Estate Tax Philippines – Everything you need to know

In the Philippines, issues related to inheritance are often very complex and affect the interests of many people. The heir must also only pay the inheritance tax before officially inheriting the property the decedent left.

This article will clarify information about estate tax Philippines and questions to help you better prepare for related problems.

Estate Tax Philippines

Under the Bureau of Internal Revenue (BIR), the estate tax is an imposed tax on the property of a death’s person when they transfer them to an heir or legal beneficiary. It means that when a person dies, their heirs must pay for the transfer of the property and assets.

In the Philippines, this inheritance tax is maintained by the National Internal Revenue Code (NIRC) and levied on transferring the decedent’s net worth at a graduated rate.

In addition, this levy is very confusing. Hence, you need to clearly distinguish it from the estate taxes – related to real estate and the amilyar tax – related to the property’s value.

How To Compute Estate Tax in the Philippines

It is computed based on the net asset of the deceased individual multiplied by its rate of 6%. Therefore, this value depends on the net worth, which should be calculated based on the total assets and the deceased’s nationality.

Gross Estate

The gross is the decedent’s assets, liabilities, and taxes. These belongings include real estate and tangible and intangible personal property.

On the other hand, certain assets, such as Government Service Insurance System (GSIS) allowance, Social Security System (SSS), war damage compensation, or irrevocable premium, etc., are excluded from total assets.

Net Estate

Net worth is what is left of gross assets after all allowable deductions have been achieved. Common assumptions include the standard deduction of 5 million Pesos, claims against the landholding, unpaid mortgages, taxes, accidental losses, and the family home.

In addition, the property previously taxed, transferred for public purposes, the amount received by the heirs under Republic Act 4917, and the surviving spouse’s share of the net worth are also considered allowable deductions.

There are differences in deduction rules for residents living in the country and abroad. Specifically like:

For A Citizen or Resident Alien

• A standard deduction is about 5,000,000 Pesos
• Claims were made against the landholding if the debt document was properly notarized.
• Claims made by the deceased against bankrupt people and unpaid mortgages provided that they are legitimate and the sum is accounted for in the gross worth.
• Insurance does not cover damages due to accidents.
• Previously taxable property or “vanishing deductions.”
• Transfers made to the Philippine government or any political entities are only for public use.
• A deduction of up to 10,000,000 PHP for the fair market value of the family residence.

For A Non-Resident Alien

• A standard deduction is about 5,000,000 Pesos
• The ratio of the value of such part to the value of their entire gross worth, wherever it may be, concerning all losses and debts
• Transfers for public use
• A proportionate amount of casualty losses, unpaid mortgages, and indebtedness are allowable

Estate Tax Rates

(The rate applicable shall be based on the law prevailing at the time of decedent’s death)

• Effective January 1, 2018 to present [Republic Act (RA) No. 10963]

There shall be an imposed rate of six percent (6%) based on the value of such NET ESTATE determined as of the time of death of decedent composed of all properties, real or personal, tangible or intangible less allowable deductions.

• Effective January 1, 1998 up to December 31, 2017 (RA No. 8424)

If the Net Estate is

Over	But not Over	The Tax Shall be	Plus	Of the Excess Over
	P   200,000.00	Exempt
P   200,000.00	500,000.00	0	5%	P   200,000.00
500,000.00	2,000,000.00	P   15,000.00	8%	500,000.00
2,000,000.00	5,000,000.00	135,000.00	11%	2,000,000.00
5,000,000.00	10,000,000.00	465,000.00	15%	5,000,000.00
10,000,000.00		1,215,000.00	20%	10,000,000.00

• Effective July 28, 1992 up to December 31, 1997 (Section 77 of the NIRC, as amended (RA No. 7499)

If the Net Estate is

Over	But not Over	The Tax Shall be	Plus	Of the Excess Over
	P   200,000.00	Exempt
P  200,000.00	500,000.00		5%	P   200,000.00
500,000.00	2,000,000.00	P   15,000.00	8%	500,000.00
2,000,000.00	5,000,000.00	135,000.00	12%	2,000,000.00
5,000,000.00	10,000,000.00	495,000.00	21%	5,000,000.00
10,000,000.00		1,545,000.00	35%	10,000,000.00

• Effective January 1, 1973 to July 27, 1992 (Section 85 of the NIRC, as amended (Presidential Decree No. 69)

If the Net Estate is

Over	But not Over	The Tax Shall be	Plus	Of the Excess Over
	P   10,000.00	Exempt	–	–
P   10,000.00	50,000.00	3%	–	P   10,000.00
50,000.00	75,000.00	P     1,200.00	4%	50,000.00
75,000.00	100,000.00	2,200.00	5%	75,000.00
100,000.00	150,000.00	3,450.00	10%	100,000.00
150,000.00	200,000.00	8,450.00	15%	150,000.00
200,000.00	300,000.00	15,950.00	20%	200,000.00
300,000.00	400,000.00	35,950.00	25%	300,000.00
400,000.00	500,000.00	60,950.00	30%	400,000.00
500,000.00	625,000.00	90,950.00	35%	500,000.00
625,000.00	750,000.00	134,700.00	40%	625,000.00
750,000.00	875,000.00	184,700.00	45%	750,000.00
875,000.00	1,000,000.00	240,950.00	50%	875,000.00
1,000,000.00	2,000,000.00	303,450.00	53%	1,000,000.00
2,000,000.00	3,000,000.00	833,450.00	56%	2,000,000.00
3,000,000.00	–	1,393,450.00	60%	3,000,000.00

• Effective September 15, 1950 to December 31, 1972 (Section 85 of the NIRC, as amended (RA No. 579)

Estate and Inheritance Tax

If the Net Estate is

Over	But not Over	ESTATE	INHERITANCE
0	5,000.00	Exempt	Exempt
5,000.00	12,000.00	1.00%	2%
12,000.00	30,000.00	2.00%	4%
30,000.00	50,000.00	2.50%	6%
50,000.00	70,000.00	3.00%	8%
70,000.00	100,000.00	5.00%	12%
100,000.00	150,000.00	7.00%	14%
150,000.00	250,000.00	9.00%	16%
250,000.00	500,000.00	11.00%	18%
500,000.00	1,000,000.00	13%	20%
1,000,000.00		15%	22%

• Effective July 1, 1939 to September 14, 1950 (Section 85 of the NIRC, as amended (Commonwealth Act No. 466)

Estate and Inheritance Tax

If the Net Estate is

Over	But not Over	ESTATE	INHERITANCE
0	3000	Exempt	1.00%
3,000.00	10,000.00	1.00%
10,000.00	30,000.00	1.50%	2.00%
30,000.00	50,000.00	2.00%	3.00%
50,000.00	80,000.00	2.50%	4.00%
80,000.00	110,000.00	3.00%	5.00%
110,000.00	150,000.00	3.50%	6.00%
150,000.00	190,000.00	4.00%	7.00%
190,000.00	240,000.00	4.50%	8.00%
240,000.00	290,000.00	5.00%	9.00%
290,000.00	350,000.00	5.50%	10.00%
350,000.00	420,000.00	6.00%	11.00%
420,000.00	500,000.00	6.50%	12.00%
500,000.00	600,000.00	7.00%	13.00%
600,000.00	720,000.00	7.50%	14.00%
720,000.00	850,000.00	8.00%	15.00%
850,000.00	1,000,000.00	8.50%	16.00%
1,000,000.00	1,200,000.00	9.00%	17.00%
1,200,000.00	1,500,000.00	9.50%	17.00%
1,500,000.00		10.00%	17.00%

How To Pay Estate Tax In The Philippines

After the calculation, the estate tax return must be filed under oath within a year of the decedent’s death. The executor, administrator, or heirs are responsible for filing all returns. Particularly, a Certified Public Accountant will certify with an oath with declarations of assets greater than 5 million Pesos.

Payment will occur at the same time as the return filing. The only exception that may be considered for an extension is when the Commissioner determines an heir has difficulty making payments. However, the extension period cannot exceed 5 years through the courts or 2 years through the judiciary.

In addition, in the case of a Commissioner or any Revenue Officer authorized by the decedent under the National Internal Revenue Code (known as NIRC), the filing period may be extended, but not exceeding 30 days.

FAQs

What Are Some Common Estate Tax Problems?

In the Philippines, the inheritance tax usually goes through several steps, but most problems are related to the payment step. If you also have these problems, seek the help of a professional or an attorney. Here are some solutions you can refer to for each issue:

• Insufficient funds for payment: extend payment time by submitting an installment application to the BIR and awaiting approval. You will be paid in installments within 2 years, free of interest and civil penalties.
• Hefty taxes: reduce taxes by transferring inheritance first or buying insurance to pay them later. If you are an heir and can not afford it, apply for an amnesty program.

What Will Happen If You Do Not Pay The Estate Tax?

If an heir fails to pay estate taxes within the stipulated time, they will be subject to interest, surcharges, and similar charges for his delay. These penalties will be accrued and payable when they pay them.

If the heirs refuse to pay this tax, the deceased’s assets cannot be transferred to them. Likewise, they have no right to sell, distribute, use, or transfer to anyone.

What Is Estate Tax Amnesty?

Estate tax amnesty is a program that allows taxpayers to resolve their unpaid inheritance duty obligations without incurring penalties or interest. It is available to those who have fallen behind on their taxes and have not yet been contacted by the tax authorities.

The process of this amnesty can vary depending on your location but generally involves filing the necessary paperwork and paying the outstanding taxes owed. Once you have completed the process, you will be relieved of any penalties or interest accrued on your unpaid taxes. Nevertheless, not everyone is eligible for estate tax amnesty.

Final Thought

Estate tax Philippines must be taken into account in any case. Comprehending the tax’s fundamentals is crucial to guarantee that the transfer of the deceased person’s net worth is handled efficiently. 

Planning helps reduce inheritance duty obligations and guarantees the heirs receive their inheritance. Individuals can reduce their tax obligations by utilizing tax breaks and exemptions, transferring assets while still alive, creating trusts, and consulting a tax expert.

See also: Philhealth Branches Detailed Information