Estate Tax Processing in the Philippines
A Comprehensive Legal Guide for Practitioners, Executors & Heirs
1. Introduction
Estate tax is a transfer tax imposed upon the privilege of transmitting a decedent’s property to his or her heirs or beneficiaries. In the Philippines it is administered by the Bureau of Internal Revenue (BIR) and governed primarily by the National Internal Revenue Code of 1997 (NIRC), as amended. This article distills all material rules, procedures, rates, deadlines, reliefs and recent reforms that matter to anyone involved in settling an estate today.
2. Statutory & Regulatory Framework
| Source | Key Provisions |
|---|---|
| NIRC of 1997, Title III (Estate & Donor’s Taxes) | §§ 84‑97 define tax base, rates, deductions, due dates, extensions, penalties |
| Republic Act (RA) 10963 – “TRAIN” Law (2018) | Flattened estate‑tax rate to 6 %; introduced higher deductions |
| Revenue Regulations (RR) 12‑2018 & 17‑2021 | Implement TRAIN changes; procedural forms; electronic CAR |
| RA 11213 (Estate‑Tax Amnesty Act) & RA 11569 (2021 extension) | One‑time 6 % amnesty on estates of decedents who died on or before 31 Dec 2017 |
| Revenue Memorandum Orders (RMO) 15‑2003, 24‑2019, 31‑2021 | Documentary checklists; eCAR generation; payment channels |
| Supreme Court & CTA jurisprudence | E.g., Juan v. BIR (G.R. No. 220588, 2020) clarifying valuation date; BPI v. BIR (G.R. No. 178490, 2016) on reciprocity for bank deposits |
3. Computing the Net Estate
Determine Gross Estate (Sec. 85 NIRC)
- Real property (fair market value or zonal value, whichever higher)
- Tangible & intangible personal property (shares at book or par; listed shares at closing price; bank deposits; vehicles, etc.)
- Proceeds of life insurance if payable to estate, executor, or administrator
Less: Allowed Deductions (Sec. 86)
Deduction TRAIN‑adjusted cap Standard deduction ₱ 5 million (automatic; no substantiation) Family home Up to ₱ 10 million FMV Funeral expenses Actual, but ≤ 5 % of gross estate and ≤ ₱ 200 000 Medical expenses (incurred within 1 year before death) ≤ ₱ 500 000 Claims against the estate Valid personal obligations of decedent, duly notarised or supported Claims against insolvent persons & mortgages As proved Unpaid property taxes Accrued before death Vanishing deduction For property received within 5 years subject to donor/estate tax Transfers for public use To government/charitable institutions Share of surviving spouse Net share computed under conjugal/absolute community rules Net Estate = Gross Estate − Deductions − Surviving‑spouse share
4. Tax Rate & Illustration
- Flat rate: 6 % of the net estate (TRAIN, effective for deaths on or after 1 Jan 2018).
- Historical graduated rates (pre‑TRAIN) ranged 5–20 %. These still apply when assessing estates of decedents who died before 1 Jan 2018 (unless covered by the amnesty).
Example:
Gross estate ₱ 25 000 000 Less deductions ₱ 8 000 000 Net estate ₱ 17 000 000 Estate tax = ₱ 17 000 000 × 6 % = ₱ 1 020 000
5. Who Must File & When
| Parameter | Rule |
|---|---|
| Return (BIR Form 1801) | Filed by executor, administrator, or any legal heir |
| Deadline | Within 1 year from date of death (Sec. 90) |
| Venue | Revenue District Office (RDO) where decedent was domiciled; if non‑resident, where executor is resident or at RDO #39 Manila |
| Mandatory electronic filing | Estates > ₱ 5 million or with VAT/percentage‑tax liabilities must use eFPS; others may use eBIRForms |
6. Documentary Requirements (Core Set)
- Certified true copy of Death Certificate
- TIN of decedent and all heirs/beneficiaries
- Deed of Extra‑Judicial Settlement or Court‑issued Letters Testamentary / Letters of Administration
- Schedule of Properties & Values (estate inventory)
- Tax declarations & BIR zonal‑value certifications for realty; Certificate of No Improvement, if vacant land
- Original stock certificates / bank certificates for deposits
- CPA‑certified Statement of Asset & Liabilities when gross estate > ₱ 10 million
- Proof of deductions (receipts, official receipts for medical/funeral, notarised debt instruments, etc.)
Tip: Use the “Estate Tax Checklist” in RMO 15‑2003 to avoid processing delays.
7. Paying the Estate Tax
| Topic | Key Points |
|---|---|
| Due at filing | Entire tax due must be paid within the 1‑year period, unless extension is granted |
| Installment payment | BIR may allow staggered payment (≤ 2 years) secured by bond/guarantee (Sec. 91) |
| Extension of time to pay | Up to 5 years (judicially‑settled) or 2 years (extrajudicially‑settled) when “undue hardship” shown |
| Payment channels | AAB (authorised agent banks), eFPS, PESONet/instaPay via landbank linkBiz, GCash/PayMaya for ≤ ₱ 50 000 |
| Interest & surcharge | 25 % surcharge + 12 % p.a. interest (or prevailing legal rate) on unpaid tax after due date |
8. Certificate Authorizing Registration (CAR)
The BIR issues a CAR per property class after verifying payment. No transfer of title, shares, or vehicle registration can proceed in the Registry of Deeds, corporate books, or LTO without it. Since 2021, CARs are generated electronically (eCAR system) and printed on security paper bearing a QR code for authenticity. Processing target: 5 working days from submission of complete documents.
9. Estate‑Tax Amnesty (RA 11213 & RA 11569)
| Feature | Details |
|---|---|
| Coverage | Estates of decedents who died on or before 31 Dec 2017, with or without previously issued assessments |
| Rate | 6 % of decedent’s net estate or 6 % of undeclared FMV per property, whichever chosen by heirs |
| Minimum payment | ₱ 5 000 per estate |
| Deadline | Final availment deadline: 14 June 2025 (after two extensions) |
| Effect | Immunity from all penalties, surcharges & interest; issuance of CAR |
| Procedure | File BIR Form 2118‑E, pay in full; submit minimal documents (death certificate, SPA/extrajudicial deed, list of properties) |
10. Estate Settlement Modes
Judicial Settlement – Probate proceedings when:
- There is a will; or
- Heirs dispute shares; or
- Minor heirs or debts exceeding assets.
Extra‑Judicial Settlement (EJS) – Allowed if:
- Decedent left no will and no outstanding debts; and
- All heirs are of legal age (or minors represented).
- Documented via “Deed of EJS with Waiver/Adjudication”; must be published in a newspaper once a week for 3 weeks (Rule 74, ROC).
11. Cross‑Border & Special Issues
- Reciprocity Rule (Sec. 104): Intangible personal property (e.g., shares, deposits) of a non‑resident alien is exempt if the foreign country likewise exempts Philippine citizens.
- Foreign Tax Credits: Allowed to prevent double taxation when foreign estate duties are paid, subject to Sec. 86 (C).
- Non‑Resident Estates: Executor may appoint a Philippine Resident Agent for service of process; return is filed at RDO #39.
12. Recent & Emerging Developments
- Ease of Paying Taxes Act (RA 11976, 2024): mandates fully digital filing and payment platforms; implementing rules on estate tax expected by 2025.
- Proposed Estate‑Tax Amnesty Extension Bill (SB 2219/HB 10413): seeks to push deadline to 2027 and include decedents up to 31 Dec 2021—pending in bicameral conference.
- eCAR API integration with LRA & SEC (pilot 2025): once live, title transfer and share‑ledger updates will be end‑to‑end paperless.
13. Common Pitfalls & Practitioner Tips
| Pitfall | How to Avoid |
|---|---|
| Undervaluation of property leading to deficiency assessments | Use higher of FMV in zonal valuation or assessor’s schedule; attach both certifications |
| Missed deductions (e.g., vanishing deduction, medical expenses) | Prepare timeline of prior transfers; secure supporting receipts and sworn statements early |
| Late filing due to unsettled disputes among heirs | File a provisional return within 1 year, pay tentative tax to stop penalties, then amend later |
| Unpaid real‑property tax blocking CAR issuance | Obtain updated tax clearances from LGU before BIR filing |
| Forgotten bank accounts or foreign shares | Check decedent’s BIR “Alpha List”, bank statements, FATCA/CRS reports; disclose voluntarily |
14. Conclusion
Philippine estate‑tax processing has become simpler—chiefly because of the flat 6 % rate, larger deductions, electronic CARs and the ongoing amnesty. Yet technical traps remain: valuation disputes, documentary gaps, and strict statutory deadlines can derail settlements. By following the step‑by‑step guidance above—grounded in the NIRC, TRAIN Law, implementing regulations and current BIR practice—executors, heirs, and practitioners can navigate compliance confidently and preserve family wealth.
15. Annexes
A. Quick‑Reference Deduction Table B. Standard Documentary Checklist (adapted from RMO 15‑2003) C. Sample Estate‑Tax Computation Worksheet
(Annex templates available upon request.)