Overview of Donor’s Tax in the Philippines

Donor’s tax is imposed upon any person, natural or juridical, resident or non-resident, who transfers or causes to transfer by gift or donation, whether direct or indirect, in trust or otherwise, real, personal, tangible or intangible property.  Hereunder are some features for your better appreciation.

A tax upon one’s gratitude to others

Donor’s tax in the Philippines is imposed upon gratuitous transfers of property from one person to another during their lifetime. Gratuitous means that the property is transferred free of charge or that the donee (the receipient) does not pay for it in receiving the property from the donor (the giver). One cited reason for the imposition of donor’s tax in the Philippines is to mitigate the gap between the rich and the poor so that the amount that the more able one’s will give or donate will be lessened by the donor’s tax imposed.

Imposed also on indirect donations

A donation need not be explicit to be taxable. Section 100 of the Tax Code of the Philippines imposes a tax on transfers for insuficient consideration. This means that if you sell a property for a price much lower than the market value od that property or a similar property, donor’s tax in the Philippines will apply. This may happen to parties making unrealistic sales or transfers of property making it appear to be a sale for an insufficient selling price or consideration to avoid donor’s tax in the Philippines or death taxes – estate tax in the Philippines.

Imposed upon valid donations or transfer

To be taxable, a donation or trsnsfer must be validly made to produce the legal effects of a transfer of title. Validity of donation or transfer would depend on the capacity of the parties to make a valid donation ot transfer, and the formalities of the deed of donation or deed of transfer. Void donations are not subject to donor’s tax because it does not transfer the title of the property, thus, no gratuitous transfer.

Imposed upon the donor of the property

In donor’s tax in the Philippines, it is the donor or giver who is bound to pay the tax and not the donor. The agreement in the deed of donation that the donee or receipient of the property will be the one to pay the donor’s tax is not binding with respect to the tax authority – Bureau of Internal Revenue (BIR). It is but logical to make the donor liable because if it has the means to donate a property free of charge, then, it reasonably follows that it is capable of paying the tax.

Tax rate is either a progressive rate of 2%-15% or 30%

Donor’s tax computation would depend on whether the donor and the donee are relatives or not – strangers as the Tax Code calls them. As defined in the Tax Code, relatives of the donor refers to a brother or sister – by whole or half blood, spouse, ancestor, lineal descendant, or relative by consanguinity in the collateral line within the fourth civil degree of relationship. Donations to relatives are taxed at 2% – 15%, each and every donation aggrgated, and allowed deductions for dowry, diminutions, and encumbrances to a certain extent. Donations of the donor to the relatives of not exceeding P100,000.00 within the calendar year are not taxable.

Strangers are those individuals not enumerated under relatives. For donor’s tax purposes, donations of corporations and other juridical entities are donations to strangers. Donor’s tax in the Philippines for donations to strangers is at 30% of the gross amount of taxable donation and the tax is paid every after donation without need of the aggregation as compared to donations to relatives.

Exemptions from donor’s tax Philippines

Taxation is the rule, exemption is the exception applies to donor’s tax. Certain exemptions are authorized by laws based on the donation itself or based on the status of the donee. Example of tax exempt donations are donations on account of marriage up to P10,000.00, donations to accredited donee institutions under certain conditions, donations to specific entities – Integrated Bar of the Philippines, Ramon Magsaysay Award Foundation, and many more to mention.

Filing of donor’s tax returns

A donor’s tax return in the Philippines or BIR Form No 1800 is required to be filed and paid not later than the 30th day following the date of every donation made. Failure to file and pay donor’s tax is subject to penalties – 25% surcharge (50% if fraudulent), 20% interest, and compromise penalties ranging from P200.00 to P25,000.00.