Death is inevitable. And so are taxes.
Did you know?
When someone dies in your family. All his or her properties will be transferred to the rightful beneficiary or his or her heirs.
But before the properties is transferred to their name/s, the heirs should pay taxes of the love ones who passed away first. This is called Estate Tax.
What will you learn after reading this article?
This guide is for the people who wants to know Estate Tax in the Philippines under TRAIN Law.
After reading this guide, you will learn:
1. What is the New Rate of Estate Tax?
2. What are included in the Gross Estate?
3. How do you get the Valuation of the Gross Estate?
4. Who shall File and Pay Estate Tax Return?
5. When and Where is the Place of filing the return and payment of the tax?
6. Do the BIR Grant Time Extension in filing of estate tax return?
7. Do the BIR allow Extension of time to pay the Estate Tax?
8. How to pay estate tax by cash installment?
9. How to Pay Estate Tax by Partial Disposition of Estate?
10. Where to Request for Extension of Time, Installment Payment and Partial Disposition of Estate?
11. Do you need a Certified Public Accountant in filing of Estate Tax Return?
12. What will happen if you didn’t pay the Estate Tax?
13. Can you withdraw cash in the bank account of a dead person?
1. What is the New Rate of Estate Tax?
The net estate of every decedent, whether resident or non-resident of the Philippines shall be subject to an estate tax at the rate of six percent (6%).
The new tax rate took effect on January 1, 2018.
2. What are included in the Gross Estate?
A. If you’re a Resident Citizen of the Philippines,
ALL properties, real or personal, tangible or intangible, wherever situated, shall be included in your Gross Estate.
B. If you’re a Non-Resident Citizen or Non-Resident Alien of the Philippines
Only properties situated in the Philippines shall be included in your Gross Estate.
Provided, that, with respect to intangible personal property, its inclusion in the gross estate is subject to the rule of reciprocity provided for under Section 104 of the NIRC.
3. How do you get the Valuation of the Gross Estate?
A. If the property is a real property, the appraised value as of the time of death shall be, whichever is higher of:
a. The Fair Market Value (FMV) as determined by the Commissioner (BIR)
b. The Fair Market Value (FMV) as shown by the Provincial and City assessors.
B. In case of shares of stocks NOT listed in stock exchanges:
a. Unlisted common shares are valued based on their book value.
b. Unlisted Preferred shares are valued at par value.
C. For shares listed in the stock exchanges,
a. The fair market value shall be the arithmetic mean between the highest and lowest quotation available on the date of death.
D. The fair market value of units of participation in any association, recreation or amusement club
a. Shall be the bid price nearest the date of death published in any newspaper or publication of general circulation.
E. To determine the value of right to usufruct, as well as that of annuity,
a. There shall be taken into account the probable life of the beneficiary in accordance with the latest basic standard mortality table, approved by Secretary of Finance, upon recommendation of the Insurance Commissioner.
4. Who shall File and Pay Estate Tax Return?
Estate tax return shall be file by the executor, administrator or any of the legal heirs.
No person is allowed to serve as executor or administrator who:
A. Is a minor;
B. Not a resident of the Philippines; and
C. Is in the opinion of the court unfit to execute the duties of the trust by reason of drunkenness, improvidence, or want of understanding or integrity, or by reason of conviction of an offense involving moral turpitude
If no executor is named in the will, or the executor or executors are incompetent, refuse the trust, or fail to give bond, or a decedent dies intestate, Obligatory administration shall be granted to:
A. To the surviving husband or wife, as the case may be
B. To next of kin, or both,
C. To one or more of the competent and willing principal creditors
5. When and Where is the Place of filing the return and payment of the tax?
The executor, administrator, or the heirs should file Estate Tax Return (BIR Form 1801) to BIR Revenue District Office (RDO) where the decedent was domiciled at the time of death.
Due Date of Filing of Estate Tax Return is within one (1) year from the decedent’s death and shall be paid at the time the return is filed.
In case of a non-resident decedent, the administration or executor shall register the estate of the decedent and secure new TIN therefor from the RDO where such executor or administrator is registered or legal residence.
If the non-resident decedent does not have an executor or administrator in the Philippines, the estate tax return shall be filed to Office of the Commissioner through RDO No. 39 – South Quezon City.
The Commissioner of Internal Revenue has power to allow a different venue/place in the filing of tax returns.
6. Do the BIR Grant Time Extension in filing of estate tax return?
The commissioner or any Revenue Officer authorized by him shall have the authority to grant a reasonable extension not exceeding thirty (30) days.
7. Do the BIR allow Extension of time to pay the Estate Tax?
When the commissioner finds that the payment of the estate tax would impose undue hardship upon the estate of any of the heirs,
He may extend the time for payment of such tax up to five (5) years if settled through courts, or two (2) years if settle extra judicially.
When extension is granted,
The commissioner may require the executor, administrator, or beneficiary, to furnish a bond in such amount, not exceeding double the amount of the tax and with such sureties.
8. How to pay estate tax by cash installment?
A. The cash installments shall be made within two (2) years from the date of filing of the estate tax return.
B. The estate tax return shall be filed within one year from the date of decedent’s death.
C. The frequency (i.e. monthly, quarterly, semi-annually, or annually), deadline and amount of each installment shall be indicated in the estate tax return, subject to the prior approval by the BIR.
D. In case of lapse of two years without the payment of the entire tax due, the remaining balance thereof shall be due and demandable subject to the applicable penalties reckoned from the prescribe deadline for filing the return and payment of estate tax.
E. No civil penalties or interest may be imposed on estate permitted to pay the estate tax due by installment.
9. How to Pay Estate Tax by Partial Disposition of Estate?
A. Disposition of estate shall refer to selling a property with equivalent cash consideration
B. The estate tax return shall be filed within one year from the date of decedent’s death.
C. Written request for the partial disposition of estate shall be approved by the BIR together with a notarized undertaking that the proceeds thereof shall be exclusively used for the payment of the total estate tax due.
D. The computed estate tax due shall be allocated in proportion to the value of each property.
E. The Estate shall pay to the BIR the proportionate estate tax due of the property intended to be disposed of.
F. An electronic Certificate Authorizing Registration (eCAR) shall be issued upon presentation of the proof of payment of the proportionate estate tax due of the property intended to be disposed.
G. In case of failure to pay the total estate tax due out from the proceeds of the said disposition, the estate tax due shall be immediately due and demandable and will be subject to applicable penalties and interest.
10. Where to Request for Extension of Time, Installment Payment and Partial Disposition of Estate?
Request shall be filed with the Revenue District Office (RDO) where the estate is required to secure its TIN and file tax Return
11. Do you need a Certified Public Accountant in filing of Estate Tax Return?
Estate Tax returns showing a gross value exceeding Five Million Pesos (P5,000,000) shall be supported with a statement duly certified to by a Certified Public Accountant containing the following:
a. Itemized Assets of the decedent at time of his death
b. Itemized Deduction from gross estate
c. The Amount of tax due whether paid or still due and outstanding.
12. What will happen if you didn’t pay the Estate Tax?
There shall no transfer of real property, motor vehicle, shares of stock by donation or by inheritance unless an eCAR is issued by the Commissioner or his duly authorized representative.
The eCAR is your one of the proof that estate tax is paid.
13. Can you withdraw cash in the bank account of a dead person?
If the bank has knowledge of the death of a person,
It shall allow the withdrawal from the said deposit account, subject to a final withholding tax of six percent (6%),
Provided that the withdrawal shall only be made within one year from the death of the decedent.
The bank is required to file prescribed quarterly return on the final tax withheld on or before the last day of the month following the close of the quarter during withholding was made.
The bank shall issue the corresponding BIR Form No. 2306 certifying such withholding.
Final tax shall not be refunded or credited on the tax due on the net taxable estate of the decedent.
The executor, administrator, or any of the legal heirs, withdrawing from the deposit account shall provide the bank where such withdrawal shall be made, with the TIN of the estate of the decedent.
The bank shall require prior to such withdrawal, the presentation of BIR Form No. 1904 of the estate, duly stamped received by the BIR.
In instances where the bank deposit accounts have been duly included in the gross estate of the decedent and the estate tax due thereon paid,
The executor, administrator, or any of the legal heirs shall present the eCAR issued for the said estate prior to withdrawing from the bank deposit account.
Such withdrawal shall no longer be subject to the six percent (6%) final withholding tax.
References:
Consolidated Revenue Regulations on Estate Tax and Donor’s Tax Incorporating the Amendments Introduced by TRAIN Law (RR 12-2018)
Wait, there’s more.
A. If you want to get a checklist of documentary requirements in Estate Tax in the Philippines, click here.
B. If you want to know “What are the Allowable Deductions in the Gross Estate under TRAIN Law?”, click here.
What’s Next?
If you have questions and comments regarding tax, accounting, and business registrations, you can Contact us here.
