Donors Tax

Donors Tax
Donors Tax is tax levied, assessed, collected
and paid upon the transfer by any person,
resident or nonresident, of the property by gift.

WHY?
To prevent avoidance to estate tax
To compensate for loss of income tax when large
estate are split by donation

NOTE:
Donors Tax is NOT a property tax BUT
one which is imposed on the TRANSFER
OF PROPERTY by way of gift inter vivos.

2 Kinds of DONATION:
Donation Mortis
Causa

Donation Inter
Vivos

takes effect UPON THE

DEATH OF THE DONOR.

takes effect DURING THE

LIFETIME OF THE DONOR.

subject to ESTATE TAX

subject to DONORS TAX

Illustration:
Mr. A gave a diamond necklace as a gift to Ms. B
who immediately accepted the gift. Since the
above donation took effect while the donor and
the donee are still alive, this is subject to
Donors Tax.

REQUISITES
of a Valid Donation:
(CDDA)
Capacity of the Donor
Donative Intent
Delivery of the gift
Acceptance of the donee

Illustration:
Mr. D, a capacitated philanthropist donated Php 1M
to a retarded child. The child is represented by his
parents to accept the donation. Is the donation
valid?

Answer: YES.

Gross Gift
The value of the property or right donated subject
to donors tax BEFORE ANY DEDUCTION.
The determination of gross gift is the first procedure
in the computation of the donors tax.

Resident or Citizen
Donor

Non-resident Alien
Donor

1. ALL Real Property wherever

situated

1. Only Real Property situated

in the Philippines

2. ALL Personal Property

wherever situated

2. Only Personal Property

a. Tangible property situated
in the Philippines
b. Intangible property with a
situs in the Philippines
unless exempted on the
basis of RECIPROCITY

TANGIBLE and
INTANGIBLE

What are Intangible Personal Properties with

a Situs in the Philippines?
a. Franchise which must be exercised in the Philippines

b. Shares, obligations or bonds issued by any corporation or sociedad

anonima organized or constituted in the Philippines in accordance
with its laws
c. Shares, obligations or bonds issued by any foreign corporation 85%
of the business of which is located in the Philippines
d. Shares, obligations or bonds issued by any foreign corporation, if
such shares, obligations or bonds have acquired a business situs in
the Philippines
e. Shares or rights in any partnership, business or industry
established in the Philippines

NOTE:
Cancellation of
Indebtedness

Condonation or remission of debt

where the debtor did not render
service in favor of the creditor is a
DONATION.

Renunciation
of Inheritance

A renunciation of inheritance in favor

of CO-HEIR is not a donation for the
purpose of taxation. However, if the
donation is made in favor of another
person NOT A CO-HEIR, there is a
donation.

Deductions from Gross

Gift
1. Mortgage on the property assumed by the
donee.

2. Amount specifically provided by the donor as

diminution on the property donated.

Exemptions from Gross

Gift
1. Php 10,000 dowries or gifts made
a. On account of marriage
b. Before the celebration or within ONE
(1) year thereafter
c. The donee must be legitimate,
recognized natural, or legally adopted
child of the donor.

Notes:
A. If the property donated is conjugal/community
property each spouse is a donor and entitled to
this exemption.

B. If the property is exclusive property of the

donor only the property owner is donor.

2. Gifts made to or for the use of the National

Government, agencies and instrumentalities which is
not conducted for profit, or to any political subdivision.

3. Gifts in favor of non-profit educational, charitable,

religious, cultural or social welfare institution,
accredited nongovernment organization, philanthropic
organization or research institution. Provided, however,
that not more than 30% of said gifts shall be
used by such donee for administration purposes.

Exemption under Special

Laws
Donations to the following are exempt under
special laws:

1. International Rice Research Institute

2. Ramon Magsaysay Award Foundation
3. Philippine Inventors Commission
4. Integrated Bar of the Philippines
5. Development Academy of the Philippines
6. Philippine-American Cultural Foundation
7. Philippine Health Insurance Corporation

Donation to a Stranger
The tax is 30% of net gift
A STRANGER is a person who is NOT
- a brother/sister (whether of the whole
or half blood)
- spouse, ancestor, lineal descendant or a
collateral blood relative within the 4th
degree of relationship

NOTE:
If the donee is a STRANGER, the rate of tax shall
be 30% of the net gifts.

If the donee is NOT A STRANGER, the rate shall

be from 2% to 15% of the net gifts.

How to compute Donors

Tax:
Gross gifts

xx

Less: Deductions from gross gifts

xx

Net Gifts

xx

X Tax rate

xx

Donors tax on the net gifts

xx

Rules on Foreign Tax

Credit:
The tax credit is whichever is lower between
a. Estate tax paid to the foreign country
b.

Tax credit limit = Net Taxable Estate, foreign

country
Net Taxable Estate, world
X
Philippine Estate Tax

Illustrative Problem:
Dango, resident citizen, made the following
donations on May 6 of the current year:

Php 175, 000 To his sister, Diana, property

situated in Los Angeles, California, US. The
donors tax paid is Php 20,000

Php 225,000 To Barbara, his girlfriend in the

Philippines

Php 50,000 To International Rice Research

Institute

 The donors tax due after tax credit is ..

On donation to a relative:
Net Gift
Tax on 100,000

Php 175,000
Exempt

75,000 x 2% 1500
Donors Tax is

1500

On donation to a stranger:
To Barbara
To IRRI
Gross gift
Less: Exemption IRRI
Net gift
Rate of tax (stranger)
Donors Tax

225,000
50,000
275,000
50,000
225,000
30%
67,500

Donors Tax on donation to:

Relative

1,500

Stranger

67,500

Total Donors Tax

69,000

Less: Tax credit

(20,000)

Tax paid to USA

20,000

Limit (175,000/400,000

30,187

x 69,000)

Donors Tax Payable

49,000

Administrative
Provisions
1. Time for Filing within 30 days after the gift is
made

2. Time for payment at the time of filing the

return.