Philippine Estate Tax or Philippine Inheritance Tax
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].
FAQs
Nothing—estate tax and inheritance tax in the Philippines are one and the same.
What's the difference between estate tax and inheritance tax? ›
Estate and inheritance taxes are taxes levied on the transfer of property at death. An estate tax is levied on the estate of the deceased while an inheritance tax is levied on the heirs of the deceased.
Are the heirs liable for estate tax Philippines? ›
The executor, administrator, or the heirs shall be responsible for the filing of the estate tax return. Estate tax returns showing a gross value exceeding Five Million pesos (P5,000,000.00) shall be supported with a statement duly certified to by a Certified Public Accountant.
How is estate tax calculated in the Philippines 2023? ›
The estate tax in the Philippines is 6% of the net estate. Simply remove all permissible deductions from the gross estate or the value of the deceased's possessions to get the net estate. The estate tax is then calculated by multiplying the net estate by 0.06.
How much estate tax will I pay in Philippines? ›
In the Philippines, six percent (6%) estate tax is imposed on the net estate of a decedent which must be filed and paid within one year from the death of the decedent. Failure to file and pay within the tax deadline is subject to penalties and interest.
What is the difference between estate tax and inheritance tax in the Philippines? ›
Inheritance Tax vs Estate Tax
One of the most common questions that arise is “who pays the inheritance tax?”. Some countries put the sole responsibility of paying the inheritance tax on the lawful heirs, while the estate tax is paid out from the estate's funds. However, in the Philippines, they are one and the same.
How much can you inherit from your parents without paying taxes? ›
Inheritance Tax vs. Estate Tax
But in some rare situations, an inheritance could be subject to both estate and inheritance taxes. According to the Internal Revenue Service (IRS), federal estate tax returns are only required for estates with values exceeding $12.06 million in 2022 (rising to $12.92 million in 2023).
Who should pay the estate tax in the Philippines? ›
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.
How can I avoid paying inheritance tax in the Philippines? ›
Another way of indirectly transferring property to your heirs during your lifetime, but to take effect upon your death, is a life insurance upon your own life that names your heirs as irrevocable beneficiaries. The amount that your beneficiaries will receive upon your death will not be subjected to estate tax. 8.
Does the estate or beneficiaries pay tax? ›
Unlike the federal estate tax, the beneficiary of the property is responsible for paying the tax, not the estate. As of 2023, only six states impose an inheritance tax. And even if you live in one of those states, many beneficiaries are exempt from paying it.
It is expected to be signed into law by the President before the second State of the Nation Address (SONA) on July 24, 2023. The bill further extends the availment period of the estate tax amnesty for another two (2) years or until June 14, 2025, past the original expiration of June 14, 2023.
Is there amnesty for estate tax in the Philippines 2023? ›
Republic Act (RA) No. 11956 extends the availment period for the estate tax amnesty for another two years (June 15, 2023 to June 14, 2025). The new law also expands the amnesty's coverage to include the estates of those who died on or before May 31, 2022.
What is the tax range for 2023 Philippines? ›
The TRAIN Act, approved in 2017, provided for a reduction in personal income tax rates with effect from 1 January 2018, with a further reduction as follows from 1 January 2023: up to PHP 250,000 - 0% over PHP 250,000 up to 400,000 - 15% over PHP 400,000 up to 800,000 - 20%
Are heirs accountable for estate tax? ›
Liability for the estate tax falls on the estate assets and is limited by the value of those assets. Executors and beneficiaries generally do not have personal liability for estate taxes although the IRS can come after the assets held by the executor and beneficiaries if the taxes are left paid.
What if an estate Cannot pay taxes? ›
The IRS has 3 years to back-audit a deceased person's taxes, but can go back as far as 6 years if they find unreported income. If a person's estate does not have sufficient funds to pay tax debt, the IRS is treated like any other creditor and is paid accordingly.
How can I avoid inheritance tax? ›
How to avoid inheritance tax
- Make a will. ...
- Make sure you keep below the inheritance tax threshold. ...
- Give your assets away. ...
- Put assets into a trust. ...
- Put assets into a trust and still get the income. ...
- Take out life insurance. ...
- Make gifts out of excess income. ...
- Give away assets that are free from Capital Gains Tax.
In general, any inheritance you receive does not need to be reported to the IRS. You typically don't need to report inheritance money to the IRS because inheritances aren't considered taxable income by the federal government. That said, earnings made off of the inheritance may need to be reported.
Who actually pays estate tax? ›
Federal and state estate taxes are paid from the assets of your estate before the remaining assets can be distributed to your heirs. The executor or the trustee of a qualified grantor trust is responsible for filing the applicable federal and state estate tax returns and ensuring that all taxes are paid from estate.
Who pays most inheritance tax? ›
It is the responsibility of the person administering the Estate (known as the Executor or Administrator) to calculate and pay the Inheritance Tax, so as a Beneficiary you won't need to get involved in this process.
How do I avoid estate tax in MN? ›
Avoiding the tax requires changing one's permanent home (domicile) to another state or reducing the amount of Minnesota property owned. Affluent individuals may be willing to change their domiciles to avoid paying potentially multimillion-dollar state estate tax liabilities.
