Sunday, December 30, 2012


I have been studying recently the allowable deductions that can claim by a nonresident alien decedent needed in the computation of net estate taxable in the Philippines.

The ordinary deductions allowed as deductions are the following: (1) proportionate deductions on Expenses, Losses, Indebtedness, Taxes, etc. (ELITe) which include the funeral expenses (actual or 5% of the gross estate, whichever is lower but not to exceed P200,000), judicial expenses, claims against the estate, claims against the insolvent persons, taxes and losses; (2) Transfer for public use; (3) Vanishing Deduction and (4) net share of the surviving spouse in the conjugal or community property.

Proportionate deductions is computed as Gross Estate, Philippines divided by Gross Estate, World multiply by ELITe World.

While vanishing deduction is computed as Value to take (FMV of the properties at the time of inheritance or the time of death of the prior decedent, whichever is lower) less Mortgage Paid assumed (first deduction) equals the Initial Basis less Proportionate Deduction (second deduction) computed as Initial Basis divided by Gross Estate, Philippines multiply by ELITe (Allowed). Initial Basis less Proportionate Deduction equals to Final Basis multiply by vanishing rate (provided by the law) to get the Vanishing Deduction.

The vanishing deduction rates is based in the properties period from receipt to decedent's death as follows: (1) within 1 year-100%; (2) beyond 1 year to 2 years-80%; (3) beyond 2 years to 3 years-60%; (4) beyond 3 years to 4 years-40%; and (5) beyond 4 years to 5 years-20%.

RA 4917 and Standard deductions are not allowed deductions for nonresident alien decedent in the computation of net estate taxable in the country.

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