asia房地產

There used to be both inheritance tax (tax on the right of heirs to inherit) and estate tax (tax on the net estate of the decedent) in the Philippines.

Now, the Philippines only imposes estate tax, which applies on the fair market value of a decedent’s estate at the time of the person’s death. In determining the value of the gross estate, the FMV of all properties, real or personal, tangible or intangible, is included regardless of their location. With respect to nonresident aliens, only properties located in the Philippines are subject to estate tax.

The following should be included as part of gross estate:

• Decedent’s Interest. This refers to value of the decedent’s right or expectation (short of naked title) on a property.
• Transfers in Contemplation of Death. This refers to the value of any disposition, whether by trust or otherwise, that is intended to take place only after the decedent’s death (donation mortis causa).
• Revocable Transfers. The value of any transferred property in which the decedent retained the power to amend, alter or revoke the transfer during the decedent’s lifetime. This is regardless of whether the decedent actually exercised his or her power.
• Transfers with Retention of Rights of Ownership. This refers to the value of any transfer where the decedent retained the power to enjoy the fruits or income of the asset during the decedent’s lifetime. Since this means that the transfer done by decedent is not absolute and transfer of all rights of ownership will only take place upon the decedent’s death, the value of the asset transferred should still be considered part of the decedent’s gross estate.
• Property Passing under the General Power of Appointment. This refers to the value of any property transferred to the decedent during his or her lifetime wherein he or she was given the power to appoint any person, including himself or herself, to be the recipient or beneficiary. Since the decedent enjoys the right to dispose the property any way he or she wants to as if he or she is the owner, the value of such property should be included in the decedent’s gross estate.
• Proceeds of Life Insurance. The value of insurance proceeds from insurance policies taken out by the decedent upon his or her own life should be included in the gross estate of the decedent when the designation of the beneficiary is revocable or when the decedent has made himself or herself or the decedent’s estate, executor or administrator as the beneficiary regardless of whether the designation is irrevocable.
• Transfers for Insufficient Consideration. This refers to the excess of the FMV at the time of death over the value of the consideration received by the decedent for any disposition by sale that the decedent made during the decedent’s lifetime that is less than a bona fide sale for an adequate and full consideration in money or money’s worth.
• Property owned in Common with Surviving Spouse.This refers to the value of any property owned in common with the surviving spouse should be included in the decedent’s gross estate. However, the value of the equal share of the surviving spouse should be deducted from the estate after all conjugal expenses have been deducted from the gross estate.

The gross estate is entitled to claim the following deductible expenses to determine the net estate:

• Funeral Expense. Actual funeral expenses includes cost of clothes for bereavement or 5% of the gross estate, whichever is lower but in no case to exceed PhP200,000.00
• Judicial Expense. Fees of executors, administrators and lawyers as well as expenses for the preservation of the estate.
• Claims Against the Estate. Third-party creditor claims like loans obtained by the decedent. They must be evidenced by a notarized agreement.
• Claims Against Insolvent Persons. Basically, bad debts/receivables of the decedent.
• Mortgage Indebtedness, Taxes and Loss. This refers to unpaid mortgages, unpaid taxes before the death of decedent and any losses from fire, theft or embezzlement incurred by the estate that is not covered by insurance.
• Vanishing Deduction. Certain percentage of the value of an asset may be deducted from the gross estate if they were acquired by inheritance or by gratuitous title by the decedent at a time proximate to the decedent’s death. For example, the value of property acquired by decedent by inheritance at least 4 years but not more than 5 years before the decedent’s death may be deducted from the gross estate to the extent of 20% thereof. If such property was inherited by the decedent within 1 year before his or her death, then 100% of the value of such asset is deductible from his or her gross estate.
• Transfer for Public Use. Any bequeath, legacies, devisees to the Philippine government or any of its political subdivisions for public use.
• Family Home. The actual FMV of the decedent’s family home or PHP1 million, whichever is lower.
• Standard Deduction. The amount of PHP1 million is deductible, no questions asked.
• Medical Expenses. Actual medical expenses incurred within 1 year prior to the death of the decedent or PHP500,000, whichever is lower.

1.2 Gift tax

Donations made during the lifetime of the donor (donation inter vivos) is subject to donor’s tax. Donor’s tax is imposed on total net gifts made in any calendar year. Generally, any donation to a “stranger” is subject to donor’s tax at the rate of 30% of the FMV of the property or cash donated. Otherwise, the donation is subject to graduated scale that you will see under item 4 below. A “stranger” is a person who is not a:

• Brother or sister (whether by whole or half-blood), spouse, ancestor and lineal descendant; or
• Relative by consanguinity in the collateral line within the fourth degree of relationship.

Donor’s tax is also imposable on any transfer of any property (other than real property classified as capital asset) for less than adequate and full consideration in money or money’s worth.

1.3 Real estate transfer tax

Philippines has real estate transfer tax that is imposable on all transfers of real estate property including transfer by way of inheritance. Referred to as local transfer tax (LTT), it is imposed by the local government unit having jurisdiction over the location of the property and not by the national government. In the case of cities, the maximum rate of LTT is 75% of 1% of the FMV, zonal value or consideration received, whichever is higher of the 3. On the other hand, municipalities cannot impose LTT that is higher than 50% of 1% of the FMV, zonal value or consideration received, whichever is higher.

In case of transfer by way of inheritance, the LTT should be paid within 60 days from the time of death of the decedent.

1.4 Endowment tax

There is no endowment tax in the Philippines.

1.5 Transfer duty

There is no transfer duty in case of transfer by way of inheritance. Documentary stamp tax (DST) is applicable, however, on any transfer or disposition of real property or shares of stock in a domestic company, during the lifetime of the person. DST rate on transfer of shares is PHP.75 or PHP200 of the total par value of the shares. The DST on transfers of real property is PHP15 for every PHP1,000 of the zonal value, FMV or consideration received, whichever is higher.