IMPORTANT: This article is relevant only to those who died before 01 January 2018 since Republic Act No. 10963, otherwise known as the Tax Reform for Acceleration and Inclusion Law (TRAIN Law), amended the Tax Code, including the procedure, tax rates and deductions for estate taxes. The TRAIN Law became effective on 01 January 2018.
Under Philippine laws, estate tax is defined as a tax on the right of the deceased person to transmit his estate to his lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition. According to the Bureau of Internal Revenue, estate tax is not a tax on property but rather imposed on the privilege of transmitting property upon the death of the owner.
It bears great emphasis that the Estate Tax Return must be filed within six (6) months from the decedent’s death. The deadline may be extended by the Commissioner of the BIR, in meritorious cases, not exceeding thirty (30) days. It must be noted that the estate itself is assigned its own Tax Identification Number (TIN). The Estate Tax Return is filed with Revenue District Office (RDO) having jurisdiction over the place of residence of the decedent at the time of his death. If the decedent has no legal residence in the Philippines, then the return can be filed with:
1. The Office of the Revenue District Officer, Revenue District Office No. 39, South Quezon City; or
2. The Philippine Embassy or Consulate in the country where decedent is residing at the time of his death.
Furthermore, the estate tax shall be paid at the time the return is filed. However, upon request and if the Commissioner of the BIR finds that payment on the due date of the Estate Tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years, in case the estate is settled through the courts or two (2) years in case the estate is settled extra-judicially. If an extension is granted, the BIR Commissioner may require a bond in such amount, not exceeding double the amount of tax, as it deems necessary.
The estate tax is based on the value of the net estate as follows:
1.If not over P200,000, it is exempt 2. If over P200,000 but not over P500,000, then tax is 5% of the excess over P200,000 3. If over P500,000 but not over P2,000,000, then tax is P15,000 PLUS 8% of the excess over P500,000 4. If over P2,000,000 but not over P5,000,000, then tax is P135,000 PLUS 11% of the excess over P2,000,000 5. If over P5,000,000 but not over P10,000,000, then tax is P465,000 PLUS 15% of the excess over P5,000,000 6. If over P10,000,000, then tax is P1,215,000 PLUS 20% of the excess over P10,000,000
The basis shall be the net estate. That means that there are allowable deductions on the estate. These deductions include funeral expenses, share of the surviving spouse, medical expenses incurred by the decedent within 1 year prior to his death, family home deduction of not more than P1,000,000.00, standard deduction of P1,000,000.00, among others. It is best to consult with an accountant on this matter to determine the accurate estate tax.
Nicolas & De Vega Law Offices is a full service law firm in the Philippines. You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines. You may also call us at +632 4706126, +632 4706130, +632 4016392.