Estate Tax Requirements and Documentary Checklist in the Philippines

Introduction

In the Philippines, estate tax is a crucial aspect of succession law, governed primarily by the National Internal Revenue Code (NIRC) of 1997, as amended by Republic Act No. 10963, also known as the Tax Reform for Acceleration and Inclusion (TRAIN) Law, and further refined by subsequent revenue regulations. This tax is imposed on the privilege of transmitting the estate of a deceased person to their heirs or beneficiaries. It is not a tax on the property itself but on the transfer of such property upon death. Understanding the requirements for estate tax computation, filing, and payment is essential for executors, administrators, heirs, and legal practitioners to ensure compliance and avoid penalties.

The estate tax regime applies to all decedents who are Philippine citizens or residents at the time of death, covering their worldwide estate, as well as to non-resident aliens for properties situated in the Philippines. The current framework emphasizes a simplified approach with a flat tax rate, generous deductions, and streamlined procedures to facilitate settlement of estates. This article provides a comprehensive overview of the estate tax requirements, including computation, exemptions, deductions, filing procedures, penalties for non-compliance, and a detailed documentary checklist.

Legal Basis and Scope

The estate tax is provided under Sections 84 to 97 of the NIRC. Key amendments include:

Republic Act No. 10963 (TRAIN Law, 2017): Introduced a flat 6% tax rate on the net estate, replaced the previous progressive rates (ranging from 5% to 20%), increased the standard deduction to PHP 5 million, and extended the family home deduction to PHP 10 million.
Republic Act No. 11534 (CREATE Law, 2021): Further refined tax incentives but did not directly alter estate tax provisions.
Revenue Regulations (RR) No. 12-2018: Issued by the Bureau of Internal Revenue (BIR) to implement the TRAIN Law's estate tax changes, including guidelines on valuation, deductions, and filing.

The tax covers the gross estate, which includes all real, personal, tangible, and intangible properties owned by the decedent at the time of death. For Filipino citizens and residents, this encompasses properties worldwide. For non-resident aliens, only Philippine-situs properties are taxable, subject to reciprocity rules if the foreign country grants similar exemptions to Filipinos.

Who is Liable for Estate Tax?

The primary liability falls on the estate itself, but the following persons are responsible for filing and payment:

Executor or Administrator: If appointed by the court or will.
Heirs or Beneficiaries: Jointly and severally liable if no executor/administrator is appointed, or if the estate is settled extrajudicially.
Transferees or Trustees: In cases involving trusts or conditional transfers.

In practice, the BIR requires the filing even if the net estate is zero or negative, to confirm no tax is due. Estates below certain thresholds may qualify for administrative settlements without full judicial proceedings, but tax compliance remains mandatory.

Computation of Estate Tax

The estate tax is computed as follows:

Determine the Gross Estate:
- Includes real properties (land, buildings), personal properties (vehicles, jewelry), investments (stocks, bonds), bank accounts, intellectual property, and other assets.
- Valuation: At fair market value (FMV) at the time of death. For real property, use the higher of zonal value (per BIR) or assessed value (per local government). For shares, listed stocks use the average of high and low prices on the nearest trading day; unlisted use book value or appraisal.
- Special inclusions: Proceeds from life insurance (if decedent is the insured and beneficiary is the estate/heirs), transfers in contemplation of death, revocable transfers, and property under general power of appointment.
Subtract Allowable Deductions to Arrive at Net Estate:
- Standard Deduction: PHP 5 million (no substantiation required).
- Claims Against the Estate: Debts, obligations, and unpaid mortgages, provided they are notarized or supported by evidence.
- Claims of the Deceased Against Insolvent Persons: If uncollectible.
- Taxes: Unpaid taxes accruing before death (except income tax for the year of death).
- Losses, Indebtedness, and Taxes (LIT): Casualty losses not compensated by insurance, incurred after death but before filing.
- Family Home Deduction: Up to PHP 10 million, if certified as such and occupied by the decedent's family.
- Medical Expenses: Up to PHP 500,000, incurred within one year before death and substantiated.
- Vanishing Deduction: For properties previously taxed (e.g., inherited within five years), graduated from 100% (if within one year) to 20% (if within five years).
- Transfers for Public Use: Bequests to government or charitable institutions.
- Retirement Benefits: Exempt if under RA 4917 or similar laws.
- For non-resident aliens: Proportionate deductions based on Philippine gross estate over worldwide gross estate.
Apply Exemptions:
- No estate tax if net estate is PHP 5 million or less (due to standard deduction).
- Exempt properties: GSIS/SSS benefits, war damage payments, US Veterans benefits, and certain bequests.
Apply Tax Rate:
- Flat rate of 6% on the net estate (no minimum threshold beyond deductions).
Subtract Credits:
- Foreign estate taxes paid (for citizens/residents on foreign properties).
- Estate tax paid on prior transfers (vanishing deduction already covers this).

Example: If gross estate is PHP 20 million, deductions total PHP 8 million (including standard PHP 5 million), net estate is PHP 12 million. Tax due: PHP 720,000 (6% of PHP 12 million).

Filing and Payment Requirements

Form: BIR Form 1801 (Estate Tax Return).
Deadline: Within one year from the date of death (extended from six months under TRAIN Law). Extensions may be granted for reasonable cause, up to 30 days for filing and five years for payment in installments if estate exceeds PHP 2 million and lacks sufficient cash.
Where to File: Revenue District Office (RDO) where the decedent was domiciled, or if non-resident, RDO 39 (South Quezon City).
Payment: Full payment upon filing, unless installment plan approved (up to five years, with interest). Accepts cash, check, or electronic payment via BIR systems.
Amnesty and Settlement: Under RR 6-2019, estate tax amnesty was available until June 2023 for unpaid taxes on deaths before December 31, 2017, with reduced rates and no penalties.
Extrajudicial Settlement: Possible if no will, no debts, and heirs agree; must publish notice and file bond if minors involved. Tax clearance required before property transfer.

Penalties for Non-Compliance

Late Filing/Payment: 25% surcharge, plus 12% interest per annum.
Deficiency Tax: 50% surcharge if willful neglect or fraud.
Criminal Penalties: Fines up to PHP 100,000 and/or imprisonment for evasion.
Compromise: BIR may settle for less in cases of reasonable doubt.
No Clearance, No Transfer: Certificate Authorizing Registration (CAR) required for property transfers; eCAR system digitizes this.

Special Considerations

Conjugal Property: Under the Family Code, absolute community or conjugal partnership regimes affect estate division. Spouse's share is deducted before tax.
Trusts and Donations: Inter vivos donations may reduce estate but attract donor's tax (6% flat rate).
Non-Resident Aliens: Reciprocity clause exempts intangibles if home country reciprocates.
Judicial vs. Extrajudicial Settlement: Judicial required if will exists or disputes; tax filing independent.
COVID-19 Extensions: Temporary extensions granted during pandemic under BAYANIHAN Acts.
Digital Assets: Cryptocurrencies, online accounts treated as intangible personal property; valuation challenges.
Agricultural Lands: Special valuation under CARP (Comprehensive Agrarian Reform Program) if applicable.

Documentary Checklist

To file BIR Form 1801 and obtain CAR, submit the following documents (originals and photocopies; certified true copies where required). Requirements may vary by RDO, so verify with BIR.

Basic Documents

Death Certificate (issued by PSA/NSO).
TIN of decedent and heirs/beneficiaries.
Executor's/Administrator's TIN and appointment letter (if applicable).
Duly notarized Extrajudicial Settlement of Estate (if no will) or Last Will and Testament (if probated).
Court order for judicial settlement (if applicable).
Affidavit of Self-Adjudication (if sole heir).
Waiver of rights (if any heir waives share).

For Real Properties

Certified True Copy of Title (TCT/OCT) from Registry of Deeds.
Tax Declaration from Assessor's Office.
BIR Zonal Valuation Certificate.
Real Property Tax receipts (latest).
Deed of Sale/Transfer (if acquired by decedent).
Appraisal report (if disputed value).

For Personal Properties

Bank certificates/deposit books with balances as of death.
Stock certificates or broker's confirmation for shares.
Vehicle registration certificates (OR/CR) from LTO.
Appraisal for jewelry, artworks, antiques.
Insurance policies and proceeds statements.

For Deductions and Claims

Notarized promissory notes/mortgage deeds for debts.
Court judgments or receipts for claims against estate.
Medical bills/receipts (for medical expense deduction).
Certificate of family home from barangay captain.
Receipts for funeral expenses (though capped indirectly via deductions).
Foreign tax receipts (for credits).

Post-Filing Documents

Notice of Death (filed within two months if gross estate > PHP 20,000).
Accountant's report (if estate > PHP 2 million).
Bond (for installment payments or provisional transfers).

Submit documents in folders, labeled, and with a table of contents. BIR may require additional items based on case specifics. Electronic filing via eBIRForms is encouraged for efficiency.

Conclusion

Compliance with estate tax requirements in the Philippines ensures orderly succession and avoids legal complications. With the simplified 6% rate and generous deductions, the burden has lessened, but meticulous documentation and timely filing remain critical. Heirs should consult tax professionals or lawyers specializing in estate planning to navigate complexities, especially in cross-border or disputed estates. Proper planning, such as through trusts or donations, can minimize tax liability while respecting the decedent's wishes.

Estate Tax Requirements and Documentary Checklist (Philippines)