Your guide to paying inheritance tax in the Philippines
Did you recently inherit property or assets in the Philippines? If you’re unsure of what your responsibilities are when it comes to paying taxes and notifying the authorities then you’re in luck. This is a guide for residents, non-residents, and expats living abroad, to explain how inheritance tax works in the Philippines.
What’s inheritance tax in the Philippines?
Inheritance tax is a tax placed on estates or assets that are passed on via a will of a deceased or the law of succession. In the Philippines, the government refers to inheritance tax as ‘estate tax.’ This isn't a tax on a property. Rather it's a tax on the transmitting of the estate of the deceased upon death to the heir. Someone’s estate can include property, but it’s not limited to property, it also includes everything else of value that the deceased owned..
(Source 1, Source 2, 22 Dec 2017)
Who has to pay inheritance tax in the Philippines?
An Estate Tax return must be filed if the estate consists of registered property, vehicles, stock shares or anything that requires a clearance from the Philippines Bureau of Internal Revenue (BIR) and/or the gross value of the estate is more than ₱200,000.
(Source 22 Dec 2017)
Non-resident inheritance tax
Non-residents also need to file an Estate Tax return. If you're a non-resident heir but the executor of the will lives in the Philippines, then the Estate Tax return can be filed with an Authorized Agent Bank (AAB) of the specific Revenue District Office (RDO) where the executor lives. If there’s no executor in the Philippines, for instance when the deceased was not a resident of the Philippines, then the tax return should be filed under the jurisdiction of RDO No. 39 South Quezon City.
(Source 28 Dec 2017)
What types of inheritance taxes are there in the Philippines?
Ownership of the property in the Philippines
Philippine law identifies compulsory heirs who are entitled to parts of an estate. This may leave only a portion of the estate to be disposed of at will.
| Person | Reserve |
|---|---|
| Spouse | 25% if only one legitimate child; equal portion if more than one child |
| 1 legitimate child | 50% |
| 2 or more legitimate children | 50% split equally |
Let’s say that a person is survived by a spouse and 5 legitimate children. The children would each receive 10% of the estate (totalling 50%) and the spouse would receive an equal share of 10%, leaving 40% of the estate left to be disposed of at will.
If a property is owned by several parties, for instance by both spouses, then only the part that was owned by the deceased will be part of the estate.
In the absence of a will, this is the order of heirs, according to the Filipino laws of succession:
- Legitimate children
- Legitimate parents
- Illegitimate children
- Surviving spouse
- Brothers and sisters, nephews and nieces
- Other relatives
- Government
(Source 22 Dec 2017)
How is inheritance tax calculated?
Inheritance tax is calculated on the net value of the estate, otherwise known as the ‘gross estate.’ The gross estate refers to all property - real and personal, tangible and intangible. This is calculated using the Fair Market Value (FMV) at the time of the death. FMV is the price for which you could reasonably sell your estate to an interested buyer if you would be interested in selling it. If the deceased wasn’t living in the Philippines at the time of death and wasn’t a citizen of the Philippines, only the part of the gross estate that was situated in the Philippines is considered taxable. In the Philippines, inheritance tax calculations include interests or shares in a property, transfers in contemplation of death, life insurance proceeds, and revocable transfers.
(Source 1, Source 2, 22 Dec 2017)
How can I reduce the amount of inheritance tax I pay?
You can reduce the amount of inheritance tax paid by applying as many deductions on Estate Tax as possible. These deductions will help lower the total FMV of the estate, potentially putting you in a lower tax threshold. Find out if any of the following deductions could apply to the estate in question:
| Item | Explanation |
|---|---|
| Expenses, Losses, Indebtedness, and Taxes (ELIT) | Funeral expenses, claims against the estate, judicial expenses of intestate proceedings, claims of deceased against insolvent individuals, unpaid mortgages |
| Property previously taxed | May be referred to as a ‘vanishing deduction’ |
| Transfers for public use | The amount of all bequests, legacies, devises or transfers to or for the use of the Government of the Republic of the Philippines, or any political subdivision thereof, for exclusively public purposes |
| Family home | The lower number between the family home’s FMV or ₱1 million, and the family home must be certified by the barangay captain of the locality |
| Standard deduction | The amount of ₱1 million |
| Medical expenses | Medical expenses incurred by the deceased within a year prior to their death, which has to be substantiated with receipts, for a maximum deduction of ₱500,000 |
| Share in the conjugal property | As owned by the spouse or partner of the deceased |
| Amount received by heirs under RA 4917 | The retirement benefits private firm employees |
(Source 22 Dec 2017)
What are the inheritance tax thresholds in the Philippines for 2017-2018?
Here’s a table explaining how much Estate Tax you’ll need to pay, based on the estate’s value.
| Net Estate Value (PHP) | Tax amount (PHP) | Plus additional % | Of the excess over |
|---|---|---|---|
| Up to 200,000 | Exempt | Exempt | |
| 200,001 - 500,000 | 0 | 5% | 200,000 |
| 500,001 - 2,000,000 | 15,000 | 8% | 500,000 |
| 2,000,001 - 5,000,000 | 135,000 | 11% | 2,000,000 |
| 5,000,001 - 10,000,000 | 465,000 | 15% | 5,000,000 |
| 10,000,000+ | 1,215,000 | 20% | 10,000,000 |
(Source 22 Dec 2017)
Are there any inheritance tax allowances in the Philippines?
The government allows certain deductions which lower the FMV of your estate, ultimately lowering your tax threshold.
| Type of Deduction | Amount (PHP) |
|---|---|
| Standard deduction | 1,000,000 |
| Family home | 1,000,000 |
| Funeral expenses | 200,000 |
| Medical expenses one year prior to death | 500,000 |
(Source 22 Dec 2017)
Here’s an example of how your taxes would be calculated after the allowed deductions:
| FMV of Estate (PHP) | Deductions (PHP)1,000,000 (standard) + 200,000 (funeral) | Net Estate Value (PHP) | Tax Amount (PHP) | Plus additional 8%of the excess over PHP 500,000 | Total Taxes (PHP) |
|---|---|---|---|---|---|
| 1,800,000 | 1,200,000 | 600,000 | 15,000 | 100,000 X 0.08 = 8,000 | 23,000 |
What constitutes a “gift tax” in the Philippines?
A ‘gift tax’ is a tax placed on a donation or a gift. The Philippines refers to this tax as the ‘donor’s tax’ and it's imposed on the transfer of real, personal, tangible or intangible property between two or more people who are living at the time of the transfer when this is given as a gift, and no money exchanged hands. It differs from the inheritance tax or ‘estate tax’ because it’s given by someone who is still living. The gift tax applies whether the gift is direct or indirect.
(Source 22 Dec 2017)
Tax-free gift allowance
The annual tax-free donor allowance is anything with a value up to ₱100,000. This table outlines tax rates for gifts over this amount:
| Net Gift Amount (PHP) | Tax Amount (PHP) | Plus | Of the Excess Over (PHP) |
|---|---|---|---|
| 100,001 - 200,000 | 0 | 2% | 100,000 |
| 200,001 - 500,000 | 2,000 | 4% | 200,000 |
| 500,001 - 1,000,000 | 14,000 | 6% | 500,000 |
| 1,000,001 - 3,000,000 | 44,000 | 8% | 1,000,000 |
| 3,000,001 - 5,000,000 | 204,000 | 10% | 3,000,000 |
| 5,000,001 - 10,000,000 | 404,000 | 12% | 5,000,000 |
| 10,000,001 + | 1,004,000 | 15% | 10,000,000 |
Some donations are tax exempt from gift tax.
Donations made by residents, to:
- Children, from their parents on account of a marriage (up to ₱10,000)
- The government
- Educational, charitable, or religious organizations
Donations made by non-residents, to:
- The government
- Educational, charitable, or religious organisations
Every person - whether resident, citizen or non-resident - is required to file a donor tax return if they transfer a gift.
(Source 22 Dec 2017)
What are the inheritance tax exemptions in the Philippines?
Estates with a net value less than ₱200,000 are tax exempt. Additionally, the Philippines shares double tax agreements with 41 countries across the world. While these partnerships don’t qualify as exemptions per se, they can ensure that if you’re paying tax in your home country, you’re not double paying it in the Philippines, and vice versa. See the following chart for a list of countries with whom the Philippines has a double tax treaty:
| Country | Double tax treaty effective since... |
|---|---|
| Australia | 1980 |
| Austria | 1983 |
| Bahrain | 2004 |
| Bangladesh | 2004 |
| Belgium | 1981 |
| Brazil | 1992 |
| Canada | 1977 |
| China | 2002 |
| Czech Republic | 2004 |
| Denmark | 1998 |
| Finland | 1982 |
| France | 1978 |
| Germany | 2016 |
| Hungary | 1998 |
| India | 1995 |
| Indonesia | 1983 |
| Israel | 1997 |
| Italy | 1990 |
| Japan | 1981 |
| Korea (South) | 1987 |
| Kuwait | 2014 |
| Malaysia | 1985 |
| Netherlands | 1992 |
| New Zealand | 1981 |
| Nigeria | 2014 |
| Norway | 1998 |
| Pakistan | 1979 |
| Poland | 1998 |
| Qatar | 2016 |
| Romania | 1998 |
| Russia | 1998 |
| Singapore | 1977 |
| Spain | 1994 |
| Sweden | 2004 |
| Switzerland | 2002 |
| Thailand | 1983 |
| Turkey | 2017 |
| United Arab Emirates | 2009 |
| United Kingdom | 1979 |
| United States | 1983 |
| Vietnam | 2004 |
(Source 1, Source 2, 22 Dec 2017)
When do I have to pay inheritance tax?
You have to file an estate tax return whenever the gross value of the estate exceeds 200,000, or if the estate comprises registered or registrable property, such as real property, motor vehicles, or shares of stock.
You need to file and pay your estate tax within 6 months of the deceased’s death. In certain cases, extensions might be granted by the commissioner. If you can prove to the commissioner that payment by the due date would impose hardship on the estate or any heirs, your time could be extended for up to 5 years if the case is settled through courts, and up to 2 years if the case is handled extrajudicially. In general, though, late payments have a 25% initial penalty and accrue 20% annual interest on the amount. If fraud is involved, that amount leaps to 50%.
(Source 1, Source 2, Source 3, 28 Dec 2017)
How do I pay my inheritance taxes in the Philippines?
To file your Estate Tax in the Philippines you need to fill out the BIR tax return form 1801. You’ll also need several pieces of documentation. Visit the BIR website for the full list of what you need for your situation.
Paying inheritance taxes online
If you're filing online, the BIR offers an ePay system for online payments. The ePay system is linked with several local Filipino banks including Landbank, Globe GCash, and DBP. It also takes credit card and mobile payments. But this online system could prove troublesome if you’re a non-resident trying to make this payment from abroad. Plus, using your credit card to make an international payment might cause you to be charged additional fees. This is where Wise can help you.
Transferwise helps people worldwide make international payments using the real mid-market exchange rate - the same one you see on Google or XE, not a marked-up rate set by your bank. Wise makes local domestic money transfers, so money never crosses borders. This means you might be able to make your Estate Tax payment straight from a bank account in one of the authorized banks associated with the BIR ePay system.
If making international payments is a regular occurrence for you, you may want to consider opening a Wise borderless multi-currency account, which helps you move and manage money in 28 different currencies to over 50 countries (including the Philippines and the Philippine peso). And if you haven’t taken the time to open a bank account in Malaysia, you can still use Wise to transfer your money into the Malaysian bank account of a trusted friend or family member.
(Source 22 Dec 2017)
Inheritance laws and tax can be tricky to manage, no matter what country you’re in. But if you’re an expatriate, that means twice the tax laws and twice the legal nuances you have to understand. When you’re dealing with the Philippines, you may be in luck if you’re from a partner country under double taxation laws. It’s important to know what your options and duties are, because knowing the intricacies of the law can save you money, time, and frustration. In any case, when it comes to moving money overseas whether it's to pay fees or taxes owed, Wise is here to make your life easier.
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