This module is designed to introduce you to Business
Tax. We will discuss taxes during the course of doing
business in the Philippines and taxes when transferring
assets and properties.
Additional notes and readings will be added to google
classroom during the semester. As per protocol, there
won’t be any face to face classes. We will have classes via
google meet. The schedule of these
discussions/consultations will be posted in your google
classroom page.
If you have any questions, you can reach me at
mauricio_richard@[Link] or you can drop a
message in google classroom.
ESTATE TAX
Estate Tax is a tax on the right of the deceased person to transmit
his/her estate to his/her lawful heirs and beneficiaries at the time of
death and on certain transfers, which are made by law as equivalent to
testamentary disposition. It is not a tax on property. It is a tax imposed
on the privilege of transmitting property upon the death of the owner.
The Estate Tax is based on the laws in force at the time of death
notwithstanding the postponement of the actual possession or
enjoyment of the estate by the beneficiary.
Tax rate
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.
To be able to know the net estate, one must be able to start
determining the gross estate. If the decedent is resident and citizens of
the Philippines, his/her gross estate shall be comprised of all properties,
real or personal, tangible or intangible, wherever situated. In case of
non-resident aliens, gross estate shall be comprised of only properties
situated in the Philippines, provided, that, with respect to intangible
personal property, its inclusion in the gross estate is subject to the rule
of reciprocity.
Deductions on the Net Estate of a Citizen or Resident Alien in the
Philippines
The value of the net estate of a citizen or a resident alien of the
Philippines shall be determined by deducting from the value of the
gross estate the following items of deduction:
Standard Deduction in the amount of Five Million Pesos
(P5,000,000.00);
Claims against the estate which mean debts or demands of a
pecuniary/monetary nature which could have been enforced
against the deceased in his lifetime and could have been reduced
to simple money judgments;
Claims of the deceased against insolvent persons, where the value
of the decedent’s interest therein is included in the value of the
gross estate;
Unpaid mortgages, taxes and casualty losses;
Property previously taxed;
Transfers for public use which is the amount of all bequests,
legacies, devises or transfers to or for the use of the Government
of the Republic of the Philippines or any political subdivision
thereof, for exclusively public purposes;
The Family Home which is equivalent to its current fair market
value and provided that if its current fair market value exceeds
ten (10) million, the excess shall be subject to estate tax;
Amount received by heirs under Republic Act No. 4917 which
includes any amount received by the heirs from the decedent’s
employer as a consequence of the death of the decedent-
employee;
Net share of the surviving spouse in the conjugal partnership or
community property
Deductions on the Net Estate of a Non-Resident Alien in the
Philippines
For non-resident aliens, the items of deductions are the following:
1. Standard deduction in the amount of Five Hundred Thousand
Pesos (P500,000.00);
The proportion of the total losses and indebtedness which the
value of such part bears to the value of his entire gross estate
wherever situated;
Property previously taxed;
Transfers for public use;
Net share of the surviving spouse in the conjugal property or
community property
Things to remember:
1. Remember that the 10M deduction is only used for a family home
and when that home is 10M and above.
If the family home is less than 10M, then the deduction is only up
to the value of the home and not the entire 10M.
2. Personal property can be divided into two major categories:
tangible and intangible. Tangible property includes such items as
animals, merchandise, and jewelry. Intangible property includes
such rights as stock, bonds, patents, and copyrights.
3. Real property is real estate (land and buildings, permanent
structures and fixtures).
4. If the property is a real property, the appraised value thereof as of
the time of death shall be, whichever is the higher of –
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of values fixed
by the provincial and city assessors, whichever is higher.
5. In general, real property is fixed and not movable, while personal
property is movable.
6. Real property is anything which is part of the land or attached to
the house and is immovable, or can’t be removed without
damage, or anything which is incidental or appurtenant to the
land. (An appurtenance is a privilege or improvement belonging to
and passing with, the land. It includes mineral, air or water rights,
buildings, fences, easements and orchards.)
7. Personal property is basically everything else – the possessions
you take with you when you move. If an item is nailed or screwed
into a part of the building, it will normally be considered real
property. (If something can be unscrewed without damage it will
likely be a source of great dispute and it's status should be
determined in advance, in writing.)
8. Share of husband/wife/partner is based on NET VALUE.
What are the Conditions for the allowance of family home as
deduction from the gross estate?
The family home must be the actual residential home of the
decedent and his family at the time of his death, as certified by
the Barangay Captain where the family home is situated.
The total value of the family home must be included as part of
the gross estate of the decent.
Allowable deduction must be equivalent to the fair market value
of the family home, or the extent of the decedent interest
(whether conjugal/community or exclusive property) whichever is
lower, but not exceeding P10,000,000.
For the purpose of availing of a family home deduction, a person
may constitute only one (1) family home.
Example:
Gross Estate – 50M (Unmarried)
Less: 5M (standard deduction)
2M (debts)
1M (taxes)
10M (family home)
Net Estate – 32M
If married
GROSS ESTATE – 100M
LESS -
Conjugal obligations – 10M
Net Conjugal Estate – 90M
Less – 5M (standard deduction)
10M (Family Home)
5M (Taxes)
45M (share of the wife)
Net estate - 25M
Donors Tax
Donor’s Tax is a tax on a donation or gift, and is imposed on the
gratuitous transfer of property between two or more persons who are
living at the time of the transfer. It shall apply whether the transfer is in
trust or otherwise, whether the gift is direct or indirect and whether
the property is real or personal, tangible or intangible.
Rate
The donor’s tax for each calendar year shall be six percent (6%)
computed on the basis of the total gifts in excess of Two Hundred Fifty
Thousand Pesos (P250,000) exempt gift made during the calendar year.
What are the Requisites of Valid Donations?
This shall not take effect if the donation is not completed. The transfer
of property is completed/perfected if the following elements are met:
1. Acceptance of the donee or recipient
2. There is actual or constructive delivery of properties
Donations Made to Your Spouse
Donations or gifts given between marriage is not subject to donor’s
tax. Therefore, any transactions between spouses are considered
marital properties. So it means that you can’t transfer properties
without ownership.
What donations are tax exempt?
A. In the Case of Gifts made by a Resident
· Gifts made to or for the use of the National Government or any entity
created by any of its agencies which is not conducted for profit, or to
any political subdivision of the said Government; and
· Gifts in favor of an educational and/or charitable, religious, cultural
or social welfare corporation, institution, accredited non-government
organization, trust or philanthropic organization or research
institution or organization: Provided, however, not more than 30% of
said gifts will be used by such donee for administration purposes. For
the purpose of this exemption, a ‘non-profit educational and/or
charitable corporation, institution, accredited nongovernment
organization, trust or philanthropic organization and/or research
institution or organization’ is a school, college or university and/or
charitable corporation, accredited nongovernment organization, trust
or philanthropic organization and/ or research institution or
organization, incorporated as a nonstock entity, paying no dividends,
governed by trustees who receive no compensation, and devoting all its
income, whether students’ fees or gifts, donation, subsidies or other
forms of philanthropy, to the accomplishment and promotion of the
purposes enumerated in its Articles of Incorporation.” (Sec. 17 of RR
No. 12-2018)
B. In the Case of Gifts Made by a Nonresident not a Citizen of the
Philippines
· Gifts made to or for the use of the National Government or any entity
created by any of its agencies which is not conducted for profit, or to
any political subdivision of the said Government.
· Gifts in favor of an educational and/or charitable, religious, cultural or
social welfare corporation, institution, foundation, trust or
philanthropic organization or research institution or organization:
Provided, however, that not more than thirty percent (30%) of said gifts
shall be used by such donee for administration purposes. (Sec. 101 (B)
of NIRC, as amended)
For purposes of Donor’s Tax, what does the term “Net Gift” mean?
For purposes of the donor’s tax, “net gift” shall mean the net economic
benefit from the transfer that accrues to the donee. Accordingly, if a
mortgaged property is transferred as a gift, but imposing upon the
donee the obligation to pay the mortgage liability, then the net gift is
measured by deducting from the fair market value of the property the
amount of mortgage assumed. (Sec. 12 of RR No. 12-2018)
Donor’s Tax vs Estate Tax: Which is the better way to transfer
property to family members?
They are both 6% but you have to remember that the Fair Market Value
(FMV) of the property might go up and you might end up paying more if
you choose estate tax
Sale of a property: Taxes
Apart from the property’s actual purchase price and other concessions
between the seller and the buyer, here are the common hidden costs of
buying a home:
Notary Fee. This refers to the negotiable cost that the buyer has
to pay to have the Deed of Absolute Sale notarized, which usually
hovers around 1-2% of the property value.
Local Transfer Tax. This refers to the tax that the buyer has to pay
for transferring ownership of any real property. Depending on the
home’s location or municipality, the local transfer tax can cost
around 0.50% of the property value for provincial properties and
0.75% for properties within Metro Manila.
Registration Fee. This refers to the cost that the buyer has to pay
to the local Registry of Deeds where the house or property stands,
and it amounts to around 0.25% of the property’s selling price.
This serves to legally register the transfer of ownership.
Documentary Stamp Tax. This refers to the tax that the seller has
to pay for the documentation of the sale, which amounts to 1.5%
of the property’s selling price or fair market value, whichever is
higher.
Capital Gains Tax. This refers to the tax that the seller has to pay
for the transaction of real estate properties that are categorized
as capital assets, such as residential properties. The CGT amounts
to 6% of the property’s gross selling price or its fair market value,
whichever is higher.
