, R.A. 3676)

Philippine-American Cultural Foundation (Sec. 4, P.D. 3062)

International Rice Research Institute (Art. 5(2), PD 1620)

Task Force on Human Settlements (Sec. 3(b)(8), E.O. 419)

National Social Action Council (Sec. 4, P.D. 294)

Aquaculture Department of the Southeast


Development Center (Sec. 2, P.D. 292)

Development Academy of the Philippines (Sec. 12, PD 205)

Integrated Bar of the Philippines (Sec. 3, PD 181)

Asian

Fisheries

12. How do we determine the fair market value of the unlisted stocks?
In determining the value of the shares, the Adjusted Net Asset Method shall
be used whereby all assets and liabilities are adjusted to fair market values.
The net of adjusted asset minus the adjusted liability value is the indicated
value of the equity.
For purposes of this item, the appraised value of real property at the time of
sale shall be the highest among the following:
(a) The fair market value as determined by the Commissioner, or
(b) The fair market value as shown in the schedule of values fixed by
the Provincial and City Assessors, or
(c) The fair market value as determined by Independent Appraiser. (RR NO.
6-2013) (Annex U)