Comprehensive Review – Wills, Estate & Donor’s Tax, VAT, Percentage & Excise Taxes, and Income Taxation

100 Q&A flashcards covering core principles, definitions, rates, rules, and compliance requirements on wills & succession, estate and donor’s taxes, VAT, percentage & excise taxes, and both individual and corporate income taxation in the Philippines.

What is an onerous transfer?

A transfer that involves a two-way exchange with valuable consideration on both sides.

Define gratuitous transfer.

A transfer where the consideration is the generosity or liberality of the transferor.

Differentiate inter vivos and mortis causa gratuitous transfers.

Inter vivos = donation made during the donor’s lifetime; Mortis causa = succession that takes effect at the donor’s death.

When does succession take effect?

From the moment of death of the decedent.

List the four elements of succession.

(1) Decedent; (2) Testator; (3) Estate; (4) Transferees (heirs, legatees, devisees).

Who succeeds by universal title?

Heirs.

What do legatees and devisees receive?

Legatees: personal property; Devisees: real property.

Define intestate succession.

Succession where the decedent left no valid last will and testament.

Define testate succession.

Succession where there is a valid last will and testament.

What is a mixed succession?

Succession that is partly testate and partly intestate.

Purpose of a will.

To control the disposition of one’s estate to take effect after death.

What is legitime?

The compulsory heirs’ reserved share of the estate.

What is the free portion?

The part of the estate that may be given to voluntary heirs.

Give two formal requisites common to all wills.

Must be in writing and in a language known to the testator.

Are joint wills allowed in the Philippines?

No, joint wills are prohibited.

Differentiate notarial and holographic wills.

Notarial: attested by 3 witnesses and notarized; Holographic: entirely handwritten, dated, and signed by the testator.

First step in estate settlement.

Probate of the will (examining the will’s extrinsic validity).

Estate tax accrues when?

Upon the death of the decedent.

Current estate tax rate (since 1 Jan 2018).

6 % of the net taxable estate.

Estate tax is what type of tax?

A national, direct, proportional, ad valorem transfer tax on gratuitous transfers at death.

Primary compulsory heirs.

Legitimate children and legitimate descendants.

Secondary compulsory heirs.

Legitimate ascendants.

Concurring compulsory heirs.

Illegitimate children/descendants and the surviving spouse.

Who pays estate tax: heirs or estate?

The estate (as a separate and distinct taxable entity).

Gross estate valuation rule for real property.

Fair market value per the local Schedule of Market Values (SMV) at the date of death.

How are listed shares valued for estate tax?

Arithmetic mean of the highest and lowest quotation on the date of death.

Rule on intangible personal property of an NRA (reciprocity).

Exempt in PH if the foreign country either (a) imposes no transfer tax or (b) grants a similar exemption to non-residents.

Life-insurance proceeds includible in gross estate when?

If payable to the estate, executor, or administrator, or if the beneficiary designation is revocable.

Give one exclusion from gross estate.

Benefits received from the SSS, GSIS, US Veterans Administration, war damages, etc.

What is vanishing deduction?

A deduction to mitigate successive taxation when the decedent acquired property by gratuitous transfer within 5 years prior to death.

Maximum special deduction for family home.

Lower of FMV or the decedent’s interest, subject to substantiation and limited to one family home in the Philippines.

Standard deduction amounts (estate tax).

P 5,000,000 for residents/​citizens; P 500,000 for non-resident aliens.

Estate tax return form number.

BIR Form 1801.

Statutory deadline to file estate tax return.

Within one year from the decedent’s death.

Define donation under the Civil Code.

An act of liberality whereby a person gratuitously disposes of a thing or right in favor of another who accepts it.

Essence of the cognition theory in donations.

A donation is perfected upon the donor’s knowledge (acceptance must be communicated to the donor).

Basic donor’s tax rate under TRAIN.

6 % of total net gifts in excess of the P 250,000 annual exemption.

List two void donations.

(1) Donation between spouses (except moderate gifts); (2) Donation to public officials by reason of office.

Annual donor’s tax exemption.

First P 250,000 of total gifts per calendar year.

SoCCER ResT meaning (donor’s tax).

Social welfare, Charitable, Cultural, Educational, Religious, Research institution, or Trust—qualified donees for full deduction/exemption.

BIR form for donor’s tax return.

BIR Form 1800 (due 30 days after the date of gift).

VAT standard rate in the Philippines.

12 % (effective since 1 Jan 2006).

Define output VAT.

VAT collected or collectible on a seller’s taxable sales.

Define input VAT.

VAT paid or payable on purchases of goods, properties, or services by a VAT-registered person.

Formula for VAT payable.

Output VAT minus Input VAT.

EOPTA significance for VAT timing.

Effective 2024, both goods and services use accrual basis (End-of-Period Tax Accrual).

Name two transactions deemed sale for VAT.

Distribution to shareholders; retirement or cessation of business (among others).

VAT rate on importation.

12 % on the landed cost before release from customs.

Destination principle (VAT).

Goods and services are taxed only in the country where they are consumed; exports are zero-rated, imports are taxed.

Zero-rated sale vs VAT-exempt sale – key difference.

Zero-rated allows input VAT refund/credit; VAT-exempt does not allow recovery of input VAT (it becomes cost).

Give two zero-rated transactions under ‘actual export’.

(1) Export sales of goods paid in acceptable foreign currency; (2) Services rendered to a non-resident and paid in foreign currency.

Threshold for VAT exemption of sale of services or goods by non-VAT persons.

Annual gross sales/receipts not exceeding P 3,000,000.

VAT exemption for residential lease.

Monthly rental not exceeding P 15,000 is VAT-exempt.

Standard withholding VAT percentage on government purchases.

5 % final VAT withheld.

Form number for quarterly VAT return.

BIR Form 2550Q (due 25 days after quarter-end).

Percentage tax rate for persons exempt under Sec. 109(CC).

3 % of quarterly gross sales/receipts (1 % from Jul 2021-Jun 2023).

Common carrier’s tax rate (land passenger).

3 % of quarterly gross receipts.

Franchise tax rate on gas & water utilities.

2 % of gross receipts.

Overseas communications tax rate.

10 % on every overseas dispatch, message, or conversation originating in PH.

Stock transaction tax (STT) rate on listed shares.

0.6 % of gross selling price (0.1 % prior to Jul 2018).

Excise tax applies to what scope of goods?

Goods manufactured or produced in PH for domestic sale and goods imported, on specific categories such as petroleum, alcohol, tobacco, automobiles, etc.

Timing of excise tax payment.

Before removal from place of production or before release from customs custody.

Rate basis for automobiles excise tax.

Ad valorem tax based on manufacturer’s or importer’s selling price net of excise and VAT (graduated rates).

What are ‘heated tobacco products’ taxed as?

Excisable tobacco products with specific rates distinct from conventional cigarettes.

Resident citizen tax situs for income.

Taxable on worldwide income (within and without the Philippines).

Non-resident alien not engaged in business (NRANETB) taxed on what?

Only on Philippine-sourced income at 25 % final tax on gross income.

8 % income tax option – who may avail?

Self-employed or mixed-income individuals whose gross sales/receipts do not exceed P 3 million and who are NOT VAT-registered.

What taxes does the 8 % option replace?

Both graduated income tax and 3 % percentage tax under Sec. 116.

Final tax rate on cash dividends paid by a domestic corporation to individual residents.

10 %.

Final tax on interest from peso bank deposits (individuals).

20 %.

Minimum holding period for long-term deposit interest exemption (pre-TRAIN).

Five (5) years; pre-termination triggers graduated final tax (5 %, 12 %, 20 %).

Final tax on prizes and winnings exceeding P 10,000.

20 % (except PCSO/lotto winnings with special rules).

Capital gains tax rate on sale of real property classified as capital asset.

6 % of the higher of gross selling price or FMV (SMV).

Special rule for sale of principal residence.

Exempt from 6 % CGT if proceeds are fully used to acquire or construct a new principal residence within 18 months and availed only once every 10 years.

Capital gains tax on sale of unlisted shares (individual).

15 % of net capital gains.

Tax treatment of a general professional partnership (GPP).

GPP itself is exempt; partners are taxed individually on their distributive share.

Regular corporate income tax rate under CREATE.

25 % of net taxable income (20 % for small corporations with NI ≤ P 5 M and assets ≤ P 100 M, excluding land).

Minimum corporate income tax (MCIT) rate.

2 % of gross income (1 % from Jul 2020-Jun 2023), beginning the 4th taxable year of operations.

Branch profit remittance tax (BPRT) rate.

15 % on profits actually remitted by a branch to its head office.

Special corporate rate for proprietary educational institutions under CREATE (temporary).

1 % of net taxable income from 1 Jul 2020 to 30 Jun 2023; thereafter 10 %.

Meaning of ‘tax sparing’ on foreign dividends to a NRFC.

If the home country of the NRFC allows a tax credit of at least 10 %, Philippine withholding tax on dividends is reduced to 15 %.

MCIT suspension grounds (give one).

Prolonged labor dispute, force majeure, or legitimate business reverses.

Definition of an exempt joint venture in construction.

A JV of licensed local contractors pooled for a specific construction project and itself licensed by the PCAB; income is passed through to venturers.

Threshold for VAT-exempt sale of residential dwelling (2024).

Selling price not exceeding P 3,600,000.

What is the standard deduction for donor’s tax?

No standard deduction; instead, there is a P 250,000 annual exemption.

Rate of final tax on branch-owned aircrafts or machinery leased to Philippine lessees.

7.5 % of gross rentals, lease, or charter fees.

Form used for monthly remittance of final taxes withheld (individual or corporate).

BIR Form 0619-F.

Due date for annual income tax return of individuals.

April 15 following the close of the taxable year.

Estate tax credit for foreign estate tax – main limitation concept.

Limited to the proportion of Philippine net estate over worldwide net estate and cannot exceed the actual foreign estate tax paid.

Percentage tax on boxing exhibitions (generally).

10 % of gross receipts (world/oriental championship bouts with Filipino contender are exempt).

Who is liable for excise tax on imported excisable goods by an exempt entity?

The non-exempt person (importer of record) who actually imports the goods.

Define ‘destination principle’ in one sentence.

Tax jurisdiction lies where consumption occurs; hence exports are zero-rated and imports are taxed.

What happens if a non-VAT taxpayer issues a VAT invoice?

Liable to 3 % OPT, 12 % VAT, and 50 % surcharge for erroneous invoicing.

Deadline to remit VAT withheld by government or e-marketplace (reverse charge).

Within 10 days following the end of the month the withholding was made.

What is ‘input VAT on capital goods’ rule before it was repealed (until Dec 31 2021)?

Input VAT on depreciable capital goods over P 1 M acquired in one month was amortized evenly over at most 60 months.

Give one example of a VAT zero-rated effectively-zero transaction.

Sales to United Nations, ADB, IRRI, WHO (entities exempt from direct and indirect taxes).

Define ‘gross Philippine billings’.

Revenue from carriage of passengers, excess baggage, cargo, and mail originating from the Philippines in a continuous flight by an international air carrier.

Excise tax rate on sweetened beverages with high-fructose corn syrup.

P 12 per liter.

Treatment of pickup trucks under automobile excise tax post-CREATE.

No longer exempt; subject to the automobile excise tax rates.

What is the BIR Form number for CGT on real property?

BIR Form 1706 (due 30 days from sale).