Donor’s Tax

A. Basic concepts of donation

1. Donation defined – Art. 725, NCC

 Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another,
who accepts it.
 Gratuitous transfer of property

2. Kinds of donation
1. Donation inter-vivos: one made by a living donor (donor’s tax)
2. Donation mortis-causa: one made by a deceased donor (estate tax)

3. Requisites of a valid donation

a. Capacity of donor – Art. 735, NCC
 All persons who may contract and dispose of their property may make a donation.
 Donations made by a minor, insane or by hypnotic spells, force or intimidation is unenforceable.

b. Donative intent
 Donation must be intentional or voluntary.

c. Delivery
 Donation is a real contract, completed by delivery.

d. Acceptance – Art. 734, NCC

 The donation is perfected from the moment the donor knows of the acceptance by the donee.

4. Formal requirements
a. Personal property – Art. 748, NCC
The donation of a movable may be made orally or in writing.

An oral donation requires the simultaneous delivery of the thing or of the document representing the right
donated.

If the value of the personal property donated exceeds five thousand pesos, the donation and the acceptance
shall be made in writing. Otherwise, the donation shall be void.

b. Real property – Art. 749, NCC

In order that the donation of an immovable may be valid, it must be made in a public document, specifying
therein the property donated and the value of the charges which the donee must satisfy.

The acceptance may be made in the same deed of donation or in a separate public document, but it shall not
take effect unless it is done during the lifetime of the donor.

If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and
this step shall be noted in both instruments.

B. Basic principles of donor’s tax

1. Concept of donor’s tax

2. Nature of donor’s tax
 Privilege tax: taxed upon the privilege to transfer property gratuitously upon the lifetime of the donor.
 Annual: imposed on annual net gifts
 Ad valorem: based on the value of the property donated
 National Tax: imposed by the national government
 Revenue or fiscal tax: intended to provide government income
 Uniform tax: fixed rate of 6%

3. Purpose and object of donor’s tax

 Purpose: Supplement estate tax- People may avoid tax by transferring property while the donor is still alive.
 Object: right to transfer property gratuitously during the lifetime of the donor

4. Transfers which may be constituted as donation

a. Sale/exchange/transfer of property for less than adequate and full consideration

Sec. 100, NIRC
Where property, other than real property referred to in Section 24(D), is transferred for less than an
adequate and full consideration in money or money's worth, then the amount by which the fair market
value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed
by this Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during
the calendar year: Provided, however, That a sale, exchange, or other transfer of property made in the
ordinary course of business (a transaction which is a bona fide, at arm's length, and free from any
donative intent), will be considered as made for an adequate and full consideration in money or
money's worth.

Philamlife v. Secretary of Finance, G.R. No. 210987, November 24, 2014)

RMC 30-19

b. Condonation/remission of debt

c. Renunciation of inheritance – Sec. 12, RR 12-18

Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community
after the dissolution of the marriage in favor of the heirs of the deceased spouse or any other person/s is
subject to donor's tax whereas general renunciation by an heir, including the surviving spouse, of his/her share
in the hereditary estate left by the decedent is not subject to donor's tax, unless specifically and categorically
done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate.

5. Laws governing imposition of donor’s tax – Sec. 12, RR 12-18

The donor's tax shall not apply unless and until there is a completed gift. The transfer of property by gift is perfected
from the moment the donor knows of the acceptance by the donee; it is completed by the delivery, either actually or
constructively, of the donated property to the donee. Thus, the law in force
at the time of the perfection/completion of the donation shall govern the imposition of the donor's tax.

6. Donor’s tax distinguished from estate tax

 Donor’s tax: transfers during the lifetime of the donor
 Estate Tax: transfers upon death of the decedent

C. Determination of Gross Gift

1. Classification of donor
a. Citizen and resident – RC, NRC and RA: taxable on world donations
 b. NRA: taxable on Philippine donations with intangible personal property subject to the rule of reciprocity

2. Composition of Gross Gift

a. RC, NRC, RA
i. Real property located within and without the Philippines
ii. Tangible personal property located within and without the Philippines
iii. Intangible personal property located within and without the Philippines – Sec. 104, NIRC
b. NRA
i. Real property located within the Philippines
ii. Tangible personal property located within the Philippines
iii. Intangible personal property located within the Philippines unless there’s reciprocity – Sec. 104, NIRC
a) Situs of intangible personal properties
b) Rule on reciprocity

3. Exemptions of gifts from donation tax

a. Gifts made by residents (RC, RA) – Sec. 101(A), NIRC
i. Gifts made to or for the use of national government
Gifts made to or for the use of the National Government or any entity created by any of its agencies
which is not conducted for profit, or to any political subdivision of the said Government

ii. Gifts in favor of educational/charitable institution

Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation,
institution, accredited nongovernment organization, trust or philanthropic organization or research
institution or organization: Provided, however, That not more than thirty percent (30%) of said gifts shall
be used by such donee for administration purposes.

For the purpose of this exemption, a 'non-profit educational and/or charitable corporation, institution,
accredited nongovernment organization, trust or philanthropic organization and/or research institution
or organization' is a school, college or university and/or charitable corporation, accredited
nongovernment organization, trust or philanthropic organization and/or research institution or
organization, incorporated as a nonstock entity, paying no dividends, governed by trustees who
receive no compensation, and devoting all its income, whether students' fees or gifts, donation,
subsidies or other forms of philanthropy, to the accomplishment and promotion of the purposes
enumerated in its Articles of Incorporation.
a) Condition: Not more than 30% of the gift will be used by donee for administration purposes

b. Gifts made by a NRA – Sec. 101(B), NIRC

i. Same as (i) above
ii. Same as (ii) above

c. Exemptions from donor’s tax under Special Laws

4. Valuation of gifts made in property – Sec. 102, NIRC; Sec. 13, RR 12-18, as amended by RR 17-18

a. Fair Market Value (FMV) at time of gift

b. Real property – higher of FMV determined by Commissioner of Internal Revenue (CIR) or FMV fixed by
provincial and city assessors, whichever is higher
c. Valuation of particular gifts
i. Personal property
ii. Real property
iii. Cash
 d. The Adjusted Net Asset Value Method – RR 06-13
In the case of shares of stock not listed and traded in the local stock exchanges, the value of the shares of stock
at the time of sale shall be the fair market value. In determining the value of the shares, the Adjusted Net Asset
Method shall be used whereby all assets and liabilities are adjusted to fair market values. The net of adjusted
asset minus the liability values is the indicated value of the equity. For purposes of this section, the appraised
value of real property at the time of sale shall be the higher of —

(1) The fair market value as determined by the Commissioner, or

(2) The fair market value as shown in the schedule of valued fixed by the Provincial and City Assessors,
or
(3) The fair market value as determined by Independent Appraiser."

5. Political/electoral contributions – Sec. 99(B), NIRC

Any contribution in cash or in kind to any candidate, political party or coalition of parties for campaign purposes shall be
governed by the Election Code, as amended.
RR 07-11
contributions in cash or in kind to any candidate, duly reported to the Commission on Elections (COMELEC), are
exempt from the imposition of Donor's Tax.

RR 08-09

Item no. 7, RMC 31-19

Only those donations/contributions that have been utilized/spent during the campaign period as set by the
COMELEC are exempt from donor’s tax. Donations utilized before or after the campaign period are subject to
donor’s tax and not deductible as political contribution on the part of the donor.

6. Computation of donor’s tax

a. Persons liable – donors
b. Tax basis
Sec. 99(A), NIRC
Sec. 11, RR 12-18
The tax for each calendar year shall be six percent (6%) computed on the basis of the total gifts in
excess of Two hundred fifty thousand pesos (P250,000) exempt gift made during the calendar year.

c. Tax rate – Sec. 99(A), NIRC

d. Computation of tax – Sec. 14, RR 12-18

i. Cumulative basis over a period of one (1) calendar year
ii. Donation by husband and wife
The computation of the donor's tax is on a cumulative basis over a period of one calendar year.
Husband and wife are considered as separate and distinct taxpayer's for purposes of the donor's tax.
However, if what was donated is a conjugal or community property and only the husband signed the
deed of donation, there is only one donor for donor's tax purposes, without prejudice to the right of
the wife to question the validity of the donation without her consent pursuant to the pertinent
provisions of the Civil Code of the Philippines and the Family Code of the

e. Tax credit for donor’s taxes paid to a foreign country – Sec. 101(C), NIRC
The tax imposed by this Title upon a donor who was a citizen or a resident at the time of donation shall be
credited with the amount of any donor's tax of any character and description imposed by the authority of a
foreign country.

The amount of the credit taken under this Section shall be subject to each of the following limitations:
 (a) The amount of the credit in respect to the tax paid to any country shall not exceed the same
proportion of the tax against which such credit is taken, which the net gifts situated within such country
taxable under this Title bears to his entire net gifts; and
(b) The total amount of the credit shall not exceed the same proportion of the tax against which such
credit is taken, which the donor's net gifts situated outside the Philippines taxable under this Title bears
to his entire net gifts.

7. Returns/payment
Sec. 103, NIRC
Sec. 15, RR 12-18

a. Requirements
Any person making a donation (whether direct or indirect), unless the donation is specifically exempt under the
NIRC or other special laws, is required, for every donation, to accomplish under oath a donor's tax return in
duplicate. The return shall set forth:
1. Each gift made during the calendar year which is to be included in gifts;
2. The deductions claimed and allowable;
3. Any previous net gifts made during the same calendar year;
4. The name of the donee; and
5. Such further information as the Commissioner may require.

b. Time/place of filing and payment

i. Time of filing – 30 days after date of gift is made/ completed; Payment coincides with the filing of
return.
ii. Place of filing/ payment
a) RC, NRC, RA – AAB, RDO or Revenue collection officer having jurisdiction over the
residence/domicile of donor
b) NRA – Philippine embassy/consulate where he is domiciled at the time of transfer