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 the Philippine 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 to deceased nonresidents/noncitizensas long as the property is located in the Philippines.
Additionally, the BIR identifies intangible personal property as:
- Franchises exercised in the Philippines
- Philippine shares, obligations, or bonds
- Shares, obligations, or bonds issued by a foreign corporation with 85% of its business 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 info@duranschulze.com.
