Donor’s Tax in the Philippines: Rates, Exemptions, and Filing Deadlines

Introduction

Donor's tax in the Philippines is a form of transfer tax imposed on the gratuitous transfer of property from one person to another, commonly known as a donation or gift. It is governed primarily by the National Internal Revenue Code of 1997 (NIRC), as amended by Republic Act No. 10963 (Tax Reform for Acceleration and Inclusion or TRAIN Law) and subsequent legislation, including Republic Act No. 11534 (Corporate Recovery and Tax Incentives for Enterprises or CREATE Act). The tax is levied on the donor, not the donee, and applies to both residents and non-residents for properties situated in the Philippines, with specific rules for worldwide donations by Philippine citizens and resident aliens.

The purpose of donor's tax is to prevent the circumvention of estate taxes by transferring properties during one's lifetime without consideration. It ensures that inter vivos transfers (transfers during life) are taxed similarly to mortis causa transfers (transfers upon death). The Bureau of Internal Revenue (BIR) administers the collection and enforcement of this tax.

This article provides a comprehensive overview of donor's tax, including its legal basis, taxable base, rates, exemptions, computation methods, filing and payment deadlines, penalties for non-compliance, and related administrative procedures.

Legal Basis and Scope

Donor's tax is outlined in Title III, Chapter II of the NIRC (Sections 98 to 104). It applies to any transfer of real, personal, tangible, or intangible property by way of gift, whether in trust or otherwise, and regardless of whether the transfer is direct or indirect. Key elements include:

Gratuitous Intent: The transfer must be without adequate and full consideration in money or money's worth. If consideration exists but is inadequate, the excess value may still be subject to donor's tax.
Properties Covered: Includes real property (e.g., land, buildings), personal property (e.g., vehicles, jewelry), and intangible assets (e.g., stocks, bonds, intellectual property rights).
Taxpayers:
- Philippine citizens and resident aliens are taxed on worldwide donations.
- Non-resident aliens are taxed only on donations of property situated in the Philippines.
Exclusions from Scope: Sales, exchanges, or transfers for valuable consideration are subject to other taxes like capital gains tax or value-added tax (VAT), not donor's tax.

Under the TRAIN Law effective January 1, 2018, significant reforms simplified the donor's tax regime, shifting from a progressive rate system to a flat rate and introducing a higher exemption threshold.

Taxable Base: Gross Gifts and Net Gifts

The taxable base for donor's tax is the net gift, calculated as the fair market value (FMV) of the property donated minus any allowable deductions.

Gross Gifts: The total FMV of all properties donated during the calendar year. FMV is determined as follows:
- For real property: The higher of the zonal value (as per BIR) or the assessed value (as per local government).
- For shares of stock: Listed shares use the closing price on the donation date; unlisted shares use book value or adjusted net asset value.
- For other properties: Market value at the time of donation.
Deductions from Gross Gifts:
- Debts or encumbrances assumed by the donee (e.g., mortgage on donated property).
- Diminution in value agreed upon by donor and donee, if stipulated.
Net Gifts: Gross gifts minus deductions. Multiple donations in a year are aggregated to compute the net gift.

Special rules apply to donations between spouses, which are generally void under family law but may still trigger tax if deemed valid transfers.

Tax Rates

Prior to the TRAIN Law, donor's tax followed a progressive schedule based on the relationship between donor and donee (e.g., lower rates for close relatives). However, post-TRAIN reforms unified and simplified the rates:

Current Rate (Effective January 1, 2018): A flat rate of 6% on the total net gifts exceeding P250,000 in a calendar year.
- The first P250,000 of net gifts per calendar year is exempt from donor's tax.
- No distinction is made based on the donor-donee relationship (e.g., strangers vs. relatives); the flat 6% applies uniformly.
Historical Rates (Pre-2018): For reference, the old system had rates ranging from 2% to 15% for relatives and up to 30% for strangers, with exemptions varying by kinship.

The rate is applied per calendar year, not per donation. For example, if a donor makes multiple gifts totaling P300,000 in net value, tax is computed on P50,000 (P300,000 - P250,000 exemption) at 6%, resulting in P3,000 tax.

For non-resident aliens, the same 6% rate applies but only to Philippine-situs properties.

Exemptions and Non-Taxable Donations

Certain donations are fully exempt from donor's tax, regardless of value, to encourage philanthropy and support public welfare. Key exemptions include:

Annual Exemption Threshold: P250,000 per calendar year on net gifts, as mentioned.
Donations to Government Entities: Gifts to the Philippine government, its agencies, or political subdivisions for public purposes.
Donations to Accredited Institutions:
- Educational institutions (private non-profit schools, colleges, universities) for educational purposes.
- Religious, charitable, scientific, athletic, cultural, or social welfare organizations, provided no part of the net income inures to private individuals.
- Accredited non-government organizations (NGOs) under Revenue Regulation No. 13-98, as amended.
Political Contributions: Certified contributions to political parties or candidates during election periods, subject to Commission on Elections (COMELEC) rules.
Dowries and Gifts on Account of Marriage: Up to P10,000 per parent to legitimate, recognized natural, or adopted children, but only if made before or upon marriage celebration (pre-TRAIN exemption; confirm applicability post-reform).
Other Specific Exemptions:
- Transfers to social welfare, cultural, or charitable institutions where not more than 30% of the gift is used for administration.
- Gifts to international organizations or foreign governments under treaties.
- De minimis or nominal gifts not intended as donations (e.g., small promotional items).

To claim exemptions for accredited donees, the donor must secure a Certificate of Donation and ensure the donee is duly accredited by the Philippine Council for NGO Certification (PCNC) or relevant agencies. Failure to meet conditions may result in retroactive taxation.

Additionally, donations that qualify as deductible expenses for income tax purposes (e.g., charitable contributions) may still be subject to donor's tax unless specifically exempt.

Computation of Donor's Tax

The computation follows these steps:

Determine the FMV of each donated property.
Aggregate all gross gifts in the calendar year.
Subtract allowable deductions to arrive at net gifts.
Apply the P250,000 annual exemption.
Compute 6% on the excess.
If prior donations in the same year exist, subtract previously paid tax to avoid double taxation.

Example:

Donation 1: Property worth P200,000 (net) → Exempt (within P250,000).
Donation 2: Additional P150,000 (net) → Total net gifts = P350,000; Taxable amount = P100,000; Tax = P6,000.

For revocable or conditional donations, tax is imposed only upon perfection (irrevocability).

Filing and Payment Deadlines

Tax Return: BIR Form No. 1800 (Donor's Tax Return) must be filed by the donor or authorized representative.
Deadline: Within 30 days after the date of each donation. For multiple donations, separate returns may be required unless consolidated.
Place of Filing: With the Revenue District Office (RDO) having jurisdiction over the donor's residence or principal place of business. For non-residents, file with RDO 39 (South Quezon City) or the Philippine embassy/consulate.
Payment: Tax must be paid simultaneously with filing. Modes include bank payments via Electronic Filing and Payment System (eFPS), over-the-counter, or online platforms like eBIRForms.
Amended Returns: If errors are discovered, amended returns can be filed within three years, subject to audit.

Failure to file on time triggers penalties.

Penalties for Non-Compliance

Non-compliance with donor's tax obligations incurs:

Surcharge: 25% for late filing/payment; 50% for willful neglect or fraud.
Interest: 12% per annum (pre-2023 rate; updated to 6% under TRAIN, but confirm current BSP rates).
Compromise Penalty: Ranges from P200 to P50,000 depending on violation.
Criminal Penalties: For tax evasion, fines up to P100,000 and/or imprisonment up to 10 years.
Administrative Sanctions: Attachment of properties or liens.

The BIR may conduct audits within three years (or 10 years for fraud) from the filing deadline.

Administrative Procedures and Best Practices

Documentation: Retain deeds of donation, appraisals, receipts, and proofs of exemption for at least five years.
Registration: Donated real properties must be registered with the Registry of Deeds, and transfer taxes paid before title transfer.
Related Taxes: Donor's tax is separate from donee's potential income tax (if donation is deemed income) or local transfer taxes.
Planning Tips: To minimize tax, consider spreading donations over multiple years to maximize the P250,000 exemption or donating to exempt entities.
Recent Developments: Monitor BIR issuances for updates, such as Revenue Memorandum Circulars on valuation or e-filing enhancements.

Conclusion

Donor's tax plays a crucial role in the Philippine tax system by ensuring equitable taxation of wealth transfers. By understanding the rates, exemptions, and deadlines, donors can comply effectively while supporting charitable causes. For complex scenarios, consulting a tax professional or the BIR is advisable to ensure accurate application of the law.