Are Former Filipino Citizens Exempted From Paying Philippines Estate Taxes?

Question: My mom is a Filipino citizen, but she migrated to Canada five years ago. While in the Philippines, she bought a land. She died a few months ago, and my siblings and I are working for the transfer of the land to us.

We are currently waiting for the Certificate Authorizing Registration (CAR), but we are a bit confused about the requirements and the mix of information that we are receiving.

It was our understanding that we are exempted from paying an estate tax as long as we present receipts of expenses during our mother’s funeral.

However, the personnel processing the papers was asking us for a proof that our mother was a Filipino citizen when she died. Otherwise, we will still be charged with an estate tax.

We are confused because as far as we know, a natural-born Filipino citizen doesn’t lose his citizenship when he becomes a natural citizen of another country. That means my mother is still a Filipino citizen when she died. We hope you can clarify this issue for us. Thanks!

Answer: It is true that a Filipino citizen doesn’t lose his citizenship when he becomes a naturalized citizen of another country.

However, based on the facts that you have presented, it seems that the issue raised by Bureau of Internal Revenue (BIR) has something to do, not with the actual citizenship of your mother but, with her residence at the time of her death. This is in line with a provision of the National Internal Revenue Code (NIRC) of 1997 (RA 8424).

This tax code considers both the residence and citizenship of the deceased in determining any exemption in the estate tax. When your mother migrated to Canada five years ago, she remained a Filipino citizen but she had a transfer of residence. This will now be taken into consideration in the computation of the estate tax.

The BIR is asking for proof of citizenship and residence at the time of your mother’s death because this will be used to compute the estate tax and determine any exemption.

Section 86 (D) of the NIRC code presents the requirements needed when filing the tax returns of a deceased non-resident or foreigner. Here are some important notes to remember:

(1) There will be no exemption given unless the administrator or one of the heirs of the estate includes the value of any part of the estate that is not in the Philippines in the filing of the return. (Section 86 D)

(2) If the gross value of the estate exceeds P200,000 pesos or if the estate consists of registered or registrable property that will require clearance from BIR to be transferred (i.e. real property, stock shares, etc.), the administrator or one of the heirs should, under oath, file the return, which should include: (Section 90)

> The gross value of the estate at the time of the owner’s death (if owner is non-resident, then the value of the estate located in the Philippines)

> The allowed deduction as per determined in Section 86 (D)

> Other information needed to determine the correct amount of tax
All the information that will be supplied here will be used by BIR to determine the residence and citizenship of the deceased at the time of death.

(3) If the gross value of the estate tax is more than P2,000,000 pesos, the tax return filed should be accompanied with a statement from a duly certified public accountant. The statement should contain the following:

> Itemized assets of the deceased and their gross value (if non-resident, the part of the estate that is in the Philippines)

> Itemized deductions from the gross estate as determined in Section 86 (D)

> The amount of tax due, whether paid or outstanding

The best suggestion for you would be to get the services of a certified public accountant or a tax lawyer to be sure that you wouldn’t miss any detail that might be crucial in the filing of the return.

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