Tax Alert No. 34 [Revenue Regulations No. 12-2018 dated 25 January 2018]

28 Mar 2018

Consolidated Revenue Regulations on Estate Tax and Donor’s Tax Incorporating the Amendments Introduced by Republic Act No. 10963, otherwise known as the “Tax Reform for Acceleration and Inclusion” (TRAIN) Law

The Secretary of Finance has issued Revenue Regulations (RR) No. 12-2018 dated 25 January 2018 to consolidate the rules governing the imposition and payment of the estate and donor’s tax, and incorporate the amendments introduced by the TRAIN Law. The salient provisions of the Regulations are as follows:

Estate Tax

1. Rate - The net estate of every decedent, resident or non-resident of the Philippines, who died on or after the TRAIN Law’s effectivity date (i.e., 1 January 2018) shall be subject to 6% estate tax.

2. Composition of the gross estate - The following properties and interest therein shall form part of the decedent’s gross estate:

Decedent	Gross Estate Composition
Resident and citizens	All properties
Non-resident aliens	Only properties situated in the Philippines, and intangible personal properties subject to the reciprocity rules

Amounts withdrawn from deposit accounts of a decedent subjected to the 6% final withholding tax shall be excluded from the gross estate subject to estate tax.

3. Valuation of gross estate - Properties comprising the gross estate shall be valued according to their fair market values (FMV) at the time of the decedent’s death.

4. Items of deduction – The net estate shall be computed by deducting the following items:

Items of Deduction	Citizen or Resident Alien	Non-resident Alien
Standard deduction	PHP5m	PHP500,000
Claims against the estate	√	Prorated
Claims of the deceased against insolvent persons	√	Prorated
Unpaid mortgages, taxes and casualty losses	√	Prorated
Property previously taxed	√	√
Transfer for public use	√	√
Family home	PHP10m	X
Amount received by heirs under Republic Act No. 4917	√	X
Net shares of surviving spouse in a conjugal partnership or community property	√	√

4. Filing of returns - The filing of estate tax returns is required in all cases of transfers subject to estate tax, regardless of amount; however, returns showing a gross value exceeding Php5,000,000 shall be supported with a statement duly certified by a Certified Public Accountant. Returns shall be filed within one year from the decedent’s death, but may be extended for up to 30 days in meritorious cases.

5. Payment of Tax - Generally, estate tax shall be paid at the time the return is filed; however, the Commissioner may grant an extension. Any amount paid after the statutory due date, but within the extension period, shall be subject to interest but not to surcharge. In cases of cash insufficiency, the estate may be allowed to pay by cash installment or partial distribution of estate and application of its proceeds to the estate tax due, subject to the corresponding terms and conditions.

6. Transfer of shares, bonds or rights and bank deposits withdrawal – A bank which has knowledge of the death of a person, who maintained a bank deposit account alone or jointly with another, may allow withdrawal for the said bank deposit account subject to the 6% final withholding tax on the amount to be withdrawn and provided that withdrawals shall be made within one year from the death of the decedent.

Donor’s Tax

1. Rate – Donations perfected/completed on or after the effectivity of TRAIN (i.e., 1 January 2018) shall be subject to a 6% rate computed on the basis of total gifts made for each calendar year in excess of the PHP250,000 exempt gift.

2. Valuation of gifts – Properties comprising the gross gift shall be valued according to their FMV at the time of gift.

3. Filing and payment of estate tax – The donor’s tax return shall be filed within 30 days after the gift is made or completed, and the tax due thereon shall be paid at the same time when the return is filed.

4. Notice of donation – To be exempt from donor’s tax and to claim full deduction of the donation given to qualified and duly accredited donee institutions, a donor engaged in business shall give a notice of donation for every donation worth at least PHP50,000 within 30 days after the receipt of the qualified donee institution’s duly issued Certificate of Donation.

5. Transfer of property for less than an adequate and full consideration – Transfer of property, other than real property referred to in Section 24(D) of the Tax Code, for less than an adequate and full consideration in money or money’s worth shall be deemed a gift. However, transfers made in the ordinary course of business (a transaction which is bona fide, at arm’s length, and free from any donative intent) shall be considered as made for an adequate and full consideration.

6. Exemption of certain gift – The following are exempt from donor’s tax:

a. Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government.

b. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthropic organization or research institution or organization subject to certain conditions.

These Regulations are effective beginning 1 January 2018, the effectivity of the TRAIN Law.