FAR EASTERN UNIVERSITY

INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE

Department of Accountancy

DISCLAIMER: Kindly note that no part of this Module may be reproduced in any form or any means without
the permission (e.g., written or oral) from the Instructor.

MODULE NO. 02
ESTATE TAXATION – CONCEPT MAP

CONCEPT MAP 1:
TYPE OF TRANSACTIONS

TRANSACTIONS

UNILATERAL TRANSACTION COMPLEX TRANSACTION BILATERAL TRANSACTION

Unilateral transfers involve the Complex transfers are transfers for less
This involves the transmission of
transmission of property by a person than full and adequate consideration.
property for a consideration. They are
without consideration. They are These are sales made at prices which
referred to as onerous transactions or
commonly referred to as, gratuitous are significantly lower than the fair value
exchanges.
transactions or simply, transfers. of the property sold.

DONATION SUCCESSION Fair Market Value XXX SALE BARTER

Less: Consideration XXX
Transfer Tax XXX
DONOR’S TAX ESTATE TAX BUSINESS TAX (VAT and/or OPT)
Consideration XXX
Less: Cost of Property XXX
Business Tax XXX

CONCEPT MAP 2:
CLASSIFICATION OF INDIVIDUALS

INDIVIDUAL TAXPAYERS

CITIZEN CITIZEN

NON-RESIDENT NON-RESIDENT
RESIDENT ALIEN
CITIZEN ALIEN
RESIDENT CITIZEN (Section 22G of the Tax
(Section 22E of the Tax (Section 22F of the Tax
Code, as amended)
Code, as amended) Code, as amended)

Taxable on properties
Taxable on properties located within and outside the Philippines located within the
Philippines

TRANSFER AND BUSINESS TAXATION | ESTATE TAXATION

Mr. Kireina Otoko M. Manas, CPA
 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Department of Accountancy

FOCUS NOTE!
Citizens of Philippines (Legal Basis: 1987 Philippine Constitution):
• Those who are citizens of the Philippines at the time of the adoption of the Constitution (on February 2, 1987)
• Those whose fathers or mothers are citizens of the Philippines
• Those born before January 17, 1973 of Filipino mothers who elect Philippine citizenship upon reaching the age of majority
• Those who are naturalized in accordance with law
Aliens:
• Individuals who are not Filipino Citizens.
o Resident Alien (Section 22F of the Tax Code, as amended);
o Non - Resident Alien engaged in trade or business in the Philippines (Section 22G and Section 25A of the Tax
Code, as amended);
o Non-resident alien not engaged in trade or business in the Philippines (Section 22G and Section 25B of the Tax
Code, as amended).

RESIDENT CITIZEN (RC)

• A citizen of the Philippines residing therein.
• EXAMPLES:
o All Filipino Citizens residing in the Philippines; and
o All Filipino Citizens who would go abroad under “Tourist Visa.” After expiration of their Tourist Visa, Filipino
Citizens must go back to the Philippines (or else he becomes an “Illegal Alien” in the Country visited)

NON-RESIDENT CITIZEN (NRC) (Legal Basis: Section 22E of the Tax Code, as amended)
• A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad
with a definite intention to reside therein;
• A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or
for employment on a permanent basis;
• A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be
physically present abroad most of the time during the taxable year; and
o Overseas Contract Workers – OCW is not synonymous with OFW. If an OFW has a contract, he is an OCW
o Seaman – Requisites:
▪ Member of Complement; and
▪ Vessel is engaged in International Shipping
• A citizen who has been previously considered as non-resident citizen and who arrives in the Philippines at any time during
the taxable year to reside permanently in the Philippines shall likewise be treated as a non-resident citizen for the taxable
year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival
in the Philippines.
• FOCUS NOTE! The taxpayer shall submit proof to the Commissioner of Internal Revenue (CIR) to show his intention of
leaving the Philippines to reside permanently abroad or to return to and reside in the Philippines as the case may be.
• EXAMPLES:
o A Resident Citizen who would go abroad with a two-year working visa. The change in status starts upon his
departure from the Philippines; and
o A Citizen staying abroad for a period of at least 183 days.

RESIDENT ALIEN (RA) (SECTION 22G OF THE TAX CODE, AS AMENDED);

An individual whose residence is within the Philippines and who is not a citizen thereof.
• An alien who lives in the Philippines with no definite intention as to his stay;
• One who comes to the Philippines for a definite purpose which in its nature would require an extended stay and to that end
makes his home temporarily in the Philippines, although it may always be his intention to return to his domicile abroad; and
• An alien who has acquired residence in the Philippines retains his status as such until he abandons the same and departs
from the Philippines.
• EXAMPLES:
o An Alien who comes to the Philippines with an “Immigration VISA”; and
o An Alien who stayed in the Philippines for more than one year as of the end of the taxable year.

NON-RESIDENT ALIEN ENGAGED IN TRADE OF BUSINESS (NRA ETB)

• NRA who is engaged in trade or business in the Philippines;
• NRA who has practiced his profession in the Philippines;
• NRA who shall come to the Philippines and stay therein for an aggregate period of more than 180 days during any calendar
year shall be deemed a “non-resident alien doing business in the Philippines.”

NON-RESIDENT ALIEN NOT ENGAGED IN TRADE OF BUSINESS (NRA NETB)

• NRA who is not engaged in trade or business in the Philippines;
• NRA who has not practiced his profession in the Philippines; and
• NRA who shall come to the Philippines and stay therein for an aggregate period of NOT more than 180 days during any
calendar year.

TRANSFER AND BUSINESS TAXATION | ESTATE TAXATION

Mr. Kireina Otoko M. Manas, CPA
 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Department of Accountancy

CONCEPT MAP 3:
RESIDENT CITIZEN, NON-RESIDENT CITIZEN, AND RESIDENT ALIEN TAXABILITY

FOCUS NOTE:
1. PROPERTY - Real Properties, and Personal Properties (e.g., Tangible and Intangible)
2. TAXABILITY - Taxable on properties located within and outside the Philippines
3. RECIPROCITY - Rule on Reciprocity for Intangible Personal Properties does not apply.

RC, NRC, and RA

REAL PROPERTY PERSONAL PROPERTY

TANGIBLE INTANGIBLE

WITHIN PH OUTSIDE PH WITHIN PH OUTSIDE PH WITHIN PH OUTSIDE PH

TAXABLE

CONCEPT MAP 4:
NON-RESIDENT ALIEN TAXABILITY

FOCUS NOTE:
1. PROPERTY - Real Properties, and Personal Properties (e.g., Tangible and Intangible)
2. TAXABILITY - Taxable on properties located within and outside the Philippines
3. RECIPROCITY - Rule on Reciprocity for Intangible Personal Properties applies.
4. ADDITIONAL - Rule on ‘Properties Outside Considered Inside PH’ applies.

NRA

REAL PROPERTY PERSONAL PROPERTY

TANGIBLE INTANGIBLE

WITHIN PH OUTSIDE PH WITHIN PH OUTSIDE PH WITHIN PH OUTSIDE PH

Rule on ‘Properties
Outside Considered
Inside PH’

Y N

Rule on Reciprocity
for Intangible
Personal Properties

Y N

TAXABLE EXEMPT TAXABLE EXEMPT EXEMPT TAXABLE EXEMPT

TRANSFER AND BUSINESS TAXATION | ESTATE TAXATION

Mr. Kireina Otoko M. Manas, CPA
 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Department of Accountancy

CONCEPT MAP 5:
RULE ON ‘PROPERTIES OUTSIDE CONSIDERED INSIDE PH’

PROPERTIES OUTSIDE CONSIDERED INSIDE PH

FRANCHISE SHARES, OBLIGATIONS, BONDS, and RIGHTS

PARTNERSHIP CORPORATION

DOMESTIC FOREIGN

exercised in atleast 85% Business

exercised in PH exercised in PH PH operation Situs
PH

CONCEPT MAP 6:
SITUS: DIVIDEND INCOME

DIVIDEND INCOME

DOMESTIC CORPORATION FOREIGN CORPORATION

RESIDENT NON-RESIDENT

Based on the ratio of the gross income of the foreign corporation for the preceding 3
years prior to declaration of dividends derived from Philippine sources.

> 85% = 50% - = 85% < 50%

WITHIN WITHIN PARTLY OUTSIDE OUTSIDE

CONCEPT MAP 7:
VALUATION OF GROSS ESTATE: SHARES OF STOCKS

SHARES OF STOCKS

LISTED UNLISTED

Common Stock Preferred Stock Common Stock Preferred Stock

FMV is the mean between the highest and lowest

quotation at a date nearest the date of death, if none is Book Value Par Value
available on the date of death

TRANSFER AND BUSINESS TAXATION | ESTATE TAXATION

Mr. Kireina Otoko M. Manas, CPA
 FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Department of Accountancy

CONCEPT MAP 8:
INCLUSION TO GROSS INCOME: LIFE INSURANCE

FOCUS NOTE:
1. FUND - Source of Funds
2. BENEFICIARY - Beneficiary (e.g., Estate, Administrator, Executor, or Other Parties)
3. REVOCABILITY - Revocability of Insurance (e.g., Revocable or Irrevocable)

LIFE INSURANCE

The period and source of funds used in premiums.

DECEDENT DECEDENT and SURVIVING SPOUSE

DECEDENT SURVIVING SPOUSE

The designated beneficiary (e.g., Estate, Administrator,

Executor, or Other Parties)

ESTATE,
ADMINISTRATOR, or OTHER PARTIES
EXECUTOR

The revocability of the insurance.

If YES – REVOCABLE
If NO – IRREVOCABLE

Y N Y N

TAXABLE EXEMPT EXEMPT

-NOTHING FOLLOWS-

TRANSFER AND BUSINESS TAXATION | ESTATE TAXATION

Mr. Kireina Otoko M. Manas, CPA