Estate & Donor Tax Rates Slashed Under TRAIN Law

TAX with TRAIN LAW
TRANSFER TAXES
(Transfer & Estate)
ESTATE TAX
A. Concept
Estate tax is a tax on the right of the deceased person to transmit his estate to his lawful heirs
and beneficiaries. It is not a tax on property. Estate tax is held to be an excise tax imposed on
the privilege of transmitting property upon the death of the owner. The estate tax is generated
by death and accrues at the time of death. It is governed by the law in force at the time of death
notwithstanding the postponement of the actual possession or enjoyment of the estate by the
beneficiary.
The estate-tax return, if required, shall be filed within six months / one year from the decedent’s
death. Meanwhile, a donor’s tax is imposed upon the transfer of a property by way of a gift. A
donor’s tax may also be imposed if the property, other than real property classified as capital
assets, is transferred for less than an adequate and full consideration of money’s worth. In this
case, there shall be a deemed gift that is subject to donor’s tax. The donor’s tax return, if
required, shall be filed within 30 days from the date the gift is made. Both estate and donor’s
taxes due shall be paid at the time the return is filed.
However, many may not be aware that there is another kind of transfer tax, albeit not imposed
pursuant to the National Internal Revenue Code (NIRC). This is the transfer tax that is
contemplated under the Local Government Code (LGC). It is a tax imposed on the sale,
donation, barter, or on any other mode of transferring ownership or title to real property. While
estate and donor’s taxes cover the transfer of any kind of property, whether it be real or
personal, the transfer tax imposable under the LGC only covers transfers of real property.
Further, estate and donor’s taxes essentially involve gratuitous transfers but transfer tax under
the LGC may be onerous, as it is also imposable on sale or barter of real property. Transfer
taxes under the NIRC are generally paid at the Bureau of Internal Revenue Regional District
Office, where the decedent or donor is domiciled. On the other hand, transfer tax under the LGC
is to be paid at the Treasurer’s Office where the property is located.
The person liable for the payment of both kinds of transfer taxes is the donor, transferor,
executor/administrator and the seller, in case of onerous transfer of real property. Moreover, in
all instances, late payment of the taxes due is subject to surcharges and penalties. Last, both
taxes must be paid first, because evidence of payment of these taxes is required by the
Register of Deed before issuing a transfer certificate of title if real property is involved.
Estate Tax Donor’s Tax

1. Subject Right to transfer Right to transfer
2. Taxpayer Estate Donor
3. Liability to Pay Administrator, Executor or Donor
Legal Heir
4. Effectivity Upon Death Lifetime of Donor and Donee
5. Tax Base Net Estate Net Gift
6. Ceiling P200,000 / - no mention in P100,000 / P250,000 in
TRAIN TRAIN
7. Filing Within six (6) months from within thirty (30) days after the
date of death / one (1) year date the gift is made or
under TRAIN completed
8. Top Rates 20% / 6% 15% to Relatives; 30% to
Strangers / 6%
B. Tax Rates
SEC. 2. RATE OF ESTATE TAX. – The net estate of every decedent, whether resident or non-
resident of the Philippines, as determined in accordance with the NIRC, shall be subject to an
estate tax at the rate of six percent (6%).
Net Estate Bracket

But Not Tax Rate Tax Base Tax Rate
Over
Over
200,000 Exempt
5% of excess over
200,000 500,000
200,000
15,000 + 8% of excess versus
500,000 2,000,000
over 500,000
135,000 + 11% of excess Value of Net Estate 6%
2,000,000 5,000,000
over 2,000,000
465,000 + 15% of excess
5,000,000 10,000,000
over 5,000,000
1,215,000 + 20% of
10,000,000
excess over 10,000,000
The estate tax is imposed on the transfer of the decedent’s estate to his lawful heirs and
beneficiaries based on the fair market value of the net estate at the time of the decedent’s
death. It is not a tax on property. It is a tax imposed on the privilege of transmitting property
upon the death of the owner. The estate tax is based on the laws in force at the time of death
notwithstanding the postponement of the actual possession or enjoyment of the estate by the
beneficiary.
SEC. 3. THE LAW THAT GOVERNS THE IMPOSITION OF ESTATE TAX. – It is a well-settled
rule that estate taxation is governed by the statute in force at the time of death of the decedent.
The estate tax accrues as of the death of the decedent and the accrual of the tax is distinct from
the obligation to pay the same. Upon the death of the decedent, succession takes place and the
right of the State to tax the privilege to transmit the estate vests instantly upon death.
The value of the gross estate of the decedent includes the value at the time of his death of all
property, real or personal, tangible or intangible, wherever situated. In the case of a nonresident
decedent who at the time of his death was not a citizen of the Philippines, only that part of the
entire gross estate situated in the Philippines is included in the taxable estate.
C. Gross Estate
SEC. 4. COMPOSITION OF THE GROSS ESTATE. – The gross estate of a decedent shall be
comprised of the following properties and interest therein at the time of his/her death, including
revocable transfers and transfers for insufficient consideration, etc.:
1. Residents and citizens – all properties, real or personal, tangible or intangible, wherever
situated.
2. Non-resident aliens – only properties situated in the Philippines provided, that, with
respect to intangible personal property, its inclusion in the gross estate is subject to the
rule of reciprocity provided for under Section 104 of the NIRC.
Provided, That amounts withdrawn from the deposit accounts of a decedent subjected to
the 6% final withholding tax imposed under Section 97 of the NIRC, shall be excluded
from the gross estate for purposes of computing the estate tax.
SEC. 5. VALUATION OF THE GROSS ESTATE. – The properties comprising the gross estate
shall be valued according to their fair market value as of the time of decedent’s death.
If the property is a real property, the appraised value thereof as of the time of death shall be,
whichever is the higher of –
(1) The fair market value as determined by the Commissioner, or

(2) The fair market value as shown in the schedule of values fixed by the provincial and city
assessors, whichever is higher.
For purposes of prescribing real property values, the Commissioner is authorized to divide the
Philippines into different zones or areas and shall, upon consultation with competent appraisers,
both from the private and public sectors, determine the fair market value of real properties
located in each zone or area.
In the case of shares of stocks, the fair market value shall depend on whether the shares are
listed or unlisted in the stock exchanges. Unlisted common shares are valued based on their
book value while unlisted preferred shares are valued at par value. In determining the book
value of common shares, appraisal surplus shall not be considered as well as the value
assigned to preferred shares, if there are any. On this note, the valuation of unlisted shares
shall be exempt from the provisions of RR No. 06-2013, as amended.
For shares which are listed in the stock exchanges, the fair market value shall be the arithmetic
mean between the highest and lowest quotation at a date nearest the date of death, if none is
available on the date of death itself.
The fair market value of units of participation in any association, recreation or amusement club
(such as golf, polo, or similar clubs), shall be the bid price nearest the date of death published in
any newspaper or publication of general circulation.
To determine the value of the right to usufruct, use or habitation, as well as that of annuity, there
shall be taken into account the probable life of the beneficiary in accordance with the latest
basic standard mortality table, to be approved by the Secretary of Finance, upon
recommendation of the Insurance Commissioner.
The net estate is determined by deducting from the value of gross estate the total amount of
allowable deductions.
Properties considered as located in the Phil.
(1) Franchise which must be exercised in the Phil.

(2) Shares, obligations, or bonds issued by any corporation or sociedad anonima organized
or constituted in the Phil. in accordance with its laws.
(3) Shares, obligations, or bonds issued by any foreign corporation eighty-five per
centum of the business of which is located in the Phil.
(4) Shares, obligations, or bonds issued by any foreign corporation if such shares,
obligations, or bonds have acquired business situs in the Phil.
(5) Shares or rights in any partnership, business or industry established in the Phil.
(6) Any personal property, whether tangible or intangible, located in the Phil.
Gross estate includes property falling under any of the following categories:
(1) Decedent’s interest, to the extent of his interest therein at the time of his death;
(2) Transfers in contemplation of death;
(3) Revocable transfers;
(4) Property passing under general power of appointment;
(5) Proceeds of life insurance;
(6) Prior interests; and
(7) Transfer for insufficient consideration.
SEC. 85. Gross Estate. - the value of the gross estate of the decedent shall be determined by
including the value at the time of his death of all property, real or personal, tangible or
intangible, wherever situated: Provided, however, that in the case of a nonresident decedent
who at the time of his death was not a citizen of the Philippines, only that part of the entire gross
estate which is situated in the Philippines shall be included in his taxable estate.
(A) Decedent's Interest. - To the extent of the interest therein of the decedent at the time of his
death;
(B) Transfer in Contemplation of Death. - To the extent of any interest therein of which the
decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended
to take effect in possession or enjoyment at or after death, or of which he has at any time made
a transfer, by trust or otherwise, under which he has retained for his life or for any period which
does not in fact end before his death (1) the possession or enjoyment of, or the right to the
income from the property, or (2) the right, either alone or in conjunction with any person, to
designate the person who shall possess or enjoy the property or the income therefrom; except
in case of a bonafide sale for an adequate and full consideration in money or money's worth.
(C) Revocable Transfer. -

(1) To the extent of any interest therein, of which the decedent has at any time made a transfer
(except in case of a bona fide sale for an adequate and full consideration in money or money's
worth) by trust or otherwise, where the enjoyment thereof was subject at the date of his death to
any change through the exercise of a power (in whatever capacity exerciseable) by the
decedent alone or by the decedent in conjunction with any other person (without regard to when
or from what source the decedent acquired such power), t o alter, amend, revoke, or terminate,
or where any such power is relinquished in contemplation of the decedent's death.
(2) For the purpose of this Subsection, the power to alter, amend or revoke shall be considered
to exist on the date of the decedent's death even though the exercise of the power is subject to
a precedent giving of notice or even though the alteration, amendment or revocation takes effect
only on the expiration of a stated period after the exercise of the power, whether or not on or
before the date of the decedent's death notice has been given or the power has been exercised.
In such cases, proper adjustment shall be made representing the interests which would have
been excluded from the power if the decedent had lived, and for such purpose if the notice has
not been given or the power has not been exercised on or before the date of his
death, such notice shall be considered to have been given, or the power exercised, on the date
of his death.
(D) Property Passing Under General Power of Appointment. - To the extent of any property
passing under a general power of appointment exercised by the decedent: (1) by will, or (2) by
deed executed in contemplation of, or intended to take effect in possession or enjoyment at, or
after his death, or (3) by deed under which he has retained for his life or any period not
ascertainable without reference to his death or for any period which does not in fact end before
his death (a) the possession or enjoyment of, or the right to the income from, the property, or (b)
the right, either alone or in conjunction with any person, to designate the persons who shall
possess or enjoy the property or the income therefrom; except in case of a bona fide sale for an
adequate and full consideration in money or money's worth.
(E) Proceeds of Life Insurance. - To the extent of the amount receivable by the estate of the
deceased, his executor, or administrator, as insurance under policies taken out by the decedent
upon his own life, irrespective of whether or not the insured retained the power of revocation, or
to the extent of the amount receivable by any beneficiary designated in the policy of insurance,
except when it is expressly stipulated that the designation of the beneficiary is irrevocable.
(F) Prior Interests. - Except as otherwise specifically provided therein, Subsections (B), (C) and
(E) of this Section shall apply to the transfers, trusts, estates, interests, rights, powers and
relinquishment of powers, as severally enumerated and described therein, whether made,
created, arising, existing, exercised or relinquished before or after the effectivity of this Code.
(G) Transfers of Insufficient Consideration. - If any one of the transfers, trusts, interests, rights
or powers enumerated and described in Subsections (B), (C) and (D) of this Section is made,
created, exercised or relinquished for a consideration in money or money's worth, but is not a
bona fide sale for an adequate and full consideration in money or money's worth, there shall be
included in the gross estate only the excess of the fair market value, at the time of death, of the
property otherwise to be included on account of such transaction, over the value of the
consideration received therefor by the decedent.
(H) Capital of the Surviving Spouse. - The capital of the surviving spouse of a decedent shall
not, for the purpose of this Chapter, be deemed a part of his or her gross estate.
The following are excluded from the gross estate:
(1) GSIS proceeds/ benefits;

(2) Accruals from SSS;
(3) Proceeds of life insurance where the beneficiary is irrevocably appointed;
(4) Proceeds of life insurance under a group insurance taken by employer (not taken out
upon his life);
(5) War damage payments;
(6) Transfer by way of bona fide sales;
(7) Transfer of property to the National Government or to any of its political subdivisions;
(8) Separate property of the surviving spouse;
(9) Merger of usufruct in the owner of the naked title;
(10) Properties held in trust by the decedent;
(11) Acquisition and/or transfer expressly declared as not taxable;
(12) Personal Equity and Retirement Account (PERA) assets of the decedent-contributor.
Rules of Reciprocity
– This rule applies to transmission of intangibles personal properties of non-resident alien

decedent. There is reciprocity if the foreign country of which the decedent was a citizen and
resident at the time of his death:
(a) Did not impose a transfer tax; or

(b) Allowed similar exemption from transfer tax in respect of intangible personal property
owned by citizens of the Phil. not residing in that foreign country.
When there is reciprocity, the transmission of intangibles located in the Phil. of a non-resident
alien decedent is not subject to tax. When there is no reciprocity, the transmission of intangibles
located in the Phil. of a non-resident alien decedent is subject to tax. Reciprocity must be total. It
does not require the foreign country to possess international personality.
D. Deductions
SEC 6. COMPUTATION OF THE NET ESTATE OF A DECEDENT WHO IS EITHER A

CITIZEN OR RESIDENT OF THE PHILIPPINES – The value of the net estate of a citizen or
resident alien of the Philippines shall be determined by deducting from the value of the gross
estate the following items of deduction:
1. Standard deduction. – A deduction in the amount of Five Million Pesos (P5,000,000) shall be
allowed without need of substantiation. The full amount of P5,000,000 shall be allowed as
deduction for the benefit of the decedent. The presentation of such deduction in the computation
of the net taxable estate of the decedent is properly illustrated in these Regulations.
2. Claims against the estate. – The word “claims” is generally construed to mean debts or
demands of a pecuniary nature which could have been enforced against the deceased in his
lifetime and could have been reduced to simple money judgements. Claims against the estate
or indebtedness in respect of property may arise out of: (1) Contract; (2) Tort; or (3) Operation
of Law.
2.1. Requisites for Deductibility of Claims Against the Estate –
2.1.1. The liability represents a personal obligation of the deceased existing

at the time of his death;
2.1.2. The liability was contracted in good faith and for adequate and full
consideration in money or money’s worth;
2.1.3. The claim must be a debt or claim which is valid in law and
enforceable in court;
2.1.4. The indebtedness must not have been condoned by the creditor or
the action to collect from the decedent must not have prescribed.
2.2. Substantiation Requirements. – All unpaid obligations and liabilities of the decedent at
the time of his death are allowed as deductions from gross estate. Provided, however, that
the following requirements/documents are complied with/submitted:
2.2.1. In case of simple loan (including advances):
2.2.1.1 The debt instrument must be duly notarized at the time the
indebtedness was incurred, such as promissory note or contract of
loan, except for loans granted by financial institutions where
notarization is not part of the business practice/policy of the financial
institution-lender;
2.2.1.2. Duly notarized Certification from the creditor as to the unpaid

balance of the debt, including interest as of the time of death. If the
creditor is a corporation, the sworn certification should be signed by the
President, or Vice- President, or other principal officer of the
corporation. If the creditor is a partnership, the sworn certification
should be signed by any of the general partners. In case the creditor is
a bank or other financial institutions, the Certification shall be executed
by the branch manager of the bank/financial institution which monitors
and manages the loan of the decedent-debtor. If the creditor is an
individual, the sworn certification should be signed by him. In any of
these cases, the one who should certify must not be a relative of the
borrower within the fourth civil degree, either by consanguinity or
affinity, except when the requirement below is complied with.
When the lender, or the President/Vice-president/principal officer of the

creditor-corporation, or the general partner of the creditor-partnership
is a relative of the debtor in the degree mentioned above, a copy of the
promissory note or other evidence of the indebtedness must be filed
with the RDO having jurisdiction over the borrower within fifteen days
from the execution thereof.
2.2.1.3. In accordance with the requirements as prescribed in existing

or prevailing internal revenue issuances, proof of financial capacity of
the creditor to lend the amount at the time the loan was granted, as
well as its latest audited balance sheet with a detailed schedule of its
receivable showing the unpaid balance of the decedent-debtor. In case
the creditor is an individual who is no longer required to file income tax
returns with the Bureau, a duly notarized Declaration by the creditor of
his capacity to lend at the time when the loan was granted without
prejudice to verification that may be made by the BIR to substantiate
such declaration of the creditor. If the creditor is a non-resident, the
executor/administrator or any of the legal heirs must submit a duly
notarized declaration by the creditor of his capacity to lend at the time
when the loan was granted, authenticated or certified to as such by the
tax authority of the country where the non-resident creditor is a
resident;
2.2.1.4. A statement under oath executed by the administrator or
executor of the estate reflecting the disposition of the proceeds of the
loan if said loan was contracted within three (3) years prior to the death
of the decedent;
2.2.2. If the unpaid obligation arose from purchase of goods or services:
2.2.2.1. Pertinent documents evidencing the purchase of goods or

service, such as sales invoice/delivery receipt (for sale of goods), or
contract for the services agreed to be rendered (for sale of service), as
duly acknowledged, executed and signed by decedent debtor and
creditor, and statement of account given by the creditor as duly
received by the decedent debtor;
2.2.2.2. Duly notarized Certification from the creditor as to the unpaid

balance of the debt, including interest as of the time of death. If the
creditor is a corporation, the sworn Certification should be signed by
the President, or Vice- President, or other principal officer of the
corporation. If the creditor is a partnership, the sworn certification
should be signed by any of the general partners. If the creditor is a sole
proprietorship, the sworn certification should be signed by the owner of
the business. In any of these cases, the one who issues the
certification must not be a relative of the decedent-debtor within the
fourth civil degree, either by consanguinity or affinity, except when the
requirement below is complied with.
When the lender, or the President/Vice-President/principal officer of the

creditor-corporation, or the general partner of the creditor-partnership
is a relative of the debtor in the degree mentioned above, a copy of the
promissory note or other evidence of the indebtedness must be filed
with the RDO having jurisdiction over the borrower within fifteen days
from the execution thereof.
2.2.2.3. Certified true copy of the latest audited balance sheet of the
creditor with a detailed schedule of its receivable showing the unpaid
balance of the decedent-debtor. Moreover, a certified true copy of the
updated latest subsidiary ledger/records of the debt of the debtor-
decedent, (certified by the creditor, i.e., the officers mentioned in the
preceding paragraphs) should likewise be submitted.
2.2.3. Where the settlement is made through the Court in a testate or intestate
proceeding, pertinent documents filed with the Court evidencing the claims against
the estate, and the Court Order approving the said claims, if already issued, in
addition to the documents mentioned in the preceding paragraphs.
3. Claims of the deceased against insolvent persons as defined under R.A. 10142 (“The
Financial Rehabilitation and Insolvency Act (FRIA) of 2010”) and other existing laws, where the
value of the decedent’s interest therein is included in the value of the gross estate.
4. Unpaid mortgages, taxes and casualty losses.

4.1. Unpaid mortgages upon, or any indebtedness in respect to, property where the value
of the decedent’s interest therein, undiminished by such mortgage or indebtedness, is
included in the value of the gross estate. The deduction herein allowed in the case of
claims against the estate, unpaid mortgages or any indebtedness shall, when founded
upon a promise or agreement, be limited to the extent that they were contracted bona fide
and for an adequate and full consideration in money or money’s worth.
4.2. Taxes which have accrued as of the death of the decedent which were unpaid as of
the time of death. This deduction will not include income tax upon income received after
death, or property taxes not accrued before his death, or the estate tax due from the
transmission of his estate.
4.3. There shall also be deducted losses incurred during the settlement of the estate
arising from fires, storms, shipwreck, or other casualties, or from robbery, theft or
embezzlement, when such losses are not compensated for by insurance or otherwise, and
if at the time of the filing of the return such losses have not been claimed as a deduction
for income tax purposes in an income tax return, and provided that such losses were
incurred not later than the last day for the payment of the estate tax as prescribed in
Subsection (A) of Section 91.
In case unpaid mortgage payable is being claimed by the estate, verification must be
made as to who was the beneficiary of the loan proceeds. If the loan is found to be merely
an accommodation loan where the loan proceeds went to another person, the value of the
unpaid loan must be included as a receivable of the estate. If there is a legal impediment
to recognize the same as receivable of the estate, said unpaid obligation/mortgage
payable shall not be allowed as a deduction from the gross estate.
In all instances, the mortgaged property, to the extent of the decedent’s interest therein,
should always form part of the gross taxable estate.
5. Property previously taxed. – (Vanishing Deductions) An amount equal to the value specified
below of any property forming 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:
Vanishing Deductions are allowed when:
1. The present decedent died within five years from receipt of the property from a prior
decedent or donor;
2. The property on which the deduction is being claimed must be located in the Philippines;
3. The property must have formed part of the taxable estate of the prior decedent, or of the
taxable gift of the donor;
4. The estate tax on the prior succession or the donor’s tax on the gift must have been
finally determined and paid;
5. The property must be identified as the one received from the prior decedent or donor, or
something acquired in exchange therefore;
6. No vanishing deduction on the property was allowable to the estate of prior decedent.
a. 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;
b. 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;
c. 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;
d. 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
e. 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 donor’s tax, or estate tax imposed under Title
III of the NIRC 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 decedent’s gross estate,
and only if, in determining the value of the net estate of the prior decedent, no deduction is
allowable under this Item, in respect of the property or properties given in exchange therefore.
Where a deduction was allowed of any mortgage or other lien in determining the donor’s tax, or
the estate tax of the prior decedent, which was paid in whole or in part prior to the decedent’s
death, then the deduction allowable under this Item shall be reduced by the amount so paid.
Such deduction allowable shall be reduced by an amount which bears the same ratio to the
amounts allowed as deductions under Items 2, 3, 4 and 6 of this Subsection as the amount
otherwise deductible under this Item bears to the value of the decedent’s estate. Where the
property referred to consists of two (2) or more items, the aggregate value of such items shall
be used for the purpose of computing the deduction.
6. Transfers for public use. – The amount of all bequests, legacies, devises or transfers to or for
the use of the Government of the Republic of the Philippines or any political subdivision thereof,
for exclusively public purposes.
7. The Family Home. – An amount equivalent to the current fair market value of the decedent’s
family home: Provided, however, that if the said current fair market value exceeds Ten million
pesos (P10,000,000), the excess shall be subject to estate tax.
7.1. Definition of terms
Family home – 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)
For purposes of these Regulations, however, actual occupancy of the house or house and lot as
the family residence shall not be considered interrupted or abandoned in such cases as the
temporary absence from the constituted family home due to travel or studies or work abroad,
etc.
In other words, the family home is generally characterized by permanency, that is, the place to
which, whenever absent for business or pleasure, one still intends to return.
The family home must be part of the properties of the absolute community or of the conjugal
partnership, or of the exclusive properties of either spouse depending upon the classification of
the property (family home) and the property relations prevailing on the properties of the husband
and wife. It may also be constituted by an unmarried head of a family on his or her own
property. (Art. 156, Ibid.)
For purposes of availing of a family home deduction to the extent allowable, a person may
constitute only one family home. (Art. 161, Ibid.)
Husband and Wife – Legally married man and woman.
Unmarried Head of a Family – An unmarried or legally separated man or woman with one or
both parents, or with one or more brothers or sisters, or with one or more legitimate, recognized
natural or legally adopted children living with and dependent upon him or her for their chief
support, where such brothers or sisters or children are not more than twenty one (21) years of
age, unmarried and not gainfully employed or where such children, brothers or sisters,
regardless of age are incapable of self-support because of mental or physical defect, or any of
the beneficiaries mentioned in Article 154 of the Family Code who is living in the family home
and dependent upon the head of the family for legal support.
The beneficiaries of a family home are:
(1) The husband and wife, or the head of a family; and
(2) Their parents, ascendants, descendants including legally adopted children, brothers and
sisters, whether the relationship be legitimate or illegitimate, who are living in the family
home and who depend upon the head of the family for legal support. (Art. 154, Ibid)
7.2. Conditions for the allowance of family home as deduction from the gross estate:
7.2.1. The family home must be the actual residential home of the decedent and his
family at the time of his death, as certified by the Barangay Captain of the locality
where the family home is situated;
7.2.2. The total value of the family home must be included as part of the gross
estate of the decedent; and
7.2.3. Allowable deduction must be in an amount equivalent to the current fair

market value of the family home as declared or included in the gross estate, or the
extent of the decedent’s interest (whether conjugal/community or exclusive
property), whichever is lower, but not exceeding P10,000,000.
8. Amount received by heirs under Republic Act No. 4917. – Any amount received by the heirs
from the decedent’s 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.
9. Net share of the surviving spouse in the conjugal partnership or community property. – After
deducting the allowable deductions appertaining to the conjugal or community properties
included in the gross estate, the share of the surviving spouse must be removed to ensure that
only the decedent’s interest in the estate is taxed.
(1) In the case of citizens or residents of the Philippines:
(b) Expenses, losses, indebtedness, and taxes consisting of;

i. Actual funeral expenses or five percent (5%) of the gross estate, whichever is
lower, but not exceeding Two Hundred Thousand Pesos (PhP200,000.00);
ii. Judicial expenses of the testamentary or intestate proceedings;
iii. Claims against the estate;
iv. Claims of the deceased against insolvent persons where the value of such claim is
included in the value of the gross estate;
v. Unpaid mortgages in favor of the estate, under certain conditions;
vi. Unpaid taxes; and
vii. Casualty losses.
(c) Value of property previously taxed (estate or donor’s tax), under certain conditions.
(d) Transfers to or for the use of the Philippine Government or any political subdivision
thereof, exclusively for public purposes.
(e) Current fair market value of the decedent’s family home. If the said current fair market
value exceeds One Million Pesos (PhP1,000,000/P10,000,000), the excess shall be
subject to estate tax. Also, said family home must have been the decedent’s family home
as certified by the barangay captain of the locality.
(f) Standard deduction equivalent to One Million Pesos (PhP1,000,000/P5,000,000).
(g) Medical expenses not exceeding Five Hundred Thousand Pesos (PhP500,000.00),
incurred by the decedent within one year prior to his death, duly substantiated with
receipts.
(h) Amount received by heirs under RA 4917 (retirement benefits of employees of private
firms) provided such amount is included in the gross estate of the deceased.
(i) The net share of the surviving spouse in the conjugal partnership property.
(2) In the case of a non-resident not a citizen of the Philippines:
(a) That portion of the funeral expenses, losses and indebtedness, and taxes which the
value of the decedent’s gross estate situated in the Philippines bears to his entire gross
estate wherever situated;
(b) Value of property previously taxed, under certain conditions, if part of decedent’s gross
estate is situated in the Philippines;
(c) Transfers to or for the use of the Philippine Government or any political subdivision
thereof, exclusively for public purposes; and
(d) The net share of the surviving spouse in the conjugal partnership property as diminished
by the obligations properly chargeable to such property.
E. Exemptions
The following shall not be taxed:
(1) The merger of usufruct in the owner of the naked title;

(2) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee
to the fideicommissary;
(3) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in
accordance with the desire of the predecessor; and
(4) All bequests, devises, legacies or transfers to social welfare cultural or charitable
institutions, no part of the net income of which inures to the benefit of any individual,
provided that not more than 30% of said bequests, devises, legacies or transfers shall
be used for administration purposes.
(5) Irrevocable life insurance to someone other than the estate, administrator, or executor;
(6) GSIS/SSS benefits;
(7) Retirement benefits of private firms approved by the BIR; and
(8) Separate property of the surviving spouse.
F. Filing and Payment
SEC. 7. COMPUTATION OF THE NET ESTATE OF A DECEDENT WHO IS A NON-

RESIDENT ALIEN OF THE PHILIPPINES. – The value of the net estate of a decedent who is a
non-resident alien in the Philippines shall be determined by deducting from the value of that part
of his gross estate which at the time of his death is situated in the Philippines the following items
of deductions:
1. Standard deduction. – A deduction in the amount of Five Hundred Thousand Pesos

(P500,000) shall be allowed without need of substantiation. The full amount of P500,000 shall
be allowed as deduction for the benefit of the decedent.
2. The proportion of the total losses and indebtedness which the value of such part bears to the
value of his entire gross estate wherever situated. Losses and indebtedness shall include the
following:
2.1. Claims against the estate.
2.2. Claims of the deceased against insolvent persons where the value of the interest
therein is included in the value of the gross estate.
2.3. Unpaid mortgages, taxes and casualty losses.

The allowable deduction under this subsection shall be computed using the following
formula:
[Phil Gross Estate / World Gross Estate] x [Item No. 2] = Allowable Deduction
3. Property previously taxed.
4. Transfers for public use.
5. Net share of the surviving spouse in the conjugal property or community property.
Unless otherwise provided in this section, the rules for the availment of deductions in the
preceding section shall apply.
SEC. 9. TIME AND PLACE OF FILING ESTATE TAX RETURN AND PAYMENT OF ESTATE
TAX DUE. –
1. Estate Tax Returns. – In all cases of transfers subject to the tax imposed herein, or
regardless of the gross value of the estate, where the said estate consists of registered or
registrable property such as real property, motor vehicle, shares of stock or other similar
property for which a Certificate Authorizing Registration from the Bureau of Internal Revenue is
required as a condition precedent for the transfer of ownership thereof in the name of the
transferee, the executor, or the administrator, or any of the legal heirs, as the case may be, shall
file a return under oath.
Estate tax returns showing a gross value exceeding Five million pesos (P5,000,000) shall be
supported with a statement duly certified to by a certified Public Accountant containing the
following:
1.1 Itemized assets of the decedent with their corresponding gross value at the time of his
death, or in the case of a nonresident, not a citizen of the Philippines, of that part of his
gross estate situated in the Philippines;
1.2. Itemized deductions from gross estate allowed in Section 86; and
1.3. The amount of tax due whether paid or still due and outstanding.
2. Time for filing estate tax return. – For purposes of determining the estate tax, the estate tax
return shall be filed within one (1) year from the decedent’s death. The Court approving the
project of partition shall furnish the Commissioner with a certified copy thereof and its order
within thirty (30) days after promulgation of such order.
3. Extension of time to file estate tax return. – The Commissioner or any Revenue Officer
authorized by him pursuant to the NIRC shall have authority to grant, in meritorious cases, a
reasonable extension, not exceeding thirty (30) days, for filing the return. The application for the
extension of time to file the estate tax return must be filed with the Revenue District Office
(RDO) where the estate is required to secure its Taxpayer Identification Number (TIN) and file
the tax returns of the estate, which RDO, likewise, has jurisdiction over the estate tax return
required to be filed by any party as a result of the distribution of the assets and liabilities of the
decedent.
4. Time for payment of the estate tax. – As a general rule, the estate tax imposed under the
NIRC shall be paid at the time the return is filed by the executor, administrator or the heirs.
5. Extension of time to pay estate tax. – When the Commissioner finds that the payment of the
estate tax or of any part thereof would impose undue hardship upon the estate or any of the
heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5)
years in case the estate is settled through the courts, or two (2) years in case the estate is
settled extrajudicially. In such case, the amount in respect of which the extension is granted
shall be paid on or before the date of the expiration of the period of the extension, and the
running of the statute of limitations for deficiency assessment shall be suspended for the period
of any such extension.
Where the request for extension is by reason of negligence, intentional disregard of rules and
regulations, or fraud on the part of the taxpayer, no extension will be granted by the
Commissioner.
If an extension is granted, the Commissioner or his duly authorized representative may require
the executor, or administrator, or beneficiary, as the case may be, to furnish a bond in such
amount, not exceeding double the amount of the tax and with such sureties as the
Commissioner deems necessary, conditioned upon the payment of the said tax in accordance
with the terms of the extension.
Any amount paid after the statutory due date of the tax, but within the extension period, shall be
subject to interest but not to surcharge.
6. Payment of the estate tax by installment and partial disposition of estate. – In case of
Insufficiency of cash for the immediate payment of the total estate tax due, the estate may be
allowed to pay the estate tax due through the following options, including the corresponding
terms and conditions:
6.1. Cash installment
i. The cash installments shall be made within two (2) years from the date of filing of
the estate tax return;
ii. The estate tax return shall be filed within one year from the date of decedent’s
death;
iii. The frequency (i.e., monthly, quarterly, semi-annually or annually), deadline and
amount of each installment shall be indicated in the estate tax return, subject to
the prior approval by the BIR;
iv. In case of lapse of two years without the payment of the entire tax due, the
remaining balance thereof shall be due and demandable subject to the applicable
penalties and interest reckoned from the prescribed deadline for filing the return
and payment of the estate tax; and
v. No civil penalties or interest may be imposed on estates permitted to pay the
estate tax due by installment. Nothing in this subsection, however, prevents the
Commissioner from executing enforcement action against the estate after the due
date of the estate tax provided that all the applicable laws and required
procedures are followed/observed.
6.2. Partial disposition of estate and application of its proceeds to the estate tax due
i. The disposition, for purposes of this option, shall refer to the conveyance of
property, whether real, personal or intangible property, with the equivalent cash
consideration;
ii. The estate tax return shall be filed within one year from the date of decedent’s
death;
iii. The written request for the partial disposition of estate shall be approved by the
BIR. The said request shall be filed, together with a notarized undertaking that
the proceeds thereof shall be exclusively used for the payment of the total estate
tax due;
iv. The computed estate tax due shall be allocated in proportion to the value of each
property;
v. The estate shall pay to the BIR the proportionate estate tax due of the property
intended to be disposed of;
vi. An electronic Certificate Authorizing Registration (eCAR) shall be issued upon

presentation of the proof of payment of the proportionate estate tax due of the
property intended to be disposed. Accordingly, eCARs shall be issued as many
as there are properties intended to be disposed to cover the total estate tax due,
net of the proportionate estate tax(es) previously paid under this option; and
vii. In case of failure to pay the total estate tax due out from the proceeds of the said
disposition, the estate tax due shall be immediately due and demandable subject
to the applicable penalties and interest reckoned from the prescribed deadline for
filing the return and payment of the estate tax, without prejudice of withholding
the issuance of eCAR(s) on the remaining properties until the payment of the
remaining balance of the estate tax due, including the penalties and interest.
An estate with insufficient cash is allowed to pay the estate tax due by installment within two
years from the statutory date for its payment without civil penalty and interest
7. Request for Extension of Time, Installment Payment and Partial Disposition of Estate. – For
purposes of these Regulations, the request for extension of time to file the return, extension of
time to pay estate tax and payment by installment shall be filed with the Revenue District Officer
(RDO) where the estate is required to secure its TIN and file the estate tax return. This request
shall be approved by the Commissioner or his duly authorized representative.
8. Place of filing the return and payment of the tax. – In case of a resident decedent, the
administrator or executor shall register the estate of the decedent and secure a new TIN
therefor from the Revenue District Office where the decedent was domiciled at the time of his
death and shall file the estate tax return and pay the corresponding estate tax with the
Accredited Agent Bank (AAB), Revenue District Officer or Revenue Collection Officer having
jurisdiction on the place where the decedent was domiciled at the time of his death, whichever is
applicable, following prevailing collection rules and procedures.
In case of a non-resident decedent, whether non-resident citizen or non-resident alien, with

executor or administrator in the Philippines, the estate tax return shall be filed with and the TIN
for the estate shall be secured from the Revenue District Office where such executor or
administrator is registered: Provided, however, that in case the executor or administrator is not
registered, the estate tax return shall be filed with and the TIN of the estate shall be secured
from the Revenue District Office having jurisdiction over the executor or administrator’s legal
residence. Nonetheless, in case the non-resident decedent does not have an executor or
administrator in the Philippines, the estate tax return shall be filed with and the TIN for the
estate shall be secured from the Office of the Commissioner through RDO No. 39-South
Quezon City.
The foregoing provisions notwithstanding, the Commissioner of Internal Revenue may continue
to exercise his power to allow a different venue/place in the filing of tax returns.
9. Liability for payment. – The estate tax imposed under the NIRC 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 eCAR pertaining to such estate 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. 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.
SEC. 10. PAYMENT OF TAX ANTECEDENT TO THE TRANSFER OF SHARES, BONDS OR

RIGHTS AND BANK DEPOSITS WITHDRAWAL. – There shall not be transferred to any new
owner in the books of any corporation, sociedad anonima, partnership, business, or industry
organized or established in the Philippines any share, obligation, bond or right by way of gift
inter vivos or mortis causa, legacy or inheritance, unless an eCAR is issued by the
Commissioner or his duly authorized representative.
If a bank has knowledge of the death of a person, who maintained a bank deposit account
alone, or jointly with another, it shall allow the withdrawal from the said deposit account, subject
to a final withholding tax of six percent (6%) of the amount to be withdrawn, provided that the
withdrawal shall only be made within one year from the date of the decedent. The bank is
required to file the prescribed quarterly return on the final tax withheld on or before the last day
of the month following the close of the quarter during which the withholding was made. The
bank shall issue the corresponding BIR Form No. 2306 certifying such withholding. In all cases,
the final tax withheld shall not be refunded, or credited on the tax due on the net taxable estate
of the decedent.
The executor, administrator, or any of the legal heirs, withdrawing from the deposit account shall
provide the bank where such withdrawal shall be made, with the TIN of the estate of the
decedent. For this purpose, the bank shall require prior to such withdrawal, the presentation of
BIR Form No. 1904 of the estate, duly stamped received by the BIR,. Further, all withdrawal
slips shall contain the following terms and conditions: (a) a sworn statement by any one of the
joint depositors to the effect that all of the joint depositors are still living at the time of
withdrawal; and, (b) a statement that the withdrawal is subject to the final withholding tax of 6%.
In instances where the bank deposit accounts have been duly included in the gross estate of the
decedent and the estate tax due thereon paid, the executor, administrator, or any of the legal
heirs shall present the eCAR issued for the said estate prior to withdrawing from the bank
deposit account. Such withdrawal shall no longer be subject to the withholding tax imposed
under this section.
G. Amendments under TRAIN
On top of the policy to reduce estate tax, the procedures for settling estate tax have been
streamlined, namely: (i) collating documents to comply with Revenue Regulation 2-2003 for
funeral, judicial, and medical expenses is unnecessary, as these expenses were removed; (ii)
filing of estate tax return can be done within one year, instead of six months, from death; (iii)
filing of notice of death is no longer mandated; (iv) supporting the estate tax returns with a
statement duly certified by a Certified Public Accountant is only required for returns with gross
value exceeding P5 million instead of P2 million; (v) paying the estate tax due can be made in
two years installment without civil penalty and interest; and (vi) withdrawing the deceased
individual’s bank deposit is now allowed by paying a 6% final withholding tax.
Amendment of the Estate Tax Rate
Section 22 of the TRAIN law amends Section 84 of the Tax Code, which provides for the estate-
tax rate. Previously, a tax based on the value of the net estate of the decedent, whether resident
or non-resident of the Philippines, was computed based on a tax schedule where an estate
worth P200,000 and over was taxed from 5 percent to 20 percent. Under the TRAIN law, it will
now be subject to a flat rate of 6 percent.
Amendments on Estate Tax Deductions
Section 23 of the TRAIN law amends Section 86 of the Tax Code, which provides for the
computation of the net estate or, effectively, the deductions allowed to the gross estate of an
individual.
The TRAIN law removes funeral expenses, judicial expenses and medical expenses as
allowable deductions.
Instead, the law increases the Standard Deduction to P5 million, which previously only
amounted to P1 million. Only available to citizens (resident or non-resident) and resident aliens,
TRAIN law now provides that non-resident aliens can avail themselves of a standard deduction,
although only up to P500,000.
Another TRAIN law significant change from the old tax rule is that now, family homes that are
worth up to P10 million will be exempted from estate tax. Previously, only family homes worth
P1 million are exempted.
Amendments on the Procedure for Estate Tax Settlement
A. Repeal of Filing of Notice of Death provision
Section 24 of the TRAIN law repeals Section 89 of the Tax Code. The repealed provision
provides for when a notice of death should be filed and the period to file the same. Sec. 89
Written notice of death required for gross estates exceeding PHP20,000
B. Amendment on Filing of Estate Tax Return
Section 25 of the TRAIN law amends Section 90 of the Tax Code, which provides for the
procedural requirements for the estate-tax return.
The TRAIN law requires that estate-tax returns showing a gross value exceeding P5 million
must be certified by a certified public accountant. This is P3 million higher than the old tax rule,
which only required CPA certifications for estate-tax returns that exceed a gross value of P2
million. The TRAIN law has also increased the period for filing of estate-tax returns from (6) six
months from the decedent’s death to (1) one year.
The TRAIN law deleted the provision that requires the executor, administrator, or anyone of the
heirs to include in the estate tax return that part of the non-resident alien’s gross estate not
situated in the Philippines to be able to claim deductions.
C. Amendment of Payment of Estate Tax by Installment
Section 26 of the TRAIN law amends Section 91(c) of the Tax Code, which provides for the
payment of estate tax by installment.
Under the TRAIN law, payment by installment has been particularly simplified. However, the law
has provided for an implied limitation of two years for the payment of the full estate-tax liability,
which was previously not contained in the old tax rule.
Amendment on Withdrawals from Deceased’s Bank Account
Section 27 of TRAIN Law amends Section 97 of the Tax Code, which concerns allowable
withdrawals from the deceased person’s account.
Under the old Tax Rule, only withdrawals up to P20,000 are allowed. The administrator of the
estate or any one of the heirs may, when authorized by the commissioner, withdraw an amount
not exceeding P20,000. However, the Train Law has increased allowable withdrawals from the
deceased person’s account to any amount, subject to a 6-percent final withholding tax.
The amendments on estate taxes were enacted with the end in view of enticing the heirs to
declare the real value of their deceased kin’s estate and to pay the proper estate tax. Filing
requirements have also been made simpler and filer-friendly. It remains to be seen whether
collection of estate taxes will improve.
H. Life Insurance
Under Section 85(E) of the National Internal Revenue Code, proceeds from life insurance shall
be included in the computation of the gross estate of the deceased when the beneficiary is the
estate, executor or administrator, whether the designation is revocable or irrevocable, and when
the beneficiary is other than the estate, executor or administrator and the designation is
revocable. These are the only two instances when life insurance proceeds are subject to estate
tax.
If the policy does not expressly say that the designation of the beneficiary is irrevocable, then it
is presumed to be revocable. However, if the beneficiary was never replaced during the lifetime
of the insured, then the designation shall be deemed irrevocable (Section 11 of the Insurance
Code), and therefore tax-exempt.
On the other hand, the proceeds from the life insurance shall not be included in the computation
of the gross estate when the beneficiary is other than the estate, executor or administrator, and
the designation is “expressly stipulated” to be irrevocable. In this instance, it becomes tax-free.
It is the only instance when life insurance proceeds are exempt from estate tax.
Life Insurance in Income Taxation: Generally, life insurance proceeds you receive as a
beneficiary due to the death of the insured person, aren't includable in gross income and you
don't have to report them. However, any interest you receive is taxable and you should report it
as interest received.
I. Computation
SEC. 8. PROPER PRESENTATION OF FAMILY HOME AND STANDARD DEDUCTION AS
DEDUCTIONS FROM THE GROSS ESTATE. – Illustrative examples to properly present the
manner of deducting family home, standard deduction, and other allowable deduction from the
gross estate in accordance with the provisions of the NIRC.
Illustrations:
(1) Decedent is unmarried, family home more than P10,000,000:

Real and Personal Property P14,000,000
Family Home P30,000,000
Gross Estate P44,000,000
Less: Deductions
Ordinary Deductions
Unpaid Real Estate P2,000,000
Special Deductions
Standard Deduction P5,000,000
Total Deducations P17,000,000
NET TAXABLE ESTATE P27,000,000

Although the family home is valued at P30 million, the maximum allowable deduction for the
family home is P10 million only.
(2) Decedent is married, the family home is conjugal property, more than P10,000,000:
Exclusive Conjugal Total
Conjugal Properties:
Family Home P30,000,000 P30,000,000
Real and Personal Properties P14,000,000 P14,000,000
Exclusive Properties P5,000,000 P5,000,000
Gross Estate P5,000,000 P44,000,000 P49,000,000
Less:
Ordinary Deductions
Conjugal Ordinary Deductions P2,000,000 P2,000,000
Net Conjugal Estate P42,000,000
Special Deductions
Total Deduction P17,000,000
Net Estate P32,000,000

Less:1/2 Share of Surviving P21,000,000
Spouse
Spouse
Conjugal Property P44,000,000
Conjugal Deduction P2,000,000
Net Conjugal Estate
P42,000,000 (P42/2)
(3) Decedent is married, the family home exclusive property, more than P10,000,000:
Conjugal Properties
Real and Personal properties P14,000,000 P14,000,000
Exclusive Properties
Family Home P30,000,000 P30,000,000
Gross Estate P30,000,000 P14,000,000 P44,000,000
Less:
Ordinary Deduction
Conjugal Ordinary Deduction P2,000,000 P2,000,000
Special Deduction

Less: ½ Share of Surviving P6,000,000
Spouse
Spouse
Conjugal Deduction P2,000,000
Net Conjugal Estate
P12,000,000 (P12M/2)
(4) Decedent is an unmarried, the family home is below P10,000,000:

Real and Personal properties P14,000,000
Gross Estate P23,000,000
Less: Deductions
Ordinary Deductions P2,000,000
Special Deductions P14,000,000
Total Deductions P16,000,000
(5) Decedent is married, the family home is conjugal property and is below P10,000,000:
Conjugal Properties:
Family Home P9,000,000 P9,000,000
Real and Personal Properties P14,000,000 P14,000,000
Exclusive Properties P5,000,000 P5,000,000
Gross Estate P5,000,000 P23,000,000 P28,000,000
Less:
Ordinary Deductions
Special Deductions

Less: ½ Share of Surviving P10,500,00
Spouse
Spouse
Conjugal Deductions
P2,000,000
Net Conjugal Estate
P21,000,000 (P21M/2)
(6) Decedent is married, the family home exclusive property and below P10,000,000:
Conjugal Properties
Real and Personal Properties P14,000,000 14,000,000
Exclusive Properties
Family Home P9,000,000 P9,000,000
Gross Estate P9,000,000 P14,000,000 P23,000,000
Less:
Ordinary Deductions
Special Deductions
Standard Deductions P5,000,000
Total Deductions P16,000,000

Less: ½ Share of Surviving
Spouse
Conjugal Deductions
P2,000,000
Net Conjugal Estate
P12,000,000 (P12M/2)
DONOR’S TAX
A. Concept
The donor’s tax is imposed on the transfer by any person, resident or nonresident, of property
by gift. The taxable base is the fair market value of the total net gifts made by a donor during the
calendar year. “Gifts” include real and personal property, whether tangible or intangible, or
mixed wherever situated. In case of a nonresident alien, his real and personal property so
transferred but which are situated outside the Philippines are not included as part of the gross
gift.
Donor’s tax is imposed upon any person, natural or juridical, resident or non-resident, who
transfers or causes to transfer by gift or donation, whether direct or indirect, in trust or
otherwise, real, personal, tangible or intangible property.
Donor’s tax in the Philippines is imposed upon gratuitous transfers of property from one person
to another during their lifetime. Gratuitous means that the property is transferred free of charge
or that the donee (the recipient) does not pay for it in receiving the property from the donor (the
giver). One cited reason for the imposition of donor’s tax in the Philippines is to mitigate the gap
between the rich and the poor so that the amount that the more able one’s will give or donate
will be lessened by the donor’s tax imposed.
A donation need not be explicit to be taxable. Section 100 of the Tax Code of the Philippines
imposes a tax on transfers for insufficient consideration. This means that if you sell a property
for a price much lower than the market value of that property or a similar property, donor’s tax in
the Philippines will apply. This may happen to parties making unrealistic sales or transfers of
property making it appear to be a sale for an insufficient selling price or consideration to avoid
donor’s tax in the Philippines or death taxes – estate tax in the Philippines.
To be taxable, a donation or transfer must be validly made to produce the legal effects of a
transfer of title. Validity of donation or transfer would depend on the capacity of the parties to
make a valid donation to transfer, and the formalities of the deed of donation or deed of transfer.
Void donations are not subject to donor’s tax because it does not transfer the title of the
property, thus, no gratuitous transfer.
In donor’s tax in the Philippines, it is the donor or giver who is bound to pay the tax and not the
donor. The agreement in the deed of donation that the donee or recipient of the property will be
the one to pay the donor’s tax is not binding with respect to the tax authority – Bureau of Internal
Revenue (BIR). It is but logical to make the donor liable because if it has the means to donate a
property free of charge, then, it reasonably follows that it is capable of paying the tax.
The following are considered situated in the Philippines and includible as gifts:
(1) Franchise which must be exercised in the Philippines;
(2) Shares, obligations or bonds issued by any corporation or sociedad anonima organized
or constituted in the Philippines;
(3) Shares, obligations or bonds by any foreign corporation 85% of the business of which
is located in the Philippines;
(4) Shares, obligations, or bonds issued by any foreign corporation if such shares,
obligations, or bonds have acquired a business situs in the Philippines; and
(5) Shares or rights in any partnership, business or industry established in the Philippines,
which are to be considered as situated in the Philippines.
The following are the requisites of a donation for purposes of the donor’s tax:
(1) Capacity of the donor;
(2) Donative intent, or an intent of the donor to make a gift;
(3) Delivery, whether actual or constructive, of the subject matter of the gift; and
(4) Acceptance of the gift by the donee.
SEC. 12. THE LAW THAT GOVERNS THE IMPOSITION OF DONOR’S TAX. – The donor’s
tax is not a property tax, but is a tax imposed on the transfer of property by way of gift inter
vivos. (Lladoc vs. Commissioner of Internal Revenue, L-19201, June 16, 1965; 14 SCRA, 292).
The donor’s tax shall not apply unless and until there is a completed gift. The transfer of
property by gift is perfected from the moment the donor knows of the acceptance by the donee;
it is completed by the delivery, either actually or constructively, of the donated property to the
donee. Thus, the law in force at the time of the perfection/completion of the donation shall
govern the imposition of the donor’s tax.
In order that the donation of an immovable may be valid, it must be made in a public document
specifying therein the property donated. The acceptance may be made in the same Deed of
Donation or in a separate public document, but it shall not take effect unless it is done during
the lifetime of the donor. If the acceptance is made in a separate instrument, the donor shall be
notified thereof in an authentic form, and this step shall be noted in both instruments.
A gift that is incomplete because of reserved powers, becomes complete when either:
(1) the donor renounces the power; or

(2) His right to exercise the reserved power ceases because of the happening of some
event or contingency or the fulfilment of some condition, other than because of the
donor’s death.
Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute
community after the dissolution of the marriage in favor of the heirs of the deceased spouse or
any other person/s is subject to donor’s tax whereas general renunciation by an heir, including
the surviving spouse, of his/her share in the hereditary estate left by the decedent is not subject
to donor’s tax, unless specifically and categorically done in favor of identified heir/s to the
exclusion or disadvantage of the other co-heirs in the hereditary estate.
Where property, other than a real property that has been subjected to the final capital gains tax,
is transferred for less than an adequate and full consideration in money or money’s worth, then
the amount by which the fair market value of the property at the time of the execution of the
Contract to Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell
exceeded the value of the agreed or actual consideration or selling price shall be deemed a gift,
and shall be included in computing the amount of gifts made during the calendar year.
The law in force at the time of the completion of the donation shall govern the imposition of
donor’s tax.
For purposes of the donor’s 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. 13. VALUATION OF GIFTS MADE IN PROPERTY. – The valuation of gifts in the form of
property shall follow the rules set forth in Section 6 of this regulations: Provided, That the
reckoning point for valuation shall be the date when the donation is made.
The fair market value of the property donated/given at the time of the donation shall be the
value of the gross gift.
B. Tax Rates
Net Gift Bracket

Tax Rate Tax Base Tax Rate
Over But not Over
Total Gift not exceeding
P100,000 Exempt Exempt
P250,000
P100,000 P200,000 2% of excess over P100,000
P200,000 P500,000 P2,000 + 4% of excess of P200,000
P500,000 P1,000,000 P14,000 + 6% of excess of P500,000 Versu
P1,000,000 P3,000,000 P44,000 + 8% of excess of s
P1,000,000 In excess of
P3,000,000 P5,000,000 P204,000 + 10% of excess of 6%
P3,000,000 P250,000
P5,000,000 P10,000,000 P404,000 + 12% of excess of
P5,000,000
P10,000,000 P1,004,000 + 15% of excess of
P10,000,000
C. Gross Gifts
SEC. 104. Definitions. - For purposes of this Title, the terms 'gross estate' and 'gifts' include
real and personal property, whether tangible or intangible, or mixed, wherever situated:
Provided, however, That where the decedent or donor was a nonresident alien at the time of his
death or donation, as the case may be, his real and personal property so transferred but which
are situated outside the Philippines shall not be included as part of his 'gross estate' or 'gross
gift': Provided, further, That franchise which must be exercised in the Philippines; shares,
obligations or bonds issued by any corporation or sociedad anonima organized or constituted in
the Philippines in accordance with its laws; shares, obligations or bonds by any foreign
corporation eighty-five percent (85%) of the business of which is located in the Philippines;
shares, obligations or bonds issued by any foreign corporation if such shares, obligations or
bonds have acquired a business situs in the Philippines; shares or rights in any partnership,
business or industry established in the Philippines, shall be considered as situated in the
Philippines: Provided, still further, that no tax shall be collected under this Title in respect of
intangible personal property:
(a) if the decedent at the time of his death or the donor at the time of the donation was a citizen
and resident of a foreign country which at the time of his death or donation did not impose a
transfer tax of any character, in respect of intangible personal property of citizens of the
Philippines not residing in that foreign country, or
(b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at
the time of his death or donation allows a similar exemption from transfer or death taxes of
every character or description in respect of intangible personal property owned by citizens of the
Philippines not residing in that foreign country.
The term 'deficiency' means:
(a) the amount by which tax imposed by this Chapter exceeds the amount shown as the tax by
the donor upon his return; but the amount so shown on the return shall first be increased by the
amount previously assessed (or Collected without assessment) as a deficiency, and decreased
by the amounts previously abated, refunded or otherwise repaid in respect of such tax, or
(b) if no amount is shown as the tax by the donor, then the amount by which the tax exceeds the
amounts previously assessed, (or collected without assessment) as a deficiency, but such
amounts previously assessed, or collected without assessment, shall first be decreased by the
amount previously abated, refunded or otherwise repaid in respect of such tax.
Two kinds of donors
1. The resident or citizen of the Philippines, and

2. The non-resident, not citizen of the Philippines
If the donor is a resident or a citizen of the Philippines, gross gifts consist of:
1. Real estate, regardless of location
2. Tangible personal property, regardless of location
3. Intangible personal property, regardless of location
If the donor is a non-resident, not citizen of the Philippines, gross gifts would consist of:
1. Real estate located in the Philippines;
2. Tangible personal property located in the Philippines;
3. Intangible personal property located in the Philippines, subject to Reciprocity Clause
D. Exemptions
SEC. 101. Exemption of Certain Gifts. - The following gifts or donations shall be exempt from
the tax provided for in this Chapter:
(A) In the Case of Gifts Made by a Resident. -
(1) Dowries or gifts made on account of marriage and 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 Ten thousand pesos (P10,000):
(2) 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; and
(3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, accredited nongovernment organization, trust or philanthropic
organization or research institution or organization: Provided, however, That not more
than thirty percent (30%) of said gifts shall be used by such donee for administration
purposes. For the purpose of this exemption, a 'non-profit educational and/or charitable
organization and/or research institution or organization' is a school, college or university
and/or charitable corporation, accredited nongovernment organization, trust or
philanthropic organization and/or research institution or organization, incorporated as a
non-stock entity, paying no dividends, governed by trustees who receive no
compensation, and devoting all its income, whether students' fees or gifts, donation,
subsidies or other forms of philanthropy, to the accomplishment and promotion of the
purposes enumerated in its Articles of Incorporation.
(B) In the Case of Gifts Made by a Nonresident not a Citizen of the Philippines. -
(1) 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.
(2) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, foundation, trust or philanthropic organization or research
institution or organization:Provided, however, That not more than thirty percent (30%) of
said gifts shall be used by such donee for administration purposes.
The following gifts or donations are exempt from the donor’s tax, under certain conditions:
(1) In case of gifts made by a resident of the Philippines:
(a) Dowries or gifts made on account of marriage and before its celebration or within
one year thereafter by the parents to each legitimate, recognized, natural, or
adopted children to the extent of the first PhP10,000.00;
(b) 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 of its political subdivisions;
and
(c) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, accredited non-government organization, trust or
philanthropic organization or research institution or organization provided that not
more than 30% of said gifts shall be used by such donee for administrative
purposes.
(2) In case of gifts made by a non-resident alien of the Philippines:
(a) 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 of its political subdivisions;
and
(b) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, foundation, trust or philanthropic organization or research
institution or organization, provided that not more than 30% of said gifts shall be
used by the recipient for administrative purposes.
SEC. 17. EXEMPTION OF CERTAIN GIFTS. (under TRAIN) – The following are exempt from
the donor’s tax:
1. 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; and
2. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
organization or research institution or organization: Provided, however, That not more than thirty
percent (30%) of said gifts shall be used by such donee for administration purposes. For the
purpose of this exemption, a ‘non-profit educational and/or charitable corporation, institution,
accredited nongovernment organization, trust or philanthropic organization and/or research
institution or organization’ is a school, college or university and/or charitable corporation,
accredited nongovernment organization, trust or philanthropic organization and/or research
institution or organization, incorporated as a non-stock entity, paying no dividends, governed by
trustees who receive no compensation, and devoting all its income, whether students’ fees or
gifts, donation, subsidies or other forms of philanthropy, to the accomplishment and promotion
of the purposes enumerated in its Articles of Incorporation.
Exemptions under Special Laws
 Gifts and donations to the UP. (RA 9500)

 Contributions to the National Book Trust Fund is exempt. (RA 9521)
 Donations to qualified foster care agencies. (RA 10165)
 Contributions to candidates or political parties duly reported to the BIR. (RA 7166)
E. Inclusion
Cancellation of Indebtedness
If a creditor desires to benefit a debtor, and without any consideration therefore, cancels the
debt (and the debtor “accepts”), the amount of the debt is a donation by the creditor to the
debtor.
Transfer for Insufficient Consideration
SEC. 100. Transfer for Less Than Adequate and Full Consideration. - Where property, other
than real property referred to in Section 24(D), is transferred for less than an adequate and full
consideration in money or money's worth, then the amount by which the fair market value of the
property exceeded the value of the consideration shall, for the purpose of the tax imposed by
this Chapter, be deemed a gift, and shall be included in computing the amount of gifts made
during the calendar year.
SEC. 16. TRANSFER FOR LESS THAN ADEQUATE AND FULL CONSIDERATION. – Where
property, other than real property referred to in Section 24(D), is transferred for less than an
adequate and full consideration in money or money’s worth, then the amount by which the fair
market value of the property exceeded the value of the consideration shall, for the purpose of
the tax imposed by this Chapter, be deemed a gift, and shall be included in computing the
amount of gifts made during the calendar year: Provided, however, that a sale, exchange, or
other transfer of property made in the ordinary course of business (a transaction which is a bona
fide, at arm’s length, and free from any donative intent) will be considered as made for an
adequate and full consideration in money or money’s worth.
F. Amendments under TRAIN law

With the dawn of Tax Reform for Acceleration and Inclusion (TRAIN) Law, the provisions
regarding Donor’s Tax under the Tax Code became simpler and less arduous. The salient
changes in the provisions on Donor’s Tax are as follows: (1) the concept of “stranger” was
removed; (2) the schedular rates were replaced by a uniform rate of six percent; (3) the
inclusion of an annual exemption worth P250,000; (4) the addition of a presumption with regard
to sale, exchange or other transfer of property made in the ordinary course of business; and (5)
the removal of “dowries or gifts made on account of marriage” as part of those exempt gifts.
The TRAIN Law amended Section 99 of the Tax Code and removed the distinction between a
“general taxpayer” and a stranger. It further provided for a uniform Donor’s Tax rate of 6 percent
computed on the basis of the total gifts in excess of P250,000 exempt gift made during the
calendar year. This annual exemption amounting to P250,000 is a new item in the computation
of the net taxable gifts for the calendar year. The TRAIN Law also removed, from the list of the
exempt gifts made by a resident, the provision on “dowries or gifts made on account of marriage
and 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.”
Interestingly, the TRAIN Law introduced a presumption with regard to “Transfers for Less Than
Adequate and Full Consideration.” Section 100 of the Tax Code was amended to provide that “a
sale, exchange or other transfer of property made in the ordinary course of business (a
transaction that is a bona fide, at arm’s length and free from any donative intent), will be
considered as made for an adequate and full consideration in money or money’s worth. This
provision bolsters a taxpayer’s position to exclude from donor’s tax those transactions that were
entered at arm’s length despite a disparity between the market value of the property and its
transfer price/value.
G. Filing & Payment – Donor’s Tax
SEC. 103. Filing of Return and Payment of Tax. (NIRC) -
(A) Requirements. - any individual who makes any transfer by gift (except those which, under
Section 101, are exempt from the tax provided for in this Chapter) shall, for the purpose of the
said tax, make a return under oath in duplicate. The return shall set forth:
(1) Each gift made during the calendar year which is to be included in computing net gifts;
(2) The deductions claimed and allowable;
(3) Any previous net gifts made during the same calendar year;
(4) The name of the donee; and
(5) Such further information as may be required by rules and regulations made pursuant to law.
(B) Time and Place of Filing and Payment - The return of the donor required in this Section shall
be filed within thirty (30) days after the date the gift is made and the tax due thereon shall be
paid at the time of filing. Except in cases where the Commissioner otherwise permits, the return
shall be filed and the tax paid to an authorized agent bank, the Revenue District Officer,
Revenue Collection Officer or duly authorized Treasurer of the city or municipality where the
donor was domiciled at the time of the transfer, or if there be no legal residence in the
Philippines, with the Office of the Commissioner. In the case of gifts made by a nonresident, the
return may be filed with the Philippine Embassy or Consulate in the country where he is
domiciled at the time of the transfer, or directly with the Office of the Commissioner.
SEC. 15. FILING OF RETURNS AND PAYMENT OF DONOR’S TAX. (TRAIN law) –
(A) Requirements. – Any person making a donation (whether direct or indirect), unless the
donation is specifically exempt under the NIRC or other special laws, is required, for every
donation, to accomplish under oath a donor’s tax return in duplicate. The return shall set forth:
1. Each gift made during the calendar year which is to be included in gifts;
2. The deductions claimed and allowable;
3. Any previous net gifts made during the same calendar year;
4. The name of the donee; and
5. Such further information as the Commissioner may require.
(B) Time and place of filing and payment. – The donor’s tax return shall be filed within thirty (30)
days after the date the gift is made or completed and the tax due thereon shall be paid at the
same time that the return is filed. Unless the Commissioner otherwise permits, the return shall
be filed and the tax paid to an AAB, the Revenue District Officer and Revenue Collection Officer
having jurisdiction over the place where the donor is domiciled at the time of the transfer, or if
there be no legal residence in the Philippines, with the Office of the Commissioner. In the case
of gifts made by a non-resident, the return may be filed with the Philippine Embassy or
Consulate in the country where he is domiciled at the time of the transfer, or directly with the
Office of the Commissioner. For this purpose, the term “OFFICE OF THE COMMISSIONER”
shall refer to the Revenue District Office (RDO) having jurisdiction over the BIR-National Office
Building which houses the Office of the Commissioner, or presently, to the Revenue District
Office No. 39-South Quezon City.
(C) Notice of donation by a donor engaged in business. – In order to be exempt from donor’s tax
and to claim full deduction of the donation given to qualified-donee institutions duly accredited,
the donor engaged in business shall give a notice of donation on every donation worth at least
Fifty Thousand Pesos (P50,000) to the Revenue District Office (RDO) which has jurisdiction
over his place of business within thirty (30) days after receipt of the qualified donee institution’s
duly issued Certificate of Donation, which shall be attached to the said Notice of Donation,
stating that not more than thirty percent (30%) of the said donation/gifts for the taxable year
shall be used by such accredited non-stock, non-profit corporation/NGO institution (qualified-
donee institution) for administration purposes pursuant to the provisions of Section 101(A)(3)
and (B)(2) of the NIRC.
H. Donor’s Tax Credit
(C)Tax Credit for Donor's Taxes Paid to a Foreign Country. -
(1) 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.
(2) Limitations on Credit. - The amount of the credit taken under this Section shall be
subject to each of the following limitations:
(a) 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
(b) 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.
Only resident or citizen donors are allowed donor’s tax credit. Why? Because they are the only
ones taxed worldwide. A non-resident non-citizen is not taxed for his donations in foreign
jurisdictions.
For a foreigner’s donor’s tax paid to foreign country, a credit is allowed to reduce the Philippines
donor’s tax to pay, under the formula:
Foreign donor’s tax paid =
Limit:
Net foreign gifts x Philippine Donor’s Tax =

Net Gifts, worldwide
I. Computation
SEC. 14. COMPUTATION OF THE DONOR’S TAX. – Donations shall be subject to donor’s tax
applicable when the donations are made. Hence, for donor’s tax purposes, donations made
before January 1, 1998 shall be subject to the donor’s tax computed on the basis of the old
rates imposed under Section 92 of the National Internal Revenue Code of 1977 (R.A. No. 7499),
while donations made on or after January 1, 1998 until December 31, 2017 shall be subject to
the donor’s tax computed in accordance with the amended schedule of rates prescribed under
Section 99 of the National Internal Revenue Code of 1997 (R.A. No. 8424), implemented by RR
No. 2-2003, as amended. Only donations made on or after January 1, 2018 shall be subject to
the donor’s tax rate provided under the TRAIN Law as implemented by these Regulations.
The computation of the donor’s tax is on a cumulative basis over a period of one calendar year.
Husband and wife are considered as separate and distinct taxpayer’s for purposes of the
donor’s tax. However, if what was donated is a conjugal or community property and only the
husband signed the deed of donation, there is only one donor for donor’s tax purposes, without
prejudice to the right of the wife to question the validity of the donation without her consent
pursuant to the pertinent provisions of the Civil Code of the Philippines and the Family Code of
the Philippines.
Illustration:
Donations were made on January 30, 2018 at P2,000,000; on March 30, 2018 at P1,000,000;
and August 15, 2018 at P500,000.
How much is the donor’s tax due on these donations?
Date of Donation Amount Donor’s Tax
1. January 30, 2018 P2,000,000
January 30, 2018 Donation P2,000,000
Less: Exempt Gift P250,000
Tax Due / Payment on the January P1,750,000 P105,000
Donation
2. March 30, 2018 P1,000,000

March 30, 2018 donation P1,000,000
Add: January 30, 2018 donation P2,000,000
Total P2,750,000
Tax Due Thereon P165,000

Less: Tax due / Paid on January P105,000
donation
Tax due / Payable on March Donation P60,000
3. August 15, 2018 P500,000

August 15, 2018 P500,000
Add: January 2018 donation P2,000,000
Add: March 2018 donation P1,000,000
Total P3,250,000
Tax Due Thereon P195,000

Less: Tax due / paid on Jan/Mar P165,000
donation
Tax Due / Payable on the August P30,000
Donation
BUSINESS TAXATION
(VAT, Percentage, Excise)
VALUE ADDED TAXES
A. Concept
Value-Added Tax (VAT) is a form of sales tax. It is a tax on consumption levied on the sale,
barter, exchange or lease of goods or properties and services in the Philippines and on
importation of goods into the Philippines. It is an indirect tax, which may be shifted or passed on
to the buyer, transferee or lessee of goods, properties or services.
OUTPUT TAX
Output tax means the VAT due on the sale, lease or exchange of taxable goods or properties or
services by any person registered or required to register under Section 236 of the Tax Code.
INPUT TAX
Input tax means the VAT due on or paid by a VAT-registered on importation of goods or local
purchase of goods, properties or services, including lease or use of property in the course of his
trade or business. It shall also include the transitional input tax determined in accordance with
Section 111 of the Tax Code, presumptive input tax and deferred input tax from previous period.
Who are Required to File VAT Returns?
Any person or entity who, in the course of his trade or business, sells, barters, exchanges,
leases goods or properties and renders services subject to VAT, if the aggregate amount of
actual gross sales or receipts exceed Three Million Pesos (Php3,000,000.00)
 A person required to register as VAT taxpayer but failed to register
 Any person, whether or not made in the course of his trade or business, who imports
goods
Liability of a taxpayer becoming liable to VAT and did not register as such.
Any person who becomes liable to VAT and fails to register as such shall be liable to pay the
output tax as if he is a VAT-registered person, but without the benefit of input tax credits for the
period in which he was not properly registered.
Who may opt to register as VAT and what will be his liability?
a) Any person who is VAT-exempt under Sec. 109 of the Tax Code, as amended, may, in
relation to Sec. 109 (2) of the same Code, elect to be VAT-registered by registering with
the RDO that has jurisdiction over the head office of that person, and pay the annual
registration fee of P500.00 for every separate and distinct establishment.
b) Any person who is VAT-registered but enters into transactions which are exempt from
VAT (mixed transactions) may opt that the VAT apply to his transactions which would
have been exempt under Section 109 of the Tax Code, as amended.
c) Franchise grantees of radio and/or television broadcasting whose annual gross receipts
of the preceding year do not exceed ten million pesos (P10,000,000.00) derived from the
business covered by the law granting the franchise may opt for VAT registration. This
option, once exercised, shall be irrevocable. (Sec. 119, Tax Code).
d) Any person who elects to register under optional registration shall not be allowed to
cancel his registration for the next three (3) years.
The above-stated taxpayers may apply for VAT registration not later than ten (10) days before
the beginning of the calendar quarter and shall pay the registration fee unless they have already
paid at the beginning of the year. In any case, the Commissioner of Internal Revenue may, for
administrative reason deny any application for registration. Once registered as a VAT person,
the taxpayer shall be liable to output tax and be entitled to input tax credit beginning on the first
day of the month following registration.
Introduction of TRAIN
TRAIN aims to clean up the VAT system to make it fairer and simpler and lower the cost of
compliance for both the taxpayers and tax administrators. This is achieved by limiting VAT
exemptions to necessities such as raw agriculture food, education, and health. This does not
mean that the benefits the poor rightly deserve will be removed. The Duterte administration
commits to use the budget to provide targeted transfers and programs that are more transparent
and accountable. The administration will direct the way to protect the poor and vulnerable
compared to the tax exemptions and blind subsidies that are inefficient and largely beneficial to
the rich since they have higher purchasing power.
TRAIN repeals 54 out of 61 special laws with non-essential VAT exemptions, thereby making
the system fairer. Purchases of senior citizens and persons with disabilities, however, will
continue to be exempt from VAT. Housing that cost below P2 million will be exempt from VAT
beginning 2021, while medicines for diabetes, high cholesterol, and hypertension will be exempt
beginning 2019.
The reform also aims to limit the VAT zero-rating to direct exporters who actually export goods
out of the country. This will be implemented together with an enhanced VAT refund system that
will provide timely cash refunds to exporters.
The VAT threshold is increased from P1.9 million to P3 million to protect the poor and low-
income Filipinos and small and micro businesses and for manageable administration. This
effectively exempts the sale of goods and services of marginal establishments from VAT. Under
TRAIN, VAT exempt taxpayers will have the following options:
 PIT schedule with 40% OSD on gross receipts or gross sales plus 3% percentage tax
 PIT schedule with itemized deductions plus 3% percentage tax, or
 Flat tax of 8% on gross sales or gross revenues in lieu of percentage tax and personal
income tax.
B. Tax Rates
Value-Added Tax Rates
On sale of goods and properties - twelve percent (12%) of the gross selling price or gross value
in money of the goods or properties sold, bartered or exchanged
On sale of services and use or lease of properties - twelve percent (12%) of gross receipts
derived from the sale or exchange of services, including the use or lease of properties
On importation of goods - twelve percent (12%) based on the total value used by the Bureau of
Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and
other charges, such as tax to be paid by the importer prior to the release of such goods from
customs custody; provided, that where the customs duties are determined on the basis of
quantity or volume of the goods, the VAT shall be based on the landed cost plus excise taxes, if
any.
On export sales and other zero-rated sales - 0%
C. Registration and Cancellation – VAT
What are the instances when a VAT-registered person may cancel his VAT registration?
a) If he makes a written application and can demonstrate to the commissioner's satisfaction

that his gross sales or receipts for the following twelve (12) months, other than those that
are exempt under Section 109 (A) to (U), will not exceed Three Million Pesos
(P3,000,000.00); or
b) If he has ceased to carry on his trade or business, and does not expect to recommence
any trade or business within the next twelve (12) months.
When will the cancellation for registration be effective?
a) The cancellation for registration will be effective from the first day of the following
month the cancellation was approved.
D. VATable Goods
Section 106. Value-Added Tax on Sale of Goods or Properties. -
(A) Rate and Base of Tax. - There shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, value-added tax equivalent to ten percent
(10%) of the gross selling price or gross value in money of the goods or properties sold,
bartered or exchanged, such tax to be paid by the seller or transferor.
(1) The term 'goods' or 'properties' shall mean all tangible and intangible objects which
are capable of pecuniary estimation and shall include:
(a) Real properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business;
(b) The right or the privilege to use patent, copyright, design or model, plan, secret
formula or process, goodwill, trademark, trade brand or other like property or right;
(c) The right or the privilege to use in the Philippines of any industrial, commercial or
scientific equipment;
(d) The right or the privilege to use motion picture films, tapes and discs; and
(e) Radio, television, satellite transmission and cable television time.
The term 'gross selling price' means the total amount of money or its equivalent
which the purchaser pays or is obligated to pay to the seller in consideration of the
sale, barter or exchange of the goods or properties, excluding the value-added tax.
The excise tax, if any, on such goods or properties shall form part of the gross
selling price.
(2) The following sales by VAT-registered persons shall be subject to zero percent (0%)
rate:
(a) Export Sales. - The term 'export sales' means:
(1) The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may
influence or determine the transfer of ownership of the goods so exported and paid
for in acceptable foreign currency or its equivalent in goods or services, and
accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);
(2) Sale of raw materials or packaging materials to a nonresident buyer for delivery
to a resident local export-oriented enterprise to be used in manufacturing,
processing, packing or repacking in the Philippines of the said buyer's goods and
paid for in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) Sale of raw materials or packaging materials to export-oriented enterprise whose

export sales exceed seventy percent (70%) of total annual production;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
(5) Those considered export sales under Executive Order NO. 226, otherwise
known as the Omnibus Investment Code of 1987, and other special laws.
(b) Foreign Currency Denominated Sale. - The phrase 'foreign currency denominated
sale' means sale to a nonresident of goods, except those mentioned in Sections 149
and 150, assembled or manufactured in the Philippines for delivery to a resident in the
Philippines, paid for in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
(c) Sales to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales to
zero rate.
(B) Transactions Deemed Sale. - The following transactions shall be deemed sale:
(1) Transfer, use or consumption not in the course of business of goods or properties
originally intended for sale or for use in the course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the VAT-registered persons;

or
(b) Creditors in payment of debt;

(3) Consignment of goods if actual sale is not made within sixty (60) days following the
date such goods were consigned; and
(4) Retirement from or cessation of business, with respect to inventories of taxable goods
existing as of such retirement or cessation.
(C) Changes in or Cessation of Status of a VAT-registered Person. - The tax imposed in

Subsection (A) of this Section shall also apply to goods disposed of or existing as of a certain
date if under circumstances to be prescribed in rules and regulations to be promulgated by the
Secretary of Finance, upon recommendation of the Commissioner, the status of a person as a
VAT-registered person changes or is terminated.
(D) Determination of the Tax. -
(1) The tax shall be computed by multiplying the total amount indicated in the invoice by
one-eleventh (1/11).
(2) Sales Returns, Allowances and Sales Discounts. - The value of goods or properties
sold and subsequently returned or for which allowances were granted by a VAT-registered
person may be deducted from the gross sales or receipts for the quarter in which a refund
is made or a credit memorandum or refund is issued. Sales discount granted and
indicated in the invoice at the time of sale and the grant of which does not depend upon
the happening of a future event may be excluded from the gross sales within the same
quarter it was given.
(3) Authority of the Commissioner to Determine the Appropriate Tax Base. - The
Commissioner shall, by rules and regulations prescribed by the Secretary of Finance,
determine the appropriate tax base in cases where a transaction is deemed a sale, barter
or exchange of goods or properties under Subsection (B) hereof, or where the gross
selling price is unreasonably lower than the actual market value.
Section 107. Value-Added Tax on Importation of Goods. -
(A) In General. - There shall be levied, assessed and collected on every importation of goods a
value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of
Customs in determining tariff and customs duties plus customs duties, excise taxes, if any, and
other charges, such tax to be paid by the importer prior to the release of such goods from
customs custody: Provided, That where the customs duties are determined on the basis of the
quantity or volume of the goods, the value-added tax shall be based on the landed cost plus
excise taxes, If any.
(B) Transfer of Goods by Tax-exempt Persons. - In the case of tax-free importation of goods
into the Philippines by persons, entities or agencies exempt from tax where such goods are
subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or
entities, the purchasers, transferees or recipients shall be considered the importers thereof, who
shall be liable for any internal revenue tax on such importation. The tax due on such importation
shall constitute a lien on the goods superior to all charges or liens on the goods, irrespective of
the possessor thereof.
Section 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -
(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties.
The phrase 'sale or exchange of services' means the performance of all kinds or services in the
Philippines for others for a fee, remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real estate, commercial, customs and
immigration brokers; lessors of property, whether personal or real; warehousing services;
lessors or distributors of cinematographic films; persons engaged in milling processing,
manufacturing or repacking goods for others; proprietors, operators or keepers of hotels,
motels, resthouses, pension houses, inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in
securities; lending investors; transportation contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for hire another domestic common carriers by
land, air and water relative to their transport of goods or cargoes; services of franchise grantees
of telephone and telegraph, radio and television broadcasting and all other franchise grantees
except those under Section 119 of this Code; services of banks, non-bank financial
intermediaries and finance companies; and non-life insurance companies (except their crop
insurances), including surety, fidelity, indemnity and bonding companies; and similar services
regardless of whether or not the performance thereof calls for the exercise or use of the physical
or mental faculties. The phrase 'sale or exchange of services' shall likewise include:
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or
model, plan secret formula or process, goodwill, trademark, trade brand or other like
property or right;
(2) The lease of the use of, or the right to use of any industrial, commercial or scientific
equipment;
(3) The supply of scientific, technical, industrial or commercial knowledge or information;
(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a
means of enabling the application or enjoyment of any such property, or right as is
mentioned in subparagraph (2) or any such knowledge or information as is mentioned in
subparagraph (3);
(5) The supply of services by a nonresident person or his employee in connection with the
use of property or rights belonging to, or the installation or operation of any brand,
machinery or other apparatus purchased from such nonresident person.
(6) The supply of technical advice, assistance or services rendered in connection with
technical management or administration of any scientific, industrial or commercial
undertaking, venture, project or scheme;
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite transmission and
cable television time.
Lease of properties shall be subject to the tax herein imposed irrespective of the place where
the contract of lease or licensing agreement was executed if the property is leased or used in
the Philippines.
The term 'gross receipts' means the total amount of money or its equivalent representing the
contract price, compensation, service fee, rental or royalty, including the amount charged for
materials supplied with the services and deposits and advanced payments actually or
constructively received during the taxable quarter for the services performed or to be performed
for another person, excluding value-added tax.
(B) Transactions Subject to Zero Percent (0%) Rate - The following services performed in the
Philippines by VAT- registered persons shall be subject to zero percent (0%) rate.
(1) Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, where the services are
paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph, the consideration for
which is paid for in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects the
supply of such services to zero percent (0%) rate;
(4) Services rendered to vessels engaged exclusively in international shipping; and
(5) Services performed by subcontractors and/or contractors in processing, converting, of

manufacturing goods for an enterprise whose export sales exceed seventy percent (70%)
of total annual production.
(C) Determination of the Tax. - The tax shall be computed by multiplying the total amount
indicated in the official receipt by one-eleventh (1/11).
What comprises "goods or properties"?
The term "goods or properties" shall mean all tangible and intangible objects, which are capable
of pecuniary estimation and shall include, among others:
a) Real properties held primarily for sale to customers or held for lease in the ordinary
course of trade or business;
b) The right or the privilege to use patent, copyright, design or model, plan, secret formula
or process, goodwill, trademark, trade brand or other like property or right;
c) The right or privilege to use in the Philippines of any industrial, commercial or scientific
equipment;
d) The right or the privilege to use motion picture films, films, tapes and discs; and
e) Radio, television, satellite transmission and cable television time.
What comprises "sale or exchange of services"?
The term "sale or exchange of services" means the performance of all kinds of services
in the Philippines for others for a fee, remuneration or consideration, whether in kind or
in cash, including those performed or rendered by the following:
a) Construction and service contractors;
b) Stock, real estate, commercial, customs and immigration brokers;
c) Lessors of property, whether personal or real;
d) Persons engaged in warehousing services;
e) Lessors or distributors of cinematographic films;
f) Persons engaged in milling, processing, manufacturing or repacking goods for

others;
g) Proprietors, operators or keepers of hotels, motels, rest houses, pension houses,

inns, resorts, theatres, and movie houses;
h) Proprietors or operators of restaurants, refreshment parlors, cafes, and other

eating places, including clubs and caterers;
i) Dealers in securities;
j) Lending investors;
k) Transportation contractors on their transport of goods or cargoes, including

persons who transport goods or cargoes for hire and other domestic common
carriers by land relative to their transport of goods or cargoes;
l) Common carriers by air and sea relative to their transport of passengers, goods
or cargoes from one place in the Philippines to another place in the Philippines;
m) Sale of electricity by generating, transmission by any entity including the National

Grid Corporation of the Philippines (NGCP), and distribution companies including
electric cooperatives shall be subject to twelve percent (12%) VAT on their gross
receipts.;
n) Franchise grantees of electric utilities, telephone and telegraph, radio and/or

television broadcasting and all other franchise grantees, except franchise
grantees of radio and/or television broadcasting whose annual gross receipts of
the preceding year do not exceed Ten Million Pesos (P10,000,000.00), and
franchise grantees of gas and water utilities;
o) Non-life insurance companies (except their crop insurances), including surety,

fidelity, indemnity and bonding companies; and
p) Similar services regardless of whether or not the performance thereof calls for
the exercise of use of the physical or mental faculties.
The phrase "sale or exchange of services" shall likewise include:
a) The lease of use of or the right or privilege to use any copyright, patent, design or
model, plan, secret formula or process, goodwill, trademark, trade brand or other
like property or right;
b) The lease or the use of, or the right to use of any industrial, commercial or
scientific equipment;
c) The supply of scientific, technical, industrial or commercial knowledge or

information;
d) The supply of any assistance that is ancillary and subsidiary to and is furnished
as a means of enabling the application or enjoyment of any such property, or
right or any such knowledge or information;
e) The supply of services by a nonresident person or his employee in connection

with the use of property or rights belonging to, or the installation or operation of
any brand, machinery or other apparatus purchased from such non-resident
person;
f) The supply of technical advice, assistance or services rendered in connection

with technical management or administration of any scientific, industrial or
commercial undertaking, venture, project or scheme;
g) The lease of motion picture films, films, tapes and discs; and
h) The lease or the use of or the right to use radio, television, satellite transmission
and cable television time.
Transactions Deemed Sale
The following transactions are considered as deemed sales:
Transfer, use or consumption, not in the course of business, of goods or properties originally
intended for sale or for use in the course of business. Transfer of goods or properties not in the
course of business can take place when VAT-registered person withdraws goods from his
business for his personal use;
a) Distribution or transfer to:
 Shareholders or investors as share in the profits of the VAT-registered person; or
 Creditors in payment of debt or obligation
b) Consignment of goods if actual sale is not made within sixty (60) days following the date
such goods were consigned. Consigned goods returned by the consignee within the 60-
day period are not deemed sold;
c) Retirement from or cessation of business, with respect to all goods on hand, whether
capital goods, stock-in-trade, supplies or materials as of the date of such retirement or
cessation, whether or not the business is continued by the new owner or successor. The
following circumstances shall, among others, give rise to transactions "deemed sale";
 Change of ownership of the business. There is a change in the ownership of the

business when a single proprietorship incorporated; or the proprietor of a single
proprietorship sells his entire business
 Dissolution of a partnership and creation of a new partnership which takes over the
business.
E. Zero-Rated
(B) Transactions Subject to Zero Percent (0%) Rate - The following services performed in the
Philippines by VAT- registered persons shall be subject to zero percent (0%) rate.
(1) Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, where the services are
paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph, the consideration for
which is paid for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) Services rendered to persons or entities whose exemption under special laws or
(4) Services rendered to vessels engaged exclusively in international shipping; and
(5) Services performed by subcontractors and/or contractors in processing, converting, of

manufacturing goods for an enterprise whose export sales exceed seventy percent
(70%) of total annual production.
 Zero-rated is a sale, barter or exchange of goods, properties and/or services subject to

0% VAT pursuant to Section 106 (A) (2) and 108 (B) of the Tax Code.
 Zero-rated is usually pertaining to export sale of service or those zero-rated as approved
by special laws such as PEZA or Economic Zone registered companies.
What is a zero-rated sale?
It is a sale, barter or exchange of goods, properties and/or services subject to 0% VAT pursuant
to Sections 106 (A) (2) and 108 (B) of the Tax Code. It is a taxable transaction for VAT
purposes, but shall not result in any output tax. However, the input tax on purchases of goods,
properties or services, related to such zero-rated sales, shall be available as tax credit or refund
in accordance with existing regulations.
Withdrawal of Zero-Rated Transactions
Removal of foreign currency denominated sales from VAT zero-rating and subjects to the VAT
indirect exporters and agents only upon the establishment and implementation of an enhanced
VAT refund system.
Sale of gold to BSP
What transactions are considered as zero-rated sales?
The following services performed in the Philippines by VAT-registered person shall be subject to
zero percent (0%) rate:
a) Processing, manufacturing or repacking goods for other persons doing business outside
the Philippines which goods are subsequently exported where the services are paid for
in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
b) Services other than processing, manufacturing or repacking rendered to a person

engaged in business conducted outside the Philippines or to a non-resident person
engaged in business who is outside the Philippines when the services are performed,
the consideration for which is paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
c) Services rendered to persons or entities whose exemption under special laws or

d) Services rendered to persons engaged in international shipping or air transport

operations, including leases of property for use thereof; Provided, that these services
shall be exclusively for international shipping or air transport operations. (Thus, the
services referred to herein shall not pertain to those made to common carriers by air and
sea relative to their transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines, the same being subject to twelve percent
(12%) VAT under Sec. 108 of the Tax Code, as amended);
e) Services performed by subcontractors and/or contractors in processing, converting, or

manufacturing goods for an enterprise whose export sales exceeds seventy percent
(70%) of total annual production;
f) Transport of passengers and cargo by domestic air or sea carriers from the Philippines
to a foreign country. (Gross receipts of international air carriers and international sea
carriers doing business in the Philippines derived from transport of passengers and
cargo from the Philippines to another country shall be exempt from VAT; however they
are still liable to a percentage tax of three percent (3%) based on their gross receipts
derived from transport of cargo from the Philippines to another country as provided for in
Sec. 118 of the Tax Code, as amended); and
g) Sale of power or fuel generated through renewable sources of energy such as, but not
limited to, biomass, solar, wind, hydropower, geothermal and steam, ocean energy, and
other shipping sources using technologies such as fuel cells and hydrogen fuels;
Provided, however that zero-rating shall apply strictly to the sale of power or fuel
generated through renewable sources of energy, and shall not extend to the sale of
services related to the maintenance or operation of plants generating said power.
The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
a) Export sales
i. The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may
influence or determine the transfer of ownership of the goods so exported, paid in
acceptable foreign currency or its equivalent in goods or services, and accounted for
in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);
ii. The sale of raw materials or packaging materials to a non-resident buyer for delivery
to as a resident local export-oriented enterprise to be used in manufacturing,
processing, packing or repacking in the Philippines of the said buyer's goods, paid
for in acceptable foreign currency, and accounted for in accordance with the rules
and regulations of the BSP;
iii. The sale of raw materials or packaging materials to an export-oriented enterprise

whose export sales exceed seventy percent (70%) of total annual production;
iv. Transactions considered export sales under Executive Order No. 226, otherwise
known as the Omnibus Investments Code of 1987, and other special laws; and
v. The sale of goods, supplies, equipment and fuel to persons engaged in international
shipping or international air transport operations; Provided, That the goods,
supplies, equipment, and fuel shall be used exclusively for international shipping or
air transport operations; Provided, that the same is limited to goods, supplies,
equipment and fuel that shall be used in the transport of goods and passengers from
a port in the Philippines directly to a foreign port, or vice-versa without docking or
stopping at any other port in the Philippines unless the docking or stopping at any
other Philippine port is for the purpose of unloading passengers and/or cargoes that
originated from abroad, or to load passengers and/or cargoes bound for
abroad;Provided, further, that if any portion of such fuel, goods or supplies is used
for purposes other than the mentioned in this paragraph, such portion of fuel, goods
and supplies shall be subject to twelve percent (12%) output VAT.
b) Sales to Persons or Entities Deemed Tax-exempt under Special Law or International
Agreement
Sale of goods or property to persons or entities who are tax-exempt under special laws or
international agreements to which the Philippines is a signatory, such as, Asian Development
Bank (ADB), International Rice Research Institute (IRRI), subject such sales to zero rate.
F. Deductions
G. Exemptions
VAT Exempt Sale
It is a sale of goods, properties or service and the use or lease of properties which is not subject
to output tax and whereby the buyer is not allowed any tax credit or input tax related to such
exempt sale.
Section 109. Exempt Transactions. - The following shall be exempt from the value-added tax:
(a) Sale of nonfood agricultural products; marine and forest products in their original state
by the primary producer or the owner of the land where the same are produced;
(b) Sale of cotton seeds in their original state; and copra;
(c) Sale or importation of agricultural and marine food products in their original state,
livestock and poultry of or king generally used as, or yielding or producing foods for
human consumption; and breeding stock and genetic materials therefor.
Products classified under this paragraph and paragraph (a) shall be considered in their
original state even if they have undergone the simple processes of preparation or
preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking or
stripping.
Polished and/or husked rice, corn grits, raw cane sugar and molasses, and ordinary salt
shall be considered in their original state;
(d) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock
and poultry feeds, including ingredients, whether locally produced or imported, used in the
manufacture of finished feeds (except specialty feeds for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally considered as pets);
(e) Sale or importation of coal and natural gas, in whatever form or state, and petroleum
products (except lubricating oil, processed gas, grease, wax and petrolatum) subject to
excise tax imposed under Title VI;
(f) Sale or importation of raw materials to be used by the buyer or importer himself in the
manufacture of petroleum products subject to excise tax, except lubricating oil, processed
gas, grease, wax and petrolatum;
(g) Importation of passenger and/or cargo vessels of more than five thousand tons (5,000)
whether coastwise or ocean-going, including engine and spare parts of said vessel to be
used by the importer himself as operator thereof;
(h) Importation of personal and household effects belonging to the residents of the
Philippines returning from abroad and nonresident citizens coming to resettle in the
Philippines: Provided, That such goods are exempt from customs duties under the Tariff
and Customs Code of the Philippines;
(i) Importation of professional instruments and implements, wearing apparel, domestic

animals, and personal household effects (except any vehicle, vessel, aircraft, machinery
other goods for use in the manufacture and merchandise of any kind in commercial
quantity) belonging to persons coming to settle in the Philippines, for their own use and
not for sale, barter or exchange, accompanying such persons, or arriving within ninety (90)
days before or after their arrival, upon the production of evidence satisfactory to the
Commissioner, that such persons are actually coming to settle in the Philippines and that
the change of residence is bona fide;
(j) Services subject to percentage tax under Title V;
(k) Services by agricultural contract growers and milling for others of palay into rice, corn
into grits and sugar cane into raw sugar;
(l) Medical, dental, hospital and veterinary services subject to the provisions of Section 17
of Republic Act No. 7716, as amended:
(m) Educational services rendered by private educational institutions, duly accredited by

the Department of Education, Culture and Sports (DECS) and the Commission on Higher
Education (CHED), and those rendered by government educational institutions;
(n) Sale by the artist himself of his works of art, literary works, musical compositions and
similar creations, or his services performed for the production of such works;
(o) Services rendered by individuals pursuant to an employer-employee relationship;
(p) Services rendered by regional or area headquarters established in the Philippines by

multinational corporations which act as supervisory, communications and coordinating
centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not
earn or derive income from the Philippines;
(q) Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those under Presidential Decree
Nos. 66, 529 and 1590;
(r) Sales by agricultural cooperatives duly registered with the Cooperative Development
Authority to their members as well as sale of their produce, whether in its original state or
processed form, to non-members; their importation of direct farm inputs, machineries and
equipment, including spare parts thereof, to be used directly and exclusively in the
production and/or processing of their produce;
(s) Sales by electric cooperatives duly registered with the Cooperative Development
authority or National Electrification Administration, relative to the generation and
distribution of electricity as well as their importation of machineries and equipment,
including spare parts, which shall be directly used in the generation and distribution of
electricity;
(t) Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered with the Cooperative Development Authority whose lending operation is limited
to their members;
(u) Sales by non-agricultural, non- electric and non-credit cooperatives duly registered
with the Cooperative Development Authority: Provided, That the share capital contribution
of each member does not exceed Fifteen thousand pesos (P15,000) and regardless of the
aggregate capital and net surplus ratably distributed among the members;
(v) Export sales by persons who are not VAT-registered;
(w) Sale of real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business or real property utilized for low-cost and socialized
housing as defined by Republic Act No. 7279, otherwise known as the Urban
Development and Housing Act of 1992, and other related laws, house and lot and other
residential dwellings valued at One million pesos (P1,000,000) and below: Provided, That
not later than January 31st of the calendar year subsequent to the effectivity of this Act
and each calendar year thereafter, the amount of One million pesos (P1,000,000) shall be
adjusted to its present value using the Consumer Price Index, as published by the national
Statistics Office (NSO);
(x) Lease of a residential unit with a monthly rental not exceeding Eight thousand
pesos(P8,000); Provided, That not later than January 31st of the calendar year
subsequent to the effectivity of Republic Act No. 8241 and each calendar year thereafter,
the amount of Eight thousand pesos (P8,000) shall be adjusted to its present value using
the Consumer Price Index as published by the National Statistics Office (NS0);
(y) Sale, importation, printing or publication of books and any newspaper, magazine
review or bulletin which appears at regular intervals with fixed prices for subscription and
sale and which is not devoted principally to the publication of paid advertisements; and
(z) Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or
receipts do not exceed the amount of Five hundred fifty thousand pesos (P550,000):
Provided, That not later than January 31st of the calendar year subsequent to the
effectivity of Republic Act No. 8241 and each calendar year thereafter, the amount of Five
hundred fifty thousand pesos (550,000) shall be adjusted to its present value using the
Consumer Price Index, as published by the National Statistics Office (NSO).
The foregoing exemptions to the contrary notwithstanding, any person whose sale of goods or
properties or services which are otherwise not subject to VAT, but who issues a VAT invoice or
receipt therefor shall, in addition to his liability to other applicable percentage tax, if any, be
liable to the tax imposed in Section 106 or 108 without the benefit of input tax credit, and such
tax shall also be recognized as input tax credit to the purchaser under Section 110, all of this
Code.
 A sale of goods or transactions is considered VAT exempt if it fails under SEC. 109 –
Exempt Transactions.
 Normally, VAT Exempt transactions are basic necessities such as agricultural products,
tuition fees, lending activities, real properties, books, transportation, etc.
What are the VAT-exempt transactions?
a) Sale or importation of agricultural and marine food products in their original state,
livestock and poultry of a kind generally used as, or yielding or producing foods for
human consumption; and breeding stock and genetic materials therefore;
b) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock
and poultry feeds, including ingredients, whether locally produced or imported, used in
the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks,
aquarium fish, zoo animals and other animals considered as pets);
c) Importation of personal and household effects belonging to residents of the Philippines

returning from abroad and non-resident citizens coming to resettle in the Philippines;
Provided, that such goods are exempt from custom duties under the Tariff and Customs
Code of the Philippines;
d) Importation of professional instruments and implements, tools of trade, occupation or

employment, wearing apparel, domestic animals, and personal and household effects
( except vehicles, vessels, aircrafts machineries and other similar goods for use in
manufacture which are subject to duties, taxes and other charges) belonging to persons
coming to settle in the Philippines or Filipinos or their families and descendants who are
now residents or citizens of other countries, such parties hereinafter referred to as
overseas Filipinos, in quantities and of the class suitable to the profession, rank or
position of the persons importing said items, for their own use and not barter or sale,
accompanying such persons, or arriving within a reasonable time; Provided, That the
Bureau of Customs may, upon the production of satisfactorily evidence that such
persons are actually coming to settle in the Philippines and that the goods are brought
from their place of residence, exempt such goods from payment of duties and taxes.
e) Services subject to percentage tax under Title V of the Tax Code, as amended;
f) Services by agricultural contract growers and milling for others of palay into rice, corn
into grits, and sugar cane into raw sugar;
g) Medical, dental, hospital and veterinary services except those rendered by

professionals;
h) Educational services rendered by private educational institutions duly accredited by the

Department of Education (DepED), the Commission on Higher Education (CHED) and
the Technical Education and Skills Development Authority (TESDA) and those rendered
by the government educational institutions;
i) Services rendered by individuals pursuant to an employer-employee relationship;

j) Services rendered by regional or area headquarters established in the Philippines by
multinational corporations which act as supervisory, communications and coordinating
centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not
earn or derive income from the Philippines;
k) Transactions which are exempt under international agreements to which the Philippines
is a signatory or under special laws except those granted under P.D. No. 529 -
Petroleum Exploration Concessionaires under the Petroleum Act of 1949;
l) Sales by agricultural cooperatives duly registered and in good standing with the
Cooperative Development Authority (CDA) to their members, as well as of their produce,
whether in its original state or processed form, to non-members, their importation of
direct farm inputs, machineries and equipment, including spare parts thereof, to be used
directly and exclusively in the production and/or processing of their produce;
m) Gross receipts from lending activities by credit or multi-purpose cooperatives duly

registered and in good standing with the Cooperative Development Authority;
n) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with

and in good standing with CDA; Provided, that the share capital contribution of each
member does not exceed Fifteen Thousand Pesos (P15,000.00) and regardless of the
aggregate capital and net surplus ratably distributed among the members;
o) Export sales by persons who are not VAT-registered;
p) The following sales of real properties:
i. Sale of real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business.
ii. Sale of real properties utilized for low-cost housing as defined by RA No. 7279,
otherwise known as the "Urban Development and Housing Act of 1992" and other
related laws, such as RA No. 7835 and RA No. 8763;
iii. Sale of real properties utilized for specialized housing as defined under RA No. 7279,
and other related laws, such as RA No. 7835 and RA No. 8763, wherein price ceiling
per unit is Php 450,000.00 or as may from time to time be determined by the HUDCC
and the NEDA and other related laws;
iv. Sale of residential lot valued at One Million Five Hundred Thousand Pesos
(P1,500,000.00) and below, or house and lot and other residential dwellings valued at
Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below, as adjusted
using latest Consumer Price Index values. (If two or more adjacent lots are sold or
disposed in favor of one buyer, for the purpose of utilizing the lots as one residential
lot, the sale shall be exempt from VAT only if the aggregate value of the lots do not
exceed One Million Five Hundred Thousand Pesos (P1,500,000.00). Adjacent
residential lots, although covered by separate titles and/or separate tax declarations,
when sold or disposed to one and the same buyer, whether covered by one or
separate Deed of Conveyance, shall be presumed as a sale of one residential lot.)
q) Lease of residential units with a monthly rental per unit not exceeding Fifteen Thousand
Pesos (P15,000.00), regardless of the amount of aggregate rentals received by the
lessor during the year; Provided, that not later than January 31, 2009 and every three (3)
years thereafter, the amount of P10,000.00 shall be adjusted to its present value using
the Consumer Price Index, as published by the Philippine Statistics Authority (Formerly
known as NSO);
r) Sale, importation, printing or publication of books and any newspaper, magazine, review
or bulletin which appears at regular intervals with fixed prices for subscription and sale
and which is not devoted principally to the publication of paid advertisements;
s) Transport of passengers by international carriers;
t) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine
equipment and spare parts thereof for domestic or international transport perations;
Provided, that the exemption from VAT on the importation and local purchase of
passenger and/or cargo vessels shall be subject to the requirements on restriction on
vessel importation and mandatory vessel retirement program of Maritime Industry
Authority (MARINA);
u) Importation of fuel, goods and supplies by persons engaged in international shipping or

air transport operations; Provided, that the said fuel, goods and supplies shall be used
exclusively or shall pertain to the transport of goods and/or passenger from a port in the
Philippines directly to a foreign port, or vice-versa, without docking or stopping at any
other port in the Philippines unless the docking or stopping at any other Philippine port is
for the purpose of unloading passengers and/or cargoes that originated form abroad, or
to load passengers and/or cargoes bound for abroad; Provided, further, that if any
portion of such fuel, goods or supplies is used for purposes other that the mentioned in
the paragraph, such portion of fuel, goods and supplies shall be subject to 12% VAT;
v) Services of banks, non-bank financial intermediaries performing quasi-banking functions,

and other non-bank financial intermediaries, such as money changers and pawnshops,
subject to percentage tax under Sections 121 and 122, respectively of the Tax Code;
and
w) Sale or lease of goods and services to senior citizens and persons with disabilities, as
provided under Republic Act Nos. 9994 (Expanded Senior Citizens Act of 2010) and
10754 (An Act Expanding the Benefits and Privileges of Persons with Disability),
respectively;
x) Transfer of property in merger or consolidation (pursuant to Section 40(C)(2) of the Tax

Code, as amended);
y) Association dues, membership fees, and other assessments and charges collected on a
purely reimbursement basis by homeowners’ associations and condominium established
under Republic Act No. 9904 (Magna Carta for Homeowners and Homeowner’s
Association) and Republic Act No. 4726 (The Condominium Act), respectively;
z) Sale of gold to the Banko Sentral ng Pilipinasn (BSP) (previously zero-rated transaction);
aa) Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension
(beginning on January 1, 2019 as determined by the Department of Health); and
bb) Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or
receipts do not exceed the amount of Three Million Pesos (Php 3,000,000.00). Note:
Self-employed individuals and professionals availing of the 8% on gross sales and/or
receipts and other non-operating income, under Sections 24 (A)(2)(b) and 24 (A)(2)(c)(2)
of the NIRC shall also be exempt from the payment of twelve (12%) VAT.
Retained VAT Exemptions

 Raw Agricultural products
 Educational Services
 Senior Citizens
 Health Services
 Cooperatives
 Persons with Disabilities
H. Tax Credits
Section 110. Tax Credits. -
A. Creditable Input Tax. -
(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section
113 hereof on the following transactions shall be creditable against the output tax:
(a) Purchase or importation of goods:
(i) For sale; or
(ii) For conversion into or intended to form part of a finished product for sale including
packaging materials; or
(iii) For use as supplies in the course of business; or
(iv) For use as materials supplied in the sale of service; or
(v) For use in trade or business for which deduction for depreciation or amortization is
allowed under this Code, except automobiles, aircraft and yachts.
(b) Purchase of services on which a value-added tax has been actually paid.
(2) The input tax on domestic purchase of goods or properties shall be creditable:
(a) To the purchaser upon consummation of sale and on importation of goods or properties; and
(b) To the importer upon payment of the value-added tax prior to the release of the goods from
the custody of the Bureau of Customs.
However, in the case of purchase of services, lease or use of properties, the input tax shall be
creditable to the purchaser, lessee or licensee upon payment of the compensation, rental,
royalty or fee.
(3) A VAT-registered person who is also engaged in transactions not subject to the value-added tax
shall be allowed tax credit as follows:
(a) Total input tax which can be directly attributed to transactions subject to value-added tax;
and
(b) A ratable portion of any input tax which cannot be directly attributed to either activity.
The term 'input tax' means the value-added tax due from or paid by a VAT-registered person in
the course of his trade or business on importation of goods or local purchase of goods or
services, including lease or use of property, from a VAT-registered person. It shall also include
the transitional input tax determined in accordance with Section 111 of this Code.
The term 'output tax' means the value-added tax due on the sale or lease of taxable goods or
properties or services by any person registered or required to register under Section 236 of this
Code.
(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax exceeds the input tax,
the excess shall be paid by the Vat-registered person. If the input tax exceeds the output tax, the excess
shall be carried over to the succeeding quarter or quarters. any input tax attributable to the purchase of
capital goods or to zero-rated sales by a VAT-registered person may at his option be refunded or credited
against other internal revenue taxes, subject to the provisions of Section 112.
(C) Determination of Creditable Input Tax. - The sum of the excess input tax carried over from the
preceding month or quarter and the input tax creditable to a VAT-registered person during the taxable
month or quarter shall be reduced by the amount of claim for refund or tax credit for value-added tax and
other adjustments, such as purchase returns or allowances and input tax attributable to exempt sale.
The claim for tax credit referred to in the foregoing paragraph shall include not only those filed with the
Bureau of Internal Revenue but also those filed with other government agencies, such as the Board of
Investments the Bureau of Customs.
I. Tax Claims / Refund
Where to file the claim for refund/credit
Claims for refunds shall be filed with the appropriate Bureau of Internal Revenue (BIR) Office
(Large Taxpayers Service (LTS), Revenue District Office (RDO)) having jurisdiction over the
principal place of business of the taxpayer. Claims for input tax refund of direct exporters shall
be exclusively filed with the VAT Credit Audit Division (VCAD).
Period within which refund/credit of input taxes shall be made (120+30 days
under NIRC / 90 days for TRAIN)
In proper cases, the Commissioner of Internal Revenue shall grantrefund for creditable input
taxes within ninety (90) days from the date of submission of the official receipts or invoices and
other documents in support of the application filed in accordance with subsections (A) and (B)
hereof: Provided, That, should the Commissioner find that the grant of refund is not proper, the
Commissioner must state in writing the legal and factual basis for the denial.
The 90-day period to process and decide, pending the establishment of the enhanced VAT
Refund System shall only be up to the date of approval of the Recommendation Report on such
application for VAT refund by the Commissioner or his duly authorized representative: Provided,
That all claims for refund/tax credit certificate filed prior to January 1, 2018 will be governed by
the one hundred twenty (120)-day processing period.
In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty
(30) days from the receipt of the decision denying the claim, appeal the decision with the Court
of Tax Appeals: Provided, however, that failure on the part of any official, agent, or employee of
the BIR to act on the application within the ninety (90)-day period shall be punishable under
Section 269 of the Tax Code, as amended.
J. Amendments to TRAIN Law
Inclusion to VAT-Exempt Transactions

 Sale of gold to the Bangko Sentral ng Pilipines (BSP)
 Sale of drugs and medicines for diabetes, high cholesterol, and hypertension, beginning
January 1, 2019
 Association dues, membership fees, and other assessments and charges collected by
homeowner’s association and condominium corporations
 Transfer of property in pursuance of a plan of merger or consolidation
 Includes electric cooperatives in the definition of sale or exchange of service subject to
VAT
Adjustment to VAT-Exempt Tresholds

 Increases the VAT-exempt threshold from P1,919,500 to P3 Million which is to be
adjusted to inflation not later than January 31, 2021 and every 3 years thereafter
 Increase the VAT-exempt threshold on lease of residential unit with a monthly rental of
P12,800 to P15,000
 Reduces the VAT-exempt threshold from P3,199,200 to P2,000,000 on sale of house
and lot and other residential dwelling beginning January 1, 2021.
K. Filing & Payment – VAT
PERCENTAGE TAX
EXCISE TAX
CASES
1. Commissioner of Internal Revenue vs Court of Appeals
GR No. 125355 – March 30, 2000
Facts:
 Bureau of Internal Revenue (BIR) issued an assessment to private respondent
COMASERCO for deficiency value-added tax (VAT). COMASERCO filed with the Court of
Tax Appeals 4 a petition for review contesting the Commissioner’s assessment.
COMASERCO asserted that the services it rendered to Philamlife and its affiliates, relating
to collections, consultative and other technical assistance, including functioning as an
internal auditor, were on a "no-profit, reimbursement-of-cost-only" basis. It averred that it
was not engaged in the business of providing services to Philamlife and its affiliates.
Issue:
 Whether or not a non-stock, non-profit organization or government entity, is liable to pay
VAT on the sale of goods or services.
Held:
 It is immaterial whether the primary purpose of a corporation indicates that it receives
payments for services rendered to its affiliates on a reimbursement-on-cost basis only,
without realizing profit, for purposes of determining liability for VAT on services rendered.
As long as the entity provides service for a fee, remuneration or consideration, then the
service rendered is subject to VAT.
2. Commissioner of Internal Revenue vs Magsaysay Lines Inc.,

GR No. 146984 – July 28, 2006
Facts:
 Pursuant to a government program of privatization, NDC decided to sell to private
enterprise all of its shares in its wholly-owned subsidiary the National Marine Corporation
(NMC). The NDC decided to sell in one lot its NMC shares and five (5) of its ships. Private
respondent Magsaysay Lines, Inc. (Magsaysay Lines) offered to buy the shares and the
vessels.
Issue:
 Whether the sale by the National Development Company (NDC) of five (5) of its vessels to
the private respondents is subject to value-added tax (VAT) under the National Internal
Revenue Code of 1986 (Tax Code) then prevailing at the time of the sale.
Held:
 In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30, 1955 (97 Phil.
992), the term "carrying on business" does not mean the performance of a single
disconnected act, but means conducting, prosecuting and continuing business by
performing progressively all the acts normally incident thereof; while "doing business"
conveys the idea of business being done, not from time to time, but all the time. [J. Aranas,
UPDATED NATIONAL INTERNAL REVENUE CODE (WITH ANNOTATIONS), p. 608-9
(1988)]. "Course of business" is what is usually done in the management of trade or
business.
 "Course of business" or "doing business" connotes regularity of activity. In the instant case,
the sale was an isolated transaction. The sale which was involuntary and made pursuant to
the declared policy of Government for privatization could no longer be repeated or carried
on with regularity. It should be emphasized that the normal VAT-registered activity of NDC
is leasing personal property.
3. Commissioner of Internal Revenue vs Sony Philippines Inc.,

GR No. 178697 – November 17, 2010
Facts:
 CIR issued Letter of Authority authorizing certain revenue officers to examine Sony’s books
of accounts and other accounting records regarding revenue taxes for the period 1997 and
unverified prior years. A preliminary assessment for 1997 deficiency taxes and penalties
was issued by the CIR which Sony protested. Thereafter, acting on the protest, the CIR
issued final assessment notices, the formal letter of demand and the details of
discrepancies. Sony sought re-evaluation of the aforementioned assessment by filing a
protest
Issue:
 Whether or not respondent (Sony) is liable for the deficiency VAT.
Held:
 There must be a sale, barter or exchange of goods or properties before any VAT may be
levied. Certainly, there was no such sale, barter or exchange in the subsidy given by SIS to
Sony. It was but a dole out by SIS and not in payment for goods or properties sold, bartered
or exchanged by Sony.
 In the case of CIR v. Court of Appeals (CA),[23] the Court had the occasion to rule that
services rendered for a fee even on reimbursement-on-cost basis only and without realizing
profit are also subject to VAT. The case, however, is not applicable to the present case. In
that case, COMASERCO rendered service to its affiliates and, in turn, the affiliates paid the
former reimbursement-on-cost which means that it was paid the cost or expense that it
incurred although without profit. This is not true in the present case. Sony did not render
any service to SIS at all. The services rendered by the advertising companies, paid for by
Sony using SIS dole-out, were for Sony and not SIS. SIS just gave assistance to Sony in
the amount equivalent to the latter’s advertising expense but never received any goods,
properties or service from Sony.
 When an affiliate provides funds to a taxpayer who then uses the funds to pay a third party,
the transaction is not subject to VAT, as there was no sale, barter, or exchange between
the affiliate and the taxpayer. The money was simply given as a dole-out.
4. Commissioner of Internal Revenue vs SM Prime Holdings Inc.,

GR No. 183505 – February 26, 2010
Facts:
 Respondents are engaged in the business of operating cinema houses, among others. The
Bureau of Internal Revenue (BIR) sent SM Prime a Preliminary Assessment Notice (PAN)
for value added tax (VAT) deficiency on cinema ticket sales for taxable year 2000. In
response, SM Prime filed a letter-protest.
Issue:
 Whether or not the gross receipts derived by operators or proprietors of cinema/theater
houses from admission tickets are subject to VAT.
Held:
 Persons subject to amusement tax under the NIRC of 1977, as amended are exempted
from the coverage of VAT. The power to impose amusement tax on gross receipts derived
from admission tickets was exclusive with the local government units and that only the
gross receipts of amusement places derived from sources other than from admission tickets
were subject to amusement tax under the NIRC of 1977, as amended.
 At present, only lessors or distributors of cinematographic films are subject to VAT. While
persons subject to amusement tax under the NIRC of 1997 are exempt from the coverage
of VAT.
 Historically, the activity of showing motion pictures, films or movies by cinema/theater
operators or proprietors has always been considered as a form of entertainment subject to
amusement tax. Prior to the Local Tax Code, all forms of amusement tax were imposed by
the national government. When the Local Tax Code was enacted, amusement tax on
admission tickets from theatres, cinematographs, concert halls, circuses and other places
of amusements were transferred to the local government. Under the NIRC of 1977, the
national government imposed amusement tax only on proprietors, lessees or operators of
cabarets, day and night clubs, Jai-Alai and race tracks. The VAT law was enacted to
replace the tax on original and subsequent sales tax and percentage tax on certain
services. When the VAT law was implemented, it exempted persons subject to amusement
tax under the NIRC from the coverage of VAT. When the Local Tax Code was repealed by
the LGC of 1991, the local government continued to impose amusement tax on admission
tickets from theatres, cinematographs, concert halls, circuses and other places of
amusements. Amendments to the VAT law have been consistent in exempting persons
subject to amusement tax under the NIRC from the coverage of VAT. Only lessors or
distributors of cinematographic films are included in the coverage of VAT.
5. Medicard Philippines vs Commissioner of Internal Revenue

GR No. 222743 – April 05, 2017
Facts:
 MEDICARD is a Health Maintenance Organization (HMO) that provides prepaid health and
medical insurance coverage to its clients. Individuals enrolled in its health care programs
pay an annual membership fee and are entitled to various preventive, diagnostic and
curative medical services provided by duly licensed physicians, specialists and other
professional technical staff participating in the group practice health delivery system at a
hospital or clinic owned, operated or accredited by it.
 Upon finding some discrepancies between MEDICARD's Income Tax Returns (ITR) and
VAT Returns, the CIR also issued a Preliminary Assessment Notice (PAN) against
MEDICARD for deficiency VAT. According to the CIR, the taxable base of HMOs for VAT
purposes is its gross receipts without any deduction under Section 4.108.3(k) of Revenue
Regulation (RR) No. 16-2005.
Issue:
 Whether the amounts that medicard earmarked and eventually paid to the medical service
providers should still form part of its gross receipts for vat purposes.
Held:
 Amounts earmarked by an HMO to its medical service providers on behalf of its client do
not form part of its gross receipts for VAT purposes. Amounts earmarked for payment to a
third party are not part of gross receipts and therefore not subject to VAT. By earmarking or
allocating 80% of the amount, MEDICARD (HMO) unequivocally recognizes that its
possession of the funds is not in the concept of owner but as a mere administrator of the
same.
 Section 4.108-4. "Gross receipts" refers to the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty, including the
amount charged for materials supplied with the services and deposits applied as payments
for services rendered, and advance payments actually or constructively received during the
taxable period for the services performed or to be performed for another person, excluding
the VAT.
 For purposes of determining the VAT liability of an HMO, the amounts earmarked and
actually spent for medical utilization of its members should not be included in the
computation of its gross receipts.
6. Commissioner of Internal Revenue vs Seagate Technology (Philippines)

GR No. 153866 – February 05, 2005
Facts:
 Respondent is a resident foreign corporation duly registered with the Securities and
Exchange Commission to do business in the Philippines within a Special Economic Zone.
Respondent is registered with the Philippine Export Zone Authority (PEZA) to engage in the
manufacture of recording components primarily used in computers for export. Respondent
is VAT-registered entity. Later, they filed for refund of VAT input.
Issue:
 Whether or not respondent is entitled to the refund or issuance of Tax Credit Certificate
representing the alleged unutilized input VAT paid on the capital goods it purchased.
Held:
 Under the cross-border principle of the VAT system being enforced by the Bureau of
Internal Revenue (BIR), no VAT shall be imposed to form part of the cost of goods destined
for consumption outside of the territorial border of the taxing authority. If exports of goods
and services from the Philippines to a foreign country are free of the VAT, then the same
rule holds for such exports from the national territory - - except specifically declared areas -
- to an ecozone.
 Sales made by a VAT-registered person in the customs territory to a PEZA-registered entity
are considered exports to a foreign country; conversely, sales by a PEZA-registered entity
to a VAT-registered person in the customs territory are deemed imports from a foreign
country. An ecozone - - indubitably a geographical territory of the Philippines - - is,
however, regarded in law as foreign soil.
 Business companies registered in and operating from the Special Economic Zone in Naga,
Cebu - - like herein respondent - - are entities exempt from all internal revenue taxes and
the implementing rules relevant thereto, including the value-added taxes or VAT. Although
export sales are not deemed exempt transactions, they are nonetheless zero-rated. Hence,
in the present case, the distinction between exempt entities and exempt transactions has
little significance, because the net result is that the taxpayer is not liable for the VAT.
Respondent, a VAT-registered enterprise, has complied with all requisites for claiming a tax
refund of or credit for the input VAT it paid on capital goods it purchased. Thus, the Court of
Tax Appeals and the Court of Appeals did not err in ruling that it is entitled to such refund or
credit.
7. Secretary of Finance Cesar Purisima vs Rep. Carmelo Lazatin

GR No. 210588 – November 29, 2016
Facts:
 In response to reports of smuggling of petroleum and petroleum products and to ensure the
correct taxes are paid and collected, petitioner Purisima - pursuant to his authority to
interpret tax laws and upon the recommendation of petitioner Jacinto-Henare,s signed RR
2-2012.
 The RR requires the payment of value-added tax (VAT) and excise tax on the importation of
all petroleum and petroleum products coming directly from abroad and brought into the
Philippines, including Freeport and economic zones (FEZs).
Issue:
 Whether or not Respondent EPEC is subject to VAT.
Held:
 It is recognized that FEZ enterprises are exempt from both direct and indirect internal
revenue taxes. In particular, they are considered VAT-exempt entities. Since ecozones are
considered foreign territories, a R.R. which imposes VAT on the importation of petroleum
products into the ecozone is invalid.
 The act of bringing the goods into an FEZ is not a taxable importation. As long as the
goods remain (e.g., sale and/or consumption of the article within the FEZ) in the FEZ or re-
exported to another foreign jurisdiction, they shall continue to be tax-free. However, once
the goods are introduced into the Philippine customs territory, it ceases to enjoy the tax
privileges accorded to FEZs. It shall then be considered as an importation subject to all
applicable national internal revenue taxes and customs duties.
8. Commissioner of Internal Revenue vs Sekisui Jushi Philippines

GR No. 149671 – July 21, 2006
Facts:
 Respondent is a domestic corporation duly organized and existing under and by virtue of
the laws of the Philippines with principal office located in a Special Export Processing Zone.
It is principally engaged in the business of manufacturing, importing, exporting, buying,
selling, or otherwise dealing in, at wholesale such goods as strapping bands and other
packaging materials and goods of similar nature.
 Having registered with the Bureau of Internal Revenue (BIR) as a value-added tax (VAT)
taxpayer, respondent filed its quarterly returns with the BIR reflecting therein input taxes in
the paid by it in connection with its domestic purchase of capital goods and services. Said
input taxes remained unutilized since respondent has not engaged in any business activity
or transaction for which it may be liable for output tax and for which said input taxes may be
credited.
Issue:
 Whether or not respondent is entitled to the refund or issuance of tax credit certificate as
alleged unutilized input taxes paid on domestic purchase of capital goods and services.
Held:
 An entity registered with the PEZA as an ecozone may be covered by the VAT system.
Section 23 of Republic Act 7916, as amended, gives a PEZA-registered enterprise the
option to choose between two fiscal incentives: a) a five percent preferential tax rate on its
gross income under the said law; or b) an income tax holiday provided under Executive
Order No. 226 or the Omnibus Investment Code of 1987, as amended. If the entity avails
itself of the five percent preferential tax rate under the first scheme, it is exempt from all
taxes, including the VAT; under the second, it is exempt from income taxes for a number of
years, but not from other national internal revenue taxes like the VAT. By availing itself of
the income tax holiday, respondent became subject to the VAT. It correctly registered as a
VAT taxpayer, because its transactions were not VAT-exempt.
 While an ecozone is geographically within the Philippines, it is deemed a separate customs
territory and is regarded in law as foreign soil. Sales by suppliers from outside the borders
of the ecozone to this separate customs territory are deemed as exports and treated as
export sales. These sales are zero-rated or subject to a tax rate of zero percent.
9. Coral Bay Nickel vs Commissioner of Internal Revenue

GR No. 190506 – June 13, 2016
Facts:
 Petitioner, a domestic corporation engaged in the manufacture of nickel and/or cobalt mixed
sulphide, is a VAT entity registered with the Bureau of Internal Revenue (BIR). It is also
registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Export
Enterprise. Petitioner filed its Amended VAT Return declaring unutilized input tax from its
domestic purchases of capital goods, other than capital goods and services.
 Due to the alleged inaction of the respondent, the petitioner elevated its claim to the CTA.
After trial on the merits, the CTA in Division promulgated its decision denying the
petitioner's claim for refund on the ground that the petitioner was not entitled to the refund
of alleged unutilized input VAT following Section 106(A)(2)(a)(5) of the National Internal
Revenue Code (NIRC) of 1997, as amended.
Issue:
 Whether or not the filing of petitioner to the CTA was premature.
 Whether or not the petitioner, an entity located within an ECOZONE, entitled to the refund
of its unutilized input taxes incurred before it became a PEZA-registered entity.
Held:
 As pronounced in Silicon Philippines Inc. vs. Commissioner of Internal Revenue, 15the
exception to the mandatory and jurisdictional compliance with the 120+30 day-period is
when the claim for the tax refund or credit was filed in the period between December 10,
2003 and October 5, 2010 during which BIR Ruling No. DA-489-03 was still in effect.
Accordingly, the premature filing of the judicial claim was allowed, giving to the CTA
jurisdiction over the appeal.
 The supplier is the proper party to claim the refund because VAT is an indirect tax and the
supplier is the one statutorily liable.
 We should also take into consideration the nature of VAT as an indirect tax. Although the
seller is statutorily liable for the payment of VAT, the amount of the tax is allowed to be
shifted or passed on to the buyer. However, reporting and remittance of the VAT paid to the
BIR remained to be the seller/supplier's obligation. Hence, the proper party to seek the tax
refund or credit should be the suppliers, not the petitioner.
10. Commissioner of Internal Revenue vs American Express International

GR No. 152609 – June 29, 2005
Facts:
 Respondent is a Philippine branch of American Express International, Inc., a corporation
duly organized and existing under and by virtue of the laws of the State of Delaware, U.S.A.
Amex Philippines registered itself with the Bureau of Internal Revenue (BIR) as a value-
added tax (VAT) taxpayer. Later, Respondent filed with the BIR a letter-request for the
refund of its 1997 excess input taxes. Respondent cites Section 110 (B) of the 1997 Tax
Code which provides that if at the end of any taxable quarter the output tax exceeds the
input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds
the output tax, the excess shall be carried over to the succeeding quarter or quarters. Any
input tax attributable to the purchase of capital goods or to zero-rated sales by a VAT-
registered person may at his option be refunded or credited against other internal revenue
taxes, subject to the provisions of Section 112.
Issue:
 Whether or not the Court of Appeals committed reversible error in holding that respondent
is entitled to the refund allegedly representing excess input VAT for the year 1997.
Held:
 As a general rule, the value-added tax (VAT) system uses the destination principle.
However, our VAT law itself provides for a clear exception, under which the supply of
service shall be zero-rated when the following requirements are met: (1) the service is
performed in the Philippines; (2) the service falls under any of the categories provided in
Section 102(b) of the Tax Code; and (3) it is paid for in acceptable foreign currency that is
accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas. Since
respondent’s services meet these requirements, they are zero-rated. Petitioner’s Revenue
Regulations that alter or revoke the above requirements are ultra vires and invalid.
 When Philippine branch facilitates the collection of receivables from customers of its foreign
affiliate, said service qualifies under Sec. 108(b)(2) as zero-rated.
11. Commissioner of Internal Revenue vs Migrant Pagbilao Corporation

GR No. 172129 – September 12, 2008
Facts:
 MPC is a domestic firm engaged in the generation of power which it sells to the National
Power Corporation (NPC). For the construction of the electrical and mechanical equipment,
which appears to have been undertaken from 1993 to 1996, MPC secured the services of
Mitsubishi Corporation (Mitsubishi) of Japan.
 Under Section 13 of Republic Act No. (RA) 6395, the NPC’s revised charter, NPC is exempt
from all taxes. In the light of the NPC’s tax exempt status, MPC, on the belief that its sale of
power generation services to NPC is, pursuant to Sec. 108(B)(3) of the Tax Code, zero-
rated for VAT purposes, filed on December 1, 1997 with Revenue District Office (RDO) No.
60 in Lucena City an Application for Effective Zero Rating.
Issue:
 Whether or not MPC’s claim for tax refund or credit was clearly way beyond the two-year
prescriptive period.
Held:
 Sec. 112(A) of the NIRC, providing a two-year prescriptive period reckoned from the close
of the taxable quarter when the relevant sales or transactions were made pertaining to the
creditable input VAT, applies to the instant case, and not to the other actions which refer to
erroneous payment of taxes.
 The two-year period is reckoned from the close of the taxable quarter when the relevant
sales were made pertaining to the input VAT regardless when the input tax was paid.
12. Commissioner of Internal Revenue vs Mindanao II Geothermal Partnership

GR No. 191498 – January 15, 2014
Facts:
 Mindanao II is engaged in the business of power generation and sale of electricity to the
National Power Corporation (NAPOCOR). Mindanao II filed its Quarterly VAT Returns for
the second, third and fourth quarters of taxable year 2004 and on 6 October 2005,
Mindanao II filed with the Bureau of Internal Revenue (BIR) an application for the refund or
credit of accumulated unutilized creditable input taxes.
 Pursuant to Section 112(D) of the 1997 Tax Code, the Commissioner of Internal Revenue
(CIR) had a period of 120 days, or until 3 February 2006, to act on the claim. The
administrative claim, however, remained unresolved on 3 February 2006.
 Under the same provision, Mindanao II could treat the inaction of the CIR as a denial of its
claim, in which case, the former would have 30 days to file an appeal to the CTA, that is, on
5 March 2006. Mindanao II, however, did not file an appeal within the 30-day period.
Issue:
 Whether or not the application for refund was timely filed.
Held:
 It is only the administrative claim that must be filed within the two-year prescriptive period.
The proper reckoning date for the two-year prescriptive period is the close of the taxable
quarter when the relevant sales were made.
 In sum, our finding is that the three administrative claims for the refund or credit of
unutilized input VAT were all timely filed, while the corresponding judicial claims were
belatedly filed. Therefore, the CTA lost jurisdiction over Mindanao Il’s claims for refund or
credit.
13. Atlas Consolidated Mining & Dev’t vs Commissioner of Internal Revenue

GR No. 141104-148763 – June 08, 2007
Facts:
Issue:
 Whether or not the application for refund was timely filed.
Held:
 Hence, although this Court agreed with the petitioner corporation that the two-year
prescriptive period for the filing of claims for refund/credit of input VAT must be counted
from the date of filing of the quarterly VAT return, and that sales to EPZA-registered
enterprises operating within economic processing zones were effectively zero-rated and
were not covered by Revenue Regulations No. 2-88, it still denies the claims of petitioner
corporation for refund of its input VAT on its purchases of capital goods and effectively
zero-rated sales during the second, third, and fourth quarters of 1990 and the first quarter of
1992, for not being established and substantiated by appropriate and sufficient evidence.
Petitioner corporation is also not entitled to the re-opening of its cases and/or holding of
new trial since the non-presentation of the required documentary evidence before the BIR
and the CTA by its counsel does not constitute excusable negligence or mistake as
contemplated in Section 1, Rule 37 of the revised Rules of Court.
14. Commissioner of Internal Revenue vs Aichi Forging Company of Asia

GR No. 184823 – October 06, 2010
Facts:
Issue:
Held:

Estate & Donor Tax Rates Slashed Under TRAIN Law

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Estate & Donor Tax Rates Slashed Under TRAIN Law

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TAX with TRAIN LAW

Estate Tax Donor’s Tax

Net Estate Bracket

(1) The fair market value as determined by the Commissioner, or

(1) Franchise which must be exercised in the Phil.

(C) Revocable Transfer. -

The following are excluded from the gross estate:

(1) GSIS proceeds/ benefits;

– This rule applies to transmission of intangibles personal properties of non-resident alien

(a) Did not impose a transfer tax; or

SEC 6. COMPUTATION OF THE NET ESTATE OF A DECEDENT WHO IS EITHER A

2.1. Requisites for Deductibility of Claims Against the Estate –

2.1.1. The liability represents a personal obligation of the deceased existing

2.2.1. In case of simple loan (including advances):

2.2.1.2. Duly notarized Certification from the creditor as to the unpaid

When the lender, or the President/Vice-president/principal officer of the

2.2.1.3. In accordance with the requirements as prescribed in existing

2.2.2. If the unpaid obligation arose from purchase of goods or services:

2.2.2.1. Pertinent documents evidencing the purchase of goods or

2.2.2.2. Duly notarized Certification from the creditor as to the unpaid

When the lender, or the President/Vice-President/principal officer of the

4. Unpaid mortgages, taxes and casualty losses.

Vanishing Deductions are allowed when:

7.1. Definition of terms

Husband and Wife – Legally married man and woman.

The beneficiaries of a family home are:

(1) The husband and wife, or the head of a family; and

7.2.3. Allowable deduction must be in an amount equivalent to the current fair

(1) In the case of citizens or residents of the Philippines:

(b) Expenses, losses, indebtedness, and taxes consisting of;

(2) In the case of a non-resident not a citizen of the Philippines:

(1) The merger of usufruct in the owner of the naked title;

F. Filing and Payment

SEC. 7. COMPUTATION OF THE NET ESTATE OF A DECEDENT WHO IS A NON-

1. Standard deduction. – A deduction in the amount of Five Hundred Thousand Pesos

2.1. Claims against the estate.

2.3. Unpaid mortgages, taxes and casualty losses.

3. Property previously taxed.

4. Transfers for public use.

6.1. Cash installment

vi. An electronic Certificate Authorizing Registration (eCAR) shall be issued upon

In case of a non-resident decedent, whether non-resident citizen or non-resident alien, with

SEC. 10. PAYMENT OF TAX ANTECEDENT TO THE TRANSFER OF SHARES, BONDS OR

G. Amendments under TRAIN

Amendment of the Estate Tax Rate

Amendments on Estate Tax Deductions

Amendments on the Procedure for Estate Tax Settlement

A. Repeal of Filing of Notice of Death provision

B. Amendment on Filing of Estate Tax Return

Amendment on Withdrawals from Deceased’s Bank Account

(1) Decedent is unmarried, family home more than P10,000,000:

NET TAXABLE ESTATE P27,000,000

Net Estate P32,000,000

Net Estate P27,000,000

(4) Decedent is an unmarried, the family home is below P10,000,000:

NET TAXABLE ESTATE P7,000,000

Net Estate P16,500,000

Net Estate P7,000,000

(1) the donor renounces the power; or

Net Gift Bracket

The term 'deficiency' means:

Two kinds of donors