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TAXATION - Shares in companies, bonds, and other financial

instruments
LECTURE 07 | TRANSFER TAXES - ESTATE AND DONORS
Location (Situs) of Intangible Assets:
TAXES
- Receivables (like promissory notes). The place where
the debtor resides determines the location.
- Bank Deposits. The bank’s location determines the
Transfer taxes are levies imposed on transferring situs.
property ownership from one person to another. In the - Trademarks, patents, copyrights. The location where
Philippine tax system, these taxes play a significant these rights are exercised or used.
- Partnership Interests. The situs is where the
role in ensuring that the state earns revenue from the
partnership is registered.
transmission of wealth, particularly in the context of - Shares of Stock for domestic corporations. Situs is
property and wealth transfers during life (through within the Philippines.
donations) and at death (through estates). - For foreign corporations: Generally, the Situs is
outside the Philippines unless 85% or more of the
ESTATE TAX business is conducted in the Philippines or if the
Estate tax is a tax on the right of a deceased person shares have been used or acquired within a
Philippine business context.
to transmit their estate to their legal heirs and
beneficiaries. It is a one-time tax levied on the Assets Included in the Gross Estate of a Decedent
decedent’s estate’s total value, including all real and The gross estate encompasses all assets, rights, and
personal properties, whether tangible or intangible, interests that the deceased owned at the time of
minus allowable deductions such as debts, funeral passing. The following are generally included:
expenses, and other legitimate expenses.
I. Owned Assets Present in the Estate at the time of
The estate tax in the Philippines is governed by the Death.
National Internal Revenue Code (NIRC) of 1997, as All properties that were physically part of the
amended by the Tax Reform for Acceleration and Inclusion deceased's estate at the time of their death.
(TRAIN) Law, which took effect on January 1, 2018. Under II. Interests in Property
this law, the estate tax rate is a flat 6% on the value Any legal or beneficial interests in property owned
of the net estate after allowable deductions. or controlled by the deceased at the time of death,
such as rights to use or lease property (e.g.,
The Gross Estate
usufructuary rights or leasehold interests).
A decedent's (The person who has passed away, whose estate is Usufructuary rights refer to the legal right granted to a person
being considered for tax) gross estate composition for tax (called the usufructuary) to use and enjoy the benefits of someone
else's property without owning it. This includes the right to collect
purposes is influenced by their citizenship and income, rent, or any other benefits from the property. The usufructuary
residence status at the time of death. Below is a summary does not have the right to sell or destroy the property, and typically,
these rights are granted for a specific period or until the death of
of how different types of properties are included in the
the usufructuary.
gross estate based on these factors: For example, if a person has usufructuary rights to a piece of land,
§ Philippine Citizens they can farm the land and collect the crops, rent out the property
and receive rental income, or use the property for personal purposes.
o Real Property. Both domestic and non-domestic real
However, they cannot sell the land or make any permanent changes that
properties are included. would harm the property. Once the usufruct ends (usually upon the
death of the usufructuary or the expiration of the agreed period),
o Tangible Personal Property. Assets, whether
the property, along with all its benefits, reverts to the original
located inside or outside the country, are owner or their heirs.
included. III. Taxable Transfers
o Intangible Personal Property. Both domestic and Certain transfers made during the decedent's
non-domestic intangible assets are included. lifetime, essentially treated as if they were
testamentary (akin to those made upon death), are
§ Resident Aliens also included in the gross estate. Even if the
o Real Property. Includes both local and overseas property was transferred during the decedent’s
properties. lifetime, it may still be part of the estate if the
o Tangible Personal Property. Includes both local transfer was not completed until after death. Such
and overseas personal assets. transfers include:
o Intangible Personal Property. Both domestic and A. Transfers Contemplating Death
international intangible assets are included. Transfers motivated by the anticipation of
death are included. For example, a donation
§ Non-resident Aliens
mortis causa (a gift that only takes effect upon
o Real Property. Only real properties within the
the donor's death) falls under this category.
Philippines are included.
Such a donation is characterized by:
o Tangible Personal Property. Only tangible assets
- No transfer of ownership during the
located within the Philippines are included.
donor’s lifetime.
o Intangible Personal Property. Includes intangible
- The donor retains control and ownership
assets within the Philippines. Foreign intangible
(either legal or beneficial) until death.
assets are excluded unless there is a reciprocal
- The donation is revocable by the donor
agreement between countries.
Intangible personal property refers to assets that don't during their lifetime.
have a physical form but represent ownership rights or - The donation becomes void if the donee
privileges. Examples include: predeceases the donor.
- Bank accounts B. Revocable Transfers.
- Trademarks, patents, and copyrights
Transfers, where the donor retains the right to

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change, amend, or revoke the transfer, are A. Conjugal/Community property. If premiums were paid
from conjugal or community funds.
included in the gross estate. This applies
B. Exclusive property of the decedent. If premiums were
whether or not the right is exercised, provided paid from the decedent’s exclusive funds.
it still existed at the time of death. C. Partly conjugal/community and partly exclusive: If
C. Transfers with Reserved Rights. premiums were paid partly from conjugal/community
Transfers where the donor retains certain funds and partly from the decedent's exclusive funds.

rights, such as the right to income or enjoyment The exclusive property of the surviving spouse is excluded
of the property until their death, are also from the decedent's gross estate.
included in the estate.
Properties of Spouses
IV. Property Subject to General Power of Appointment
The property relationship between the decedent and their
(GPA)
spouse determines part of the decedent's gross estate
When the decedent was given a GPA by a donor,
scope. In the context of property relations in marriage,
allowing them to designate who will receive the
a property regime is a legal framework that dictates how
property, such property is included in the gross
the properties of spouses will be managed, owned, and
estate. The decedent, acting as the donee of the
divided during their marriage and upon its dissolution,
GPA, holds the power to appoint the property to any
whether by annulment, legal separation, or death.
person.
Property Regimes of Spouses include Absolute Community
V. Transfers for Inadequate Consideration
of Property (ACP), Conjugal Partnership of Gains (CPG),
If a transfer was made as a bona fide sale with
and Separation of Property.
adequate and full consideration in money or its
equivalent, the value of the transferred property Spouses may decide on their property regime through a
is not included in the gross estate. However, If pre-nuptial agreement (marriage settlement) that
the transfer was not a bona fide sale, meaning the defines how their properties will be managed. In the
property was sold for less than its fair market absence of a marriage settlement:
value (FMV) at the time of death, the difference § The CPG applies to those who were married before
between the FMV and the consideration received will August 3, 1988.
be included in the gross estate. § The ACP applies to those married on or after
August 3, 1988.
If the transfer was fictitious, the total property
value at the time of death is included in the gross What is the Conjugal Partnership of Gains (CPG)?
estate. Under CPG, properties owned before marriage and those
VI. Life Insurance Proceeds. acquired during the marriage through gratuitous means
Proceeds from a life insurance policy taken out by (e.g., inheritance or donation) remain the exclusive
the decedent on their own life are included in the properties of each spouse. However, the couple shares
gross estate when: the properties acquired by onerous title during the
A. The beneficiary is the decedent's estate, marriage and the income or fruits from all properties.
executor, or administrator, regardless of
whether the designation is revocable. Exclusive Property of the Husband:
B. If the beneficiary is another person, the - Property owned before marriage.
decedent retains the right to change the - Property acquired during the marriage through
beneficiary. inheritance or donation.
- Property acquired with the husband’s exclusive
If the beneficiary designation is unclear, it is
funds or exchanged for his exclusive property.
assumed to be revocable.
- Property designated as exclusive in a marriage
Life insurance proceeds are not included in the settlement.
gross estate if:
Exclusive Property of the Wife:
A. The beneficiary is someone other than the - Property owned before marriage.
estate, executor, or administrator, and the - Property acquired during the marriage through
designation is irrevocable. inheritance or donation.
B. The proceeds come from a group insurance policy. - Property acquired with the wife’s exclusive funds
C. The proceeds arise from government benefits, or exchanged for her exclusive property.
such as GSIS, SSS, or similar, due to death. - Property designated as exclusive in a marriage
VII. Claims Against Insolvent Persons settlement.
Any receivables from insolvent persons are included
in the gross estate at their full value. However, Conjugal Properties:
a bad debt deduction can be taken for the - Properties acquired by onerous title using common
uncollectible portion. funds, even if the property is registered in one
VIII. Conjugal/Community Properties if the Decedent was spouse’s name.
Married - Properties earned from the labor or work of either
The gross estate of a married decedent will include spouse during the marriage.
both the decedent’s exclusive properties and the - Properties acquired by chance, such as winnings
conjugal/community properties shared with their from gambling or betting, where any losses are borne
spouse. exclusively by the losing spouse.

Life insurance proceeds are classified as: - Income or fruits from conjugal properties.

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- Income or fruits from the exclusive properties of owns the land but without the right to use it until
each spouse. the usufruct ends.

What is the Absolute Community of Property (ACP)? If Juan, the usufructuary, passes away or decides
Under the Absolute Community of Property (ACP) regime, to relinquish his rights, the usufruct merges back
all properties owned by either spouse before the into the naked title. Now, Mr. Santos, who holds
marriage and those acquired during the marriage become the naked title, gains full ownership of the
part of the common property unless they fall under property (both the right to use it and the
certain exceptions. However, certain properties remain ownership). This merger of the usufruct back into
exclusive to each spouse. the naked title owner is not considered a new
transfer for estate tax purposes, as it is simply
Exclusive Property of the Husband: a reunification of ownership rights.
- Property acquired during the marriage through
gratuitous title (such as inheritance or donation), If Mr. Santos still owns the property (now fully
unless the donor or testator specifically indicates reunited with the naked title and usufruct) at his
that the property should be part of the community death, it would be included in his gross estate.
property. Since Mr. Santos has full ownership after the
- Fruits and income derived from the husband’s merger, the property is part of his estate and
exclusive properties. subject to estate tax upon his death.
- Property intended for the personal or exclusive use II. Fideicommissary Substitution.
of the husband, except jewelry. In cases where the inheritance or legacy is passed
from a fiduciary heir to a second heir
- Property acquired before the marriage by the
(fideicommissary), the transfer is excluded.
husband, who has legitimate descendants from a
previous marriage. Illustration:
- Property designated as exclusive through a marriage Mrs. Garcia leaves a will stating that her house
settlement. should go to her daughter, Maria, under the
condition that when Maria passes away, the house
Exclusive Property of the Wife:
should go to Maria's son, Carlos. This arrangement
- Property acquired during the marriage through
is known as a fideicommissary substitution.
gratuitous title (such as inheritance or donation),
unless the donor or testator specifically indicates Here, Maria is the first (fiduciary heir) and has
that the property should be part of the community held the property for her entire life. However, the
property. property automatically passes to Carlos, the second
- Fruits and income derived from the wife’s exclusive heir (fideicommissary), upon Maria's death. Mrs.
properties. Garcia prearranged the transfer from Maria to
- Property intended for the personal or exclusive use Carlos, and it is not considered a new transfer for
of the wife, except jewelry. estate tax purposes since the property was always
- Property acquired before the marriage by the wife, intended to pass to Carlos after Maria's lifetime.
who has legitimate descendants from a previous
The property would not be included in Maria's gross
marriage.
estate when she dies because she does not have full
- Property designated as exclusive through a marriage
ownership rights; she only held it as a fiduciary
settlement.
heir. According to Mrs. Garcia's will, the property
Community Properties: automatically passes to Carlos.

- All properties owned by the spouses at the time of If Carlos still owned the property at the time of
the marriage, except those listed as exclusive his death, it would be included in his gross estate.
above. Since Carlos becomes the full owner upon Maria's
- All properties acquired after the marriage. death, the property becomes part of his estate and
- Fruits and income from community properties. would be subject to estate tax when Carlos passes
away.
Exclusions from the Gross Estate of a Decedent
III. Transfer by Desire of Predecessor
Certain transfers and transmissions are not included in
Transfers made according to the predecessor's
the gross estate for estate tax purposes:
wishes, where one heir passes the inheritance to
I. Merger of the Usufruct in the Owner of the Naked another, are not included in the gross estate.
Title. Illustration:
When the right of usufruct is merged with the Mr. Cruz, a wealthy individual, leaves a will
ownership of the property, it is not included in stating that his house should go to his eldest
the gross estate. daughter, Ana. However, the will also specifies
Illustration: that if Ana feels that her younger brother, Ben, is
A father, Mr. Santos, owns a piece of land. He in greater need of the house, she can transfer the
grants his son, Juan, the usufruct over the land, property to him instead. After Mr. Cruz passes away,
allowing Juan to use and benefit from the property Ana inherits the house as per the will. However,
(e.g., farming or renting it out) during his considering her brother Ben’s circumstances
lifetime, but not to sell it. Mr. Santos retains (perhaps Ben has a larger family or greater
what is called the "naked title," meaning he still financial need), Ana decides to transfer the house

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to Ben, as allowed by their father's will. The value of the assets within the estate is determined
based on their condition and worth at the time of the
Question:
decedent's death.
Should the house be included in Ana's gross estate
in 2020 when she passes away and thus be subject to Property Valuation Methods
estate tax? Explain. I. Usufruct, Use, Habitation, Annuity. The value is
calculated based on the expected lifespan of the
Answer:
beneficiary, utilizing the most recent Basic
No, the house should not be included in Ana’s gross
Standard Mortality Table sanctioned by the
estate. The transmission of the property from Ana
Department of Finance.
to Ben follows Mr. Cruz's desire, as outlined in
II. Real Property. The Fair Market Value (FMV)
his will. According to Section 87 of the National
determines the valuation, which is the higher of
Internal Revenue Code (NIRC), the transfer from the
either the zonal value or the assessor’s value.
first heir (Ana) to the next beneficiary (Ben),
III. Personal Property. Generally assessed at FMV as of
following the specific instructions of the
the decedent's date of death.
predecessor (Mr. Cruz), is an exempt transfer.
IV. Stocks Listed on the Stock Exchange. Valued by
Since Ana had no control over the ultimate
averaging the lowest and highest market quotes on
disposition of the house at the time of her death,
the date of death or the closest trading day.
it is not considered part of her gross estate for
V. Stocks Not Listed on Any Local Exchange
estate tax purposes.
- For common shares. Valuation is based on the book
IV. Transfers to Social Welfare, Cultural, and
value at the date of death or the closest
Charitable Institutions.
available date.
Bequests, legacies, and donations made to these
- For preferred shares. Valued at their par value.
institutions are exempt from the estate tax,
VI. Notes and Accounts Receivable. The value is the
provided that no more than 30% of the transfer is
discounted total of the outstanding principal and
used for administration purposes.
any accrued interest.
V. Other Exemptions from Estate Tax
VII. Proprietary Shares in Associations, Recreation, or
- Benefits received by members of the Government
Amusement Clubs. The FMV is the highest bid price
Service Insurance System (GSIS).
on the date of death or the nearest available date,
- Social Security System (SSS) Benefits
as reported in any widely circulated newspaper or
- Amounts received from the Philippine and U.S. publication.
governments for war damages VIII. Cash in Banks (Local or Foreign Currency. The value
- Veterans Administration Benefits is the peso-equivalent of the account balance on
- Private Pension Plan Retirement Benefits the date of death.
approved by the BIR
- Intangible Personal Property located in the Deductions from the Gross Estate
Philippines of Non-Resident Aliens. I. Ordinary Deductions
Intangible personal property in the Philippines and owned A. Claims Against the Estate.
by a non-resident alien is excluded, provided there is Available to Citizens, Resident Alien, and Non-
reciprocity between the Philippines and the decedent's resident Alien. These consist of legitimate
country.
unpaid personal obligations of the deceased,
- Personal Equity and Retirement Account (PERA) which can arise from contracts, torts, or by law.
Assets.
They must have been incurred in good faith during
PERA assets are not considered part of the
the decedent’s lifetime and can be enforced by
contributor's estate for tax purposes. Qualified
creditors against the estate. However,
PERA distributions to heirs or beneficiaries, obligations directly related to the death, such
whether lump sum or as a lifetime pension, are as funeral or medical expenses, are excluded.
exempt from estate tax.
Supporting Documents:
- Life Insurance Proceeds with Irrevocable For purchases of goods/services:
Designation. - Proof of purchase (invoices, receipts,
The proceeds are excluded if the beneficiary is account statements).
not the estate, executor, or administrator, and
- Creditor’s certification of the unpaid
the designation is irrevocable.
balance and interest.
- Bank deposits in the decedent’s name on which
- Latest audited balance sheet of the creditor
the 6% estate tax has been withheld and remitted
showing the unpaid balance.
by the bank upon withdrawal are excluded.
For loans:
- COVID-19 Death Benefits for Health Workers.
- Notarized loan documents (unless it’s
In cases where a health worker (public or
customary not to notarize).
private) contracted COVID-19 in the line of duty
- Creditor’s notarized certification of the
and passed away, the government provides
unpaid balance and interest.
₱1,000,000 to their heirs, which is not included
- Proof of the creditor's financial capacity
in the gross estate. This applies from February
when the loan was granted.
1, 2020, during the state of national emergency
- If the loan was made within 3 years of death,
due to COVID-19.
an oath-stated disposition of loan proceeds
Valuation of the Gross Estate by the estate's administrator/executor.

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For court settlements: decedent’s gross estate or a donor's taxable

- Filed documents evidencing claims. gift.
- Court order approving the claims. - Estate tax or donor’s tax has been paid on
- Other Relevant documents the prior estate or gift.
B. Claims Against Insolvent Persons - The prior decedent’s estate has not
Available to Citizens, Resident Alien, and Non- previously claimed a vanishing deduction.
resident Alien. These claims must be included in
Percentage of Vanishing Deduction
the gross estate first; the uncollectible
portion can be deducted from the gross estate. Rates depend on the time interval between the
C. Casualty Losses decedent's death and the prior decedent’s death
Available to Citizens, Resident Alien, and Non- or the gift date:
resident Alien. Deductible if due to accidents, ≤ 1 year = 100% Deducted
acts of God, or similar events, provided: 1-2 years = 80% Deducted
- Losses are not covered by insurance. 2-3 years = 60% Deducted
- Losses are not claimed as deductions in an 3-4 years = 40% Deducted
income tax return. 4-5 years = 20% Deducted
- The loss occurs no later than the final day >5 years: Non-Deductible
of estate tax payment (usually within 1 year Procedure:
after death). - Determine the lower FMV of the property at
D. Unpaid Mortgages the time of the prior or present decedent’s
Available to Citizens, Resident Alien, and Non- death.
resident Alien. Deductible from the gross estate - Deduct any paid mortgage or lien on the
if the decedent's interest in the property is property.
included in the gross estate. - Prorate ordinary deductions and subtract
E. Income Taxes and Property Taxes them from the net value.
Available to Citizens, Resident Alien, and Non- - Apply the applicable vanishing deduction
resident Alien. Deductible items include: percentage.
- Unpaid income taxes on income earned or
II. Special Deductions
received before the decedent's death.
A. Family Home
- Accrued real property taxes before the
Must be included in the gross estate, and
decedent’s death (noting that real property
the deduction applies only to the actual
taxes start accruing at the beginning of the
residential home certified by the barangay
year).
captain. Deduct the lower FMV of the family
Note: For Non-Resident Aliens, the allowable home, or ₱10,000,000. The FMV is determined
deduction (Claims, Unpaid Mortgages, Taxes, and as follows:
Losses – CLUT) is prorated based on the ratio of - If the family home is the exclusive
the gross estate in the Philippines (PGE) to the property of the decedent. Full FMV.
worldwide gross estate (WGE), using the formula: - If the family home is conjugal
property, Half of the FMV (FMV÷2).
Allowable CLUT = (PGE/WGE) X CLUT
- If the land is exclusive to the decedent
F. Transfers for Public Use (Available to Citizens,
while the family house is conjugal,
Resident Alien, and Non-resident Alien).
FMV of land + (FMV of house÷2)
- Transfers made to the government or any
- If the land is conjugal while the family
political subdivision for public purposes.
house is exclusive,
(FMV of land÷2)+FMV of house
- Transfers to social welfare, cultural, or
B. Standard Deduction
charitable institutions, provided:
₱5,000,000 for estates of citizens and
- No part of the net income benefits any
resident aliens; ₱500,000 for non-resident
individual
aliens. Substantiation is not required.
- ≤ 30% of the transfer is used for C. Amounts Received by Heirs Under R.A. No.
administrative purposes. 4917
G. Vanishing Deduction (Property Previously Taxed - Available to Citizens/Resident Aliens but
PPT) not to Non-Resident Aliens.
Available to Citizens/Resident Aliens but not to Amounts/benefits from the decedent's
Non-Resident Aliens. Intended to avoid double employer due to their death must be included
taxation on the same property (located in the in the gross estate before deduction.
Philippines), which the decedent received as a
donation or inheritance. III. Share of the Surviving Spouse in the Net
Conjugal Properties
Conditions for Allowance: Available to Citizens/Resident Aliens and Non-
- The decedent acquired the property by Resident Aliens. The surviving spouse’s share
inheritance or donation within 5 years is not subject to estate tax and is, therefore,
before death. deductible from the decedent's gross estate.
- The property was part of the prior

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The deduction is equivalent to: - If the executor/administrator is not registered

with the BIR, with an AAB or the RDO having
Total Conjugal Properties less Obligations
jurisdiction over the executor/administrator’s
attributable to the Conjugal Properties
legal residence or
(Conjugal Deductions) Divided by 2.
- The Office of the Commissioner (RDO No. 39, South
Estate Tax Due Computation/Format Quezon City) if there is no
executor/administrator.

After EOPT ( See Remarks Below)

In the case of "No Payment Return", the return should

be filed with the RDO (Before EOPT), which has
jurisdiction over the decedent's domicile at the time
of death. If the decedent had no legal residence in the
Philippines, the return should be filed with the Office
of the Commissioner (RDO No. 39, South Quezon City).
AFTER EOPT SEE FOLLOWING PROVISION

EOPT in relation to Estate Taxation

With the introduction of Republic Act No. 11976, also
referred to as the Ease of Paying Taxes (EOPT) Act,
taxpayers are now required to file tax returns
electronically using any of the available platforms,
Estate Tax Return such as the Electronic Filing and Payment System,
eBIR Forms Facility, and others. Payment of the
The Form used to file the Estate Tax Return is BIR Form corresponding taxes can be made either electronically
No. 1801 [January 2018 (ENCS)] or manually through any Authorized Agent Banks (AABs)
or Revenue Collection Officers (RCOs), regardless of
The estate tax return must be filed under the following
the taxpayer's registration location.
circumstances:
A. When the transfer is subject to estate tax or According to current policy, the processing and
B. The gross estate includes properties requiring issuance of the electronic Certificate Authorizing
clearance from the BIR (Certificate Authorizing Registration (eCAR) related to One-Time Transactions
Registration (CAR)) before the transfer of (ONETT) and the associated tax payments must be
ownership to heirs can proceed, regardless of the completed through AABs or RCOs within the
gross estate's value. jurisdiction of the Revenue District Office (RDO)
responsible for handling the transaction. This
The executor, administrator, or any legal heirs should
ensures that tax payments are validated before the
file the return, which must be filed within one year of
eCAR is approved. With the implementation of the EOPT
the decedent's death.
Act, the BIR issued Revenue Memorandum Circular (RMC)
In meritorious cases, extensions of up to 30 days may 56-2024 to address concerns related to eCAR issuance.
be granted. The application for an extension must be Regardless of where the tax returns were filed and
filed with the Revenue District Office (RDO), where the paid, the processing and issuance of the eCAR must
estate is required to secure its TIN and file its estate still occur at the RDO that has jurisdiction over the
tax return. The Commissioner or their authorized ONETT, as detailed below:
representative must approve this request.
RMC 56-2024 (In relation to EOPT Law) - Issuance of
Place of Filing the Return Electronic Certificate Authorizing Registration
If the decedent was a resident, The administrator or (eCAR) for One-Time Transactions (ONETT)
executor should register the estate and secure a new TIN
This circular provides clarification on the issuance
from the RDO where the decedent was domiciled at the
process of the eCAR for ONETT. Regardless of where
time of death. Before EOPT, The estate tax return can
the tax return and tax payments were made, the eCAR
be filed with:
will be processed and issued at the Revenue District
- An Authorized Agent Bank (AAB);
Office (RDO) with jurisdiction over the specific
- The RDO or Collection Officer where the decedent
transaction type, as follows:
was domiciled at the time of death; or
- The Treasurer of the city or municipality where the - Sale of Real Property. Processed at the RDO with
decedent was domiciled at the time of death. jurisdiction over the location of the property
After EOPT ( See Footnote Below) being sold.
- Sale of Personal Property. Processed at the RDO
If the decedent was a non-resident (whether citizen or
with jurisdiction over the seller’s residence.
alien), The TIN for the estate should be secured, and
- Donation: Processed at the RDO with jurisdiction
the estate tax return should be filed with (Before
over the donor’s residence for individuals or
EOPT):
the RDO where the donor is registered for non-
- An AAB or with the RDO where the
individuals.
executor/administrator is registered;
- Estate. Processed at the RDO with jurisdiction

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over the decedent's Taxpayer Identification - Proportional Tax Payment. The estate must pay the
Number (TIN). estate tax on the portion of the estate being
- If the decedent had a registered business, the disposed of. The tax is calculated based on the
eCAR application is processed by the RDO where proportionate value of the asset to the overall
the business is registered, as the TIN will be estate.
secured there. - Issuance of eCAR. Upon payment of the estate tax for
- If the decedent had no registered business, the the disposed asset, an electronic Certificate
TIN may be secured from the RDO where the Authorizing Registration (eCAR) is issued for that
administrator or heirs intend to apply for the specific property. This certificate is necessary to
eCAR. legally transfer the property to the buyer or
beneficiary.
The Estate Tax Return should contain the following:
- Multiple eCARs. If multiple properties are disposed
- The value of the gross estate;
of under partial disposition, separate eCARs will be
- The gross estate outside the Philippines for issued for each property, corresponding to the taxes
non-resident alien decedents; paid.
- Deductions allowed and taken; - Consequences of Non-Payment. If the estate tax on the
- Other supplemental data; disposed properties is not fully paid, the remaining
- For estate tax returns showing a gross value balance becomes immediately due and subject to
exceeding ₱5 Million, a statement certified by penalties and interest. The BIR may withhold the
a CPA regarding the assets, deductions, and tax issuance of eCARs for other properties until the full
due. estate tax is paid.

The estate tax is due when the return is filed (pay as The executor or administrator who is liable for payment
you file). When the Commissioner finds that immediate pays the tax due. Heirs are subsidiarily liable to the
payment would cause undue hardship to the estate or extent of their share in the net estate.
heirs, the time for payment may be extended by up to 5
years for court-settled estates or 2 years for For the Distribution of estate to Hiers, An estate tax
extrajudicial settlements. The application must be filed clearance (CAR) from the Commissioner or RDO is required
with the RDO, where the estate is required to secure its before the distribution of properties or shares to
TIN, and must be approved by the Commissioner or their heirs. No judge shall authorize distribution without
representative. proof of payment of the estate tax.

The Commissioner may require a bond, not exceeding Transfer of shares, bonds, rights, or other rights is
double the amount of the tax, to secure the payment also not permitted without an eCAR issued by the
within the extension period. Any amount paid after the Commissioner.
statutory due date is subject to interest but not
Withdrawal from the bank account. The decedent's account
surcharges.
can be withdrawn within 1 year from the date of death,
If immediate cash payment is not possible, the estate subject to a 6% final withholding tax.
may pay by installment under the following conditions:
The 6% withholding tax may be credited against the
Cash Installment: estate tax if the bank deposit was included in the gross
- The estate tax return must be filed within 1 year estate.
from the date of death. Documentary Requirement Per BIR FORM 1801
- Installments can be made within 2 years of filing
the estate tax return.

Partial Disposition of Estate. Refers to the process by

which certain assets from a decedent's estate are sold
or transferred before the full settlement of the
estate's liabilities, including the payment of estate
taxes. This allows the estate to generate the necessary
funds to cover estate tax liabilities or other
obligations.

Key points about the Partial Disposition of Estate

include:
- Filing Requirement. The estate tax return must still
be filed within the required time frame, generally
within one year from death.
- Approval. A written request for the partial
disposition must be submitted to and approved by the
Bureau of Internal Revenue (BIR). This request must
include a notarized undertaking that the proceeds
from the disposition will be exclusively used to pay
the estate tax due.

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The donor tax will also apply when the renunciation

favors identified heirs or is a partial
renunciation involving specific properties.

A donation is perfected when the donor has become aware

of the recipient's (Donee) acceptance.

All individuals capable of managing and disposing of

their property can make donations, and anyone not
legally disqualified can accept them. Donees may include
minors, who may accept donations through legal
guardians, and unborn children, whose donations can be
accepted by those who would represent them if they were
born.

Certain donations are considered void under specific

circumstances. These include the following:
- Any donations between spouses, whether direct or
indirect, during their marriage are invalid, except
for modest gifts exchanged on family occasions.
- Indirect donations/transfers made of a spouse to a
Stepchild, a common child, or the parents of the
other spouse, among others, particularly when the
stepchild or common child has no compulsory heirs
other than the spouse.
- Donations between individuals living together as
husband and wife without a valid marriage
- Donations made between persons guilty of
concubinage or adultery at the time of donation or
- Between those found guilty of the same criminal
offense as a consideration are invalid.
- Donations made to public officers or their spouses,
descendants, or ascendants due to their official
position are likewise void.
- Donations made by persons to those who cannot
inherit from them are void. This includes donations
to priests or ministers who provided spiritual
assistance during the donor’s final illness, as
well as to their relatives within the fourth degree
or to the church or organization they belong to.
DONORS TAX
Donor’s Tax, or Gift Tax, is imposed on the gratuitous - Donations to guardians regarding their wards, made
transfer of any type of property—whether real, personal, before the final accounts of the guardianship, have
tangible, or intangible—regardless of whether the been approved unless the guardian is a close
transfer is made in trust or otherwise. This tax serves relative of the ward.
primarily to: - Donations to physicians, surgeons, nurses, health
- Prevent the avoidance of estate taxes and officers, or druggists who attended to the donor
during their last illness are considered void.
- Mitigate the reduction in income and estate taxes
when large estates are divided. Donations of Personal Property
Specific Rules
For a transfer to be subject to Donor’s Tax, it must be:
• Donations can be made either verbally or in written
- Gratuitous (Made out of the pure generosity of the
form.
donor).
o For verbal donations, the item or document
- Both the donor and donee are alive at the time of
representing the donated right must be
the gift.
delivered simultaneously.
- There must be a completed transfer, either through
o For written donations, simultaneous delivery
actual or constructive delivery of the property to
is not necessary.
the donee.
• The acceptance of a donation can be made verbally,
If a surviving spouse renounces their share in in writing, or implied.
marital or community property in favor of the heirs • If the value of the donated personal property is
or another person after the dissolution of ₱5,000 or less, the donation can be either verbal
marriage, this act is subject to Donor’s Tax. or written, and the acceptance can be verbal,
However, a general renunciation by an heir of their written, or implied.
share in an estate does not constitute a donation • If the value exceeds ₱5,000, both the donation and
and is thus not subject to the donor's tax.

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acceptance must be documented in writing. Failure price as of the balance sheet date
to do so renders the donation void, even if the closest to the transaction date,
item is delivered simultaneously. including any premium and cumulative
dividends in arrears.
Donations of Real Property
Exception
Specific Rules
If the sale or exchange is conducted in good
• Donations of real property must be documented in faith, at arm’s length, and without any intent
writing and formalized through a public instrument to donate, it is considered a transaction made
(notarized). for full consideration, leaving no room for
• The acceptance of the donation may occur in the insufficient consideration, and thus, no gift
same document or through a separate public tax is applicable.
instrument. The acceptance must occur during the • Forgiveness or Cancellation of Debt
donor's lifetime, and the donor must be informed of This applies when the debtor has not provided any
the acceptance. service to the creditor.
• Exercise of Equity-Based Compensation by the
Transfers for Insufficient Consideration
Successor or Heir of an Employee-Grantee
Specific Rules
Equity-based compensation granted to an employee
may be transferred to the employee’s successor or
• The transferred property can be real or personal,
heir. When the successor or heir exercises the
except for real property categorized as a capital
equity-based compensation, the difference between
asset that incurs a 6% Capital Gains Tax (CGT) when
the book value or FMV of the shares at the time of
sold or transferred.
exercise (whichever is higher) and the price set on
• The transfer is made for an amount less than its
the grant date will be treated as a donation and
full value.
subjected to the donor’s tax.
• The transfer is made inter vivos (during the
transferor's lifetime). Gross Gift
• The transaction is not conducted at arm’s length or
The classification of what constitutes a gross gift
as a bona fide transaction. This implies that the
depends on the donor’s citizenship and/or residency:
transferor intends to give the property as a gift
Tangible Intangible
by selling it for less than its full value. Donor Real Property Personal Personal
• The main objective is to prevent the avoidance of Property Property
W/IN W/OUT W/IN W/OUT W/IN W/OUT
income tax by accepting a lower price for the
Resident Donor:
property.
1) Citizen ✔ ✔ ✔ ✔ ✔ ✔
• Tax Implications:
2) Resident Alien ✔ ✔ ✔ ✔ ✔ ✔
Gift (subject to Donor’s Tax):
Non-resident Donor:
Fair Market Value (FMV) of the property transferred
Less: Price (consideration) received ✔ or
3) Non-resident Alien ✔ ❌ ✔ ❌ ❌
*❌
Income (subject to Income Tax): *Subject to Rules of Reciprocity

Price (consideration) received Intangible Personal Property

Intangible personal property refers to assets that do not
Less: Cost have a physical form but represent rights or privileges.
• FMV in Transfers for Insufficient Consideration in Examples include bank deposits, trademarks, shares of
stock, patents, copyrights, bonds, notes, and partnership
the Sale of Domestic Shares of Stock interests.
o Fair Market Value (FMV) of shares sold,
bartered, or exchanged should be determined as
follows:
§ For listed shares but sold, bartered, or
exchanged outside the local stock
exchange:
a. The closing price on the day of sale,
barter, or exchange.
b. If no transaction occurs on that day,
the closing price on the closest date
to the day of sale, barter, or
exchange.
§ For shares not listed and traded on the
Gross Gift from Husband and Wife
local stock exchange: Husbands and wives may donate Conjugal or Community
a. For common shares, the book value is Properties; Each spouse is considered a separate donor of
their respective interest in the property. The donation is
based on the latest available 50% from the husband and 50% from the wife. In cases where
financial statements certified by an Separate or Exclusive Property Owned is donated, only One
Spouse is considered a donor depending on who is the actual
independent public accountant before donor (Husband or Wife)
the date of sale but no earlier than
Valuation of Gross Gifts
the last taxable year.
Properties are valued at the time the gift is made
b. For preferred shares, the liquidation
Specific Valuation
value is equivalent to the redemption

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Property Valuation - Donations to state universities and colleges.

Real Property
FMV is the higher of the zonal value or - Donations of imported healthcare equipment or
the assessor’s value
supplies intended for the COVID-19 public health
Personal Property FMV at the time of the gift
emergency or for use by the National Government
Average of the lowest and highest quotes
Stocks listed in the or its political subdivisions are exempt from
on the valuation date (date of gift) or
stock exchange
the day nearest to the valuation date donor’s tax. Additionally, donations of critical
Stocks not listed in any healthcare supplies, relief goods, and the use
local exchange
of real or personal property (e.g., shuttle
- For common shares Book Value
services) to the following are also exempt:
- For preferred shares Par value
Notes; accounts FMV is the discounted amount of the
o Private hospitals, non-stock, non-profit
receivable unpaid principal plus interest educational or charitable organizations,
1) At the time of donation, the FMV of even if not accredited.
the stock option
o Local private corporations, civic
Stock options 2) Upon exercise of the option, the
difference between the higher of the BV organizations, and international
or FMV of the underlying shares at the organizations/institutions provided they
time of exercise and the exercise price
directly distribute or transfer the
Units of participation
Bid price nearest the date of the gift
in any association,
published in any newspaper or
donations.
recreation, or amusement These exemptions started on March 16, 2020, under
publication of general circulation
club
Presidential Proclamation No. 929, and will last until
the end of the three-month effectiveness of R.A. No.
Exemptions (Exclusions) from Gross Gift
11469 unless extended.
I. Gifts made to the National Government, any of its
- Starting January 1, 2021, during the period of
political subdivisions, or any entity created by
the state of calamity as declared in
the government that is not operated for profit.
Presidential Proclamation No. 1201, no donor’s
II. Gifts to Non-Profit Organizations
tax shall be imposed on donations of COVID-19
a. Gifts given to educational, charitable,
vaccines to the following:
religious, cultural, social welfare
o The National Government through the DOH and
institutions, accredited NGOs, trusts,
the National Task Force Against COVID-19
philanthropic organizations, and research
(NTF).
institutions are exempt, provided that:
o Any political subdivision of the state.
i. The non-profit institution is a non-stock
o Private entities.
entity that pays no dividends, is governed
o International humanitarian organizations
by trustees who do not receive
(e.g., the Philippine Red Cross) provide
compensation, and devotes all income to
vaccines not for resale or commercial use
its purposes.
and are distributed without any
ii. No more than 30% of the gifts shall be used
consideration from the vaccinated persons.
for administrative purposes.
iii. The institution must be accredited by the Deductions from Gross Gift
designated accrediting government agency
• Any mortgage or lien on the property, where
and registered with the BIR.
the donee takes on the responsibility of the
III. Campaign Contributions in cash or kind to any
debt.
candidate, which are duly reported to the
COMELEC.Provided: • Any specific reductions in the property's
value as stipulated by the donor.
- Only those donations or contributions utilized
during the campaign period set by COMELEC are • An annual exemption of the first ₱250,000.
exempt. Contributions used before or after this
Calculation of Donor’s Tax
period are subject to the donor’s tax.
Effective January 1, 2018, a tax rate of 6% applies
- Section 35(i) of R.A. No. 11232 (Revised
to the total value of gifts exceeding ₱250,000 within
Corporation Code of the Philippines) prohibits
a calendar year.
foreign corporations from making political
donations. However, domestic corporations can The donor's tax is computed cumulatively within a
donate without incurring a donor’s tax.
calendar year. This means that any subsequent gifts
- Campaign contributions are not deductible for
made during the same year are added to the prior
income tax purposes by either individuals or
gifts to determine the total amount subject to tax.
corporations.
Calculation Method:
IV. Other Donations Exempted by Special Laws
- Donations for the Dual Training System under For the First Gift of the Year:
R.A. No. 7686.
- Donations by cooperatives made to accredited Total gift value: ₱ xxx
charitable, research, and educational Less: Exemption or deduction: (₱ xxx)
institutions and socio-economic projects within Net gift value: ₱ xxx
their operations. Tax on net gift (6%): ₱ xxx
- Donations of lands certified by the LGU for
For Subsequent Gifts within the Same Year:
socialized housing purposes.
- Donations to the Philippine Red Cross. Current gift value: ₱ xxx

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Add: Previous gifts within the year: ₱ xxx property. This requirement also applies in cases
Total cumulative gifts: ₱ xxx of co-ownership of the donated property.
Less: Exemptions and deductions: (₱ xxx)
Specific Rules:
Total net gifts: ₱ xxx
Tax on total net gifts (6%): ₱ xxx • A return is not required if the transfer is
Less: Tax on prior exempt from donor’s tax, such as gifts to the
net gifts during the year: (₱ xxx) National Government or to recognized non-profit
Tax on the current gift: ₱ xxx organizations.
• Each donor must file a separate return for each
Credit for Foreign Donor’s Taxes Paid gift or donation made on different dates within
Available only to resident donors (Philippine the year. Prior gifts made in the same calendar
citizens or resident aliens). Subject to specific year should be included in the return.
limits.
• A single return may be filed for multiple gifts
Limits (Per Country Limit). or donations made on the same date to different
recipients.
• (Net Gifts in a Specific Foreign Country/Total Net
Gifts) X Philippine Donor’s Tax • If the donation involves conjugal or community
property, each spouse must file a separate
Limits (Total Limits) return for their respective share in the
• (Net Gifts all Foreign Country/Total Net Gifts) X property. This also applies to cases of co-
Philippine Donor’s Tax ownership of the donated property.
• Returns must be filed within thirty (30) days
Rules:
from the date the gift is made.
- If only one foreign country is involved, use • Payment is required at the time of filing the
Limit (A) only. return.
- If two or more foreign countries are involved, • Place of Filing
apply both Limits (A) and (B). o Prior EOPT
§ For resident donors (citizens or
For each country, calculate the donor’s tax paid and resident aliens): The return should be
compare it with the Limit (Per Country Limit). Use filed with the Authorized Agent Bank
the lower value. (AAB), Revenue District Office (RDO),
collection officer, or authorized
Sum the lower values from all countries and compare
treasurer of the city or municipality
them with the Limit (Total Limit). The lesser of
where the donor is domiciled at the time
these amounts is the credit allowed.
of transfer. The return is filed with
the Office of the Commissioner if the
Donor’s Tax Return
donor has no legal residence.
Individuals who make a gift or transfer (Donor)
through donation must file a return. The Form used § For non-resident donors (non-resident
to file the Estate Tax Return is BIR Form No. 1800 aliens): The return should be filed with
[January 2018 (ENCS)] the Philippine Embassy or Consulate in
the country of domicile at the time of
BIR Form No. 1800 - Donor’s Tax Return
transfer or directly with the Office of
Overview. This form must be completed in
triplicate by any individual or entity, whether the Commissioner (RDO No. 39).
resident or non-resident, who transfers or § For cases with “No Payment Return,” the
facilitates the transfer of property through a return should be filed with the Revenue
gift. This includes both direct and indirect District Office, which has jurisdiction
transfers and applies to all types of property, over the donor's domicile at the time of
whether real or personal, tangible or donation. If the donor does not have
intangible. legal residence in the Philippines, file
with the Office of the Commissioner (RDO
Filing Deadline. The return must be submitted No. 39—South Quezon City).
within thirty (30) days from the date the gift o After EOPT (Applicable Effective January 1,
is given. A separate return is required for each 2024)
gift made on different dates within the same With the introduction of Republic Act No.
year, and it must include any prior net gifts 11976, also referred to as the Ease of Paying
made within that calendar year. Only a single Taxes (EOPT) Act, taxpayers are now required
return is needed for multiple gifts made by the to file tax returns electronically using any
donor to different recipients on the same day. of the available platforms, such as the
If the donation involves conjugal or community Electronic Filing and Payment System, eBIR
property, each spouse must file a separate Forms Facility, and others. Payment of the
return for their respective share of the corresponding taxes can be made either
electronically or manually through any

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Authorized Agent Banks (AABs) or Revenue

Collection Officers (RCOs), regardless of the ---------------------------------------------------
taxpayer's registration location. DEPENDENT DRILLS
Problem 1. Mr. O, a Filipino citizen, passed away on
According to current policy, the processing and
August 1, 2013, three years after marrying Mrs. O. He
issuance of the electronic Certificate
left behind several properties, both inherited and
Authorizing Registration (eCAR) related to One-
acquired during his marriage, as well as personal
Time Transactions (ONETT) and the associated
property. Below is a summary of the properties he left:
tax payments must be completed through AABs or
RCOs within the jurisdiction of the Revenue Inherited Properties:
District Office (RDO) responsible for handling
the transaction. This ensures that tax payments Property inherited by Mr. O from his father (died
are validated before the eCAR is approved. With February 14, 2013) – ₱3,000,000
the implementation of the EOPT Act, the BIR Property inherited by Mrs. O from her father (died
issued Revenue Memorandum Circular (RMC) 56- February 14, 2014) – ₱1,200,000
2024 to address concerns related to eCAR Property inherited by Mr. O from his mother (died
issuance. Regardless of where the tax returns February 14, 2015) – ₱1,800,000
were filed and paid, the processing and Property inherited by Mrs. O from her mother (died
issuance of the eCAR must still occur at the February 14, 2016) – ₱1,400,000
RDO that has jurisdiction over the ONETT, as
Properties Acquired During Marriage:
detailed below:
Property acquired through Mr. O’s labor – ₱2,000,000
RMC 56-2024 (In relation to EOPT Law) -
Property acquired through Mrs. O’s labor – ₱1,500,000
Issuance of Electronic Certificate Authorizing
Property acquired through joint efforts (family home) –
Registration (eCAR) for One-Time Transactions
₱2,400,000
(ONETT)
Other Personal Property Acquired During Marriage:
This circular provides clarification on the ₱1,600,000
issuance process of the eCAR for ONETT.
Deductions Claimed by the Estate:
Regardless of where the tax return and tax
payments were made, the eCAR will be processed Funeral expenses – ₱220,000
and issued at the Revenue District Office (RDO) Medical expenses – ₱500,000
with jurisdiction over the specific transaction Judicial expenses – ₱250,000
type, as follows: Unpaid mortgages on properties (specified in the list):
₱500,000 (Property a)
- Sale of Real Property. Processed at the
₱300,000 (Property b)
RDO with jurisdiction over the location of
₱180,000 (Property c)
the property being sold.
₱200,000 (Property d)
- Sale of Personal Property. Processed at
Claims against the estate – ₱170,000
the RDO with jurisdiction over the
Accrued taxes (before Mr. O’s death) – ₱80,000
seller’s residence.
- Donation: Processed at the RDO with Question:
jurisdiction over the donor’s residence Calculate the net taxable estate of Mr. O, considering
for individuals or the RDO where the donor his marriage was under either the Conjugal Partnership
is registered for non-individuals. of Gains (CPG) or the Absolute Community of Property
- Estate. Processed at the RDO with (ACP) regime.
jurisdiction over the decedent's Taxpayer
Identification Number (TIN). Problem 2. Mr. Arnold Piomelo, a Filipino citizen
- If the decedent had a registered business, married to Bettina, passed away on February 14, 2023.
the eCAR application is processed by the He left behind the following properties:
RDO where the business is registered, as
Real Properties:
the TIN will be secured there.
§ House and lot in Manila – exclusive (Zonal Value -
- If the decedent had no registered
₱5,000,000; Assessor’s Value - ₱4,400,000)
business, the TIN may be secured from the
§ Real property in Quezon City acquired during marriage
RDO where the administrator or heirs
– conjugal (Zonal Value - ₱1,500,000; Assessor’s
intend to apply for the eCAR.
Value - ₱2,000,000)
• The return must include the following: § Family home in Makati City acquired during marriage
o Details of each gift made during the – conjugal (Zonal Value - ₱2,200,000; Assessor’s
Value - ₱2,100,000)
calendar year contribute to the net gifts.
o Any deductions claimed and allowable. Personal Properties:
o The total of all previous net gifts made § Car acquired during marriage – conjugal (FMV -
during the same calendar year. ₱1,400,000)
o The name of the recipient or donee. § Proceeds of life insurance where the estate is the
o Any additional information that may be beneficiary – conjugal (₱1,000,000)
required. § 1,000 shares of ABC Corporation (domestic, not traded

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in stock exchange) – exclusive (NAV/share - ₱100;

Book value/share - ₱50)

Deductions Claimed by the Estate of Mr. Piomelo:

§ Legacy given in favor of the Philippine government –
₱300,000
§ Claims against the estate – ₱100,000
§ Funeral expenses – ₱180,000
§ Judicial expenses – ₱600,000
§ Mortgage attached to house and lot in Manila –
₱100,000

1. What is the total gross estate, and where will it

be indicated in BIR Form No. 1801?
2. What is the total amount of ordinary deductions,
and where will it be indicated in BIR Form No. 1801?
3. What is the share of the surviving spouse in the
net estate, and where will it be indicated in BIR
Form No. 1801?
4. What is the total net taxable estate, and where
will it be indicated in BIR Form 1801?
5. What estate tax is due, and where will it be
indicated in BIR Form No. 1801?

Problem 3. Mr. And Mrs. K, made the following

donations of conjugal funds and properties in 2023
(unless stated otherwise), as follows:
a. February 14: To L, a legitimate son, a piece of
land with an FMV of P400,000 on account of L’s
graduation from college
b. May 14: To M, a legitimate daughter on account
of M’s marriage to be celebrated on December 25,
2023, house and lot with FMV of P1,000,000
c. June 14: To N, brother of Mrs. K, P200,000
d. September 14: To O, Mr. K's efficient and
beautiful secretary, for taking care of Mr. K
while Mrs. K was vacationing in the USA, jewelry
worth P300,000.
e. October 14: To P, the honest and good-looking
driver of Mrs. K who accompanied Mrs. K on her
trip to and from the USA, a diamond ring worth
P500,000
f. December 14: To Q, the daughter of O, on account
of Q’s birthday, pieces of jewelry inherited by
Mr. K during the marriage, with an FMV of
P400,000

Determine the total donor’s tax payable on each date

of donation.

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