GROSS ESTATE

(EXCLUSIONS/EXEMPTIONS)

Exemption of certain acquisitions and transmissions

Transfer exempt from estate tax are transfers mortis causa which are not subject thereto.
That is why they are not included in the gross estate of the decedent.
The exemptions from estate tax may be either under the provisions of the National Internal
Revenue Code or by reason of special law.
Transfer exempt from estate tax under the code

Under the code, the following shall not be taxed:

1. The merger of the usufruct in the owner of the naked title;
2. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to
the fideicommissary;
3. The transmission from the first heir, legatee or done in favor of another beneficiary, in
accordance with the desire of the predecessor; and
4. All bequests, devises, legacies or transfers to social welfare, cultural and charitable
institutions, no part of the net income of which inures to the benefit of any individual.
Provided, however, that not more than thirty percent (30%) of the said bequest, devises,
legacies or transfers shall be used by such institutions for administration purposes.
5. The exclusive (separate) properly of the surviving spouse.
Common requisites to the first three exclusions
The first three (3) enumerated exclusions have common requisites. They are the following:
1. There must be two transmissions of the same property or a portion thereof;
2. The transfer from the prior decedent must be testamentary in character;
3. The first transfer is subject to estate tax, while the second transfer is the one exempt
Merger of usufruct in the owner of the naked title
Usufruct is defined as a real right, of a temporary nature, which authorizes its holder to
enjoy all the benefits which results from the normal enjoyment of another’s property, with the
obligation to return, at the designated time, either the same thing or, in special cases, its
equivalent.
In a usufruct there are two rightful claimants to a thing, namely; the usufructuary, and the
owner of the naked title.
The usufruct has the right to enjoy the property, to the same extent as the owner, but only
with respect to its use and the receipt of its fruits.
The owner of the naked title, during the usufruct, can exercise all the rights of ownership
consistent with the enjoyment of the thing by the usufructuary. But none of these acts can affect
the rights of the usufructuary.
 There is merger of the usufruct in the owner of the naked title when the naked ownership
and the usufruct come to be held by the same person.
Transmission from fiduciary heir to the fideicommissary
Fideicommissary substitution is that by virtue of which a testator institutes a first heir, and
charges him to preserve and transmit the whole or part of the inheritance later on to a second
heir.
For example, Tess institutes Cea as first heir. The will states that Cea should preserve
and transmit later on the estate to Sarry, Cea’s daughter.
In the example above, Tess is the testator, Cea is the first heir of fiduciary heir, while Sarry
is the second heir or the fideicommissary.
In a fideicommissary substitution, there must be a first heir and a second heir whose
relationship must be one degree such that of parent and child, vice versa.
Second transfer in accordance with the desire of predecessor
This is referring to the transmission of property from the first heir, legatee or done in favor
of another beneficiary in accordance with the desire of the predecessor.
This exemption and in the others (merger of usufruct in owner of naked title and transfer
from fiduciary heir to the fideicommissary) is premised on the fact that there is only a single
transmission of property, i.e. from the testator – to the owner of the naked title, or to the
fideicommissary, or to the second beneficiary, as the case may be. Hence, the exemption from
the tax because the transfer was subject previously thereto.
Donations to the social welfare, cultural and charitable institutions
This is the estate tax counterpart of the more familiar income tax charitable deduction
provision. However, this charitable deduction is unlimited in the sense that it is not subject to
percentage restrictions such as are applicable to the income tax deductions for contributions to
charity.
It might be a charitable act to leave money to a poor person, but the statue authorizes no
deduction for such direct philanthropy, requiring instead that bequests be made to qualified
recipient’s organizations.
Thus, a nonprofit hospital may be a qualified recipient, even where small charges are
made for use, except where restricted to less than the entire community, but a nonprofit cemetery
association not exclusively for charitable purposes will not qualify.
Moreover, no exemption is assured merely because a portion of the decedent’s wealth
actually reaches a qualified organization; it must get there by way of a bequest, legacy or devise.
The donations must be given to an institution which is duly accredited by a recognized
accrediting entity.
Note that the donations shall be exempt from estate taxation only if not more than thirty
percent (30%) of said bequests, devises, legacies or transfers shall be used by such institutions
for administration purposes.
Separate property of the surviving spouse
The exclusive (separate) property of the surviving spouse of the decedent shall not be
deemed part of the gross estate.
This is based on the rationale that the separate property of the husband or the wife cannot
be the subject of succession while the owner is still living because succession is made effective
only from the moment of death of the decedent.
However, the share of the surviving spouse in the conjugal/community property shall be
included in the computation of the gross estate.
Exemptions under special laws
The following are exempt from estate tax by reason of special laws:
1. benefits received from the Government Service Insurance System(GSIS).
2. Benefits received from the Social Security System (SSS);
3. Amounts received from the Philippines Government and the United State governments
from damages suffered during the last war; and
4. Benefits received from the U. S. Veterans Administration.
The benefits received from SSS and GSIS which are exempt from estate tax are those
that pertain to funeral and death benefits. Thus, maternity, leave, loan, accident and other benefits
are not included in the exemption.
Inheritance by the state
If a person dies intestate, leaving no heir within the 5th degree in the collateral line or a
person by law entitled to inherit to the properties of the decedent, the state shall inherit the whole
estate.
This process of succession by the state to property considered “ownerless” is called
escheat.
Succession by the State is based on the principle that ultimately it is the state that owns
all property within its territorial jurisdiction.
The personal property shall be assigned to the municipality or city where the deceased
last resided in the Philippines, and the real property to the municipalities or cities, respectively, in
which the same is situated.
If the deceased never resided in the Philippines, the whole estate shall be assigned to the
respective municipalities or cities where the same is located.
Such estate shall be for the benefit of public schools, and public charitable institutions and
center, in such municipalities or cities. The court shall distribute the estate as the respective needs
of each beneficiary may warrant.
The court, at the instance of an interested party, or on its own motion, may order the
establishment of a permanent trust, so that only the income from the property shall be used.
 DEDUCTION FROM GROSS ESTATE
Deductions are the amounts or items that the law allows to be deducted from gross income
to arrive at net estate.
The burden of proof to establish the validity of claimed deductions is on the taxpayer. He
must point to some specific provisions of the statute in which that deduction is authorized, and
must be able to prove that he is entitled to the deduction which the law allows.
The deductions from the gross estate should be grouped into:
1. Those allowed if the decedent was a resident or citizen; and
2. Those allowed if the decedent was a nonresident alien.
On deaths that occurred January 1, 2018 onward the following items shall be allowed as
deductions from the gross estate:

A. DEDUCTIONS OF RESIDENTS OR CITIZENS

Deduction allowed from the estate of a citizen or a resident
In the case of a citizen or resident of the Philippines, the value of the net estate shall be
determined by deducting from the value of the gross estate the following:
I. ORDINARY DEDUCTIONS
A. CUCUL
1. Claims against the estate
2. Unpaid mortgages
3. Claims of the decedent against insolvent persons
4. Unpaid taxes
5. Losses
B. Transfer for public use
C. Vanishing deductions (Property Previously Taxed)

II. SPECIAL DEDUCTIONS

A. Family Home
B. Standard deduction of P5, 000, 000
C. Amount received by heirs under RA 4917

III. SHARE OF SURVIVING SPOUSE IN THE CONJUGAL/COMMUNITY PROPERTIES

Claims against the estate

The word “claims” is generally construed to mean debts or demands of a pecuniary nature
which could been enforced against the decedent during his lifetime and could been reduced
to simple money judgements.
 These are debts which are properly chargeable and enforceable against the estate. Claims
against the estate or indebtedness in respect of property may arise out of:
1) Contract
2) Tort, or
3) Operation of law
To be deductible, the following requisites must be complied, viz:
a. The liability represents a personal obligation of the deceased exiting at the time of his
death;
b. That the liability was contracted in good faith and for an adequate and full consideration
in money or money’s worth;
c. The claim must which is valid in law and enforceable in court;
d. The indebtedness must not have been condoned by the creditor, or the action to collect
from the decedent must not have prescribed.
Substantiation requirements
A. In case of simple loans
1. The debt instruments must he duly notarized at the time the indebtedness was incurred
such as promissory notes or contract of loan, except for loans granted by financial
institutions where notarization is not part of the business practice/policy of the financial
institution-lender.
2. Duly notarized Certification from the creditor as to the unpaid balance of the debt,
including interest as of the time of death. If the creditor is a –
a. Corporation – the sworn certification should be signed by the president, or Vice-
President, or other principal officer of the corporation.
b. Partnership – the sworn certification should be signed by any of the general
partners.
c. Bank or other financial institution – the certification shall be executed by the branch
manager of the bank/financial institution which monitors and manages the loan of
the decedent-debtor.
d. Individual – the sworn certification should be signed by him.

In any of these cases, the one who should certify must not be relative of the borrower
within the fourth (4th) civil degree, either by consanguinity or affinity, except when the
requirements below are complied with.
When the lender, or the president/Vice-President/principal officer of the creditor-
corporation, or the general partner of the creditor-partnership is a 4th degree relative of the
debtor, or a copy of the promissory note or other evidence of the indebtedness must be
filed with the Revenue District Office (RDO) having jurisdiction over the borrower within
fifteen (15) days from the execution thereof.
3. Proof of financial capacity of the creditor to lend the amount at the time the loan was
granted, as well as its latest audited balance sheet with detailed schedule of its
receivable showing the unpaid balance of the decedent debtor.
 a. In case the creditor is an individual who is no longer required to file income tax
returns with the BIR, a duly notarized Declaration by the creditor of his capacity to
lend at the time when the loan was granted without prejudice to verification that
may by the Bureau of Internal Revenue (BIR) to substantiate such declaration of
the creditor.
b. If the creditor is non-resident, the executor/administration or any of the legal heirs
must submit a duly notarized declaration by the creditor of his capacity to lend at
the time when the loan was granted, authenticated or certified to as such by the
tax authority of the country where the non-resident creditor is resident.
4. A statement under oath must be executed by the administrator or executor of the
estate reflecting the disposition of the proceeds of the loan if said loan was contracted
within three (3) years prior to the death of the decedent.

B. If the unpaid obligation arose from purchase of goods or services:

1. Pertinent documents evidencing the purchase of goods or service, such as sale
invoice/delivery receipt (for sale goods), or contract for the services agreed to be
rendered (for sale of service), as duly acknowledged, executed and signed by the
decedent debtor and creditor, and statement of account given by the creditor as duly
received by the decedent debtor;
2. Duly notarized certification from the creditor as to the unpaid balance of the debt,
including interest as of the time of death.

Moreover, the requirements in A (2) (a, b and d) above must be complied with.

C. Where the settlement is made through the court in a testate of intestate proceeding,
pertinent documents filed with the Court evidencing the claims against the estate, and the
Court Order approving the said claims, if already issued, in addition to the documents
mentioned in the preceding paragraphs.
The following are considered as charges against the conjugal partnership or the community
property of the spouses, and therefor they are either conjugal or community property deductions:
a. All debts and obligations contracted during the marriage by the designated
administrator-spouse for the benefit of the community, or by both spouses, or by one
spouse with the consent of the other;
b. Debts and obligations contracted by either spouse without the consent of the other to
the extent that the family may have been benefited;
c. Ante-nuptial debts of either spouse insofar as they have rebounded to the benefit of
the family.
Claims against insolvent persons

Insolvency is the state of not being able to pay the money owned because of insufficient
assets to pay all debts.
Those in the state of insolvency are said to be insolvent.
One important requisite for its deductibility is that the value of the decedent’s interest
therein is included in the value of the gross estate and that the debtors are incapable of paying
their indebtedness.
 Declaration of insolvency maybe either by:
1. Voluntary insolvency – an insolvent debtor may apply to be discharged form his debts and
liabilities by filing a petition with court of competent jurisdiction
2. Involuntary insolvency – a court petition filed by three or more creditors, against a debtor,
whose credits accrued in the Philippines.
Claims against the estate are distinguished from claims against insolvent persons as follows:
in the first, the decedent was the debtor, while in claims against insolvent persons, the decedent
was the creditor at the time of his death.
Claims against insolvent persons are otherwise known as “bad debts”. The amount of
deduction is the value of indebtedness which cannot be collected anymore because the debtor
has been declared insolvent.
It may be either exclusive or conjugal /community property deduction. In case the claim is an
exclusive property of the decedent, then it is an exclusive property deduction and the same should
not be considered in the computation of the share of the surviving spouse.

Other properties of the decedent P xx

Claims against insolvent xx
Gross estate xx
Less: Deductions
Bad debt xx
Net estate xx

Exhibit 7-1. A claim against an insolvent person must be included in the gross
estate.

Unpaid mortgages
A mortgages is an accessory contract whereby one party called the mortgagor constitutes
his property as security for the fulfillment of principal obligation.
The object of mortgage may be either personal property (chattel mortgage) or immovable
and/or alienable real rights imposed on immovable (real mortgages).
Unpaid mortgages which are deductible from gross estate refer to obligations secured by
mortgage which remained unpaid until the debt of the debtor.
If the unpaid debts is not secured by mortgage, then it can be more appropriately classified
as “claim against the estate”.
Unpaid mortgage indebtedness is deductible if the following conditions are complied with,
namely:
a. The value of the decedent’s interest there in, undiminished by such mortgage
indebtedness, is included in the value of the gross estate;
 Therefore, if the debt of the decedent is secured by a mortgage of property owned
by a third person, the debt can be deducted from gross estate as a “claim against the
estate” instead of unpaid mortgage.
b. That they were contracted bona fide and for an adequate and full consideration in money
or money’s worth.

Other properties of the decedent P x x

Claims against insolvent 400, 000
Gross estate x x
Less: Deductions
Bad debt 150, 000
Net estate x x

Exhibit 7-1. A claim against an insolvent person must be included in the gross
estate.

Unpaid mortgages are conjugal/community property deductions if the proceeds of

mortgage indebtedness had been beneficial to the conjugal partnership or the absolute
community of property even if the property mortgaged is an exclusive property.
The rules on whether the unpaid mortgage is chargeable against the exclusive property
of the decedent or from the common property of the spouses is summarized below:

Exhibit 7-3
1. Contracted before marriage
For the benefit of - Chargeable against -
Donor/prior decedent Exclusive property
Exclusive property Exclusive property
Conjugal/community property Conjugal/community property
Family Conjugal/community property

2. Contracted during marriage

For the benefit of - Chargeable against -
Conjugal/community property Conjugal/community property
Exclusive property of one spouse Exclusive property
Property of donor/prior decedent Exclusive property

An unpaid mortgage attached to the inherited property and in which the death of prior decedent
took place while the present decedent was still unmarried is undoubtedly a deduction from his
exclusive properties if said mortgage still exist at the time of death of present decedent.
 If the decedent was a resident or citizen, unpaid mortgage on properties located outside
the Philippines are nevertheless deductible because the properties mortgaged are subject also
estate tax.
However, if the decedent was a non-resident alien, indebtedness secured by mortgage of
real property situated outside the Philippines may not be deducted where such property is not
includible in the gross estate.
Where the decedent owned only one-half (1/2) of the property mortgaged so the one-half
(1/2) of its value was included in his estate, only ½ of the mortgage debt was deductible, even
though the executor paid the entire debt, the liability of the decedent being solidary, in as much
as the executor would be subrogated to the rights of the mortgage as against the co-owner and
co-mortgagor.
In case of accommodation loan where the loan proceeds went to another person’s, its
value must be included as a receivable of estate. If there is a legal impediment to recognize it as
receivable of the estate, said unpaid obligation/mortgage payable shall not be allowed as a
deduction from the gross estate.
Thus if Ms. Mabait mortgaged her house to Mr. Bombay for P100, 000 just to lend the
money to her brother, Mr. Ticapo, and thereafter she died, the P100, 000 is considered as an
accommodation loan.
Therefore, the P100, 000 which was loaned to Mr. Ticapo should be included in her gross
estate as a “receivable” while the same amount should be deducted as “unpaid mortgage”.
In all instances, the mortgaged property, to the extent of the decedent’s interest therein,
should always from part of the taxable gross estate.

Unpaid Taxes
To be deductible, the taxes must have accrued and unpaid as of the death of the decedent.
The following are the taxes which are not deductible from the gross estate.
a. Income taxes on income received after the death.
b. Property taxes which have not accrued prior to the death of the decedent;
c. Estate tax due from the transmission of his estate.
Taxes which have accrued after death are not deductible because they are properly
changeable against the income of the estate.
Unpaid real property taxes at the time of the death are deductible even if payable after
death because real property taxes accrue on January 1st of every year.
Casualty Losses

Losses are deductible if the following requisites are compiled:

a. The value of the property lost must have been included in the gross estate.
b. The loss must arise from fire, storms, shipwreck or other casualties, or from robbery, theft
or embezzlement;
 c. Such losses were incurred after the death but not later than the last day for the payment
of the estate tax.
d. It must not have been compensated by insurance or otherwise; and
e. At the time of filing the return such losses have not been claimed as a deduction in an
income tax return.
If the loss occurred before the decedent’s death, or after the last day for payment of estate
tax, the same is not deductible, even if the tax was paid beyond the prescribed period for
payment.

Date
of
Unpaid taxes Losses

Death After death

Before death

Exhibit 7-3. deductibility of unpaid taxes and/or losses.

Relation to income tax

A casualty loss estate property during the period of administration gives rise not only to
deduction from the gross estate for estate tax purposes but also a deduction from the gross
income in determining the taxable income of the estate which is under judicial settlement.
However, the estate cannot claim the deduction for both purposes. It can either choose to
deduct such losses from the gross income, or from the gross estate for purposes of the estate
tax.
Transfer for public purposes
exsjkjwhgdqyguswydqwq
The amount deductibleshall be the entire amount of all bequest, legacies, devises or
transfer to or for the use of the government of the Republic of the Philippines, or any political
subdivision thereof, for exclusively public purposes.
Needless to say, donations of property to foreign governments are not deductible.
Moreover, motis causa donations of properies situated abroad are deductible if the done
is the Philippine Government or any of its political subdivisions.
Bequest or legacy is the act of giving personal property by will. The person to whom gifts
of personal property are given by virtue of a will is known as legatee.
Devise is the transmission of a real property by virtue of a will. Devise is a person to whom
gifts of a particular real property are given by virtue of a will.
To be deductible, thereof, the transfer must be testamentary in character. Oral transfer
are not deductible.
Vanishing deduction
The vanishing deduction which is otherwise known as “property previously taxed” is an
allowed deduction from the gross estate situated in the Philippines of a person who died within
five (5) years from the property by gift or inheritance.
The purpose of vanishing deduction is to ease the harshness of successive taxation on
the same property within a relatively short period of time.
Vanishing deduction is allowed on the second transmission of property. The first transfer
must be either by succession or donation inter vivos, but the second transfer must be by
succession only.
To be allowed as deduction, the following conditions must be satisfied:
a. The property must be sityuated in the Philippines;
b. That the donor’s tax or estate tax imposed on the first transfer was finally determined and
paid;
c. The property can be identified as the one received from such prior decdent by gift, devise
or inheritance, or from the donor by gift, or which can be identified as having been acquired
in exchange for property so received; and
d. The property must have formed part of the gross estate of the prior decedent, or have
been included in the total amount of the gifts of the donor made within five (5) years prior
to the death of the presesnt decedent.

The following are the steps involved in computing the vanishing deduction:
1. Identify the property subject to vanishing deduction and give the proper value (at time
previously taxed and or the present value, whichever is lower).
2. Deduct mortgage or alien paid by the present decedent on the property, if any. The result
is the initial basis.
3. From the initial basis, deduct the proportionate share of the initial basis over the gross
estate multiplied by all deductions, except family home, standard deductions, amount
received under the RA 4917, and the net share of the surviving spouse in the conjugal or
community property. The result is the actual basis.

The amount deductible from the Initial Basis shall be computed by applying the following
formula:

Initial basis x Deductions

Gross Estate
 4. Multiply the actual basis by the appropriate rate, based on the length of time the property
has been acquired by the present decedent, as follows:

More Than Not More Than Rate

xx 1 year 100%
1 year 2 years 80%
2 years 3 years 60%
3 years 4 years 40%
4 years 5 years 20%

Classification of vanishing deduction

The vanishing deduction is always chargeable against the exclusive (separate) property
of the decedent if the spouses were under the conjugal partnership of gains. Thus, it is always
classified as separate deduction.
However, if they were under the absolute community of property regime, the vanishing
deduction may be either chargeable against the community property of the spouse, or from the
exclusive property of the decedent, depending upon the classification of the subject property. It
may therefore, be classified either as an exclusive or community property deduction.
Family home
The family home pertains to the dwelling house where the spouse and their family resides,
and the land on which it is situated. It is the place to which whenever absent for business or
pleasure one still intends to return.
Actual occupancy of the house or house and lot as the family residence shall not be
considered interrupted or abandoned in such cases as the temporary absence from the
constituted family home due to travel or studies or work abroad, etc.
The family home may also be constituted by an unmarried head of a family on his or her
own property.
It does not include the movables found therein because it is limited only to the house and
the lot on which the house is situated.
For purposes of gross estate of the decedent, the basis shall be the current fair market
value or zonal value of the family home, whichever is higher.
The following are the conditions for allowance of family home as deduction:
1. The total value of the family home must be included as part of the gross estate.
2. It must be the actual residential home of the decedent and his family at the time of death,
as certified by the Barangay Captain of the locality where the family home is situated.
3. The amount deductible is the actual value as declared or included in the gross estate, but
not exceeding P10, 000. 00.

For purposes of availing of a family home deduction to the extent allowable, a person may
constitute only one family home.
Standard deduction
This is fixed amount equivalent to five million pesos (P5, 000, 000) which is automatically
deductible and not subject to any substantiation.
This is a separate and distinct item of deduction which is independent from other items.
The entire amount of P5, 000, 000 is deductible from the net estate.
Like family home and amounts received by the heirs under the Republic Act 4917, the
standard deduction is not multiplier deduction for purposes of allocating the expenses in the
computation of vanishing deduction.
Amount received by heirs under RA 4917
This is pertaining to benefits granted and received by the heirs of the decedent from his
employer, as a consequence of separation from services, due to death of the decedent. Provided,
however, that such amount is included in the gross estate of the decedent.
Share of surviving spouse in the conjugal/community property
The share of surviving spouse in the conjugal or community property as diminished by the
obligations properly chargeable to such property shall be deducted from the gross estate.

B. Deductions of non-resident aliens

No deduction shall be allowed in the case of a nonresident alien unless the executor,
administrator, or anyone of the heirs, as the case may be, includes in the return value at the time
of his death of that part of his gross estate not situated in the Philippines.
The deductions allowed are the same items which are deductible from the gross estate of
residents or citizens, except the special deductions such as the family home and the amount
received by heirs under RA 4917.
Vanishing deduction and transfers for public use are allowed as deductions, provided that
the property must be situated in the Philippines and in the case of the latter, the donation must be
given to the Philippines Government.
Ordinary deduction (CUCUL) such as claims against the estate, claims against insolvent
persons, unpaid mortgages, unpaid taxes and losses, are allowed as deductions but shall be
limited to the amount computed by the application of the following formula:
Phil. Gross Estate x Ordinary Deductions
Total Gross Estate
Table 1
The following table summarizes the rule on deductibility or non-deductibility of various
items depending upon the residence and citizenship of the decedent.

Nonresident alien
Items of Deduction Resident of Deduction
decedent
1. Funeral expenses Non deductible Non deductible

2. Judicial expenses Non deductible Non deductible

3. Claims against the estate; Claims
Phil GE x ELIT
against insolvent persons; Losses; Deductible
Total GE
Unpaid taxes; Unpaid mortgages;
4. Vanishing deduction Deductible Deductible

5. Transfer for public use Deductible Deductible

6. Medical expenses Non deductible Non deductible

7. RA 4917 Deductible Non deductible

8. Share of surviving Spouse Deductible Deductible

9. Family home Deductible Non deductible

10. Standard deduction Deductible: P5 million Deductible: P500, 000

 NET ESTATE, ESTATE TAX & TAX CREDIT
Tax base and tax rate

There shall be levied assessed, collected and paid upon the transfer of the net estate of every
decedent, whether resident or nonresident of the Philippines, a tax of six percent (6%) based on the net
taxable estate.

The net distributable estate

The net estate subject to tax (net taxable estate) should not be confused with the net distributable
estate. While the net taxable estate is the result of applying the law on estate taxation such as computing
the gross estate and applying the allowable deductions provided in the tax code, net distributable estate
refers to the gross estate reduced by the actual diminution from the estate. The net taxable estate is
computed for purposes of estate taxation, while the net distributable estate is determined for purposes of
succession.

Concept of tax credit

Tax credit generally refers to an amount that is subtracted directly from one’s total tax liability, an
allowance against the tax itself, or a deduction from what is owed. It is distinguished from tax deduction in
the sense that tax deduction is subtracted from gross estate for tax purposes, or an amount that is allowed
by law to reduce the gross estate prior to the application of the tax to compute the amount of tax which i s
due.

A tax credit reduces the tax due, including – whenever applicable- the estate tax that is determined
after applying the corresponding tax rates to net taxable estate. A tax deduction reduces the estate that is
subject to tax in order to arrive at taxable estate.

Tax credit for estate taxes paid to a foreign country

A tax imposed upon the decedent who was a citizen or a resident at the time of death shall be
credited with the amount of any estate tax of any character and description imposed by the authority of a
foreign country.

However, the amount of tax credit shall be subject to each of the following limitations:

a. The amount of the credit in respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the decedent’s net estate situated
within such country taxable in Title III of the Tax Code bears to his entire net estate; and
b. The total amount of the credit shall not exceed the same proportion of the tax

The limitations imposed on tax credits are expressed in the following formulas.

Formula 1: Single Foreign Country-

Net estate in foreign country

Entire net estate x Phil. Estate tax = Tax Credit

Formula 2: Two or More Foreign Countries –

Net estate in foreign country

x Phil. Estate tax = Tax Credit
Entire net estate

If the decedent left in the Philippines and in one foreign country, only Formula 1 shall be applied.
However, if the decedent left properties in two or more foreign countries, both formulas above shall be
applied.
 FILING OF RETURN &PAYMENT OF ESTATE TAX

Valuation of the estate

1. Properties – in case of personal property, it shall be appraised at its fair market value as
of the time of death.in the case of real property, the appraised value of real property as of
the time death shall be, whichever is the higher of –

a. The fair market value as determined by the commissioner (zonal value), or

b. The fair market value as shown in the schedule of values fixed by the Provincial and
city assessors (assessor’s value).

Fair market value is the estimated amount for which a property would exchange on
the date of valuation between a willing buyer and a willing seller in arm’s length transaction
after proper marketing wherein the parties had each acted knowledgeably, prudently and
without compulsion.

2. Usufruct – to determine the value of the right usufruct, use or habitation, as well as that of
annuity, there shall be taken into account the probable life of the beneficiary in accordance
with the latest Basic Standard Mortality Table, to be approved by the Secretary of Finance,
upon recommendation of the Insurance Commissioner.

3. If the case of stocks, bonds, or other securities, the following rule shall apply:

a. If listed in stock exchange, the fair market value shall be mean between the highest
and the lowest quotation at a date nearest the date of death, if none is available on
the date of death itself.
b. If not listed in the stock exchange, common share shall be valued based on their book
value while preferred shares are valued at per value. In determination book value of
common shares, appraisal surplus shall not be considered as well as the value
assigned to preferred shares, if there are any.

4. The fair market of units of participation in any association, recreation of amusement clubs
(such as golf, polo or similar clubs), shall be the bid price nearest the date of death
published in any newspaper of publication of general circulation.

Estate tax returns

The executor, or the administrator, or any of the legal heirs, as the case may be, shall file
an estate tax return in any of the following instances:
1. The transfer is subject to estate tax; or
2. Regardless of the value of the estate, where the said estate consists of registered or
registrable property such as real property, motor vehicle, share of stock or other similar
property for which a clearance from the Bureau of Internal Revenue is required as a
condition precedent for the transfer thereof in the name of the transferee.
Contents of an estate tax return

An estate tax return shall be filed in duplicate, setting forth the following:
1. The value of the gross estate of the decedent at the time of his death, or in case of a
nonresident alien, of that part of his gross estate situated in the Philippines.
2. The deductions allowed from gross estate in determining the estate tax;
3. Such part of such information as may at the time be ascertainable and such supplemental
data as may be necessary to establish the correct taxes.
Certified by a CPA
When the estate tax return shows a gross value exceeding P5, 000, 000, it shall be
supported with a statement duly certified to by a Certified Public Accountant containing the
following:
1. Itemized assets of the decedent with their corresponding gross value at the time of his
death, or in the case of a nonresident alien, of that part of his gross estate situated in the
Philippines.
2. Itemized deductions from gross estate; and
3. The amount of tax due whether paid or still due and outstanding.
Documentary requirements

For purposes of securing the electronic Certificate Authorizing Registration, the following
requirements shall be submitted by the taxpayer to the concerned Revenue District Office (RDO):
1. Certified true copy of the Death Certificate.
2. Tax Identification Number (TIN) of the decedent and heir/s.
3. Original copy any of the following:
a) Affidavit of Self-Adjudication;
b) Deed of Extra-Judicial Settlement of the Estate, if the estate is settled extra-judicially.
c) Court order if the estate is settled judicially.
d) Sworn Declaration of all properties of the Estate.
4. A certified copy of the schedule of partition and the order of the court approving the same
within thirty (30) days after the promulgation of such order, in case of the judicial
settlement;
5. Validated return and Original Official Receipt/Deposit Slip as proof of payment; for no
payment return, copy of Acknowledgement Receipt of return filed thru eBIR Forms;
6. Proof of claimed tax credit, if applicable;
7. CPA Statement on the itemized assets of the decedent, itemized deductions from gross
estate and the amount due if the gross value of the estate exceeds five million pesos (5,
000, 000);
8. Certification of Barangay Captain for claimed Family Home;
9. Duly Notarized Promissory Note for “Claims against the Estate” arising from Contract
Loan.
10. Accounting of the proceeds of loan contracted within three (3) years prior to death of the
decedent;
11. Proof of the claimed “Property Previously Taxed”
12. Proof of claimed “Transfer for Public Use.”
For Real Properties, if any: [additional two (2) photocopies of each document]

13. Certified true copy(ies) of the Transfer/Original/Condominium Certificate/s of the Title of

real property(ies) front and back pages), if applicable;
14. Certified true copy of the Tax Declaration of real properties at the time of death, if
applicable.
15. “Certificate of No Improvement” issued by the Assessor’s Office where declared properties
have no improvement;

For Personal Properties, if any: [additional two (2) photocopies of each document]

16. Original copy of certificate of Deposit/Investment/Indebtedness owned by the decedent

and the surviving spouse, if applicable.
17. Certificate of Registration of vehicles and other-proofs showing the correct value of the
same, if applicable.
18. Photocopy of certificate of stocks, if applicable
19. Proof of valuation of share of stocks at the time of death, if applicable.
o For share of stock listed/traded – value at the time if death or closing rate
nearest to the death of death
o For share of stock not listed/not trade – Audited Financial Statement of issuing
corporation nearest to the date of death of decedent with computation a book
value per share.
20. Proof of valuation of other types of personal property, if applicable
Other additional requirements, if applicable
Additional two (2) copies of the following documents:
1. Duly Notarized Original Special Power of Attorney (SPA), if the person
transacting/processing the transfer is not a party to the transaction and/or Sworn
Statement if one of the heirs is designated as executor/administration.
2. Certification from the Philippines Consulate if document is executed abroad.
3. Location Plan/Vicinity map, if zonal value cannot be readily determined from the
documents submitted;
4. Certificate of Exemption/BIR Ruling Issued by the Commissioner of Internal Revenue or
his authorized representative, if tax exempt;
5. BIR-approved request for installment payment of Estate tax due;
6. BIR-approved request for partial disposition of Estate;
7. Such other documents as may be required by law/rulings/regulations/etc.
Filing of return

1. Time for filing – the estate tax return shall be filed within one (1) year from the decedent’s
death.
2. Extension of time – the Commissioner or any Revenue Officer authorized by him shall
have authority to grant, in meritorious cases, a reasonable extension not exceeding thirty
(30) days for filing the return.
3. Place for filing the return and payment of the tax:
 a. In case of a resident decedent, the administrator or executor shall register the estate
of the decedent where the decedent was domiciled at the time of his death and shall
file the estate tax return and pay the corresponding estate tax with the Accredited
Agent Bank (AAB), Revenue District Officer, Collection Officer, or duly authorized
Treasure of the city or municipality in which the decedent was domiciled at the time of
his death.

b. In case of a nonresident decedent, with executor or administrator in the Philippines,

the estate tax return shall be filled with the Revenue District Officer where such
executor or administrator is registered. In case the executor or administrator is not
registered, the return shall be filled with the Revenue District Officer having jurisdiction
over the executor or administrator’s legal residence.

In case the nonresident decedent does not have an executor or administrator in

the Philippines, the estate tax return shall be filled with the Office of the Commissioner
in Quezon City.
Payment of tax
1. Time of payment – the estate tax shall be paid at the time the return is filed by the
executor, administrator or the heirs.

2. Extension of Time – when the commissioner finds that the payment on the due date 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 or any part thereof not to exceed five (5) years, in
case the estate is settled judicially, or two (2) years in case the estate is settled extra-
judicially.
In such case, the amount in respect of which the extension is granted shall be paid
on or before the date of the expiration of the period of the extension, and the running of
the Statue of Limitations for assessment shall be suspended for the period of any such
extension.
When the request for extension is by the reason of negligence, intentional
disregard of rules and regulations, or fraud on the part of the taxpayer, no extension will
be granted by the Commissioner.
If an extension is granted, the commissioner or his duly authorized representative
may require the executor, or administrator, or beneficiary, as the case may be, to furnish
a bond in such amount, not exceeding double the amount of the tax and with such sureties
as the Commissioner deems necessary, conditioned upon the payment of the said tax in
accordance with the terms of the extension.
Any amount paid after the statutory date of the tax, but within the extension period,
shall be subject to interest but not to surcharge.
Payment of the estate tax may by installment
In case of insufficiency of cash for the immediate payment of the total estate tax due, the
estate maybe allowed to pay the estate tax due through the following options, including the
corresponding terms and conditions.
1. 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 frequently (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 and
interest reckoned from the prescribed deadline for filing the return and payment of the
estate tax; and
e. No civil penalties or interest may be imposed on estates permitted to pay the estate
tax due by installment. Nothing in this subsection, however, prevents the
Commissioner from executing enforcement action against the estate after the due date
of the estate tax provided that all the applicable laws and required procedures are
followed/observed.

2. Partial disposition of estate and application of its proceeds to the estate tax due
a. The disposition, for purpose of this option, shall refer to the conveyance of property,
whether real, personal or intangible property, with the equivalent cash consideration;

b. The estate tax return shall be filed within one year from the date of decedent’s death;

c. The written request for the partial disposition of estate shall be approved by the BIR.
The said request shall be filed, together with a notarized undertaking that the proceeds
thereof shall be exclusively used for the payments 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 to cover the total estate tax due, net of the proportionate
estate tax(es) previously paid under this option; and

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 subject to
the applicable penalties and interest reckoned from the prescribed deadline for filing
the return and payment of the estate tax, without prejudice of withholding the issuance
 of a eCAR(s) on the remaining balance of the estate tax due, including the penalties
and interest.
Liability for payment
The estate tax shall be paid by the executor or administrator before the delivery of the
distributive share in the inheritance to any heir or beneficiary.
Where there are two or more executors or administrators, all of them are severally liable
for the payment of the tax. The eCAR pertaining to such estate issued by the Commissioner or
the Revenue District Officer (RDO) having jurisdiction over the estate, will serve as the authority
to distribute the remaining/distributable properties/share in the inheritance to the heir or
beneficiary.
The executor or administrator of an estate has the primary obligation to pay the estate tax
but the heir or beneficiary has subsidiary liability for payment of that portion of the estate which
his distributive share bears to the value of the total net estate.
The extent of his liability, however, shall in no case exceed the value of his share in the
inheritance.
Payment of tax antecedent to the transfer of shares, bonds or rights and bank deposits
withdrawal
There shall not be transferred to any new owner in the books of any corporation, Sociedad
anonima, partnership, business or industry organized or established in the Philippines any share,
obligation, bond or right of way of gift inter vivos or mortis causa, legacy or inheritance, unless an
eCAR is issued by the Commissioner of his duly authorized representative.
If a bank has knowledge of the death of a person, who maintained a bank deposit account
alone, of jointly with another, it shall allow the withdrawal from the said deposit account, subject
to a final withholding tax of six percent (6%) of the amount of the withdrawn, provided that the
withdrawal shall only be made within one (1) year from the death of the decedent.
The bank is required to file the prescribed quarterly return on the final tax withheld on or
before the last day of the month following the close of the quarter during which the withholding
was made. The bank shall issue the corresponding BIR Form 2306 certifying such withholding.
In all case, the final tax withheld 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.
For this purpose, the bank shall require prior to such withdrawal, the presentation of BIR
Form No. 1904of the estate, duly stamped received by the BIR. Further, all withdrawal slips shall
contain the following terms and conditions:
a. A sworn statement by any one of the joint depositors to the effect that all of the joint
depositors are still living at the time of withdrawal; and
 b. A statement that the withdrawal is subject to the final withholding tax of 6%.
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 withholding tax.
Civil penalties

In addition to the tax required to be paid, the following penalties shall be imposed:
1. 25% surcharge in case of failure to:
a. File the return and pay the tax or installment due on or before the due date;
b. File a return with a person or office other than those with whom it is required to be
filed, unless authorized by the Commissioner;
c. Pay on time the full or part of the amount of tax shown on the return, or the full amount
of tax due for which no return is required to be filed on or before the due date; or
d. Pay the deficiency tax within the time prescribed for its payment in the notice of
assessment.

2. 50% penalty in case of

a. Willful neglect to file the return on time.
b. False or fraudulent return is willfully filed.

3. Interest of twelve-percent (12%) from the due date until paid. In no case shall the
deficiency and delinquency interest under Section 249 Subsections (B) and (C) of the
National International Revenue Code, as amended, be imposed simultaneously.

4. Compromise penalty as provided under applicable rules and regulations.