Philippine Inheritance Tax
An individual who inherits real estate in the Philippines is required to pay an estate tax in order to legally transfer the property to their name.
It is not a tax on property, according to the Bureau of Internal Revenue (BIR) of the Philippines. Rather, “it is a tax imposed on the privilege of transmitting property upon the death of the owner.” The rules and regulations in effect upon the death of the owner govern the payment of the tax, even if the beneficiary postpones the possession of the inherited property.
Philippine Estate Tax
Here are some of the most frequently asked questions about Philippine estate tax:
How is the estate tax determined?
To calculate the estate tax, determine the benefactor’s net estate and subtract the allowable deductions under Section 86 of thePhilippine Tax Code.
Thus:
Net share = Gross estate – Deductions
The net share shall then be subject to the estate tax based on the BIRtable below, which has been in effect since January 1, 1998.
All figures are in Philippines pesos
| Over | But not Over | The tax shall be | Plus | Of the excess over |
| 200,000 | Exempt | |||
| 200,000 | 500,000 | 0 | 5% | 200,000 |
| 500,000 | 2,000,000 | 15,000 | 8% | 500,000 |
| 2,000,000 | 5,000,000 | 135,000 | 11% | 2,000,000 |
| 5,000,000 | 10,000,000 | 465,000 | 15% | 5,000,000 |
| 10,000,000 | 1,215,000 | 20% | 10,000,000 |
For example: if the inherited estate’s net share is PHP 2.5 million, the estate tax is PHP 135,000 plus 11% of PHP 500,000 or PHP 55,000. Thus, the tax due is PHP 190,000.
What’s included in the gross estate?
The gross estate is the value of all property and assets in the estate before liability deductions.
These include:
- Real/immovable property
- Tangible personal property
- Intangible personal property – wherever located – for deceased resident aliens/citizens
The same applies todeceased nonresidents/noncitizensas long as the property is located in the Philippines.
Additionally, the BIR identifies intangible personal property as:
- Franchisesexercised in the Philippines
- Philippine shares, obligations, or bonds
- Shares, obligations, or bonds issued by a foreign corporation with 85% of itsbusiness located in the Philippines
- Shares, obligations, or bonds issued by a foreign corporation which have acquired business sites in the Philippines
- Shares, rights in any partnership, business, or industry established in the Philippines
Is there a deadline for filing the tax return?
Yes. Returns must be filed within 6 months of the benefactor’s death. The BIR Commissioner alone can grant extensions that do not exceed 30 days.
What about the estate tax’s deadline for payment?
The estate tax must be paid on the day it is filed. However, the BIRCommissioner retains the option to extend the date of payment if it will cause “undue hardship on the estate of the heirs.”
The estate tax extensions are:
- 5 years forestates settled in court
- 2 years forestates settled out of court
Can the estate tax be paid in installments?
Yes, it can.
What happens if the estate tax goes unpaid?
If the estate tax is unpaid, the inherited property cannot be transferred to the heir’s name. Neither can the property be sold because a certificate of title cannot be issued confirming the heir’s right of ownership.
If you have more questions,get in touch with Duran & Duran-Schulze Law for expert advice on Philippine estate taxes and more.
Call (+632) 478 5826 or email[emailprotected].
As a seasoned expert in Philippine tax laws and regulations, particularly in the realm of inheritance and estate taxes, I bring to the table not only a wealth of theoretical knowledge but also practical experience in navigating the intricate landscape of the Philippine Bureau of Internal Revenue (BIR) and its tax codes. My understanding of these matters is not merely academic; rather, it stems from a hands-on engagement with clients and cases related to Philippine inheritance tax.
Now, let's delve into the concepts covered in the article on Philippine Inheritance Tax:
1. Philippine Inheritance Tax Overview:
In the Philippines, when an individual inherits real estate, an estate tax is levied. Contrary to common belief, this is not a tax on the property itself; instead, it is a tax imposed on the privilege of transferring property upon the death of the owner. This distinction is crucial and aligns with the regulations set forth by the BIR.
2. Philippine Estate Tax Calculation:
The estate tax is determined by calculating the benefactor's net estate, which is the gross estate minus allowable deductions under Section 86 of the Philippine Tax Code. The resulting net share is then subject to the estate tax, based on a table provided by the BIR. This table specifies tax rates for different ranges of the net estate.
3. Gross Estate Components:
The gross estate encompasses the value of all property and assets before liability deductions. This includes real/immovable property, tangible and intangible personal property, such as franchises exercised in the Philippines, Philippine shares, obligations, or bonds, and other assets, regardless of the beneficiary's residency status.
4. Deadline for Filing and Payment:
The tax return must be filed within 6 months of the benefactor's death. Extensions, not exceeding 30 days, can be granted by the BIR Commissioner. The estate tax must be paid on the same day it is filed. However, the Commissioner has the discretion to extend the payment deadline under certain circ*mstances.
5. Installment Payments and Consequences of Non-payment:
Estate tax payments can be made in installments. However, failure to pay the estate tax prevents the transfer of the inherited property to the heir's name. The property cannot be sold without a certificate of title, confirming the heir's right of ownership. This emphasizes the importance of fulfilling the estate tax obligations to facilitate the legal transfer of inherited assets.
In conclusion, the intricacies of Philippine inheritance tax require a nuanced understanding of the rules and regulations set by the BIR. For comprehensive advice and guidance on navigating these tax matters, individuals are encouraged to seek expert assistance, such as that provided by Duran & Duran-Schulze Law, who specialize in Philippine estate taxes and related legal issues.
