RR 1 Estate, Donor's

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ESTATE TAX AND DONORS TAX

ESTATE TAX

REV. REGS NO. 17-93

REVENUE REGULATIONS NO. 17-93

SUBJECT : Estate and Donor's Taxes as Restructured by Republic Act No. 7499.

TO : All Internal Revenue Officers and Others Concerned.

Pursuant to Section 245 in relation to Section 4(h) of the National Internal Revenue Code (NIRC), as amended, these regulations are

hereby promulgated to implement the provisions of RA No. 7499 which restructured Estate and Donor's Taxes amending for the

purpose Sections 77, 79(a), 83(b), Chapter I and 92(a) and (b), Chapter II, Title III of the NIRC.

SECTION 1. Scope. These regulations shall govern the taxation of the transmission of the decedent's estateand donations

made by persons, natural or juridical, whether citizens or aliens, residents or non-residents. For purposes of these regulations, the

provisions of the Family Code of the Philippines (E.O. No. 209) which took effect on August 3, 1988shall govern the property relations

between husband and wife whose marriage was celebrated on or after such date.

SECTION 2. Rates of Estate Tax. The transfer of the net estate of every decedent, whether resident or non-resident of the

Philippines as determined in accordance with Sections 78 and 79 of the NIRC, as amended, shall be subject to the estate tax in

accordance with the following amended schedule under Section 77 of the NIRC. The entire value of the net estate is divided intobrackets and each rate is imposed on the corresponding bracket. Below is a table showing the tax on each bracket and the

cumulative total tax for the entire net estate:

If the Net Estate is:

Over But Not OverThe Tax shall

bePlus

Of the Excess

Over

P 200,000 Exempt

P 200,000 500,000 0 5% P 200,000

500,000 2,000,000 P 15,000 8% 500,000

2,000,000 5,000,000 135,000 12% 2,000,000

5,000,000 10,000,000 495,000 21% 5,000,000

10,000,000 And Over 1,545,000 35% 10,000,000

SECTION 3. What Law Governs the Imposition of Estate Tax? It is a well settled rule that estate taxation is governed by the

statute in force at the time of death of the decedent. (26 R.C.L., p. 206, 4 Cooley on Taxation) Accrual of the estate tax as of the date

of death of the decedent is distinct from the obligation to pay the same. (Lorenzo vs. Posadas, 64 Phil. 353) Upon the death of thedecedent, succession takes place and the right of the state to tax vests instantly.

R.A. No. 7499 was published in Volume 88, No. 24 of the Official Gazette in its issue of July 13, 1992.Accordingly, R.A. No. 7499 took

effect after fifteen (15) days following said publication or on July 28, 1992 pursuant to Article 2 of the New Civil Code and in line with

the Supreme Court decisions in the case of Taada, et. al. vs. Tuvera, 146 SCRA 446; Caltex (Phils.), Inc. vs. The Commissioner of

Internal Revenue, G.R. No. 97282, 26 June 1991)

SECTION 4. Computation of Net Estate and Estate Tax.

Pursuant to the amendments to Section 79(a) of the NIRC, the value of the net estate of a citizen or resident of the Philippines shall

be determined by deducting from the value of the gross estate:

(1) Expenses, losses, indebtedness, and taxes Such amounts for:

(A) Actual funeral expenses or an amount equal to five per centum (5%) of the gross estate, whichever is lower, but in no case

to exceed P100,000;

The maximum amount that can be allowed as deduction for funeral and burial expenses is the actual amount incurred or an amount

equal to five per centum (5%) of the gross estate, whichever is lower, but not to exceed P100,000. The term "funeral expenses" is notconfined to its ordinary or usual meaning. They include:

1. Medical expenses during the last illness of the deceased;

2. The mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used on the

occasion of the burial;

3. Expenses of the wake preceding the burial, including food and drinks;

4. Publication charges for death notices;

5. Telecommunication expenses in informing relatives of the deceased;

6. Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the deceased owns a Family Estate

or several burial lots, only the value corresponding to the plot where he is buried is deductible;cdt

7. Interment fees and charges; and

8. All other expenses incurred for the performance of the rites and ceremonies incident to interment. Expenses incurred after

the interment such as for prayers, masses, entertainment, or the like are not deductible. Any portion of the funeral and burial

expenses borne or defrayed by relatives and friends of the deceased, such as, contributions or mutual assistance, are not deductible.


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Actual funeral expenses shall mean those which were actually incurred in connection with the interment or burial of the deceased

and paid for from the estate of said deceased. The expenses must be duly supported by receipts or invoices or other evidence to

show that the expenses was really incurred.

For example

1. If 5% of the gross estate is P70,000 and the amount actually incurred is P50,000, only P50,000 will be allowed as deduction.

2. If the expenses actually incurred amount to P90,000 and 5% of the gross estate is P70,000, only P70,000 will be allowed as

deduction.

3. If 5% of the gross estate is P120,000, and the amount actually incurred is P115,000, the maximum amount that may be

deducted is only P100,000.

(B) Judicial expenses of the testamentary or intestate proceedings;

(C) Claims against the estate: Provided; That at the time the indebtedness was incurred the debt instrument was duly notarized

and, if the loan was contracted within three years before the death of the decedent, the administrator or executor shall submit a

statement showing the disposition of the proceeds of the loan;

(D) 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; and

(E) Unpaid mortgages upon, or any indebtedness, with respect to property,where the value of decedent'sinterest therein,

undiminished by such mortgage or indebtedness, is included in the value of the gross estate, but not including any income taxes upon

income received after the death of the decedent, or property taxes not accrued before his death, or any estate tax. The deductionherein allowed in the case of claims against the estate, unpaid mortgages, or any indebtedness, shall when founded upon a promise

or agreement, be limited to the extent that they were contracted bona fideand for an adequate and full consideration in money or

money's worth. There shall also be deducted losses incurred during the settlement of the estate arising from fires, storms, shipwreck,

or other casualties, or from robbery, theft, or embezzlement, when such losses are not compensated for by insurance or otherwise,

and if at the time of the filing of the return such losses have not been claimed as a deduction for income tax purposes in an income

tax return, and provided that such losses were incurred not later than the last day for the payment of the estate tax as prescribed in

Section 84(a) of the NIRC. cda

(2) Property previously taxed. An amount equal to the value specified below of any property forming part of the gross

estate situated in the Philippines of any person who died within five years prior to the death of the decedent, or transferred to the

decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent

from the donor by gift, or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been

acquired in exchange for property so received:

One hundred per centum of the value if the prior decedent died within one year prior to the death of the decedent, or if the property

was transferred to him by gift within the same period prior to his death;

Eighty per centum of tax-value if the prior decedent died more than one year but not more than two years prior to the death of the

decedent, or if the property was transferred to him by gift within the same period prior to his death;

Sixty per centum of the value if the prior decedent died more than two years but not more than three years prior to the death of the

decedent, or if the property was transferred to him by gift within the same period prior to his death;

Forty per centum of the value if the prior decedent died more than three years but not more than four years prior to the death of the

decedent, or if the property was transferred to him by gift within the same period prior to his death; and cdt

Twenty per centum of the value if the prior decedent died more than four years but not more than five years prior to the death of

the decedent, or if the property was transferred to him by gift within the same period prior to his death.

These deductions shall be allowed only where a gift tax, or estate tax imposed under Title III of the NIRC, was finally determined and

paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be, and only in the amount finally

determined as the value of such property in determining the value of the gift, or the gross estate of such prior decedent, and only to

the extent that the value of such property is included in the decedent's gross estate and only if in determining the value of the estateof the prior decedent no deduction was allowableunder paragraph (2), subsection (a) of Section 79, NIRC, in respect of the property

or properties given in exchange therefor. Where a deduction was allowed of any mortgage or other lien in determining the gift tax, or

the estate tax of the prior decedent, which were paid in whole or in part prior to the decedent's death, then the deduction allowable

under said paragraph shallbe reduced by the amount so paid. Such deduction allowable shall be reduced by an amount which bears

the same ratio to the amounts allowed as deductions under paragraphs (1) and (3) of subsection (a), Section 79, NIRC as the amount

otherwise deductible under said paragraph (2) bears to the value of the decedent's estate. Where the property referred to consists of

two or more items the aggregate value of such items shall be used for the purpose of computing the deduction.

(3) Transfers for public use. 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.

(4) The family home. An amount equivalent to the current or fair market value or zonal value of the decedent's family

home, whichever is higher: Provided, however, That, if the said "current or fair market value or zonal value exceeds one million

pesos (P1,000,000), the excess shall be subject to estate tax. As a sine qua non condition for the exemption or deduction, said family

home must have been the decedent's family home as certified by the Barangay Captain of the locality. cd


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(5) Net share of the surviving spouse in the conjugal partnership or community property.

SECTION 5. Definitions.

a) Family home The dwelling house, including the land on which it is situated, where the husband and wife, or an

unmarried person who is the head of a family and members of their family reside, as certified to by the Barangay Captain of the

locality. The family home is deemed constituted on the house and lot from the time it is actually occupied as a family residence and is

considered as such for as long as any of its beneficiaries actually resides therein. (Arts. 152 and 153, Family Code)

For purposes of these regulations, however, 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.

In other words, the family home is generally characterized by permanency, that is, the place to which, whenever absent for business

or pleasure, one still intends to return.

The family home must be part of the properties of the absolute community or the conjugal partnership, or of the exclusive properties

of either spousewith the latter's consent. It may also be constituted by an unmarried head of a family on his or her own property.

(Art. 156, Ibid)

For purposes of availing of a family home deduction to the extent provided in R.A. 7499, a person may constitute only one family

home. (Art. 161, Ibid)

b) Husband and Wife Legally married man and woman.

c) Unmarried Head of a Family unmarried man or woman with any of the beneficiaries mentioned in Article 154 of the

Family Code who is living in the family home and dependent upon the head of the family for legal support.The beneficiaries of a family home are:

(1) The husband and wife, or an unmarried person who is the head of a family; and aisa dc

(2) Their parents, ascendants, descendants, brothers and sisters, whether the relationship be legitimate or illegitimate, who

are living in the family home and who depend upon the head of the family for legal support. (Art. 154, Ibid)

d) Absolute community of property a property regime/system whereby there is merger of all the properties of the

husband and the wife respectively owned by them at the time of the celebration of the marriage, or those acquired thereafter unless

excepted in the Family Code or in the marriage settlement. The regime of absolute community of property shall apply:

(1) If the future spouses stipulate upon it in their marriage settlement; or

(2) If they married without entering into or executing a marriage settlement; or

(3) If they entered into a marriage settlement and the same is void.

e) Conjugal partnership of gains In order to govern the property relations of the future spouses, this regime must be

agreed upon in the marriage settlement. Under this regime/system the spouses retain the ownership of the property which they

respectively brought to the marriage as well as those they may acquire during the marriage by gratuitous title or by right of

redemption, barter or by exchange with separate property and those which they purchased with their own money. (Art. 109, Family

Code) The spouses place in a common fund the proceeds, products, fruits and income from their separate propertiesand those

acquired by either or both spouses through their efforts, or by chance, and upon dissolution of the marriage, the net gains or benefits

obtained by either or both spouses shall be divided equally between them, unless otherwise agreed in the marriage settlements. (Art.

106, Ibid)

f) Exclusive property of each spouse:

(1) That which is brought to the marriage as his or her own;

(2) That which each acquires during the marriage by gratuitous title;

(3) That which is acquired by right of redemption, by barter or by exchange with property belonging to only one of the

spouses; and

(4) That which is purchased with exclusive money of the wife or of the husband.

g) Marriage settlement a contract entered into by man and woman about to be married for the purpose of fixing the terms

and conditions of their property relations with regard to their present and future property. It is also referred to as antenuptial

agreement or matrimonial contract.

SECTION 6. Computation for the Allowance of the Family Home as Deduction from the Gross Rate.

A. Valuation of Family Home.

The decedent's family home shall be appraised as of the time of his death, at its current or fair market value or zonal value,

whichever is higher. acd

B. Conditions for the allowance of Family Home as deduction from the gross estate:

1. The family home must be the actual residential home of the decedent and his family at the time of his death, as certified to

by the Barangay Captain of the locality where the family home is situated;

2. The total value of the family home must be included as part of the gross estate of a person who died on or after July 28,

1992, the date of effectivity of R.A. 7499; and

3. Allowable deduction must be in an amount equivalent to the fair market value or zonal value of the family home as

declared or included in the gross estate but not exceeding P1,000,000.

To illustrate:(1) Decedent is an unmarried head of a family:

(a) Real and personal properties P5,000,000

Family home 2,000,000


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Gross Estate P7,000,000

Less: Deductions:

Family home P1,000,000

Other deductions 3,000,000

---------------- -- Total Deductions 4,000,000

Net Taxable Estate P3,000,000

========

Note: Although the family home is valued at P2 million, the maximum allowable deduction for the family home is P1 million only.

b) Real and personal properties P5,000,000

Family home 800,000


Less: Deductions:

Family home P800,000

Other deductions 3,000,000 ----------------

Total Deductions 3,800,000


========

Note: Deduction for family home is allowed for P800,000 only which is the declared value of the home.

(2) Decedent is a married man with surviving spouse:(a) The family home is his exclusive property

Exclusive Conjugal Total

Conjugal Properties:

Real Properties P5,000,000 P5,000,000

Exclusive Properties:

Family Home P2,000,000

Other Exclusive Properties 2,500,000 4,500,000

__________________________________________________

Gross Estate P4,500,000 P5,000,000 P9,500,000

Less Conjugal Deductions:

Other deductions (2,000,000) (2,000,000)

Share of surviving spouse:

Conjugal Properties P5,000,000

Less: ConjugalDeductions 2,000,000

Net Conjugal Estate 3,000,000

1/2 share of surviving spouse (1,500,000)

Family Home (1,000,000) (1,000,000)

Net Taxable Estate P3,500,000 P1,500,000 P5,000,000

======== ======== ========

(b) Family home is a conjugal or community property.




Other Real Properties 5,000,000 P7,000,000

Exclusive Real Properties P2,000,000 2,000,000

Gross Estate P2,000,000 P7,000,000 P9,000,000

Less Deductions:

Conjugal deductions (2,000,000) (2,000,000)


Conjugal property 7,000,000

Less: Conjugal

deductions 2,000,000

Net conjugal

estate P5,000,000


Family Home (1,000,000) (1,000,000)



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======== ======== ========

Note: Family home allowance of P1,000,000 is considered as one item of deduction after the computation and deduction of the net share of the surviving spouse in the

conjugal property. casia

(c) Same facts and figures as in (b) except for Family home which has a fair market value/zonal value of only P1,500,000.



Family home 1,500,000

Other Real Properties 5,000,000 P6,500,000

Exclusive Real Properties P2,000,000 2,000,000

Gross Estate P2,000,000 P6,500,000 P8,500,000

Less Deductions:

Conjugal deductions (2,000,000) (2,000,000)


Conjugal property P6,500,000

Less: Conjugal

deductions 2,000,000

Net Conjugal

estate P4,500,000


Family Home (750,000) (750,000)


======== ======== ========

NOTE: Since the fair market value/zonal value of Family home (Conjugal) in the above example is P1,500,000, the Family home deduction corresponding to 1/2 of such fair

market value/zonal value is P750,000 only.

(d) Family home is conjugal property, but lot on which it stands is exclusive property. cda


Conjugal properties:

Other real properties P3,000,000

Family house 1,000,000 P4,000,000

Exclusive properties:

Other real properties P2,000,000

Family lot 400,000 2,400,000

Gross estate P2,400,000 P4,000,000 P6,400,000

Less Deductions:

Other deductions (2,000,000) (2,000,000)


Conjugal properties 4,000,000

Less: Conjugal

Deductions 2,000,000

Net conjugal estate P2,000,000

1/2 share of survivingspouse (1,000,000)

Family house and lot (500,000 + 400,000) (900,000)

Net taxable estate P2,000,000 P500,000 P2,500,000

======== ======== ========

(3) Family home is conjugal property and both spouses died in the same year, leaving THREE (3) children:

A. Estate of HUSBAND:

Exclusive Community Total



Personal Properties 4,000,000 4,000,000

Family Home 2,000,000 2,000,000


Real Properties 4,000,000 4,000,000

Personal Properties 1,000,000 1,000,000

Gross Estate P5,000,000 P12,000,000 P17,000,000

Less Deductions:

Conjugal Deductions (4,000,000) (4,000,000)

Net Estate P5,000,000 P8,000,000 P13,000,000


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Less: Share of surviving spouse (4,000,000) (4,000,000)

Family Home (1,000,000) (1,000,000)

Net taxable Estate P5,000,000 P3,000,000 P8,000,000

========= ======== ========

B. Estate of WIFE:

Inheritance Conjugal Total

Share Share

Conjugal Real Properties P750,000 P3,000,000 P3,750,000

Conjugal Personal Properties 500,000 2,000,000 2,500,000

Family Home 250,000 1,000,000 1,250,000

Exclusive Real Properties 1,000,000 1,000,000

Exclusive Personal Properties 250,000 250,000

Gross Estate P2,750,000 P6,000,000 P8,750,000

Less Deductions:

Other deductions (500,000) (2,000,000) (2,500,000)

Family Home (1,000,000) (1,000,000)

Vanishing deductions * (1,964,286) (1,964,286)

Net taxable estate P285,714 P3,000,000 P3,285,714

======== ======== ========

* Vanishing deductions:

Inherited properties P2,750,000

Less: 2,750,000

x P2,500,000 = 8,750,000 785,714

Amount subject to vanishing

deductions P1,964,286

100% Vanishing deduction P1,964,28

=======

SECTION 7. (a) Time for filing estate tax return. For purposes of determining the estate tax provided for in Section 77 of the

NIRC, the estate tax return shall be filed within six (6) months from the decedent's death. The Court approving the project of partition

shall furnish the Commissioner with a certified copy thereof and its order within thirty (30) days after the promulgation of such order.

cdi

(b) Place of filing. Except in cases where the Commissioner of Internal Revenue permits, the estate tax return shall be filed

with the Revenue District Officer, Collection Agent or duly authorized treasurer of the city or municipality in which the decedent was

domiciled at the time of his death or if there be no legal residence in the Philippines, then with the Office of the Commissioner of

Internal Revenue.

(c) Time for payment of estate tax. The estate tax imposed under Section 77 of the NIRC and Section 2 of these Regulations

shall be paid at the time the return is filed by the executor, administrator or the heirs.

SECTION 8. RATES OF DONOR'S TAX. (a) The transfer of the total net gifts made during the calendar year shall be subject

to tax in accordance with the following amended schedule under Section 92 of the NIRC. The entire value of the net gifts for each

calendar year is divided into brackets and each rate is imposed on the corresponding brackets as shown below:

If the net gift is:

BUT NOT THE TAX OF EXCESS

OVER OVER SHALL BE PLUS OVER

P50,000 Exempt

P50,000 100,000 1.5% P50,000

100,000 200,000 750 3% 100,000

200,000 500,000 3,750 5% 200,000

500,000 1,000,000 18,750 8% 500,000

1,000,000 3,000,000 58,750 10% 1,000,000

3,000,000 5,000,000 285,750 15% 3,000,000

5,000,000 558,750 20% 5,000,000

(b) Tax payable by the donor if donee is a stranger. When the donee or beneficiary is a stranger, the tax payable by the

donor shall be ten percent (10%) of the net gifts. For purposes of the donor's tax, a "stranger" is a person who is not a:

(i) Brother, sister (whether by whole or half blood), spouse, ancestor, and lineal descendant; or (ii) Relative by consanguinity in

the collateral line within the fourth degree of relationship. acd


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(c) Any contribution in cash or in kind to any candidate, political party or coalition of parties for campaign purposes, shall be

governed by the Election Code, as amended.

SECTION 9. What Law Governs the Imposition of the Donor's Tax? The donor's tax is not a property tax, but is a tax

imposed on the transfer of property by way of gift inter vivos. (Lladoc vs. Commissioner of Internal Revenue, L-19201, June 16, 1965;

14 SCRA, p. 292) The donor's gift tax shall not apply unless and until there is a completed gift. (34 Am. Jur. 2d, p. 845) The transfer of

property by gift is perfected from the moment the donor knows of the acceptance by the donee; and completed by the delivery to

the donee either actually or constructively of the donated property. (Art. 734 Civil Code; Richardson, 39 BTA 927, Macomber, T.C.

Memo, 6-6-51) Thus, the law in force at the time of the perfection/completion of the donation shall govern the imposition of the

donor's tax.

R.A. No. 7499 took effect on July 28, 1992.

SECTION 10. Computation of the Donor's Tax Due on Donations made in 1992.

For donor's tax purposes, donations made on or before July 28, 1992 shall be subject to the donor's tax computed on the basis of the

old rates imposed under Section 92 of the NIRC (before RA 7499 amendment), while donations made on or after July 28, 1992 shall

be subject to the donor's tax computed in accordance with the new/amended schedule of rates prescribed under Section 92 of the

NIRC as amended. cdtai

Illustration:Donations made on:

January 30, 1992 P2,320,000.00

March 30, 1992 3,840,000.00

August 15, 1992 2,160,000.00

September 15, 1992 4,970,000.00

1. January 30, 1992 donation P2,320,000.00

Donor's tax due P667,460.00

2. March 30, 1992 donation P3,840,000.00

Add: January 30, 1992 donation 2,320,000.00

Total P6,160,000.00

==========

Donor's tax due P2,189,860.00

Less: Donor's tax due on

January 30 donation 667,460.00

Donor's tax due on March 30, 1992

donation 1,522,400.00

3. August 15, 1992 donation 2,160,000.00

Donor's tax due 174,750.00

4. September 15, 1992 donation P4,970,000.00

Add: August 15, 1992 donation 2,160,000.00

Total P7,130,000.00

==========

Donor's tax due P984,750.00

Less: Donor's tax on August

15 donation 174,750.00

Donor's tax on September 15, 1992

donation 810,000.00

Total P3,174,610.00

==========

SECTION 11. (a) Time and Place of Filing. The donor's tax return shall be filed within thirty days from the date the gift is

made and, except in cases where the Commissioner permits, the return shall be filed with the Revenue District Officer, Collection

Agent or duly authorized Treasurer of the city or municipality in which the donor was domiciled at the time of transfer or if there be

no legal residence in the Philippines, then with the Office of the Commissioner of Internal Revenue.

(b) Time for payment of donor's tax. The donor's tax imposed under Section 92 of the NIRC and Section 8 of these

Regulations shall be paid by the donor at the time the donor's tax return is filed.

SECTION 12. Penalties.

There shall be imposed in addition to the tax required to be paid under this Act and these Regulations, the civil penalties and interest

prescribed under Sections 248 and 249 of the Tax Code in the cases enumerated therein. These penalties shall be collected at the

same time, in the same manner and as part of the tax.

The provisions of Sections 253 and 254 of the same Code imposing fine or imprisonment, or both shall be applied to any person,upon conviction, for violation of any provision of this Act and these Regulations.


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SECTION 13. Repealing Clause. All regulations, rulings, orders, or portions thereof, which are inconsistent with the

provisions of these regulations are hereby revoked and/or amended.

SECTION 14. Effectivity. These regulations shall take effect fifteen (15) days after publication in the Official Gazette or

newspaper of general circulation whichever comes first and shall apply to transfers of property by death or donation made on or

after July 28, 1992.

ESTATE TAX REGULATIONS, AS AMENDED BY RR 2-2003


SUBJECT: Consolidated Revenue Regulations on Estate Tax and Donor's Tax Incorporating the Amendments Introduced by Republic

Act No. 8424, the Tax Reform Act of 1997

TO: All Internal Revenue Officers and Others Concerned

SECTION 1. Scope. Pursuant to Section 244 , in relation to Sections 84 to 104 of the Tax Code of 1997 (Code), these

Regulations are hereby promulgated for the purpose of consolidating all the regulations on estate tax and donor's tax, thereby

amending Revenue Regulations No. 17-93 relative to the change in the tax rates of estate tax and donor's tax pursuant to Republic

Act No. 8424 , the manner of claiming the deductions from the gross estate of the decedent, and for other purposes. These

regulations shall govern the taxation of the transmission of the decedent's estate and donations made by persons, natural or

juridical, whether citizens or aliens, residents or non-residents. For purposes of these regulations, the provisions of the Family Code

of the Philippines (E.O. No. 209) which took effect on August 3, 1988shall govern the property relations between husband and wifewhose marriage was celebrated on or after such date. For marriages celebratedprior to the effectivity of the Family Code of the

Philippines, the Civil Code of the Philippines shall govern the property relations between husband and wife in relation to the

pertinent provisions of the Family Code. aIcETS

SECTION 2. Rates of Estate Tax. The transfer of the net estate of every decedent, whether resident or non-resident of the

Philippines, as determined in accordance with the Code, shall be subject to the estate tax. The entire value of the net estate is divided

into brackets and each rate is imposed on the corresponding bracket. Below is a table showing the tax on each bracket and the

cumulative total tax for the entire net estate, pursuant to the rates provided in the Code.

If the Net Estate is:

Over But Not OverThe Tax shall

bePlus

Of the Excess

Over

P 200,000 Exempt

P 200,000 500,000 0 5% P 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 And Over 1,215,000 20% 10,000,000

SECTION 3. The Law that Governs the Imposition of Estate Tax. It is a well-settled rule that estate taxation is governed by

the statute in force at the time of death of the decedent. The estate tax accrues as of the death of the decedent and the accrual of

the tax is distinct from the obligation to pay the same. Upon the death of the decedent, succession takes place and the right of the

State to tax the privilege to transmit the estate vests instantly upon death.

The application of the rates herein prescribed and the procedures in determining the estate tax due shall apply to estate taxes fallingdue or have accrued beginning January 1, 1998, the effectivity date of Republic Act No. 8424, otherwise known as "The Tax Reform

Act of 1997".

SECTION 4. Composition of the Gross Estate. The gross estate of a decedent shall be comprised of the following properties

and interest therein at the time of his death, including revocable transfers and transfers for insufficient consideration, etc.:

A) Residents and citizens all properties, real or personal, tangible or intangible, wherever situated.

B) Non-resident aliens 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 provided for under Section 104 of the Code.

SECTION 5. Valuation of the Gross Estate. The properties comprising the gross estate shall be valued based on their fair

market value as of the time of death.

If the property is a real property, the fair market value shall be the fair market value as determined by the Commissioneror the fair

market value as shown in the schedule of values fixed by the provincial and city assessors, whichever is higher. For purposes ofprescribing real property values, the Commissioner is authorized to divide the Philippines into different zones or areas and shall,


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upon consultation with competent appraisers, both from the private and public sectors, determine the fair market value of real

properties located in each zone or area.

In the case of shares of stocks, the fair market value shall depend on whether the shares are listed or unlisted in the stock exchanges.

- Unlisted common shares are valued based on their book valuewhile unlisted preferred shares are valued at par value.In

determining the book value of common shares, appraisal surplus shall not be considered as well as the value assigned to preferred

shares, if there are any.

For shares which are listed in the stock exchanges, the fair market value shall be the arithmetic mean between the highest and lowest

quotation at a date nearest the date of death, if none is available on the date of death itself.

To determine the value of the right to 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.

SECTION 6. Computation of the Net Estate of a Decedent Who is Either a Citizen or Resident of the Philippines. The value

of the net estate of a citizen or resident alien of the Philippines shall be determined by deducting from the value of the gross estate

the following items of deduction:

(A) Expenses, losses, indebtedness, and taxes Such amounts for:

(1) Actual funeral expenses (whether paid or unpaid) up to the time of interment,or an amount equal to five percent (5%) of

the gross estate, whichever is lower, but in no case to exceed P200,000.

Any amount of funeral expenses in excess of the P200,000 threshold, whether the same had actually been paid or still

payable, shall not be allowed as a deduction under this Subsection. Neither shall the unpaid portion of the funeral expenses incurred

which is in excess of the P200,000 threshold be allowed to be claimed as a deduction under "claims against the estate" providedunder Subsection (C) hereof.

The term "FUNERAL EXPENSES" is not confined to its ordinary or usual meaning. They include:

(a) The mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used on the

occasion of the burial;

(b) Expenses for the deceased's wake, including food and drinks;

(c) Publication charges for death notices;

(d) Telecommunication expenses incurred in informing relatives of the deceased;

(e) Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the deceased owns a family estate

or several burial lots, only the value corresponding to the plot where he is buried is deductible;

(f) Interment and/or cremation fees and charges; and

(g) All other expenses incurred for the performance of the rites and ceremonies incident to interment.

Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like are not. deductible. Any

portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased are not deductible.

Medical expenses as of the last illness will not form part of funeral expenses but should be claimed under subsection (F) of

this section.

Actual funeral expenses shall mean those which are actually incurred in connection with the interment or burial of the

deceased. The expenses must be duly supported by receipts or invoices or other evidence to show that they were actually incurred.

Illustrations on how to determine the amount of allowable funeral expenses

(a) If five percent (5%) of the gross estate is P70,000 and the amount actually incurred is P50,000, only P50,000 will be allowed

as deduction;

(b) If the expenses actually incurred amount to P90,000 and five percent (5%) of the gross estate is P70,000, only P70,000 will

be allowed as deduction;

(c) If five percent (5%) of the gross estate is P220,000 and the amount actually incurred is P215,000, the maximum amount

that may be deducted is only P200,000; TIaCAc

(d) If five percent (5%) of the gross estate is P100,000 and the total amount incurred is P150,000 where P20,000 thereof is still

unpaid, the only amount that can be claimed as deduction for funeral expenses is P100,000. The entire P50,000 excess amount

consisting of P30,000 paid amount and P20,000 unpaid amount can no longer be claimed as FUNERAL EXPENSES. Neither can theP20,000 unpaid portion be deducted from the gross estate as CLAIMS AGAINST THE ESTATE under Subsection (C) hereof .

(2) Judicial expenses of the testamentary or intestate proceedings. Expenses allowed as deduction under this category are

those incurred in the inventory-taking of assets comprising the gross estate, their administration, the payment of debts of the estate,

as well as the distribution of the estate among the heirs. In short, these deductible items are expenses incurred during the settlement

of the estate but not beyond the last day prescribed by law, or the extension thereof, for the filing of the estate tax return. Judicial

expenses may include:

(a) Fees of executor or administrator;

(b) Attorney's fees;

(c) Court fees;

(d) Accountant's fees;

(e) Appraiser's fees;

(f) Clerk hire;

(g) Costs of preserving and distributing the estate;

(h) Costs of storing or maintaining property of the estate; and


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(i) Brokerage fees for selling property of the estate.

Any unpaid amount for the aforementioned cost and expenses claimed under "Judicial Expenses" should be supported by a

sworn statement of account issued and signed by the creditor.

(3) Claims against the estate. The word "claims" is generally construed to mean debts or demands of a pecuniary nature

whichcould have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments.

Claims against the estate or indebtedness in respect of property may arise out of: (1) Contract; (2) Tort; or (3) Operation of Law.

(i) Requisites for Deductibility of Claims Against the Estate

(a) The liability represents a personal obligation of the deceased existing at the time of his death except unpaid obligations

incurred incident to his death such as unpaid funeral expenses (i.e., expenses incurred up to the time of interment) and unpaid

medical expenses which are classified under a different category of deductions pursuant to these Regulations;

(b) The liability was contracted in good faith and for adequate and full consideration in money or money's worth;

(c) The claim must be a debt or claim 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.

(ii) Substantiation Requirements. All unpaid obligations and liabilities of the decedent at the time of his death (except

unpaid funeral or medical expenses which are deductible under a different category) are allowed as deductions from gross estate.

Provided, however, that the following requirements/documents are complied with/submitted

(a) In case of simple loan (including advances):

(1) The debt instrument must be duly notarized at the time the indebtedness was incurred, such as promissory note or

contract of loan, except for loans granted by financial institutions where notarization is not part of the business practice/policy of thefinancial 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 corporation, the sworn certification should be signed by the President, or Vice-President, or other principal

officer of the corporation. If the creditor is a partnership, the sworn certification should be signed by any of the general partners. In

case the creditor is a bank or other financial institutions, the Certification shall be executed by the branch manager of the

bank/financial institution which monitors and manages the loan of the decedent-debtor. If the creditor is an individual, the sworn

certification should be signed by him. In any of these cases, the one who should certify must not be a relative of the borrower within

the fourth civil degree, either by consanguinity or affinity, except when the requirement below is 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 relative of the debtor in the degree mentioned above, a copy of the promissory note or other evidence of

the indebtedness must be filed with the RDO having jurisdiction over the borrower within fifteen days from the execution thereof.

(3) In accordance with the requirements as prescribed in existing or prevailing internal revenue issuances, 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 a

detailed schedule of its receivable showing the unpaid balance of the decedent-debtor. In case the creditor is an individual who is no

longer required to file income tax returns with the Bureau, 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 be made by the BIR to substantiate such declaration of

the creditor. If the creditor is a non-resident, the executor/administrator 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 a resident;

(4) A statement under oath 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 sales invoice/delivery receipt (for sale of goods),

or contract for the services agreed to be rendered (for sale of service), as duly acknowledged, executed and signed by 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. If the creditor is a corporation, the sworn Certification should be signed by the President, or Vice-President, or other principalofficer of the corporation. If the creditor is a partnership, the sworn certification should be signed by any of the general partners. If

the creditor is a sole proprietorship, the sworn certification should be signed by the owner of the business. In any of these cases, the

one who issues the certification must not be a relative of the decedent-debtor within the fourth civil degree, either by consanguinity

or affinity, except when the requirement below is 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 relative of the debtor in the degree mentioned above, a copy of the promissory note or other evidence of

the indebtedness must be filed with the RDOhaving jurisdiction over the borrower within fifteen days from the execution thereof.

(3) Certified true copy of the latest audited balance sheet of the creditor with a detailed schedule of its receivable showing the

unpaid balance of the decedent-debtor. Moreover, a certified true copy of the updated latest subsidiary ledger/records of the debt of

the debtor-decedent, (certified by the creditor, i.e., the officers mentioned in the preceding paragraphs) should likewise be

submitted.

(c) Where the settlement is made through the Court in a testate or 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.


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(4) Claims of the deceased against insolvent personswhere the value of the decedent's interest therein is included in the value

of the gross estate; and,

(5) Unpaid mortgages, taxes and casualty losses

(a) Unpaid mortgages upon, or any indebtedness in respect to, property where the value of the decedent's interest therein,

undiminished by such mortgage or indebtedness, is included in the value of the gross estate. The deduction herein allowed in the

case of claims against the estate, unpaid mortgages or any indebtedness shall, when founded upon a promise or agreement, be

limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or money's worth.

(b) Taxes which have accrued as of the death of the decedent which were unpaid as of the time of death. This deduction will

not include income tax upon income received after death, or property taxes not accrued beforehis death, or the estate tax due from

the transmission of his estate.

(c) There shall also be deducted losses incurredduring the settlement of the estate arising from fires, storms, shipwreck, or

other casualties, or from robbery, theft or embezzlement, when such losses are not compensated for by insurance or otherwise, and

if at the time of the filing of the return such losses have not been claimed as a deduction for income tax purposes in an income tax

return, and provided that such losses were incurred not later than the last day for the payment of the estate tax as prescribed in

Subsections (A) and (B) of Section 91.

In case unpaid mortgage payable is being claimed by the estate, verification must be made as to who was the beneficiary of

the loan proceeds. If the loan is found to be merely an accommodation loan where the loan proceeds went to another person, the

value of the unpaid loan must be included as a receivable of the estate. If there is a legal impediment to recognize the same as

receivable of the estate, said unpaid obligation/mortgage payable shall not be allowed as a deduction from the gross estate. In all

instances, the mortgaged property, TO THE EXTENT OF THE DECEDENT'S INTEREST THEREIN, should always form part of the grosstaxable estate.

"(B) Property previously taxed . . .

"(C) Transfers for public use . . .

"(D) The family home An amount equivalent to the current fair market value of the decedent's family home: Provided,

however, That if the said current fair market value exceeds One million pesos (P1,000,000), the excess shall be subject to estate tax.

As a sine qua non condition for the exemption or deduction, said family home must have been the decedent's family home as

certified by the barangay captain of the locality.

a) Definition of terms

Family home The dwelling house, including the land on which it is situated, where the husband and wife, or a head of the

family, and members of their family reside, as certified to by the Barangay Captain of the locality. The family home is deemed

constituted on the house and lot from the time it is actually occupied as a family residence and is considered as such for as long as

any of its beneficiaries actually resides therein. (Arts. 152 and 153, Family Code)

For purposes of these regulations, however, 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.

In other words, the family home is generally characterized by permanency, that is, the place to which,whenever absent for

business or pleasure, one still intends to return.

The family home must be part of the properties of the absolute community or of the conjugal partnership, or of the

exclusive properties of either spouse depending upon the classification of the property (family home) and the property relations

prevailing on the properties of the husband and wife. It may also be constituted by an unmarried head of a family on his or her own

property. (Art. 156, Ibid)

For purposes of availing of a family home deduction to the extent allowable, a person may constitute only one family home.

(Art. 161, Ibid)

Husband and Wife Legally married man and woman.

Unmarried Head of a Family An unmarried or legally separated man or woman with one or both parents, or with one or

more brothers or sisters, or with one or more legitimate, recognized natural or legally adopted children living with and dependent

upon him or her for their chief support, where such brothers or sisters or children are not more than twenty one (21) years of age,unmarried and not gainfully employedor where such children, brothers or sisters, regardless of age are incapable of self-support

because of mental or physical defect, or any of the beneficiaries mentioned in Article 154 of the Family Code who is living in the

family home and dependent upon the head of the family for legal support.

The beneficiaries of a family home are:

(1) The husband and wife, or the head of a family; and

(2) Their parents, ascendants, descendants including legally adopted children, brothers and sisters, whether the relationship be

legitimate or illegitimate, who are living in the family home and who depend upon the head of the family for legal support. (Art. 154,

Ibid)

b) Conditions for the allowance of FAMILY HOME as deduction from the gross estate

1. 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 of the locality where the family home is situated;

2. The total value of the family home must be included as part of the gross estate of the decedent; and

3. Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or

included in the gross estate, or the extent of the decedent's interest (whether conjugal/community or exclusive property), whichever

is lower, but not exceeding P1,000,000.


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(E) Standard deduction. A deduction in the amount of One Million Pesos (P1,000,000) shall be allowed as an additional

deduction without need of substantiation. The full amount of P1,000,000 shall be allowed as deduction for the benefit of the

decedent. The presentation of such deduction in the computation of the net taxable estate of the decedent is properly illustrated in

these Regulations.

(F) Medical expenses. All medical expenses (cost of medicines, hospital bills, doctors' fees, etc.) incurred (whether paid or

unpaid) within one (1) year before the death of the decedent shall be allowed as a deduction provided that the same are duly

substantiated with official receipts for services rendered by the decedent's attending physicians, invoices, statements of account duly

certified by the hospital, and such other documents in support thereof and provided, further, that the total amount thereof, whether

paid or unpaid, does not exceed Five Hundred Thousand Pesos (P500,000).

Any amount of medical expenses incurred within one year from death in excess of Five Hundred Thousand Pesos (P500,000) shall no

longer be allowed as a deduction under this subsection. Neither can any unpaid amount thereof in excess of the P500,000 threshold

nor any unpaid amount for medical expenses incurred prior to the one-year period from date of death be allowed to be deducted

from the gross estate as claim against the estate.

Illustrations on how to determine the amount of allowable medical expenses given the P500,000 threshold amount

a. If the actual amount of medical expenses incurred is P250,000, then only P250,000 shall be allowed as deduction and not to

the extent of the P500,000 threshold amount;

b. If the actual amount of medical expenses incurred within the year prior to decedent's death is P600,000, only the maximum

amount of P500,000 shall be allowed as deduction. If in case the excess of P100,000 (P600,000-500,000) is still unpaid, such amount

shall not be allowed to be deducted from the gross estate as "claims against the estate".

(G) Amount received by heirs under Republic Act No. 4917 . Any amount received by the heirs from the decedent's employer

as a consequence of the death of the decedent-employee in accordance with Republic Act No. 4917 is allowed as a deduction

provided that the amount of the separation benefit is included as part of the gross estate of the decedent. CSIcTa

(8) Net share of the surviving spouse in the conjugal partnership or community property. After deducting the allowable

deductions appertaining to the conjugal or community properties included in the gross estate, the share of the surviving spouse must

be removed to ensure that only the decedent's interest in the estate is taxed.

SECTION 7. Computation Of The Net Estate Of A Decedent Who Is A Non-Resident Alien Of The Philippines. The value of

the net estate of a decedent who is a non-resident alien in the Philippines shall be determined by deducting from the value of that

part of his gross estate which at the time of his death is situated in the Philippines the following items of deductions:

(1) Expenses, losses, indebtedness, and taxes That proportion of the total expenses, losses, indebtedness, and taxes which

the value of such part bears to the value of his entire gross estate wherever situated. The allowable deduction under this subsection

shall be computed using the following formula:

"(2) Property previously taxed . . ."

"(3) Transfers for public use . . ."

"(4) Net share of the surviving spouse in the conjugal property or community property. . . ."

No deduction shall be allowed in the case of a non-resident decedent not a citizen of the Philippines, unless the executor,

administrator, or anyone of the heirs, as the case may be, includes in the return required to be filed under Section 90 of the Code the

value at the time of the decedent's death of that part of his gross estate not situated in the Philippines.

SECTION 8. Proper Presentation Of Funeral Expenses, Family Home, Standard Deduction, And Medical Expenses As

Deductions From The Gross Estate. Illustrative examples to properly present the manner of deducting funeral expenses, family

home, standard deduction, and medical expenses from the gross estate in accordance with the provisions of the Code.

"Illustrations:

(1) Decedent is an unmarried head of a family :

(a) Real and personal properties P5,000,000

Family Home 2,000,000


==========

Less: Deductions

Ordinary Deductions

Funeral Expenses P200,000

Other Deductions 1,300,000 P1,500,000

Special Deductions


Standard Deduction 1,000,000Medical Expenses* 500,000 2,500,000


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Total Deductions P4,000,000


==========

Although the family home is valued at P2 million, the maximum allowable deduction for the family home is P1million only.

Note: * Medical expenses are not included in the deductions referred under Section 86(A)(1) of the Code but are treated as a special

item of deduction under Section 86(A)(6) of the same Code.

(b) Real and personal properties P5,000,000

Family Home 800,000


==========

Less: Deductions

Ordinary Deductions

Funeral Expenses P200,000

Other Deductions 1,300,000 P1,500,000

Special Deductions

Family Home P800,000

Standard Deduction 1,000,000

Medical Expenses 500,000 2,300,000

Total Deductions P3,800,000


==========

Note: Deduction for family home is allowed for P800,000 only which is the declared value of the family home.

(2) Decedent is a married man with surviving spouse:

(a) The family home is his exclusive property Exclusive Conjugal Total




Family Home P2,000,000Other Exclusive properties 2,500,000 4,500,000

Gross Estate P4,500,000 P5,000,000 P9,500,000

========= ========= =========

Less:

Ordinary Deductions

Conjugal Deductions

Funeral Expenses (P200,000) (200,000)

Other Deductions (1,300,000) (1,300,000)

Total Conjugal Deductions (P1,500,000) (P1,500,000)

Net Conjugal Estate P3,500,000

Special Deductions

Family Home (1,000,000)

Standard Deduction (1,000,000)

Medical Expenses (500,000)

Total Deductions (P4,000,000)

Net Estate P5,500,000

Less: Share of Surviving Spouse

Conjugal Property P5,000,000

Conjugal Deduction (1,500,000)


(P3,500,000/2) (1,750,000)


(b) Family home is a conjugal or community property


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Other Real Properties P5,000,000 P7,000,000

Exclusive Properties P2,000,000 - 2,000,000

Gross Estate P2,000,000 P7,000,000 P9,000,000

Less: Deductions

Ordinary Deductions

Conjugal Deductions





Special Deductions

Family Home (1,000,000)


Medical (500,000)







(P5,500,000/2) (2,750,000)


(c) Same facts and figures as in (b) except that the family home has a fair market value/zonal value of only P1,500,000.



Family Home P1,500,000 P1,500,000Other Real Properties P5,000,000 P5,000,000

Exclusive Properties P2,000,000 - 2,000,000

Gross Estate P2,000,000 P6,500,000 P8,500,000

Less:

Ordinary Deductions

Conjugal Deductions





Special Deductions

Family Home (750,000)









(P5,000,000/2) (2,500,000)


Note: Since the fair market value/zonal value of the conjugal family home in the above example is P1,500,000, the family home deduction corresponding to of such fair

market value/zonal value is P750,000 only.


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(d) Family home is conjugal property, but lot on which it stands is exclusive property


Conjugal Properties

Other Real Properties P3,000,000 P3,000,000

Family Home P1,000,000 1,000,000

Exclusive Properties

Other Real Properties P2,000,000 2,000,000

Family lot 400,000 400,000

Gross Estate P2,400,000 P4,000,000 P6,400,000

Less:

Ordinary Deductions

Conjugal Deductions





Special Deductions

Family Home Exclusive Lot P400,000Conjugal Home (P1,000,000/2) (500,000) (900,000)









(P2,500,000/2) (1,250,000)


SECTION 9. Time And Place Of Filing Estate Tax Return And Payment Of Estate Tax Due.

(A) Time for filing estate tax return. For purposes of determining the estate tax, the estate tax return shall be filed within six

(6) months from the decedent's death. The Court approving the project of partition shall furnish the Commissioner with a certified

copy thereof and its order within thirty (30) days after promulgation of such order.

(B) Extension of time to file estate tax return. The Commissioner or any Revenue Officer authorized by him pursuant to the

Code shall have authority to grant, in meritorious cases, a reasonable extension, not exceeding thirty (30) days, for filing the return.

The application for the extension of time to file the estate tax return must be filed with the Revenue District Office (RDO) where the

estate is required to secure its Taxpayer Identification Number (TIN) and file the tax returns of the estate, which RDO likewise, has

jurisdiction over the donor's tax return required to be filed by any party as a result of the distribution of the assets and liabilities of

the decedent.

(C) Place of filing the return and payment of the tax. In case of a resident decedent, the administrator or executor shall

register the estate of the decedent and secure a new TIN thereforfrom the Revenue District Office where the decedent was domiciledat 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 Treasurer of the city or municipality where the decedent was

domiciled at the time of his death, whichever is applicable, following prevailing collection rules and procedures.

In case of a non-resident decedent, whether non-resident citizen or non-resident alien, with executor or administrator in the

Philippines, the estate tax return shall be filed with and the TIN for the estate shall be secured from the Revenue District Office where

such executor or administrator is registered: Provided, however, that in case the executor or administrator is not registered, the

estate tax return shall be filed with and the TIN of the estate shall be secured from the Revenue District Office having jurisdiction

over the executor or administrator's legal residence. Nonetheless, in case the non-resident decedent does not have an executor or

administrator in the Philippines, the estate tax return shall be filed with and the TIN for the estate shall be secured from the Office of

the Commissioner through RDO No. 39 South Quezon City.

The foregoing provisions notwithstanding, the Commissioner of Internal Revenue may continue to exercise his power to allow a

different venue/place in the filing of tax returns.

(D) Time for payment of the estate tax. As a general rule, the estate tax imposed under the Code shall be paid at the time

the return is filed by the executor, administrator or the heirs. LLjur


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(E) Extension of time to pay estate tax. When the Commissioner finds that the payment of the estate tax or of any part

thereof would impose undue hardship upon the estate or 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 through the courts, or two (2) years in case the estate is settled

extrajudicially. 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 statute of limitations for deficiency assessment shall be suspended

for the period of any such extension.

For purposes of these Regulations, the application for extension of time to file the return and extension of time to pay estate tax shall

be filed with the Revenue District Officer (RDO) where the estate is required to secure its TINand file the estate tax return. This

application shall be approved by the Commissioner or his duly authorized representative.

Where the request for extension is by 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 due date of the tax, but within the extension period, shall be subject to interest but not to

surcharge.

(F) Payment of the estate tax by installment. In case the available cash of the estate is not sufficient to pay its total estate

tax liability, the estate may be allowed to pay the tax by installment and a clearance shall be released only with respect to the

property the corresponding/computed tax on which has been paid. There shall, therefore, be as many clearances (Certificates

Authorizing Registration) as there are as many properties released because they have been paid for by the installment payments of

the estate tax. The computation of the estate tax, however, shall always be on the cumulative amount of the net taxable estate. Anyamount paid after the statutory due date of the tax shall be imposed the corresponding applicable penalty thereto. However, if the

payment of the tax after the due date is approved by the Commissioner or his duly authorized representative, the imposable penalty

thereon shall only be the interest. Nothing in this paragraph, 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.

(G) Liability for payment The estate tax imposed under the Code 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 estate tax clearance 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 the 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.

SECTION 10. Rates Of Donor's Tax. (A) Schedular rates of donor's tax imposable on donation made to a doneewho is not a

stranger. The transfer of the total net gifts made during the calendar year shall be subject to tax in accordance with the schedule

provided in Section 99 of the Code. The entire value of the net gifts for each calendar year is divided into brackets and each rate is

imposed on the corresponding brackets as shown below:

"If the net gift is:

But not The tax Of the excess

Over over shall be Plus over

P100,000 Exempt

P100,000 200,000 0 2% P100,000

200,000 500,000 2,000 4% 200,000500,000 1,000,000 14,000 6% 500,000

1,000,000 3,000,000 44,000 8% 1,000,000

3,000,000 5,000,000 204,000 10% 3,000,000

5,000,000 10,000,000 404,000 12% 5,000,000

10,000,000 1,004,000 15% 10,000,000

(B) Tax payable by the donor if donee is a stranger. When the donee or beneficiary is a stranger, the tax payable by the

donor shall be thirty per cent (30%) of the net gifts. For purposes of the donor's tax, a "stranger" is a person who is not a:

(1) Brother, sister (whether by whole or half blood), spouse, ancestor, and lineal descendant; or

(2) Relative by consanguinity in the collateral line within the fourth degree of relationship.

A legally adopted child is entitled to all the rights and obligations provided by law to legitimate children, and therefore, donation to

him shall not be considered as donation made to stranger.

Donation made between business organizations and those made between an individual and a business organization shall be

considered as donation made to a stranger.

(C) Contribution for election campaign.

Any contribution in cash or in kind to any candidate, political party or coalition ofparties for campaign purposes, shall be governed by the Election Code, as amended.


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The application of the rates as provided above is imposed on donations made beginning January 1, 1998, which is the effectivity date

of Republic Act No. 8424, otherwise known as "The Tax Reform Act of 1997".

SECTION 11. The Law That Governs The Imposition Of Donor's Tax. The donor's tax is not a property tax, but is a tax

imposed on the transfer of property by way of gift inter vivos. (Lladoc vs. Commissioner of Internal Revenue, L-19201, June 16, 1965;

14 SCRA, 292) The donor's tax shall not apply unless and until there is a completed gift. The transfer of property by gift is perfected

from the moment the donor knows of the acceptance by the donee; it is completed by the delivery, either actually or constructively,

of the donated property to the donee. Thus, the law in force at the time of the perfection/completion of the donation shall govern

the imposition of the donor's tax.

In order that the donation of an immovable may be valid, it must be made in a public document specifying therein the property

donated. The acceptance may be made in the same Deed of Donation or in a separate public document, but it shall not take effect

unless it is done during the lifetime of the donor. If the acceptance is made in a separate instrument, the donor shall be notified

thereof in an authentic form, and this step shall be noted in both instruments.

A gift that is incomplete because of reserved powers, becomes complete when either: (1) the donor renounces the power; or (2) his

right to exercise the reserved power ceases because of the happening of some event or contingency or the fulfillment of some

condition, other than because of the donor's death.

Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the dissolution of the

marriage in favor of the heirs of the deceased spouse or any other person/s is subject to donor's tax whereas general renunciation by

an heir, including the surviving spouse, of his/her share in the hereditary estate left by the decedent is not subject to donor's tax,

unless specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the

hereditary estate.

Where property, other than a real property that has been subjected to the final capital gains tax, is transferred for less than anadequate and full consideration in money or money's worth, then the amount by which the fair market value of the property at the

time of the execution of the Contract to Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell exceeded

the value of the agreed or actual consideration or selling price shall be deemed a gift, and shall be included in computing the amount

of gifts made during the calendar year.

The law in force at the time of the completion of the donation shall govern the imposition of donor's tax.

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.

SECTION 12. Computation Of The Donor's Tax. For donor's tax purposes, donations made before January 1, 1998 shall be

subject to the donor's tax computed on the basis of the old rates imposed under Section 92 of the National Internal Revenue Code of

1977 (R.A. No. 7499 ), while donations made on or after January 1, 1998 shall be subject to the donor's tax computed in accordance

with the amended schedule of rates prescribed under Section 99 of the National Internal Revenue Code of 1997 (R.A. No. 8424). THE

COMPUTATION OF THE DONOR'S TAX IS ON A CUMULATIVE BASIS OVER A PERIOD OF ONE CALENDAR YEAR. Husband and wife are

considered as separate and distinct taxpayer's for purposes of the donor's tax. However, if what was donated is a conjugal or

community property and only the husband signed the deed of donation, there is only one donor for donor's tax purposes, without

prejudice to the right of the wife to question the validity of the donation without her consent pursuant to the pertinent provisions of

the Civil Code of the Philippines and the Family Code of the Philippines.

Illustration:Donations made on:

January 30, 2002 P2,000,000

March 30, 2002 1,000,000

August 15, 2002 500,000

Solution/computation:

Date of donation Amount Donor's Tax

1. January 30, 2002 P2,000,000 P124,000

2. March 30, 2002 1,000,000

March 30, 2002 donation 1,000,000

Add: January 30, 2002 donation 2,000,000

Total 3,000,000

Tax Due Thereon 204,000

Less: Tax due/paid on January donation 124,000

Tax Due/Payable on the March donation P80,000

3. August 15, 2002 500,000

August 15, 2002 donation 500,000

Add: January 2002 donation 2,000,000

March 2002 donation 1,000,000

Total 3,500,000

Tax Due Thereon 254,000

Less: Tax due/paid on Jan/March donation 204,000

Tax Due/Payable on the August donation P50,000


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SECTION 13. Filing Of Returns And Payment Of Donor's Tax.

(A) Requirements. Any person making a donation (whether direct or indirect), unless the donation is specifically exempt

under the Code or other special laws, is required, for every donation, to accomplish under oath a donor's tax return in duplicate. The

return shall set forth:

(1) Each gift made during the calendar year which is to be included in computing net gifts;

(2) The deductions claimed and allowable;

(3) Any previous net gifts made during the same calendar year,

(4) The name of the donee;

(5) Relationship of the donor to the donee; and

(6) Such further information as the Commissioner may require.

(B) Time and place of filing and payment. The donor's tax return shall be filed within thirty (30) days after the date the gift is

made or completed and the tax due thereon shall be paid at the same time that the return is filed. Unless the Commissioner

otherwise permits, the return shall be filed and the tax paid to an authorized agent bank, the Revenue District Officer, Revenue

Collection Officer or duly authorized Treasurer of the city or municipality where the donor was domiciled at the time of the transfer,

or if there be no legal residence in the Philippines, with the Office of the Commissioner. In the case of gifts made by a non-resident,

the return may be filed with the Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or

directly with the Office of the Commissioner. For this purpose, the term "OFFICE OF THE COMMISSIONER" shall refer to the Revenue

District Office (RDO) having jurisdiction over the BIR-National Office Building which houses the Office of the Commissioner, or

presently, to the Revenue District Office No. 39 South Quezon City.

(C) Notice of donation by a donor engaged in business.

In order to be exempt from donor's tax and to claim full deduction ofthe donation given to qualified donee institutions duly accredited by the Philippine Council for NGO Certification, Inc. (PCNC), the

donor engaged in business shall give a notice of donation on every donation worth at least Fifty Thousand Pesos (P50,000) to the

Revenue District Office (RDO) which has jurisdiction over his place of business within thirty (30) days after receipt of the qualified

donee institution's duly issued Certificate of Donation, which shall be attached to the said Notice of Donation, stating that not more

than thirty percent (30%) of the said donation/gifts for the taxable year shall be used by such accredited non-stock, non-profit

corporation/NGO institution (qualified-donee institution) for administration purposes pursuant to the provisions of Section 101(A)(3)

and (B)(2) of the Code.

SECTION 14. Repealing Clause. All rulings, revenue regulations, including Revenue Regulations No. 17-93, and other revenue

issuances, or portions thereof which are not consistent with the provisions of these Regulations are hereby amended or revoked

accordingly.

SECTION 15. Effectivity Clause. These Regulations shall take effect after fifteen (15) days following the date of publication in

a newspaper of general circulation unless otherwise provided hereof, provided that those provisions which are mere reiterations or

clarifications of statutory provisions shall be deemed to have become effective on the same date that the statute/law (R.A. No. 8424)

became effective.

REV. REGS 2-82: TAXATION OF SHARES OF STOCK AS AMEDED BY RR 66-2008

March 29, 1982


SUBJECT :Taxation of Sales of Shares of Stock Classified as Capital Assets.

TO :All Internal Revenue Officers and Others Concerned.

Pursuant to the provisions of Section 1 of Batas PambansaBlg.221 and Section 326 in relation to Section 4 of the National Internal

Revenue Code, as amended, the following regulations are hereby promulgated: cdi

SECTION 1. Scope. These regulations shall define the manner of taxation of sales of shares of stock classified as capital

assets.

SECTION 2. Definition of Terms. For the purpose of these regulations, the following definitions of terms are hereby

adopted: aisa dc

(a) "Stock classified as capital assets" shall mean all stocks and securities held by taxpayers other than dealers in securities.

(b) "Dealer in securities" includes all persons who for their own account are engaged in the sale of stock, bonds, exchange,

bullion, coined money, bank notes, promissory notes, or other securities as licensed by the Securities and Exchange Commission.

Notwithstanding the foregoing, nothing in these regulations shall preclude the Commissioner of Internal Revenue from treating other

taxpayers engaged in similar activities but not licensed by the Securities and Exchange Commission as a dealer in securities.

(c) "Gross selling price" is the total amount of money or its equivalent which the purchaser pays the vendor to receive or get

the goods.

SECTION 3. Persons Liable to the Tax. The following persons are liable to the tax provided for in Section 5 of these

Regulations:

(a) individual taxpayer, citizens or alien;(b) corporate taxpayer, domestic or foreign;


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(c) other taxpayers not falling under (a) or (b), such as estate, trust, trust funds and pension funds among others.

SECTION 4. Persons Not Liable to the Tax. The taxes imposed herein shall not apply to the following:

(a) gains derived by dealers in securities;

(b) gains on sale of shares of stock to the extent invested in new shares of stock in banks, non-bank financial intermediaries

and corporations organized primarily to hold equities in banks, in accordance with Presidential Decree No. 1739 ; and

(c) all other gains which are specifically exempt from income tax under existing investment incentives and other special law.

SECTION 5. Imposition of the Tax.

(a) Sales of shares of stock listed and traded through a local stock exchange. A tax of 1/4 of 1% shall be imposed on the

gross selling price of the shares of stock sold, exchanged or transferred through the facilities of a stock exchange registered with the

Securities and Exchange Commission.

(b) Shares of stock not traded through a local stock exchange. Net capital gains derived during the taxable year from sales,

exchanges, transfers or similar transaction shall be taxed as follows:

Not over P100,000 10%

Over P100,000 20%

SECTION 6. Determination of Tax Base. In determining the tax base, the following rules shall apply: cdi

(a) Determination of selling price. The selling price of the shares of stocks shall be the fair market value of the shares of

stocks transferred or exchanged and not the fair market value of the property received in exchange. If the total consideration of the

sale or disposition consists partly in cash or money and partly in kind, the selling price shall be the fair market value of the sharesdisposed.

(1) In the case of shares traded through the stock exchange, "fair market value" shall consist of the actual selling price as

shown in the sales confirmation issued by the member of the stock exchange through whom the sale was effected.

(2) In the case of shares not traded through the stock exchange, but listed in one or more stock exchanges, the highest closing

price on the day when the shares are sold, transferred or exchanged, shall be the "fair market value." When no sale is made in any

stock exchange, the highest closing price on the day nearest to the day of sale, transfer or exchange of the shares shall be the fair

market value. acd

(3) In the case of sale, transfer or exchange of shares not listed in the stock exchange, the following rules shall be observed:

(i) In general, the unlisted shares shall be valued at their book value nearest the valuation date. The book value of these

unlisted shares of stock shall be prima facie considered as their fair market value.

(ii) In case the shares are valued on a basis lower than their book values, a justification for the deviation from the book value,

together with the evidences in support thereof, should be submitted. The following factors are considered relevant in the valuation

of shares of stock of closed corporations.

A) The nature of the business and the financial history of the enterprise, from the date of incorporation

B) The economic outlook in general and the business condition and outcome of the specific industry in particular

C) The financial condition of the business

D) The earning capacity of the company

E) The dividend paying capacity

F) Goodwill

G) Sales of stocks and size of the block of stock to be valued

H) Market price of stocks of corporations engaged in the same or similar line of business to be valued

I) Existence of corporate debts in favor of the family of the principal shareholder

J) Restrictive agreements impairing the alienability of the stock

K) Investments in business or property maintained at a deficit

L) Dividend arrearages

M) Voting rights of stockholders

N) Difficulty in liquidating the assetsIf such lower fair market valuation is not clearly established and documented, the book value of the unlisted shares of stock shall be

adopted. If there have been previous sales/exchanges of the unlisted shares of stock, the price at which these shares exchanged

hands should be taken/considered as its fair market value/s.

(b) Determination of cost. The cost basis for determining the capital gains or losses shall be the basis as determined in

accordance with the provisions of Section 35 of the National Internal Revenue Code, as am

Documents

RR 1 Estate, Donor's