ESTATE TAX PAYABLE

Determination of the Net Taxable Estate

Illustration 1: Single resident or citizen decedent
An unmarried Filipino died leaving the following properties and possible deductions:

Philippines Abroad Total

Motorcycle 120,000 - 120,000
Business interests 6,500,000 800,000 7,300,000
Family home 10,200,000 - 10,200,000
Other personal properties 200,000 100,000 300,000
Gross Estate 17,020,000 900,000 17,920,000

Funeral expenses 180,000 40,000 220,000

Judicial expenses 40,000 30,000 70,000
Obligations 300,000 200,000 500,000
Losses 50,000 50,000 100,000
Medical expenses 150,000 400,000 550,000

The net taxable estate and tax due shall be computed in the estate tax return as:
Separate Common Total
Gross Estate 17,920,000 - 17,920,000
Less: Ordinary deductions
Obligations 500,000 500,000
Losses 100,000 100,000
Net estate before share of surviving spouse 17,320,000 - 17,320,000
Less: Share of the surviving spouse -
Net estate before special deductions 17,320,000
Less: Special deductions
Family home 10,000,000
Standard deductions 5,000,000
Net taxable estate 2,320,000
Multiply by: 6%
Estate tax due 139,200

Illustration 2: Single non-resident alien decedent

A non-resident Japanese died leaving the following properties and possible deductions:
Philippines Abroad Total
Condominium 2,000,000 2,000,000
Business interests 1,500,000 800,000 2,300,000
Family home 1,200,000 1,200,000
Other personal properties 350,000 1,150,000 1,500,000
Total 3,850,000 3,150,000 7,000,000

Funeral expenses 50,000 240,000 290,000

Judicial expenses 40,000 110,000 150,000
Obligations 300,000 200,000 500,000
Losses 80,000 120,000 200,000
Transfer for public purpose 50,000 20,000 70,000
Vanishing deductions 140,000 80,000 220,000
Medical expenses 150,000 400,000 550,000
The net taxable estate and tax due shall be computed in the estate tax return as:
Separate Common Total
Gross Estate 3,850,000 - 3,850,000
Less: Ordinary deductions
Pro-rated LIT
Obligations 275,000 275,000
Losses 110,000 110,000
Transfer for public use 50,000 50,000
Vanishing deductions 140,000 - 140,000
Net estate before share of surviving spouse 3,275,000 - 3,275,000
Less: Share of the surviving spouse -
Net estate before special deductions 3,275,000
Less: Special deductions
Family home -
Standard deductions 500,000
Net taxable estate 2,775,000
Multiply by: 6%
Estate tax due 166,500

Illustration 3: Married resident or citizen decedent

Mr. Rice, a resident alien, died leaving the following properties and estate deductions:
Separate properties Conjugal
Located in the Philippines: Mr. Rice Mrs. Rice Properties
Personal properties 8,400,000 1,100,000 2,500,000
Family home - - 10,800,000
Other real properties 2,300,000 1,800,000 4,000,000
Total Philippine properties 10,700,000 2,900,000 17,300,000
Located abroad:
Personal properties 2,000,000 1,000,000 4,000,000
Real properties 1,000,000 2,500,000 4,200,000
Total foreign properties 3,000,000 3,500,000 8,200,000
World Properties 13,700,000 6,400,000 25,500,000

The executor of Mr. Rice compiled the following expenses and deductions which are matched to their respective
sources:

Separate properties Conjugal

Philippines and Abroad: Mr. Rice Mrs. Rice Properties
Funeral expenses 250,000 350,000
Judicial expenses 600,000
Obligations 1,000,000 1,800,000 2,000,000
Losses 200,000 400,000 300,000

The net taxable estate and tax due shall be computed as:
Separate Common Total
Philippine properties 10,700,000 17,300,000 28,000,000
Foreign properties 3,000,000 8,200,000 11,200,000
Gross estate 13,700,000 25,500,000 39,200,000
Less: Ordinary deductions
Obligations 1,000,000 2,000,000 3,000,000
Losses 200,000 300,000 500,000
Net estate before share of surviving spouse 12,500,000 23,200,000 35,700,000
 Less: Share of surviving spouse ÷2 11,600,000
Net estate before special deductions 24,100,000
Less: Special deductions
Family home 5,400,000
Standard deduction 5,000,000
Net taxable estate 13,700,000
Multiply by: 6%
Estate tax due 822,000

Illustration 4: Married non-resident alien decedent

Mrs. Kay Yakoto, a non-resident Japanese, died leaving the following properties and estate deductions:

Separate properties Conjugal

Located in the Philippines Mr. Yakoto Mrs. Yakoto Properties
Tangible personal properties 1,400,000 1,100,000 2,500,000
Intangible personal properties 300,000 600,000 200,000
Real properties 1,300,000 1,800,000 5,800,000
Total Philippine Properties 3,000,000 3,500,000 8,500,000

Located abroad:
Personal properties 2,000,000 1,000,000 2,000,000
Real properties 1,000,000 2,500,000 2,500,000
Total foreign properties 3,000,000 3,500,000 4,500,000

World Properties 6,000,000 7,000,000 13,000,000

A breakdown of the items of LIT is presented as follows:

Philippines Abroad
Separate Common Separate Common Total
Obligations 1,000,000 1,400,000 1,000,000 1,600,000 5,000,000
Losses 200,000 400,000 200,000 - 800,000
Transfer for public
purposes 350,000 250,000 600,000

The gross estate shall be computed as:

Mrs. Yakoto Common Total
Philippine gross estate 3,500,000 8,500,000 12,000,000
Foreign gross estate 3,500,000 4,500,000 8,000,000
World gross estate 7,000,000 13,000,000 20,000,000

Philippine Gross Estate Ratio= 12m/20m= 60%

The total allowable deductions for LIT items shall be computed as follows:
Allowable
Global LIT Phil Ratio Phil LIT
Obligations 5,000,000 x 60% 3,000,000
Losses 800,000 x 60% 480,000
Total 5,800,000 3,480,000
The deductible amounts of LIT between separate and common properties shall be pro-rated based on the ratio of
actual LIT amounts as follows:
Total Proportional Value Allowed
Allowable Percentage =
Total Actual Philippine Value

Hence,
Total Allowed/ Actual Phil. Value =%
Obligations 3,000,000 2,400,000 125%
Losses 480,000 600,000 80%

Separate Common Total

Obligations:
Actual 1,000,000 1,400,000 2,400,000
x Allowable % 125% 125% 125%
Deductible 1,250,000 1,750,000 3,000,000

Losses:
Actual 200,000 400,000 600,000
x Allowable % 80% 80% 80%
Deductible 160,000 320,000 480,000

The net taxable estate and tax due of Mrs. Yakoto shall be computed as:
Separate Common Total
Gross estate 3,500,000 8,500,000 12,000,000
Less: Ordinary deductions
Pro-rated LIT:
Obligations 1,250,000 1,750,000 3,000,000
Losses 160,000 320,000 480,000
Transfer for public use 350,000 - 350,000
Net estate before share of surviving spouse 1,740,000 6,430,000 8,170,000
Less: Share of surviving spouse ÷2 3,215,000
Net estate before special deductions 4,995,000
Less: Special deductions
Family home -
Standard deduction 500,000
Net taxable estate 4,455,000
Multiply by: 6%
Estate tax due 267,300

➢ Determination of Foreign Tax Credit

The estate tax due of decedents who are taxable on global estate such as resident citizens, resident aliens and
non-resident citizens shall be further reduced by foreign tax credit for estate taxes paid in foreign countries.

➢ The foreign tax credit shall depend on whether the decedent has properties in a single foreign country
or multiple countries.

Single Foreign Country

The foreign tax credit shall be whichever is lower of the actual foreign estate tax paid and the following limit:

Foreign net taxable estate

x Philippine estate tax due
World net taxable estate
Multiple Foreign Countries
The lower of actual estate tax and the foregoing limit for each country is determined first.
The final foreign tax credit shall be the lower of the total of the tax credit allowable per country and the world
estate tax credit limit computed as:

Total foreign net taxable estate

x Philippine estate tax due
World net taxable estate

Illustration 1: One foreign country

A resident decedent paid P110,000 estate tax in Japan. The following shows a breakdown of his net taxable
estate:
Net taxable estate in the Philippines 1,200,000
Net taxable estate in Japan 1,800,000
World net taxable estate 3,000,000

The estate tax on the P3,000,000 world net taxable estate is P180,000.

The estate tax credit shall be computed as:

Actual foreign estate tax paid 110,000

Limit: (1,800,000/3,000,000 x 180,000) 108,000

Foreign tax credit-Lower 108,000

The estate tax payable shall be computed as:

Estate tax due 180,000
Less: Foreign tax credit 108,000
Estate tax still due or payable 72,000

Illustration 2: Multiple foreign countries

A citizen decedent had the following data:

Net taxable estate Estate tax paid

Hong Kong 1,700,000 200,000
Korea 2,800,000 150,000
Philippines 1,500,000
Total 6,000,000

The estate tax on the P6,000,000 world net taxable estate is P360,000.

Limit 1: Per country limit

Hong Kong Korea Total
Actual estate tax paid 200,000 150,000
Limit:
1.7m/6m x 360,000 102,000
2.8/6m x 360,000 168,000
Lower 102,000 150,000 252,000

Limit 2: Total foreign countries

Lower in Limit 1 252,000
Limit 2: (1.7m + 2.8m) / 6m x 360,000 270,000
Final Foreign Tax Credit 252,000

The estate tax payable shall be computed as:

Estate tax due 360,000
Less: Foreign tax credit 252,000
Estate tax still due or payable 108,000

Determination of the Net Taxable Estate Per Country

Illustration 1: Single decedent-foreign tax credit
A single citizen decedent died leaving the following gross estate and deductions:

Philippines Japan Total

Gross Estate 21,000,000 9,000,000 30,000,000
Deductions:
Obligations 300,000 200,000 500,000
Losses 50,000 50,000 100,000
Family home 12,000,000
Estate tax paid - 320,000

The net taxable estate of each country shall be computed as:

Philippines Japan Total

Gross estate 21,000,000 9,000,000 30,000,000
Less: Ordinary deductions
Obligations 300,000 200,000 500,000
Losses 50,000 50,000 100,000
Net estate before share of surviving spouse 20,650,000 8,750,000 29,400,000
Less: Share of surviving spouse - - -
Net estate before special deduction 20,650,000 8,750,000 29,400,000
Less: Special deductions
Family home 10,000,000 10,000,000
Standard deduction 3,500,000 1,500,000 5,000,000
Net taxable estate 7,150,000 7,250,000 14,400,000
Multiply by: 6%
Estate tax due 864,000

The allocable standard deduction per country shall be:

Philippines 21m/30m x 5m = 3,500,000
Japan 9m /30m x 5m = 1,500,000
Total 5,000,000

Estate tax credit and tax still due

The estate tax credit shall be computed as:

Actual foreign estate tax paid 320,000

Limit: (7,250,000/14,400,000 x 864,000) 433,000

Foreign tax credit-lower 320,000

 The estate tax still due or payable shall be computed as:

Estate tax due 864,000

Less: Foreign tax credit 320,000
Estate tax still due or payable 544,000

Illustration 2: Married decedent – foreign tax credit

Mr. Nasser, a citizen decedent, died leaving the following properties and estate deductions:

Mr. Nasser Common Total

Properties in the Philippines 27,000,000 45,000,000 72,000,000
Properties in Egypt 3,000,000 5,000,000 8,000,000
World Total 30,000,000 50,000,000 80,000,000

The executor of Mr. Nasser compiled the following deductions.

Philippines Egypt Total

Obligations *700,000 **800,000 1,500,000
Losses **200,000 *100,000 300,000
Family home **15,000,000
Estate tax paid ? 290,000

*Attributable to exclusive properties of Mr. Nasser

**Attributable to common properties

The taxable net estate per country shall be computed as follows:

(Amounts are in thousands)

Philippines Egypt Grand

Separate Common Total Separate Common Total Total
Gross estate 27,000 45,000 72,000 3,000 5,000 8,000 80,000
Less:
Obligations 700 - 700 - 800 800 1,500
Losses 200 200 100 - 100 300
Net estate before share of SS 26,300 44,800 71,100 2,900 4,200 7,100 78,200
Less: Share of SS ÷2 22,400 ÷2 2,100 24,500
Net estate before special
deduction 48,700 5,000 53,700
Less:
Family home 7,500 - 7,500
Standard deduction 4,500 500 5,000
Net taxable estate 36,700 4,500 41,200

Phil standard deduction= 72m/80m x 5m = 4,500,000

Foreign standard deduction= 8m/80m x 5m = 500,000
Total 5,000,000

Tax credit and estate tax still due

The estate tax shall be computed as follows 41.2m x 6% = 2,472,000

The estate tax credit shall be computed as:

Actual foreign estate tax paid 290,000
Limit: 4,500/41,200 x 2,472,000 270,000

Foreign tax credit- lower 270,000

The estate tax still due or payable shall be computed as:

Estate tax due 2,472,000

Less: Foreign tax credit 270,000
Estate tax still due or payable 2,202,000

Determination of estate tax due with multiple foreign countries

In our example, we used only one country to simplify the illustration. If multiple countries are involved, similar
procedures and logic are applied.

Estate tax requirements

1. Estate tax return
2. Certified Public Accountant (CPA) Certification- exceeds P5M

The estate tax return shall be filed within one year after the date of death.

Where to file the estate tax return?

1. Accredited Agent Bank
2. Revenue District Office
3. Collection Agent
4. Duly authorized Treasurer of the City or Municipality
5. Office of the Commissioner