One of the things the wealthy people in the Philippines still consider is estate planning. Since they have a lot of assets to disburse among the heirs upon their demise, the government levies certain taxes on the transfer. To mitigate some of the expenses, many choose to work with tax services Manila to take advantage of allowable deductions. However, at times, most consider this kind of planning a big taboo as some people believe that discussing death is akin to courting disaster and would bring bad luck.
Unfortunately, lack of preparations could result in squabbles against properties and failure to prepare the appropriate tax payments. In the recent times, due to the COVID-19 pandemic, the mortality rates in the Philippines have been increasing. Filipinos like you have to ensure that your family is protected in case the unexpected will happen. You have to do that to make sure you don’t give a hard time to your heir or your beneficiaries. You have to at least make sure you are able to minimize the amount of estate taxes your heir/beneficiary will need to pay.
Defining Estate Tax
The estate tax is a tax of a deceased person’s right to transmit his or her estate to his or her lawful heir/beneficiary at the time of his or her death. When the decedent dies, the succession will take place. At this time around, the State’s right to tax the privilege of transmitting the estate will rise automatically. According to tax and audit services in the Pasig, the Philippine Tax Code stipulates that whether or not the decedent is a resident in the Philippines, the imposed estate tax rate is 6 percent of the net value of the estate.
The gross estate of the decedent is composed of all the properties (real/personal, tangible/intangible) he or she owned. It includes the interest in the properties owned at the time of death such as the revocable transfers, transfers for insufficient consideration, transfers in contemplation of death, life insurance proceeds, and properties that have to pass under a general power of appointment.
In cases where the decedent was not a resident or a citizen of the Philippines, only a portion of the estate located in the Philippines will be included in the taxable estate with the exemption of the intangible personal property.
The Allowable Deductions
There are certain deductions allowed by the Philippine Tax Code to identify the net taxable estate of the decedent. According to tax and accounting services in the Philippines, the type and amount will depend on whether or not the decedent is a citizen or a resident of the Philippines.
How to File and Pay the Estate Tax
Filing an estate tax return is a requirement for all transfers that are subject to estate tax. The estate may consist of registered properties (share of stocks, motor vehicle, etc.) that require a Certificate Authorizing Registration to effectively transfer the properties to the legal heir/beneficiary. In case the gross estate exceeds ₱5,000,000, the estate tax return should be duly certified and have an attached supporting statement by a CPA.
The estate tax should be filed by an executor, administrator, or any legal heir/beneficiary within one year from the decedent’s death and be imposed once the return is filed. The request to extend the time to file, pay, and pay through installments should be approved by the Commissioner or the duly authorized representative in the RDO where the estate is required to secure TIN and file the estate tax return.
The imposed estate tax should generally be paid by the executor/administrator before the distributive share is delivered. Regardless of the number of executors/administrators, they are all liable to pay the tax. The executor or administrator has the obligation to pay the tax. The heir/beneficiary has a subsidiary liability to pay the portion of the estate and it should not exceed his or her share of the inheritance.
If all of these sound complicated for you, it is better to seek help from a CPA. We provide tax and accounting services in the Philippines. We can help you with estate planning so you can allocate your assets to your heirs. Conversely, we can also assist families settle any estate taxes on the properties left by their deceased loved ones. Let’s get the paperwork started and take advantage of our free 30-minute consultation.