TRAIN LAW

RA 10963
CHANGES
• GRADUATED RATES (5%-20%) TO FIXED RATE OF 6%
• REMOVED FUNERAL EXPENSES, MEDICAL
EXPENSES, JUDICIAL EXPENSES
• REMOVED EXEMPT NET ESTATE OF PHP200,000.
• REMOVED NOTICE OF DEATH
• INCREASED STANDARD DEDUCTION FROM PHP1M
TO PHP5M
• INCREASED DEDUCTION FOR FAMILY HOME FROM
PHP1M TO PHP10M
• ALLOWED INSTALLMENT PAYMENTS
• ALLOWED DISPOSITION OF ESTATE
• ALLOWED WITHDRAWAL OF BANK DEPOSITS
ESTATE TAXATION (RR 12-2018)
• RATE OF ESTATE TAX
• SIX (6) PERCENT OF THE NET ESTATE
• APPLICABLE TO –
• RESIDENT; OR
• NON-RESIDENT

• LAW THAT GOVERNS

• STATUTE IN FORCE AT THE TIME OF DEATH OF DECEDENT
• ESTATE TAX ACCRUES AS OF THE DEATH OF DECEDENT
• ACCRUAL OF THE TAX IS DISTINCT FROM THE OBLIGATION
TO PAY THE SAME
• TAX RATES AND PROCEDURES UNDER RR 12-2018 SHALL
GOVERN THE ESTATE OF DECEDENT WHO DIED ON OR
AFTER THE EFFECTIVITY OF THE TRAIN LAW
ESTATE TAX – GROSS ESTATE
• COMPOSITION OF THE GROSS ESTATE
• ALL PROPERTIES AND INTEREST THEREIN AT THE TIME OF
DEATH
• INCL. REVOCABLE TRANSFERS
• INCL. TRANSFERS FOR INSUFFICIENT CONSIDERATION

• RESIDENTS AND CITIZENS

• ALL PROPERTIES, REAL OR PERSONAL, TANGIBLE OR
INTANGIBLE, WHEREVER SITUATED

• NON-RESIDENT ALIES
• ONLY PROPERTIES SITUATED IN THE PHILS.
• INTANGIBLE PERSONAL PROPERTY IS SUBJECT TO THE RULE
OF RECIPROCITY (SEC. 104)
ESTATE TAX – GROSS ESTATE
• AMOUNTS WITHDRAWN FROM THE DEPOSIT
ACCOUNTS SUBJECTED TO 6% FINAL W/TAX (SEC.
97) SHALL BE EXCLUDED FROM GROSS ESTATE
ESTATE TAX - VALUATION
• VALUATION – ACCDG TO THE FAIR MARKET VALUE AT THE TIME OF DEATH

• FOR REAL PROPERTY – APPRAISED VALUE WHICHEVER IS THE HIGHER OF:

• FMV AS DETERMINED BY THE COMMISSIONER (ZONAL VALUE)
• FMV FIXED BY THE PROVINCIAL OR CITY ASSESSORS

• FOR SHARES OF STOCKS

• UNLISTED COMMON SHAKRES – BOOK VALUE
• UNLISTED PREFERRED SHARES – PAR VALUE
• LISTED – FMV AT THE TIME OF DEATH, IF NONE MEAN BET. THE HIGHEST ANF LOWEST
QUOTATION AT A DATE NEAREST THE DATE OF DEATH
• UNITS OF PARTICIPATION IN ASSOCIATIONS, RECREATION OR AMUSEMENT – BID PRICE
NEAREST THE DATE OF DEATH PUBLISHED IN A NEWSPAPER OR PUBLICATION OF GEN.
CIRCULATION

• RIGHT TO USUFRUCT, USE OR HABITAION, ANNUITY

• PROBABLE LIFE OF THE BENEFICIARY IN ACCORDANCE WITH THE LATEST BASIC
STANDARD MORTALITY TABLE
DEDUCTIONS FROM GE – CITIZEN AND
RESIDENT ALIEN
• DEDUCTIONS FROM GROSS ESTATE (CITIZEN &
RESIDENT ALIEN)
1. STANDARD DEDUCTION – PHP5M WITHOUT NEED OF
SUBSTANTIATION

2. CLAIMS AGST THE ESTATE – CLAIM MEANS DEBTS OR

DEMANDS OF A PECUNIARY NATURE
• REQUISITES:
2.1. OBLIGATION MUST BE EXISTING AT THE TIME OF DEATH;
2.2. CONTRACTED IN GOOD FAITH AND FOR ADEQUATE AND FULL
CONSIDERATION IN MONEY OR MONEY’S WORTH;
2.3. CLAIM MUST BE A DEBT OR CLIAM WHICH IS VALID IN LAW AND
ENFORCEABLE IN COURT;
2.4. MUST NOT HAVE BEEN CONDONED BY THE CREDITOR OR THE
ACTION TO COLLECT HAS NOT PRESCRIBED.
ESTATE TAX - COMPUTATION
• SUBSTANTIATION REQUIREMENTS (UNPAID
LIABILITIES)
• IN CASE OF SIMPLE LOANS
• DEBT INSTRUMENT MUST BE NOTARIZED, EXCEPT LOANS
GRANTED BY FINANCIAL INSTITUTIONS WHERE
NOTARIZATION IS NOT PART OF THE BUSINESS PRACTICE
• NOTARIZED CERTIFICATION FROM THE CREDITOS AS TO
THE UNPAID BALANCE OF THE DEBT INCLUDING INTEREST
• PERSON CERTIFYING MUST NOT BE RELATED TO THE
DECEDENT WITHIN THE 4TH CIVIL DEGREE BY
CONSANGUINITY OR AFFINITY, EXCEPT:
• WHEN A COPY OF THE PROMISSORY NOTE OR OTHER EVIDENCE
OF THE INDEBTEDNESS MUST BE FILED WITHT THE RDO HAVING
JURISDICTION WITHIN 15 DAYS FROM THE EXECUTION THEREOF.
ESTATE TAX - SUBSTANTIATION
• PROOF OF FINANCIAL CAPACITY OF LENDER AS
WELL AS ITS LATEST AUDITED BALANCE SHEET
SHOWING THE SCHEDULE OF RECEIVABLES FROM
DECEDENT; OR NOTARIZED DECLARATION BY THE
CREDITOR OF HIS CAPACITY TO LEND (IF LENDER IS
NOT REQUIRED TO FILE ITR)
• STATEMENT UNDER OATH EXECUTED BY
ADMINISTRATOR OR EXECUTOR REFLECTING THE
DISPOSITION OF THE PROCEEDS OF THE LOAN IF IT
WAS CONTRACTED WITHIN THREE YEARS PRIOR TO
THE DEATH
SUBSTANTIATION -
• IFTHE UNPAID OBLIGATION AROSE FROM
PURCHASE OF GOODS OR SERVICES
• DOCUMENTS EVIDENCING PURCHASE LIKE SALES
INVOICE/DELIVERY RECEIPTS, OR CONTRACT OF SERVICES,
DULY ACKNOWLEDGED BY DECEDENT-DEBTOR AND
CREDITOR AND STATEMENT OF ACCOUNT DULY RECEIVED
BY DECEDENT-DEBTOR;
• NOTARIZED CERTIFICATION FROM THE CREDITOS AS TO
THE UNPAID BALANCE OF THE DEBT INCLUDING INTEREST;
• CERTIFIED TRUE COPY OF THE AUDITED BALANCE SHEET
OF CREDITOR WITH DETAILED SCHEDULE OF RECEIVABLES
AND CERTIFIED TRUE COPY OF THE UPDATED LATEST
SUBSIDIARY LEDGER/RECORD OF THE DEBT OF DECEDENT
DEDUCTIONS FROM GE – CONT’D
3. CLAIMS OF THE DECEASED AGAINST INSOLVENT
PERSONS AS DEFINED UNDER THE FINANCIAL
REHABILITATION AND INSOLVENCY ACT OF 2010 AND
OTHER EXISTING LAWS, WHERE THE VALUE OF
DECEDENT’S INTEREST THEREIN IS INCLUDED IN THE
VALUE OF THE GROSS ESTATE

4. UNPAID MORTGAGES, TAXES AND CASUALTY

LOSSES
4.1. VALUE OF THE DECEDENT’S INTEREST,
UNDIMINISHED BY SUCH MORTGAGE OR
INDEBTEDNESS, IS INCLUDED IN THE VALUE OF
GROSS ESTATE;
UNPAID MORT. –CONT’D
• 4.2. UNPAID TAXES ACCRUED AS OF THE DEATH OF
DECEDENT, EXCEPT:
• INCOME TAX UPON INCOME RECEIVED AFTER DEATH;
• PROPERTY TAXES NOT ACCRUED BEFORE DEATH; OR
• ESTATE TAX DUE FROM THE TRANSMISSION OF HIS ESTATE.

• 4.3. CASUALTY LOSSES INCURRED DURING THE

SETTLEMENT OF THE ESTATE..
• MUST NOT BE COMPENSATED BY INSURANCE OR OTHERWISE;
• SUCH LOSSES HAVE NOT BEEN CLAIMED AS A DEDUCTION OF
INCOME TAX PURPOSES.
• LOSSES WERE NOT INCURRED NOT LATER THAN THE LAST DAY
FOR THE PAYMENT OF ESTATE TAX {SUBSEC [A] OF SEC 91}.
DEDUCTIONS FROM GE – CONT’D
• 5. PROPERTY PREVIOUSLY TAXED
• PROPERTY FORMING PART OF THE GROSS ESTATE
SITUATED IN THE PHILS.
• DIED WITHIN FIVE YEARS PRIOR TO THE DEATH OF THE
DECEDENT OR TRANSFERRED TO THE DECEDENT BY GIFT
WITHIN FIVE YEARS PRIOR TO HIS DEATH
• PROPERTY MUST BE IDENTIIFED AS HAVING BEEN
RECEIVED BY THE DECEDENT FROM THE DONOR BY GIFT,
OR FROM SUCH PRIOR DECEDENT BY GIT, BEQUEST,
DEVISE OR INHERITANCE, OR WHICH CANBE IDENTIIFED AS
HAVING BEEN ACQUIRED IN EXCHANGE FOR PROPERTY SO
RECEIVED
• DONOR’S TAX OR ESTATE TAX WAS FINALLY DETERMINED
AND PAID
PROPERTY PREVIOUSLY TAXED
• AMOUNT DEDUCTIBLE –
• 100% OF THE VALUE IF PRIOR DECEDENT DIED WITHIN ONE 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;
• 80% OF THE VALUE IF PRIOR DECEDENT DIED MORE THAN ONE YEAR BUT NOT
MORE THAN TWO 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
• 60% OF THE VALUE IF PRIOR DECEDENT DIED MORE THAN TWO YEARS BUT NOT
MORE THAN THREE 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
• 40%OF THE VALUE IF PRIOR DECEDENT DIED MORE THAN THREE YEARS BUT NOT
MORE THAN FOUR 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
• 20% OF THE VALUE IF PRIOR DECEDENT DIED MORE THAN FOUR YEARS BUT NOT
MORE THAN FIVE 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
DEDUCTIONS FROM GE CONT’D
• 6. TRANSFERS FOR PUBLIC USE
• BEQUESTS, LEGACIES, DEVISES OR TRANSFERS TO OR FORE THE
USE OF THE GOVT OF THE REPUBLIC OF THE PHILD. OR ANY OF ITS
POLITICAL SUBD. FOR EXCLUSIVELY PUBLIC PURPOSE

7. FAMILY HOME – (PROVISIONS OF FAMILY LAW APPLICABLE)

• AMOUNT EQUIVALENT TO FMV OF THE FAMILY HOME
• IF FMV IS MORE THAN PHP10M, EXCESS SHALL BE SUBJECT TO ESTATE TAX

• CONDITIONS –
• 1. FAMILY HOME MUST BE THE ACTUAL RESIDENCE OF DECEDENT AND FAMILY AT
THE TIME OF HIS DEATH AS CERTIFIED BY THE BRGY. CAPTAIN WHERE THE FAMILY
HOME IS SITUATED
• TOTAL VALUE OF THE FAMILY HOME MUST BE INCLUDED AS PART OF THE GROSS
ESTATE;
• ALLOWABLE AMOUNT IS FMV OF THE FAMILY HOME INCLUDED IN THE GROSS
ESTATE OR EXTEBT OF DECEDENT’S INTEREST, WHICHEVER IS LOWER, BUT NOT
EXCEEDING PHP10M.
DEDUCTIONS FROM GE – CONT’D
• 8. AMOUNT RECEIVED BY HEIRS UNDER RA NO.
4917

• 9. NET SHARE OF SURVIVING SPOUSE IN THE

CONJUGAL PARTNERHIP OR COMMUNITY
PROPERTY
• AFTER DEDUCTING THE ALLOWABLE DEDUCTIONS
APPERTAINING TO THE CONJUGAL OR COMMUNITY
PROPERTIES INCLUDED IN THE GROSS ESTATE.
DEDUCTIONS – NON-RESIDENT ALIEN
• 1. STANDAR DEDUCTION – PHP500,000.00 NO
SUBSTANTIATION REQUIRED;

• 2. PROPORTIONATE LOSS OR INDEBTEDNESS WHICH

THE VALUE OF SUCH PART BEARS TO THE VALUE OF
HIS ENTIRE GROSS ESTATE WHERVER SITUATED
• INCLUDES:
• A. CLAIMS AGAINST ESTATE;
• CLAIMS AGAINST INSOLVENT PERSONS (VALUE SHOULD BE
INCLUDED IN THE GROSS ESTATE)
• UNPAID MORTGAGES, TAXES, AND CASUALTY LOSSES
• FORMULA: PHIL. GE/WORLD GE MULTILPIED BY TOTAL NO. 2
EQUALS ALLOWABLE DEDUCTION.
DEDUCTIONS – NON-RESIDENT ALIEN
• 3. PROPERTY PREVIOUSLY TAXED

• 4. TRANSFERS FOR PUBLIC USE

• 5. NET SHARE OF SURVIVING SPOUSE IN THE

CONJUGAL PROPERTY OR COMMUNITY PROPERTY
TIME AND PLACE OF FILING ESTATE TAX
RETURN AND PAYMENT OF ESTATE TAX DUE

• ESTATE TAX RETURNS –

• MUST BE FILED WHEN ESTATE CONSISTS OF REGISTERED
OR REGISTRABLE PROPERTY

• SUPPORTED BY A STATEMENT DULY CERTIFIED BY A CPA IF

THE GROSS VALUE EXCEEDS PHP5M CONTAINING:
• ITEMIZED ASSETS WITH CORRESPONDING VALUE
• ITEMIZED DEDUCTIONS
• THE AMOUNT OF TAX DUE
TIME AND PLACE – CONT’D
• TIME FOR FILING ESTATE TAX RETURN –
• WITHIN ONE YEAR FROM DECEDENT’S DEATH
• COURT APPROVING THE PROJECT OF PARTITION SHALL FURNISH THE COMMISSIONER
WITH A CERTIFIED COPY AND ITS ORDER WITHIN 30 DAYS FROM PROMULGATION

• EXTENSION OF TIME TO FILE ESTATE TAX RETURNS

• NOT EXCEEDING THIRTY DAYS

• TIME FOR PAYMENT OF ESTATE TAX

• PAID AT THE TIME RETRN IS FILED

• EXTENSION OF TIME TO PAY ESTATE TAX - CIR

• NOT TO EXCEED FIVE YEARS IF SETTLED JUDICIALLY; TWO YEARS IF SETTLED
EXTRAJUDICIALLY
• GROUND: PAYMENT OF ESTATE TAX WOULD IMPOSE UNDUE HARDSHIP UPON THE
ESTATE OF ANY OF THE HEIRS
• ESTATE TAX SHALL BE SUBJECT TO INTEREST BUT NOT TO SURCHARGE IF PAID
WITHIN THE EXTENSION
TIME AND PLACE – CONT’D
• INSTALLMENT PAYMENT AND PARTIAL DISPOSITION OF
ESTATE
• IN CASE OF INSUFFICIENCY OF CASH FOR THE IMMEDIATE PAYMENT

• OPTIONS:
1. CASH INSTALLMENT
 SHALL BE MADE WITHIN TWO YEARS FROM FILING
ESTATE TAX RETURN SHALL BE FILED WITHIN ONE YEAR FROM DEATH
FREQUENCY OF PAYMENT (I.E. MONTHLY, QUARTERLY, ETC.) AND AMOUNT
OF EACH INSTALLMENT SHALL BE INDICATED SUBJECT TO THE PRIOR
APPROVAL BY THE BIR
LAPSE OF TWO YEARS WITHOUT PAYMENT OF THE ENTIRE TAX – BALANCE
SHALL BE DUE AND DEMANDABLE SUBJECT TO APPLICABLE PENALTIES AND
INTERESTS FROM THE PRESCRIBED DEADLINE FOR FILING THE RETURN
AND PAYMENT OF ESTATE TAX
NO CIVIL PENALTIES OR INTEREST MAY BE IMPOSED ON ESTATES
PERMITTED TO PAY IN INSTALLMENTS
INSTALLMENT – CONT’D
• PARTIAL DISPOSITION OF ESTATE AND
APPLICATION OF ITS PROCEEDS TO THE ESTATE
TAX DUE
• CONVEYANCE WITH EQUIVALENT CASH CONSIDERATION
• ESTATE TAX RETURN FILED WITHIN ONE YEAR FROM DEATH
• WRITTEN REQUEST SHALL BE APPROVED BY BIR WITH
NOTARIZED UNDERTAKING THAT THE PROCCEDS SHALL BE
USED EXCLUSIVELY FOR THE PAYMENT OF THE TOTAL
ESTATE TAX
• COMPUTED ESTATE TAX SHALL BE ALLOCATED TO THE
VALUE OF EACH PROPERTY
• PAY PROPORTIONATE ESTATE TAX DUE OF THE PROPERTY
INTENDED TO BE DISPOSED
PARTIAL – CONT’D
• eCARs SHALL BE ISSUED TO THE PROPERTY
INTENDED TO BE DISPOSED TO COVER THE TOTAL
ESTATE TAX

• TOTAL ESTATE TAX SHALL BECOME DUE AND

DEMANDABLE FOR PLUS INTEREST AND
SURCHARGESFAILURE TO PAY THE TOTAL ESTATE
TAX DUE OUT FROM THE PROCEEDS OF THE SAID
DISPOSITION

• WITHHOLDING OF THE ISSUANCE OF eCAR ON THE

REMAINING PROPERTIES UNTIL FULL PAYMENT
INSTALLMENT – CONT’D
• PLACE OF FILING RETURN AND PAYMENT OF TAX
• RESIDENT – DECEDENT WAS DOMICILED
• NON-RESIDENT –
• WHERE ADMINISTRATOR OR EXECUTOR IS REGISTERED
• ADMIN OR EXEC IS NOT REGISTERED – LEGAL RESIDENCE OF A OR
E
• NO ADMIN OR EXEC – OFFICE OF COMMISSIONER (RDO NO.39)

• LIABILITY FOR PAYMENT

• ADMIN OR EXEC HAS THE PRIMARY LIABILITY TO PAY ESTATE
TAX BEFORE DELIVERY OF THE DISTRIBUTIVE SHARE
• HEIR OR BENEFICIARY IS SUBSIDIARILY LIABLE TO THE
EXTENT OF HIS PROPORTIONATE SHARE WHICH SHALL NOT
EXCEED THE VALUE OF HIS SHARE
TRANSFER OF SHARES, BONDS OR RIGHTS AND BANK DEPOSITS WITHDRAWAL

• NO TRANSFER OF SHARES, BONDS OR RIGHTS

WITHOUT eCAR
• BANK HAS KNOWLEDGE OF THE DEATH SHALL ALLOW
WITHDRAWAL OF BANK DEPOSIT SUBJECT TO A 6%
FINAL WITHHOLDING TAX
• WITHDRAWAL SHALL BE MADE WITHIN ONE YEAR FROM DEATH
• BANK SHALL FILE THE PRESCRIBED QUARTERLY WITHHOLDING
TAX RETURN
• BANK SHALL ISSUE BIR FORM NO. 2306
• WITHDRAWAL SLIPS SHALL CONTAIN –
• SWORN STATEMENT THAT ALL JOINT DEPOSITORS ARE STILL LIVING;
AND
• STATEMENT THAT THE WITHDRAWAL IS SUBJECT TO THE FINAL
WITHHOLDING TAX OF 6%
DONOR’S TAX
• RATE – 6% ON THE TOTAL GIFTS IN EXCESS OF
PHP250,000.00 EXEMPT GIFT MADE DURING THE
CALENDAR YEAR

• 6% RATE IS APPLICABLE ON DONATIONS MADE ON

OR AFTER THE EFFECTIVITY OF TRAIN LAW

• ANY CONTRIBUTION IN CASH OR IN KIND TO ANY

CANDIDATE, POLITICAL PATY OF COALITION OF
PARTIES FOR CAMPAIGN PURPOSES, SHALL BE
GOVERNED BY THE ELECTION CODE.
CHANGES
• GRADUATED RATES (2% - 15%) TO FIXED RATE OF
6%

• INCREASED EXEMPT GIFT FROM PHP100,000 TO

PHP250,000

• REMOVED DISTINCTION OF DONATION TO A

STRANGER AND RELATIVE

• REMOVED EXEMPTION OF DONATIONS ON

ACCOUNT OF MARRIAGE (DOWRY)
DONOR’S TAX
• LAWS AT THE TIME OF THE PERFECTION OF
DONATION SHALL GOVERN
• FORMS OF DONATION AND ACCEPTANCE MUST BE
FOLLOWED
• RENUNCIATION BY THE SURVIVING SPOUSE (SS) OF
HIS/HER SHARE IS SUBJECT TO DONOR’S TAX
• GENERAL RENUNCIATION BY AN HEIR OR SS OF HIS
SHARE 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-HEIR/S
DONOR’S TAX
• PROPERTY, OTHER THAN REAL PROPERTY
SUBJECTED TO THE FINAL CAPITAL GAINS TAX, IS
TRANSFERRED FOR LESS THAN AN ADEQUATE AND
FULL CONSIDERATION
• FMV EXCEEDED THE VALUE OF THE AGREED OR ACTUAL
CONSIDERATION OF SELLING PRICE – DEEMED A GIFT AND
INCLUDED IN THE COMPUTATION OF GIFTS MADE DURING THE
CALENDAR YEAR

• NET GIFT – NET ECONOMIC BENEFIT FROM THE

DONATION
• ASSUMED MORTGAGE IS DEDUCTED FROM THE FMV OF
THE PROPERTY
DONOR’S TAX
• VALUATION – FMV AT THE TIME OF DONATION

• COMPUTATION – ON A CUMULATIVE BASIS OVER A

PERIOD OF ONE CALENDAR YEAR

• HUSBAND AND WIFE ARE CONSIDERED SEPARATE

AND DISTINCT TAXPAYERS

• CONJUGAL OR COMMUNITY PROPERTY DONATED

BUT SIGNED BY HUSBAND – ONLY ONE DONOR
DONOR’S TAX
• FILING OF RETURNS AND PAYMENT

• REQUIREMENTS (contents of return) –

• EACH GIFT MADE DURING THE CALENDAR YEAR
• DEDUCTIONS CLAIMED AND ALLOWABLE
• ANY PREVIOUS GIFTS MADE
• NAME OF THE DONEE
• FURTHER INFORMATION AS REQUIRED BY COMMISSIONER

• TIME AND PLACE

• WITHIN 30 DAYS FROM THE DATE GIFT IS MADE OR
COMPLETED
• RDO WHERE THE DONOR IS DOMICILED
DONOR’S TAX – TAX RETURN
• NOTICE OF DONATION MADE BY A DONOR
ENGAGED IN BUSINESS TO BE EXEMPT FROM
DONOR’S TAX
• NOTICE OF DONATION WITHIN 30 DAYS FROM RECEIPT OF
CERTIFICATE OF DONATION ISSUED BY QUALIFIED DONEE
ON EVERY DONATION WORTH AT LEAST PHP50,000

• A STATEMENT THAT NOT MORE THAN 30% OF THE SAID

DONATION SHALL BE USED FOR ADMINISTRATION
PURPOSES

• FILED TO THE RDO WHO HAS JURISDCITION OVER HIS

PLACE OF BUSINESS
DONOR’S TAX
• TRANSFER FOR LESS THAN ADEQUATE AND FULL
CONSIDERATION
• PROPERTY, OTHER THAN REAL PROPERTY REFERRED TO
UNDER SEC. 24 (D)

• EXCESS OF FMV OVER THE VALUE OF THE CONSIDERATION

IS DEEMED A GIFT

• EXCEPT SALE, EXCHANGE, OR OTHER TRANSFER MADE IN

THE ORDIANRY COURSE OF BUSINESS (BONA FIDE
TRANSACTION , ARM’S LENGTH TRANSACTION, FREE FROM
DONATIVE INTENT)
DONOR’S TAX – EXEMPT GIFTS
• EXEMPT GIFTS
• MADE TO OR FOR THE USE OF THE NAT’L GOV’T OR ENTITY
CREATED BY ANY OF ITS AGENCIES NOT FOR PROFIT, OR
ANY POLITICAL SUBDIVISION

• GIFTS IN FAVOR OF AN EDUC’L, CHARITABLE, RELIGIOUS,

CULTURAL, OR SOCIAL WELFARE CORP., INST., ACCREDITED
NGO, TRUST OF PHILANTHROPIC, OR RESEARCH
ORGANIZATION . PROVIDED, NOT MORE THAN 30% OF THE
GIST SHALL BE USED FOR ADMINSTATION PURPOSES
DONOR’S TAX - OTHERS
• CONTRIBUTIONS FOR CAMPAIGN PURPOSES

• MADE PRIOR TO EFFECTIVITY OF RA 7166 (1991) – SUBJECT

TO DONOR’S TAX
• MADE AFTER THE EFFECTIVITY OF RA 7166 AND REPORTED
TO THE COMELEC – EXEMPT (ABELLO VS. CIR, GR 120721,
2/23/2005)
END
 HIGHLIGHTS
• Lowering of graduated income tax rates for
individuals
• Option of 8% in lieu of graduated income tax and
percentage tax under Section 116 for Non-VAT TP
• Repeal of Section on personal/additional exemptions
• Exemption from tax of 1st P250,000 compensation
income and purely self-employed income
• Gross Benefits Exclusions from P82,000 to P90,000
 HIGHLIGHTS
• Increase of the VAT Threshold to P3,000,000
• 7. Exempting Condo and HA Association dues
from VAT
• 8. Exempting hypertension/diabetes medicines
from. VAT
• 9. Increase of exempt residential rental to
P15,000
• 10. Residential lot reduced from P1,919,200 to
P1.5M
• 11. Residential H & L reduced from P3,919,200 to
P2.5M
 HIGHLIGHTS
• Excise Tax on Sweetened Beverages
• Excise Tax on Invasive Procedure
• Quarterly payment of Percentage Taxes
• Change filing of 1st Quarterly ITR from Apr 15 to
May 15
• Interest at double the legal interest rate for loans
• Increasing of Threshold for audit to P3,000,000
• EWT for Professionals with P3M or less Gross PF
reduced to 5% or 10% as the case may be
• 16. Reduction of Estate Tax from graduated to 6%
• 17. Reduction of Donor’s Tax from graduated to 6%
• 18. Increase of Standard Deduction for estate to P5M
• 19. Increase of family home for estate tax to P10M
• 20. 12-page ITR has been reduced to only 4 pages.
 INCOME TAXATION
INCOME TAX SYSTEM IN THE PHILS.
GLOBAL SCHEDULAR
o Business Income o Interest Income
o Professional Income o Sale of Shares of Stocks
o Rental of properties o Sale of Real properties
o Compensation Income o Dividend Income
o Commission o Royalties
o Transportation Allowance o Prizes
o Representation o Winnings
Allowance o Pensions
o Director’s Fees o Fringe Benefits
o All income subject to o All Income subject to
Creditable Withholding Final Withholding
Tax Tax(FWT)
o All income not subjected
to CWT and FWT
CLASSIFICATION OF INDIVIDUALS
EMPLOYEE – under an employer-employee relationship

B. SELF-EMPLOYED – purely engaged in business or

practice of profession

C. MIXED – employee and self-employed

 CLASSIFICATION OF EMPLOYEE
• A. MINIMUM WAGE EARNER

• B. RANK-AND-FILE

• C. SUPERVISORY OR MANAGERIAL
 CLASSIFICATION OF SEL-EMPLOYED
• I.
• With Sales or Gross Receipts of 3M and below

• With Sales or Gross Receipts of more than 3M

• II.
• Opting to pay 8% tax in lieu of IT and Percentage Tax

• Paying IT based on Graduated Rates and Claiming

Itemized Deductions or OSD
 CLASSIFICATIONOF MIXED INCOME
TAXPAYERS
1. Compensation Income plus Gross Sales or Receipts do
not exceed 3M

2. Compensation Income plus Gross Sales or Receipts

exceed 3M
 INCOME TAX RATES
2018-2022 2023 onwards
250,000 & below 0% 0%
Over 250,000 to 400,000 20% 15%
Over 400,000 to 800,000 25% 20%
Over 800,000 to 2,000,000 30% 25%
Over 2,000,000 to 8,000,000 32% 32%
Over 8,000,000 35% 35%
 Sec 24 Income Tax Rates
TRAIN vs Old Rates
TRAIN Law OLD Law
250,000 & below 0% 5%-25%
Over 250,000 to 400,000 20% 30%
Over 400,000 to 800,000 25% 30%-32%
Over 800,000 to 2,000,000 30% 32%
Over 2,000,000 to 8,000,000 32% 32%
Over 8,000,000 35% 32%
 Rules on Income
Tax for Employee
• Income is subject to withholding tax on compensation
based on the schedular rate under Sec. 24(A)(2)(a).

• The employer is required to issue Form 2316 to the

employee reflecting the income (both taxable and non-
taxable) and the tax withheld.

• No need to file Form 1700 if Working for just one

employer.

• Need to file Form 1700 if working for two or more

Employers
 Formula for Employee
Working for one employer
• Gross Compensation
• Exclude: non-taxable benefits
• Less: Mandatory Contributions
• Equals: Taxable Compensation Income
• Multiplied by the Tax Rates under Section 24(A)(2)(a)
• Equals: Tax due
• Less: W-Tax on Compensation Equals:
• Tax payable or refundable
 Formula for Employee
Working for two or more employers
• Gross Compensation from all employers
• Exclude: non-taxable benefits
• Less: Mandatory Contributions
• Equals: Taxable Compensation Income
• Multiplied by the Tax Rates under Section 24(A)(2)(a)
• Equals: Tax due Less: W-Tax on Compensation Equals:
Tax payable or refundable
 Rules on Income
Tax for Self-Employed
• For purely self-employed and/or professionals whose
gross sales/receipt and other non-operating income do
not exceed P3M
• The tax shall be, at the taxpayer’s option,
• Either –
• 8% income tax on gross sales or gross receipts in excess of
P250,000 in lieu of the graduated income tax rates and the
percentage tax under Sec.116; OR

• Income tax based on the graduated income tax rates for individuals
under Sec 24
 Rules on Income
Tax for Self-Employed
• Professional Fee is subject to Creditable Withholding -
Tax (CWT) of 8% if paid by W-Tax Agents.

• Receives Certificate of Creditable Tax Withheld at Source

(Form 2307 ) from W-Tax Agents

• Files Form 1701Q during the 1st three quarters and final
ITR Form 1701 for the entire year.
 Formula
For 8% Self-employed P3M or <

• Gross Sales/Receipts Less: P250,000

• Equals: Net Amount Taxable
• Multiply by 8% Equals: Tax Due
• Less: Creditable W-Tax
• Equals: Payable or Refundable
Formula for Graduated Rates Self-Employed > P3M

• Gross Sales/Receipts
• Less: Cost of Sales/Service
• Equals: Gross income
• Less: Allowable Deductions
• Equals: Net taxable income
• Multiplied by applicable rate (graduated)
• Equals: Income tax due
• Less: Creditable W-Tax
• Equals: Payable or Refundable
 Rules on Income Tax
for Mixed Income
• The compensation income shall be subject to the tax rates
prescribed under Section 24(A)(2)(a) of the Tax Code, as
amended;
AND
• The income from business or practice of profession shall
be subject to either 8% income tax or graduated rates,
depending on the amount of Gross Receipts
 Rules on Income Tax
for Mixed Income 3M Up
• If the gross professional fee and other non-operating
income exceeds P3M there is no option:

• The compensation income and the professional income

as wells as other non-operating income shall be subject to
the graduated income tax rates prescribed under Sec 24
of the NIRC, as amended.
 Rules on Income Tax
for Mixed Income P3M and Below
• If the gross professional fee and other non-operating
income do not exceed P3M, options are:

a. Graduated income tax rates shall apply to

compensation income under Sec 24(A)(2)(a);
And
b. 8% income tax rate on gross receipts in lieu of
graduated income tax rates and % tax under Sec 116 of
the NIRC.
 Rules on Income Tax
for Mixed Income P3M and Below
• The total tax due shall be the sum of:
(1) tax due from compensation, computed using the
graduated income tax rates; and

(2) tax due from self-employment/practice of

profession, resulting from the multiplication of the 8%
income tax rate with the total of the gross sales/receipts
and other non-operating income.
Income Tax Formula for Mixed Income P3M & <
• Gross Compensation
• Exclude: non-taxable benefits
• Less: Mandatory Contributions Multiplied by the Tax Rates
under Section 24(A)(2)(a)

• Opted for 8% Gross

• Receipts/Sales
• Net Amount Taxable
• Multiply by 8% E
• quals: Tax Due
• Less: W-Tax on Compensation and Creditable W-Tax
• Equals: Payable or Refundable
 Income Tax Formula
for Mixed Income >P3M
• Gross Sales/Receipts
• Less: Cost of Sales/Service
• Equals: Gross Profit
• Less: Deductions
• Net Income from business
• Plus: Compensation Income
• Equals: Net taxable income
• Multiplied by graduated rates
• Equals: Income tax due
• Less: W-Tax on Compensation and Creditable W-Tax
• Equals: Payable or Refundable
Passive Income Subject to Final Tax Section 3 (E) of
RR 8-2018
• Interests from any currency bank deposit a - 20 %;
• Interest income received by an individual taxpayer from a
depository bank under the expanded foreign currency
deposit system – 15%
• Proceeds of pre-terminated long-term deposit or
investment in the form of savings, trust funds, deposit
substitutes, investment management accounts and other
investments as prescribed by the BSP –the final tax shall
be based on the remaining maturity:
Four (4) years but less than five (5) years – 5%
Three (3) years but less than four (4) years – 12%;
Less than three (3) Years – 20%
Passive Income Subject to Final Tax Section 3 (E) of
RR 8-2018
• Royalties (except royalties on books and other literary
works and musical compositions) - 20%
• Royalties on books and other literary works and musical
compositions – 10%
• Prizes (except prizes amounting to P 10,000 or less)- 20%
• Winnings (except Philippine charity Sweepstakes and
Lotto winnings amounting to P 10.000 or less) -20%
• Cash and Property Dividends – 10%
• Capital Gains from Sale of Shares of Stocks not Traded in
the Stock Exchange - 15%;
• Capital Gains on of Real Property located in the
Philippines-6%.
 Q &A
RMC 50-2018
De Minimis Benefits:
• Medical Cash Allowance to dependents of
employees - P1,500 per semester or
P250/month

• Rice Subsidy – P2,000 or 50kg cavan of rice

• Uniform and Clothing allowance - P6,000

 Q &A
RMC 50-2018

In excess of allowed amounts

shall be treated (allowed) as
part of “Other Benefits” up to
P90,000 limit.
 Q &A
RMC 50-2018
• Q: Incentives given to employees:

• In general any incentives given to employees shall form

part of the compensation subject to income tax, unless
specifically exempted under special law or incentives in
the nature of “de minimis” benefits
 Q &A
RMC 50-2018
• Q : Who are not entitled to 8% Income Tax Rate

1. Purely compensation income earners

2. VAT registered taxpayers
3. Non-VAT whose gross receipts/sales exceeded P3M
4. TPs subject to percentage tax under Title V
5. Partners of GPPs
6. Individuals enjoying income tax exemptions like
BMBEs
 Q &A
RMC 50-2018
• Q : How can one avail of 8% in lieu of graduated?

• Answer:
1. The option to avail of the 8% income tax rate must be
signified annually, on or before May 15;

2. Such election is irrevocable within the year unless the

gross sales/receipts for the year exceeds P3M in which
case, the taxpayer automatically become subject to
graduated.
 Q &A
RMC 50-2018
• Q : Are returnable deposits or deposits held in trust, like
security deposits under lease agreements part of
definition of gross receipts?

• A: In general, all deposits are taxable except returnable

deposits or deposits held in trust and recorded as liability
are excluded.
 Q &A
RMC 50-2018
• Q: Is an individual under a contract of service or job order
arrangement considered self-employed?

• Ans: Yes.
 Q &A
RMC 50-2018
• Q: What are the applicable withholding taxes for
individual under a contract of service or job order
arrangement considered self-employed?

• Answer:
• Hired by Public or Gov’t Sector – withhold income and
business tax. However, if earning P250,000 from one
single payee – exempt from income tax upon submission
of Annex B-2 under Rr 11-2018 together with the copy of
the COR and percentage tax if employee signified the
option to avail of 8% income tax regime
 Q &A
RMC 50-2018
• Q 28 What are the applicable withholding taxes for
individual under a contract of service or job order
arrangement considered self-employed?

• Answer:
• Hired by Private Sector – withhold income tax only.
However, if earning P250,000 from one single payee –
exempt from income tax upon submission of Annex B-2
under RR 11-2018 together with the copy of the COR
 Q &A
RMC 50-2018
• Q : Are those availing of 8% income tax rate required to
file Financial Statements when filing ITR?

• Answer: NO
 Q &A
RMC 50-2018
• Q: If a professional or self-employed did not avail
of 8% and opt for the graduated rates table but
claimed OSD, can he be exempt form FS
submission?

• Answer: YES
BUSINESS TAXATION
(TRAIN LAW)
 Classification of Taxpayers For Business Tax
Purposes

SELF-EMPLOYED
VAT TP NON-VAT TP

Gross Sales/Receipts is over P3M Gross Sales/Receipts is P3M and

Per 12-month below
(Sec. 106/108) Per 12-month
(Sec. 116)
 VAT TAXPAYERS
VAT TP
12% 0%
Sale to Sale to AutomAtic Effectively
Gov’t Private Zero- Zero-
Rating Rating
 NON-VAT TAXPAYERS
NON-VAT, Sec. 109
EXEMPT
- Agri/marine FP
- Settling-personnel effects
- % TP/ACG
- Medical/educ’l services
- Employees/RAH multi-N
- INt’l agree/agri-coop
- Credit multi-P/other Coop
- Export/real prop.
- Lease/books
- Cargo V/fuel/int’l ship/air
- Int’l fuel/banks, NBFI
- SC/PWD/
- Asso., condo dues/BSP
- Medicines/ 3M or below
%AGE TP
- 3% Seller P3M
- 3% common carriers
- 3% Int’l Carriers
- 3%/2% Franchises
- 10% overseas dispatch
- 0-7% Banks and NBFI
- 1-5% Other NBFI
- 5% Life Ins Prems.
- 10% Agents Foreign Ins.
- 10-30% Amusement Tax
- 4-10% tax on winnings
- ½ 0f 1% Shares of Stocks
LSE
 Sale of Goods
Section 106
• This section applies to sale of goods.
• Sale of goods by professionals (i.e. medicines and
vaccines for doctors) are subject to 12% VAT and to be
combined with the professional services in computing the
threshold of P3M.
• The taxable base for goods is the selling price upon
delivery whether paid in cash or on account.
 Sale of Services
Section 108
• This Section applies to sale of services which covers all
kinds of professional services.

• The taxable base is actual collections. Uncollected

billings for services rendered are not subject to VAT until
collected
 Exempt Sale of Goods and Services
Sec. 109
• This Section provides the list of all goods and services
exempt from Value added tax from letter “A” to letter “BB”.
VAT Threshold Section 109 (BB)
• VAT Threshold – refers to the ceiling set to determine VAT
registrable taxpayers, currently set at P3M.
• It is the same threshold to be used to determine the
income tax liability of self – employed and/or professionals
under Sections 24(A)(2)(b) and 24(A)(2)(c)(2) of the Tax
Code, as amended.
Gross Sales RR 8-2018 Section 2(h)
• Refers to the total sales transactions net of VAT, if
applicable, reported during the period, without any other
deduction.
• However, gross sales subject to the 8% income tax rate
option shall be net of the following deductions:
Gross Sales RR 8-2018 Section 2(h)
• . Sales returns and allowances for which a proper credit or
refund was made during the month or quarter to the buyer
for sales previously recorded as taxable sales; and
• 2. Discounts determined and granted at the time of sale,
which are expressly indicated in the invoice, the amount
thereof forming part of the gross sales duly recorded in
the books of accounts. Discounts indicated in the invoice
at the time of sale, the grant of which is not dependent
upon the happening of a future event, may be excluded
from the gross sales within the same month/quarter it was
given.
 Gross Receipts
RR 8-2018, Sec. 2(g)
• 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 and
advance payments actually or constructively received
during the taxable period for the services performed or to
be performed for another person, except returnable
security deposits.
• In the case of VAT taxpayer, this shall exclude the VAT
component.
 Gross Receipts of Professionals
VAT or 3%
• . Professional Fee from clients/patients 2. Retainer Fees
3. Consultation Fees 4. Management Fees 5. Honorarium
6. Talent fees 7. Commission and service fees 8.
Bookkeeping fees 9. Payments from PHIC and HMOs by
Doctors
 Exempt Sale of Goods and Services RR 13-2018
Section 109
• 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;
 Exempt Sale of Goods and Services RR 13-2018
Section 109
• x. Transfer of Property 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 corporations established under Republic Act
No. 9904 (Magna Carta for Homeowners and
Homeowners' Association) and Republic Act No. 4726
(The Condominium Act), respectively;
 Exempt Sales of goods and Services
RR 13-2018, Sec. 109
• (z) Sale of gold to the Bangko Sentral ng Pilipinas;
• (aa) Sale of drugs and medicines prescribed for diabetes,
high cholesterol, and hypertension to beginning January
1, 2019 as determined by the Department of Health; and
 Exempt Sales of goods and Services
RR 13-2018, Sec. 109
• (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 (P3,000,000.00).
• CORPORATIONS DOMESTIC CORPORATIONS
corporations created or organized in the Phil or under its
laws. FOREIGN CORPORATION RESIDENT FOREIGN
CORP - foreign corporation engaged in trade or business
in the Phil - subject to either preferential tax