FS2223-ESTATETAX-16

BSA 2105 Atty. F. R. Soriano

ESTATE TAX CREDIT

Concept of estate tax credit

Estate tax credit refers to an amount that is subtracted from the Philippine estate tax to determine the
estate tax still due. It is distinguished from the tax that is deducted from the gross estate in order to arrive
at the net taxable estate. It should be emphasized that taxes that are deductible from the gross estate do not
include the estate tax which can only be computed after the net taxable estate has been determined.
In estate taxation, estate tax credit may refer to estate taxes paid to a foreign country, or the 6% tax
that is applied to bank deposit withdrawals after the death of the decedent while the estate is under
settlement.

Tax credit for estate taxes paid to a foreign country

An estate tax credit for estate taxes paid to a foreign country is allowed if the decedent was a citizen
(whether residing or not in the Philippines at the time of death) or a resident alien decedent. The foreign
tax for which credit is taken refers to tax proper only, and does not include interest and surcharge.

Computation of estate tax credit for estate taxes paid to a foreign country
1. The decedent had a net estate in a single foreign country and in the Philippines

The tax credit shall be determined as follows:

Limitation:
Net estate in foreign country
World net estate x Philippine estate tax = P xxx

Actual estate tax paid to foreign country P xxx

Tax credit (lower) P xxx

2. The decedent left a net estate in two or more foreign countries and in the Philippines

The tax credit shall be determined as follows:

Limitation by country:
Foreign country 1
Limitation:
Net estate in foreign country 1 Philippine estate
World net estate x tax = P xxx
Actual estate tax paid to foreign country 1 P xxx

Allowed (Lower) P xxx

Foreign country 2
Limitation:
Net estate in foreign country 2 Philippine estate
World net estate x tax = P xxx
Actual estate tax paid to foreign country 2 P xxx

Allowed (Lower) xxx

Total (A) P xxx

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 FS2223-ESTATETAX-16

Limitation by total
Limitation:
Net estate in all foreign countries Philippine estate
World net estate x tax = P xxx
Total estate taxes paid to foreign countries P xxx

Allowed (Lower) (B) P xx

Tax credit (lower between A and B) P xxx

Estate tax due

Philippine estate tax (Net taxable estate x 6%) P xxx

Less: Estate tax credit (as determined above) xxx

Estate tax due P xxx

Illustration of determination of net estate for each country:

Identifiable
Gross Estate Deductions
Philippines P 10,000,000 P 4,000,000
USA 6,000,000 2,000,000
Canada 4,000,000 1,600,000

Deductions, including standard deduction, that are not identifiable with any particular estate,
amounted to P7,000,000.

Philippines USA Canada

Gross estate P 10,000,000 P 6,000,000 P 4,000,000
Identifiable deductions (4,000,000) (2,000,000) (1,600,000)
Non-identifiable deductions* (3,500,000) (2,100,000) (1,400,000)

Net estate P 2,500,000 P 1,900,000 P 1,000,000

*Allocation of non-identifiable deductions:

Philippines – P10,000,000/P20,000,000 x P7,000,000 = P3,500,000
USA – P6,000,000/P20,000,000 x P7,000,000 = P2,100,000
Canada – P4,000,000/P20,000,000 x P7,000,000 = P1,400,000

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