Estate Tax Regulations in the Philippines

Revenue Regulations No. 12-18

• These regulations consolidate the rules governing estate and donor's taxes, incorporating amendments from the TRAIN Law, and repealing RR No. 2-2003.

Rate of Estate Tax

• The net estate of any decedent is subject to an estate tax of 6%.

Estate Tax Imposition

• Estate taxation is governed by the statute in force at the time of the decedent’s death.
• The estate tax accrues at the time of death and succession occurs.
• Tax rates and procedures apply to the estates of those who died on or after the TRAIN Law's effectivity date.

Composition of the Gross Estate

• The gross estate includes properties and interests at the time of death.
• It also includes revocable transfers and transfers for insufficient consideration.

Valuation of the Gross Estate

• Properties are valued at their fair market value at the time of the decedent’s death.
• For real property, the appraised value is the higher of the fair market value determined by the Commissioner or the value in the schedule fixed by provincial and city assessors.
• For shares of stock, the fair market value depends on whether they are listed or unlisted.
• Unlisted common shares are valued at book value.
• Unlisted preferred shares are valued at par value.
• Appraisal surplus is not considered and RR No. 06-2013 provisions do not apply.
• For listed shares, the fair market value is the arithmetic mean between the highest and lowest quotation nearest the date of death.
• The fair market value of club participation units is the bid price nearest the date of death.
• To determine the value of usufruct, use or habitation, as well as that of annuity, the right's probable life is taken into account in accordance with the latest basic standard mortality table approved by the Secretary of Finance.

Net Estate Computation

• For citizens or resident aliens of the Philippines, the net estate is determined by deducting certain items from the gross estate's value.

Standard Deduction

• A standard deduction of P5,000,000 is allowed without substantiation for the decedent's benefit.

Claims Against the Estate

• "Claims" generally refer to debts or demands of a pecuniary nature enforceable against the deceased during their lifetime.
• Claims can arise from Contract, Tort, or Operation of Law.

Requisites for Deductibility of Claims

• The liability must represent a personal obligation of the deceased at the time of death.
• The liability was contracted in good faith and for adequate consideration.
• The claim must be valid in law and enforceable in court.

Indebtedness

• Indebtedness must not have been condoned by the creditor or prescribed.

Substantiation Requirements

• All unpaid obligations of the decedent at the time of death are allowed as deductions from the gross estate.
• Required documents must be submitted.

Simple Loan (Including Advances)

• A debt instrument like a promissory note or contract must be notarized when incurred.
• Financial institutions are exempt from notarization if it's not part of their policy.
• A notarized certification from the creditor is needed for the unpaid balance, including interest as of death.
• If the creditor is a corporation, the sworn certification should be signed by the President, Vice-President, or other principal officer.
• If the creditor is a partnership, the sworn certification should be signed by any of the general partners.
• If the creditor is a bank, the Certification shall be executed by the branch manager of the bank which monitors the loan.
• The one who certifies must not be a relative of the borrower within the fourth civil degree except when certain requirements are met.
• A copy of the promissory note must be filed with the RDO having jurisdiction over the borrower within fifteen days of the execution thereof if the lender is a relative of the debtor of a certain degree.
• In existing internal revenue issuances, provide proof of financial capacity to lend and a balance sheet demonstrating the unpaid balance of the decedent-debtor.
• A statement under oath, executed by the administrator, must reflect the disposition of the loan proceeds, if contracted within three years prior to the death of the decedent.

Purchase of Goods or Services

• Pertinent documents such as sales invoices, delivery receipts, services agreed to be rendered as acknowledged by the debtor, and statements of account are to be submitted.

Court Settlement

• In testate/intestate proceedings, pertinent documents filed with the Court evidencing the claims against the estate, and the Court Order approving the said claims are additionally submitted.

Mortgages Payable

• If unpaid mortgage payable is being claimed, verification must be performed to determine as to who the beneficiary of the loan proceeds may be.
• If the proceeds went to another party, the value of the loan must be included as a receivable of the estate.

Property Previously Taxed

• An amount is equal to the specified value of any property in gross estate situated in the Philippines which was of a person who died within 5 years from the death.

Family Home

• An amount equivalent to the lesser of current fair market value of the family home or P10,000,000 is to be deducted.

Definition of 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.
• A person can only constitute only one family home.
• Actual occupancy isn't considered interrupted or abandoned due to temporary absences for travel, studies, or work abroad.

The Beneficiaries of a family home are:

• The husband and wife, or the head of a family.
• Their parents, ascendants, descendants, including legally adopted children, brothers and sisters, whether the relationship be legitimate or illegitimate.

Proper Presentation of Family Home

• Presents the manner of deducting family home, standard deduction, and other allowable deductions.

Estate tax returns are to be filed

• Must be supported by a statement duly certified to by a Certified Public Accountant.

Rate of Donor’s Tax

• Shall be six percent (6%) computed on the basis of the total gifts in excess of Two Hundred Fifty Thousand Pesos (P250,000 exempt gift made during the calendar year.

Exempt Gifts:

• Gifts made to or for the use of the National Government.
• Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation.