Exemptions from estate tax
By: Atty. Aziza Hannah A. Bacay on August 28,2025
Estate Tax, in general
As a rule, the rights of heirs or successors to inherit are transmitted from the moment of death of the decedent. However, this transmission of rights is also subject to compliance with administrative guidelines and also payment of appropriate taxes, fees, and charges.
Under the National Internal Revenue Code (Tax Code), estate tax at the rate of 6% is levied, assessed, collected and paid upon the transfer of the net estate of every decedent, whether resident or nonresident of the Philippines. Net estate is computed by the gross estate less allowable deductions.
The value of the gross estate of the decedent shall be determined by including the value at the time of his or her death of all property, real or personal, tangible or intangible, wherever situated; although in the case of a nonresident decedent who at the time of his or her death was not a citizen of the Philippines, only that part of the entire gross estate which is situated in the Philippines shall be included in his or her taxable estate.
Section 87 of the Tax Code provides that the following are allowable deductions from the gross estate of a citizen or resident of the Philippines:
- Standard deduction of 5 million pesos
- Claims against the estate, such as loans or debts incurred within 3 years before the death of the decedent
- Claims of the decedent against insolvent persons
- Properties previously taxed, also known as vanishing deductions
- Bequests, legacies, devises, or transfers for government
- Value of family home
- Amounts received by heirs under Republic Act (RA) No. 4917 pursuant to a reasonable private benefit plan
On the other hand, for non-residents, only the following are allowed as deductions from their gross estate:
- Standard deduction of five hundred thousand pesos
- Property previously taxed
- Bequests, legacies, devises, or transfers for government
Estate Tax Exemptions
In addition to the foregoing exemptions, certain properties are exempt from estate taxes by virtue of special laws.
As confirmed by the Supreme Court, foreign currency deposit accounts are exempt from estate taxes, in accordance with Republic Act (RA) No. 6426 (Foreign Currency Deposit Act of the Philippines). In this case, the estate claimed for refund of its payment of estate taxes on the USD savings account of the Decedent pursuant Section 6 of said law, stating “[a]ll foreign currency deposits made under this Act, […] are hereby exempted from any and all taxes whatsoever […]”
The Bureau of Internal Revenue (BIR), for its part, argued that the exemption under RA No. 6426 is not listed among the allowable deductions from gross estate under the Tax Code. The BIR took the position that RA No. 6426, which is law enacted on 1977, was revoked by the effectivity of Tax Code in 1997.
Resolving the matter, the Supreme Court held that RA No. 6426 is a special law and was implemented to address the country’s economic challenge caused by heavy dollar spending, which resulted to dollar deficit during that time. Thus, to encourage foreign currency deposits and to increase the country’s reserves, RA No. 6426 provided tax exemption to foreign currency deposit unit (FCDU) deposits, as well as bank and financial institutions having FCDU licenses. On the other hand, the Tax Code is a general law that governs the imposition of taxes.
It is a well-established rule that, in interpreting laws, special law prevails over general law because it reveals the true intent of the legislature. A special law (like RA No. 6426) cannot be modified by a subsequent general law (like the Tax Code). Thus, the Supreme Court finally ruled that FCDUs are exempt from estate taxes. [G.R. No. 262092, October 9, 2024]
(Note that Section 6 of RA No. 6426 is expressly repealed by the RA No. 12214 [Capital Markets Efficiency Promotions Act], which became effective on July 1, 2025).
However, there are also instances where exemption in law was not extended to estate taxes. In one instance, the Department of Finance (DOF) affirmed the BIR in ruling that Total Administrative Disability Pension Benefits received by a surviving spouse of a veteran or member of the Armed Forces of the Philippines (AFP) are not exempt from estate tax.
Section 4 of RA No. 9040 (The AFP Tax Exemption for Pay and Allowances Act of 2001) states that “[b]enefits received from and enjoyed under [AFP] Retirement and Separation Benefits System … shall likewise be exempted from any tax of whatever nature.” The DOF opined that the exemption under the said provision refers to exemption from income tax only.
The DOF explained that, for estate taxes, what is being taxed upon remittance of pension benefits to the surviving spouse is the right of the person to transmit the property to the heirs at time of death. [DOF Ruling No. 002-2023]. We have not seen any appeal of the opinion filed with the courts.
It is thus important for the heirs, estate administrators or executors to know the available deductions and exemptions from law so that the appropriate taxes shall be paid.
Aziza Hannah A. Bacay is a Senior Associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com
https://www.manilatimes.net/2025/08/28/business/top-business/exemptions-from-estate-tax/2174691