Estate Tax Requirements and Deadlines in the Philippines

Introduction

In the Philippines, estate tax is a levy imposed by the government on the privilege of transferring the property of a deceased person to their heirs or beneficiaries. This tax is governed primarily by the National Internal Revenue Code of 1997 (Republic Act No. 8424), as amended by the Tax Reform for Acceleration and Inclusion (TRAIN) Law (Republic Act No. 10963), effective January 1, 2018, and further refined by subsequent revenue regulations issued by the Bureau of Internal Revenue (BIR). The estate tax applies to the net estate of every decedent, whether a resident citizen, non-resident citizen, resident alien, or non-resident alien, but with variations in the scope of taxable property based on residency status.

The primary objective of the estate tax is to generate revenue for the state while ensuring an equitable distribution of the tax burden. Unlike donor's tax, which applies to inter vivos transfers, estate tax pertains exclusively to mortis causa transmissions. This article provides a comprehensive overview of the requirements for computing, filing, and paying estate tax, including applicable deadlines, deductions, exemptions, and penalties for non-compliance, all within the Philippine legal framework.

Scope and Applicability

Estate tax is imposed on the transfer of the decedent's estate at the time of death. The taxable estate includes all properties, rights, and interests owned by the decedent at the moment of death, wherever situated, for resident decedents. For non-resident aliens, only properties situated in the Philippines are subject to tax.

Key inclusions in the gross estate:

Real property (e.g., land, buildings) at fair market value (FMV) as determined by the BIR or local assessor's office, whichever is higher.
Tangible personal property (e.g., vehicles, jewelry).
Intangible personal property (e.g., shares of stock, bank deposits, intellectual property rights).
Proceeds from life insurance policies where the decedent retained incidents of ownership.
Transfers in contemplation of death, revocable transfers, or properties passing under a general power of appointment.
Retirement benefits, pensions, or annuities accruing upon death.

Exclusions from the gross estate:

Separate property of the surviving spouse under the absolute community or conjugal partnership regime.
Properties already taxed under prior transfers (e.g., if donor's tax was paid).
Benefits from the Government Service Insurance System (GSIS), Social Security System (SSS), or similar exempt institutions.

Computation of Estate Tax

The estate tax is computed based on the net estate, which is the gross estate minus allowable deductions. Under the TRAIN Law, the tax rate is a flat 6% on the entire net estate, eliminating the previous graduated rates ranging from 5% to 20%.

Steps in Computation:

Determine the Gross Estate: Sum the FMV of all includible properties.
Subtract Allowable Deductions to arrive at the Net Estate:
- Standard Deduction: A fixed amount of PHP 5,000,000 for all estates.
- Claims Against the Estate: Valid debts, obligations, and unpaid mortgages of the decedent, provided they were contracted in good faith and for adequate consideration.
- Claims Against Insolvent Persons: Amounts due from insolvents included in the gross estate.
- Unpaid Taxes: Taxes accruing before death (except estate tax itself).
- Losses, Indebtedness, and Taxes (LIT): Casualty losses not compensated by insurance, incurred after death but before filing.
- Property Previously Taxed (Vanishing Deduction): A deduction for properties transferred to the decedent within five years prior to death, on which estate or donor's tax was paid. The rate diminishes over time: 100% if within one year, 80% within two years, and so on, down to 20% within five years.
- Transfers for Public Use: Bequests or devises to the government or charitable institutions, exclusively for public purposes.
- Family Home Deduction: Up to PHP 10,000,000 for the FMV of the decedent's family home, certified as such by the barangay captain.
- Medical Expenses: Actual expenses incurred within one year prior to death, up to PHP 500,000, substantiated by receipts.
- Retirement Benefits: Exempt if from GSIS, SSS, or accredited private plans.
- For non-resident aliens: Deductions are prorated based on the ratio of Philippine gross estate to the total gross estate worldwide, except for vanishing deduction and transfers for public use, which are fully allowed if applicable to Philippine properties.
Apply the Tax Rate: 6% of the Net Estate.
Subtract Tax Credits: If applicable, credits for estate taxes paid to foreign countries on foreign-sited properties (for residents), limited to the Philippine tax attributable to such properties.

Example: If the gross estate is PHP 20,000,000, with deductions totaling PHP 8,000,000 (including the standard PHP 5,000,000), the net estate is PHP 12,000,000. Estate tax due: PHP 12,000,000 × 6% = PHP 720,000.

Requirements for Filing and Payment

Who Must File?

The executor, administrator, or any heir/beneficiary with possession of the estate must file the estate tax return (BIR Form 1801). If there is no executor or administrator, the heirs are jointly liable. For judicial settlements, the court-appointed administrator files; for extrajudicial settlements, any heir may file.

Documentary Requirements:

Certified true copy of the Death Certificate.
Taxpayer Identification Number (TIN) of the decedent and heirs.
Certified true copy of the Certificate of Registration of properties (e.g., titles for real property).
Deed of Extrajudicial Settlement or court-approved Will.
Sworn statement of the relationship of heirs to the decedent.
Proof of claimed deductions (e.g., receipts for medical expenses, loan documents for debts).
Certificate of barangay captain for family home deduction.
For shares of stock: Stock certificates, latest audited financial statements, or stock exchange quotations.
Appraisal reports for real property if FMV disputes arise.
Notice of Death, if required (see below).
Payment of tax via BIR-accredited banks or online platforms.

For estates exceeding PHP 200,000, the return must be filed electronically via the BIR's eBIRForms or EFPS systems. Certified Public Accountant (CPA) certification is required if the gross estate exceeds PHP 5,000,000.

Notice of Death

A Notice of Death must be filed with the Revenue District Office (RDO) where the decedent was registered or resided, within two months from the date of death, if the gross estate exceeds PHP 20,000. However, under current practice post-TRAIN, this is often integrated into the estate tax filing process, but compliance is still mandatory to avoid penalties.

Deadlines

Filing of Notice of Death: Within two (2) months from the date of death.
Filing of Estate Tax Return: Within one (1) year from the date of death. This was extended from six months under the TRAIN Law to provide more time for estate settlement.
Payment of Estate Tax: Simultaneous with filing, unless an extension is granted.
Extensions: The BIR Commissioner may extend the filing and payment period for up to five (5) years in judicial settlements or thirty (30) days in extrajudicial cases, upon written request showing reasonable cause (e.g., complexity of estate). Installment payments may be allowed if the estate lacks liquidity, subject to interest and a surety bond.
Amended Returns: If errors are discovered, amended returns can be filed within three (3) years from the original filing, provided no BIR assessment has been issued.

Failure to meet deadlines triggers automatic interest, surcharges, and penalties.

Penalties for Non-Compliance

Surcharge: 25% for late filing/payment, or 50% if willful neglect or fraud.
Interest: 12% per annum (reduced from 20% under TRAIN) on the unpaid amount from the due date until full payment.
Compromise Penalties: For deficiencies, ranging from PHP 1,000 to PHP 50,000 depending on the violation.
Criminal Penalties: For tax evasion, imprisonment from two (2) to six (6) years and fines from PHP 50,000 to PHP 100,000, or both.
Administrative Sanctions: Revocation of tax clearances, liens on properties, or distraint of assets.

The BIR may issue a deficiency assessment within three (3) years from filing (or five (5) years if fraud), extendable to ten (10) years in cases of substantial underdeclaration.

Special Considerations

Extrajudicial vs. Judicial Settlement: Extrajudicial settlements require publication in a newspaper once a week for three weeks and a bond equivalent to the tax. Judicial settlements involve probate court proceedings, which may delay tax filing.
Community Property Regime: Under the Family Code, the estate is divided based on the marital property regime (absolute community, conjugal partnership, or separation of property), affecting deductions.
Non-Resident Decedents: Reciprocity rule applies for non-resident aliens from countries granting similar exemptions to Filipinos; otherwise, intangibles may be taxed.
Tax Amnesty and Relief: Periodic amnesties (e.g., under RA 11213, Tax Amnesty Act) may forgive penalties for unsettled estates, but as of current law, estates must comply with ongoing requirements.
Electronic Filing and Payment: Mandatory for large estates; the BIR's eTax system facilitates this.
Appeals: Disputes can be appealed to the Court of Tax Appeals within thirty (30) days from BIR decision.

Conclusion

Compliance with estate tax requirements in the Philippines is essential to avoid hefty penalties and ensure smooth transfer of inheritance. Executors and heirs should consult with tax professionals or lawyers specializing in estate planning to navigate complexities, such as valuation disputes or international assets. Proper documentation and timely adherence to deadlines facilitate efficient estate administration, aligning with the government's fiscal policies while protecting heirs' rights. For the most accurate application, reference the latest BIR revenue regulations and rulings, as tax laws may evolve through legislative amendments.