Settling the Estate Tax of a Deceased Stockholder

Published — June 1, 2022

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

The transfer of the deceased stockholder’s shares and issuance of new stock certificates to his or her heirs may be done judicially (through court proceedings) or extra-judicially (out-of-court settlement). However, prior to the transfer of such shares of stocks in favor of his or her heirs or any transferee, the estate shall first pay the estate tax due.

Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition. It is not a tax on property. It is a tax imposed on the privilege of transmitting property upon the death of the owner.

Upon the death of the decedent, succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death. The estate taxation is governed by the statute in force at the time of death of the decedent. Accordingly,the net estate of deceased who died on January 1, 2018 to present shall be subject to an estate tax at the rate of six percent (6%) following The Tax Reform for Acceleration and Inclusion (TRAIN) Act.

The gross estate of a decedent, who is a resident and citizen of the Philippines, shall be comprised of all the properties, real or personal, tangible or intangible, wherever situated. For non-resident aliens, his gross estate comprises only of properties situated in the Philippines provided, that, with respect to intangible personal property, its inclusion in the gross estate is subject to the rule of reciprocity.

Based on Revenue Regulations No. 12-18, the valuation of the deceased’s gross estate shall be valued according to their fair market value as of the time of his death. For his shares of stocks, the fair market value shall depend on whether the shares are listed or unlisted in the stock exchanges. Unlisted common shares are valued based on their book value while unlisted preferred shares are valued at par value. In determining the book value of common shares, appraisal surplus shall not be considered as well as the value assigned to preferred shares, if there are any. For shares which are listed in the stock exchanges, the fair market value shall be the arithmetic mean between the highest and lowest quotation at a date nearest the date of death, if none is available on the date of death itself.

Estate Tax Return

A Certificate Authorizing Registration (CAR) from the Bureau of Internal Revenue (BIR) shall be required as a condition precedent for the transfer of ownership of the shares of stocks in favor of deceased’s heirs. As a prerequisite for the issuance of the CAR, the executor or administrator must file an estate tax return under oath.

Estate tax returns showing a gross value exceeding Five million pesos (P5,000,000) shall be supported with a statement duly certified to by a Certified Public Accountant containing the following:

Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case of a nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the Philippines;
Itemized deductions from gross estate; and
The amount of tax due whether paid or still due and outstanding.

Documentary Requirements

Mandatory Requirements [additional two (2) photocopies of each document]:

Certified true copy of the Death Certificate;
Taxpayer Identification Number (TIN) of decedent and heir/s;
Notice of Death (only for death prior to January 1, 2018) duly received by the BIR, if gross taxable estate exceeds P20,000 for deaths occurring on January 1, 1998 up to December 31, 2017; or if the gross taxable estate exceeds P3,000 for deaths occurring prior to January 1, 1998;
Any of the following: a) Affidavit of Self Adjudication; b) Deed of Extra-Judicial Settlement of the Estate, if the estate has been settled extra-judicially; c) Court order if settled judicially; d) Sworn Declaration of all properties of the Estate;
A certified copy of the schedule of partition and the order of the court approving the same within thirty (30) days after the promulgation of such order, in case of judicial settlement;
Proof of Claimed Tax Credit, if applicable;
Certified Public Accountant (CPA) Statement on the itemized assets of the decedent, itemized deductions from gross estate and the amount due if the gross value of the estate exceeds five million pesos (Php5,000,000.00) for decedent’s death on or after January 1, 2018 or two million pesos (Php2,000,000.00) for decedent’s death from January 1, 1998 to December 31, 2017;
Certification of the Barangay Captain for the claimed Family Home (If the family home is conjugal property and does not exceed Php10 Million, the allowable deduction is one-half (1/2) of the amount only);
Duly Notarized Promissory Note for “Claims Against the Estate” arising from Contract of Loan;
Accounting of the proceeds of loan contracted within three (3) years prior to death of the decedent;
Proof of the claimed “Property Previously Taxed”;
Proof of the claimed “Transfer for Public Use”;
Copy of Tax Debit Memo used as payment, if applicable;

For Shares of Stock [additional two (2) photocopies of each document]:

Proof of valuation of shares of stock at the time of death, if applicable;
1. For shares of stocks not listed/not traded – Latest Audited Financial Statement of the issuing corporation with computation of the book value per share
2. For shares of stocks listed/traded – Price index from the Philippine Stock Exchange (PSE) /latest Fair Market Value (FMV) published in the newspaper at the time of transaction
3. For club shares – Price published in newspapers on the transaction date or nearest to the transaction date
Photocopy of Certificate of stocks, if applicable;

Other Additional Requirements, if applicable:

Special Power of Attorney (SPA), if the person transacting/processing the transfer is not a party to the transaction and/or Sworn Statement if one of the heirs is designated as executor/administrator;
Certification from the Philippine Consulate if document is executed abroad
Location Plan/Vicinity map issued by the Local Assessor’s Office if zonal value cannot be readily determined from the documents submitted
Certificate of Exemption/BIR Ruling issued by the Commissioner of Internal Revenue or his authorized representative, if tax exempt
BIR-approved request for installment payment of Estate tax due
BIR-approved request for partial disposition of Estate
Such other documents as may be required by law/rulings/regulations/etc.

Who Shall File

The Estate Tax Return (BIR Form 1801) shall be filed in triplicate by the executor, or administrator, or any of the legal heir/s of the decedent, whether resident or non-resident of the Philippines.

When and Where to File and Pay

The Estate Tax Return (BIR Form 1801) shall be filed within one (1) year from the decedent’s death. In meritorious cases, the Commissioner shall have the authority to grant a reasonable extension not exceeding thirty (30) days for filing the return.

The return shall be filed with any Authorized Agent Bank (AAB) of the Revenue District Office (RDO) having jurisdiction over the place of domicile of the decedent at the time of his death. If the decedent has no legal residence in the Philippines, the return shall be filed with the Office of the Commissioner (RDO No. 39, South Quezon City).

In case of a non-resident decedent with executor or administrator in the Philippines, the return shall be filed with the AAB of the RDO where such executor/administrator is registered or is domiciled, if not yet registered with the BIR.

When the return is filed with an AAB, taxpayer must accomplish and submit BIR-prescribed deposit slip, which the bank teller shall machine validate as evidence that payment was received by the AAB. The AAB receiving the tax return shall stamp mark the word “Received’’ on the return and also machine validate the return as proof of filing the return and payment of the tax by the taxpayer, respectively. The machine validation shall reflect the date of payment, amount paid and transaction code, the name of the bank, branch code, teller’s code and teller’s initial. Bank debit memo number and date should be indicated in the return for taxpayers paying under the bank debit system.

Payments may also be made thru the epayment channels of AABs thru their online facility, credit/debit/prepaid cards, and mobile payments.

In case the available cash of the estate is insufficient to pay the total estate tax due, payment by installment shall be allowed within two (2) years from the statutory date for its payment without civil penalty and interest upon approved by the concerned BIR Official.

The due date on filing and payment of the return or tax shall depend on the applicable law at the time of the decedent’s death.

Extension to File and Pay

When the Commissioner of Internal Revenue finds that the payment on the due date of the estate tax or of any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five (5) years, in case the estate is settled through the courts, or two (2) years in case the estate is settled extra-judicially.

Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer, no extension will be granted by the Commissioner.

If an extension is granted, the Commissioner of Internal Revenue or his duly authorized representative may require the executor, or administrator, or beneficiary, as the case may be, to furnish a bond in such amount, not exceeding double the amount of tax and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance in the terms of extension.

The application for extension of time to file the estate tax return must be filed with the Revenue District Officer (RDO) where the estate is required to secure its Taxpayer Identification Number (TIN) and file the tax returns of the estate. The application shall be approved by the Commissioner or his duly authorized representative.

Liability for Payment

The estate tax shall be paid by the executor or administrator before the delivery of the distributive share in the inheritance to any heir or beneficiary. Where there are two or more executors or administrators, all of them are severally liable for the payment of the tax. The eCAR pertaining to such estate issued by the Commissioner or the Revenue District Officer (RDO) having jurisdiction over the estate, will serve as the authority to distribute the remaining/distributable properties/share in the inheritance to the heir or beneficiary.

The executor or administrator of an estate has the primary obligation to pay the estate tax but the heir or beneficiary has subsidiary liability for the payment of that portion of the estate which his distributive share bears to the value of the total net estate. The extent of his liability, however, shall in no case exceed the value of his share in the inheritance.

Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights

There shall not be transferred to any new owner in the books of any corporation, sociedad anonima, partnership, business, or industry organized or established in the Philippines any share, obligation, bond or right by way of gift mortis causa, legacy or inheritance, unless an eCAR is issued by the Commissioner or his duly authorized representative.

Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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