Computation Formula, Key Rules, and Worked Examples (Philippine Legal Context)

Donor’s tax is a national internal revenue tax imposed on gratuitous transfers of property made during the donor’s lifetime (i.e., donations inter vivos). In Philippine tax practice, it is often encountered when transferring cash, real property, shares of stock, or other assets by way of donation, including many transactions that are “donations in substance” even if not labeled as such.

The governing law is the National Internal Revenue Code (NIRC), as amended, including the reforms that produced today’s flat donor’s tax rate and the annual exemption.

1) When a Transfer is Subject to Donor’s Tax

A. Basic concept

A transfer is generally subject to donor’s tax when it has these elements:

Property is transferred (cash, real property, shares, personal property, rights, etc.);
The transfer is gratuitous (no consideration) or for less than full and adequate consideration; and
The transfer is made during the donor’s lifetime.

B. “Donation in substance” (sale for less than fair value)

If property is transferred for less than fair market value (FMV), the difference between FMV and the consideration may be treated as a gift, potentially triggering donor’s tax on the donative intent / net gift portion (subject to rules and facts).

C. Not covered by donor’s tax

Some transfers are taxed differently:

Transfers that take effect at death (donation mortis causa) are generally treated as estate tax matters, not donor’s tax.
A true sale for full and adequate consideration is not a donation.
Certain transfers may be exempt (see Section 4).

2) Who is Taxed and on What Property (Scope)

The donor’s tax scope depends on the donor’s status:

A. Resident donors (citizens and resident aliens)

A resident citizen, non-resident citizen, and resident alien are generally subject to donor’s tax on donations of property wherever situated (worldwide).

B. Non-resident alien donors (NRA)

A non-resident alien is generally taxed only on donations of property situated in the Philippines.

C. Situs rules and the “reciprocity” concept for intangibles (important for NRAs)

For intangibles (e.g., shares, receivables, bank deposits in certain contexts), Philippine rules on situs can be technical. In many cases involving a non-resident alien donating intangibles considered situated in the Philippines, an exemption may apply under reciprocity principles—broadly, where the donor’s country provides a similar exemption or does not impose a comparable transfer tax on intangibles of nonresidents. This is fact-specific and usually requires proof/documentation.

3) The Current Donor’s Tax Rate and the Annual Exemption

A. Flat rate

Donor’s tax is imposed at a flat 6% on net gifts.

B. Annual exemption

Each donor is allowed a ₱250,000 exemption per calendar year (not per donee, but per donor, per year).

Key implications:

The exemption “resets” every January 1.
Multiple donations within the year are aggregated (cumulative computation).
If spouses donate conjugal/community property, each spouse is typically treated as donating their proportionate share—each spouse may be entitled to their own ₱250,000 annual exemption on their share (subject to proper documentation and return filing practice).

4) Exemptions and Excluded Gifts (Common Categories)

Some transfers are exempt from donor’s tax (or effectively excluded from taxable net gifts). Common categories include:

A. Donations to the Government

Gifts to the National Government, or its agencies/instrumentalities, and political subdivisions (subject to the legal conditions for the exemption).

B. Donations to qualified/accredited non-profit entities

Donations to certain qualified charitable, religious, educational, cultural, social welfare institutions, and accredited NGOs, subject to statutory requirements (including use of funds and administrative expense limitations in many cases).

C. Certain gifts on account of marriage (traditional “dowry” concept)

Philippine tax law historically recognizes limited exemptions for certain gifts made on account of marriage under specific conditions and caps. This area is detail-sensitive (who gave, to whom, timing, and amount) and should be documented carefully.

Practical note: Even when a gift is exempt, the BIR and the Register of Deeds (for real property) may still require documentary proof, and sometimes reporting, depending on the transfer type and processing requirements.

5) The Core Computation: Formula and Step-by-Step Method

A. The basic formula

Donor’s Tax Due = 6% × (Net Gifts for the Calendar Year − ₱250,000) Where “Net Gifts” means taxable gifts after allowable exclusions/deductions and valuation rules.

If the result is zero or negative, donor’s tax due is ₱0.

B. Cumulative computation within the year

Donor’s tax returns are typically filed per donation (within the statutory period), but the tax is computed cumulatively for the calendar year:

Compute cumulative net taxable gifts to date (including the current donation).
Apply the ₱250,000 annual exemption.
Multiply by 6% to get cumulative donor’s tax.
Less: donor’s tax previously paid for earlier donations in the same year.
The difference is the tax payable for the current filing.

6) Valuation Rules (What Value is Used?)

Valuation drives the tax base. Common rules:

A. Real property (land/buildings)

The value used is commonly the higher of:

The BIR’s zonal value, and
The assessed value (per the local assessor/tax declaration).

(Documentation is critical because the BIR will require basis documents to issue the clearance needed to transfer title.)

B. Shares of stock

Listed/traded shares: commonly valued using market-based pricing around the donation date (exchange reference pricing method).
Unlisted shares: commonly valued using book value based on the latest available audited financial statements (for common shares), while preferred shares may be valued based on applicable rules (e.g., par/value per terms).

C. Personal property (vehicles, jewelry, art, equipment)

Generally FMV at the time of donation, often supported by appraisal or reliable valuation evidence.

D. Property subject to a mortgage or encumbrance

If the donee assumes the mortgage, donor’s tax is usually computed on the equity:

Net Gift (equity) = FMV − outstanding mortgage/encumbrance assumed by donee

If the donor continues to pay a liability that the donee should bear, later payments can create additional gift implications depending on structure and proof.

7) Filing, Payment, and Transfer Processing (Practical Legal Workflow)

A. Return and deadline

A donor’s tax return is generally filed within 30 days from the date of donation (per donation).

B. Why timely payment matters

For transfers of real property and certain other registrable assets, you typically need BIR clearance/authorization (commonly an eCAR or equivalent clearance) to register the transfer with the Register of Deeds or to update ownership records.

C. Supporting documents (typical)

Exact lists vary by asset, but commonly include:

Deed of Donation (notarized; acceptance by donee is important in civil law),
Proof of ownership (e.g., TCT/CCT, tax declaration),
Valuation references (zonal value, assessed value),
For shares: stock certificates, secretary’s certificate, AFS, etc.,
IDs and TINs of parties,
Proof of exemption if claiming exemption (government/qualified NGO documentation).

D. Civil law essentials that affect tax processing

Donations of immovable property generally require a public instrument (notarized deed) and acceptance.
Without a properly perfected donation (including acceptance requirements where applicable), you can face registration and tax processing issues.

8) Worked Examples (Philippine Computation Style)

Example 1 — Simple cash donation (single gift in the year)

Facts: Donor gives ₱500,000 cash to a friend on March 1. No other gifts in the year.

Computation:

Total gifts (year): ₱500,000
Less annual exemption: ₱250,000
Taxable net gifts: ₱250,000
Donor’s tax: 6% × ₱250,000 = ₱15,000

✅ Donor’s tax due: ₱15,000

Example 2 — Multiple donations in one year (cumulative computation)

Facts: Same donor makes three cash gifts in 2026:

Jan 10: ₱200,000
Jun 15: ₱150,000
Dec 1: ₱400,000

(A) Jan 10 filing

Cumulative gifts: ₱200,000
Less exemption ₱250,000 → taxable = ₱0
Cumulative tax = ₱0
Less previously paid = ₱0 ✅ Tax due now: ₱0

(B) Jun 15 filing

Cumulative gifts: ₱200,000 + ₱150,000 = ₱350,000
Less exemption ₱250,000 → taxable = ₱100,000
Cumulative tax: 6% × ₱100,000 = ₱6,000
Less previously paid: ₱0 ✅ Tax due now: ₱6,000

(C) Dec 1 filing

Cumulative gifts: ₱350,000 + ₱400,000 = ₱750,000
Less exemption ₱250,000 → taxable = ₱500,000
Cumulative tax: 6% × ₱500,000 = ₱30,000
Less previously paid: ₱6,000 ✅ Tax due now: ₱24,000

Example 3 — Donation of real property with no mortgage

Facts: Donor donates a parcel of land to a sibling.

Zonal value: ₱3,200,000
Assessed value: ₱2,600,000 Use the higher value: ₱3,200,000. No other donations that year.

Computation:

Gross gift (FMV basis): ₱3,200,000
Less exemption: ₱250,000
Taxable net gifts: ₱2,950,000
Donor’s tax: 6% × ₱2,950,000 = ₱177,000

✅ Donor’s tax due: ₱177,000

Example 4 — Donation of mortgaged property (equity value is the gift)

Facts: Donor donates a condominium to a child.

FMV basis (higher of zonal/assessed): ₱4,000,000
Outstanding mortgage assumed by donee: ₱1,500,000
No other gifts in the year.

Net gift (equity):

₱4,000,000 − ₱1,500,000 = ₱2,500,000

Tax computation:

Net gift: ₱2,500,000
Less exemption: ₱250,000
Taxable: ₱2,250,000
Donor’s tax: 6% × ₱2,250,000 = ₱135,000

✅ Donor’s tax due: ₱135,000

Example 5 — Spouses donating conjugal/community property

Facts: Married couple donates a conjugal property with FMV basis of ₱1,000,000 to a niece. Treat each spouse as donating 50% (₱500,000 each). No other gifts in the year.

Per spouse:

Gross gift share: ₱500,000
Less exemption: ₱250,000
Taxable: ₱250,000
Donor’s tax: 6% × ₱250,000 = ₱15,000

Total donor’s tax (both spouses):

₱15,000 + ₱15,000 = ₱30,000

✅ Total donor’s tax due: ₱30,000

9) Common High-Risk Issues and Practical Notes

A. Renunciation of inheritance

A general renunciation (waiving inheritance without naming who benefits) is commonly treated differently than a specific renunciation in favor of particular persons, which can be treated as a taxable donation depending on structure and timing.

B. Donations involving corporations

Juridical entities can be donors/donees. Corporate donations raise:

donor’s tax issues,
documentation (board resolutions),
and possible income tax consequences on deductibility (if charitable) and other compliance, depending on the recipient’s qualification.

C. Other taxes and charges that may apply alongside donor’s tax

Depending on the asset and facts, a donation may also trigger:

Documentary Stamp Tax (DST) (commonly on documents transferring property or shares),
registration fees (Register of Deeds, local fees),
possible VAT “deemed sale” issues for businesses donating goods held for sale or business use in specific scenarios.

Donor’s tax is not the only cost item in many donation transactions.

D. Penalties for late filing/payment

Late donor’s tax filings can lead to surcharges, interest, and compromise penalties under the NIRC.

10) Quick Reference Cheat Sheet

Rate: 6%
Exemption: ₱250,000 per donor per calendar year
Computation: cumulative net gifts for the year − ₱250,000 × 6%
Deadline: generally within 30 days from each donation
Real property value basis: typically higher of zonal value vs assessed value
Mortgaged property: gift often equals equity (FMV − assumed mortgage)
Residents: gifts worldwide; NRA: generally only Philippine-situs property (intangibles may involve reciprocity)

If you want, I can add a section of template computation tables (fillable) and a checklist per asset type (cash, real property, shares) in the same legal-article style.