Donor's Tax

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Donation is defined as a gratuitous act where a person gives a thing or right in favor of another person who accepts it. The parties to such transaction are called “donor” and the “donee”, where the donor is the one who gives the property or right, while the done is the one who receives it.

A thing or right may be in the form of land, car, or personal properties. If the value of the property being donated is more than five thousand pesos, the donation and acceptance should be in writing and pertinent documents should be made public.

Other examples of a donation are:

  1. Transfers made in exchange for an insufficient consideration – for example, a person sold a land to a buyer for P1M, however, market value of the land is P3M, P2M is deemed a donation.
  2. Cancellation of debt by a creditor to a debtor.

A donor may be a resident or citizen of the Philippines, or a non-resident, not a citizen of the Philippines.

Gross gift are the properties being donated – e.g. land, tangible properties, intangible properties

Deductions from the gross gifts:

  1. Gifts made to the National Government which is not intended to generate profits
  2. Gifts made to charitable, educational, religious, cultural institutions, provided that these institutions will not spend more than 30% of the gifts for its own administrative use.
  3. Dowries or gifts for marriage purposes, if done within a year before marriage, by parents. Maximum amount deductible is P10,000.
  4. Encumbrances on the donated property as long as the donee assumes the obligation.

Donor’s tax is computed by multiplying the Net Gift by the following rates:

Over But not over The tax shall be Plus of excess over
P100,000 Exempt
P100,000 P200,000 P2,000 4% P100,000
P100,000 P200,000 P2,000 4% P100,000
P200,000 P500,000 P14,000 6% P200,000
P500,000 P1,000,000 P44,000 8% P500,000
P1,000,000 P3,000,000 P304,000 8% 1,000,000
P3,000,000 P5,000,000 P404,000 10% P3,000,000
P5,000,000 P10,000,000 P1,004,000 15% P10,000,000

Such table only applies to a non-stranger.

A stranger is defined by law as a person who is:

  1. Not a brother or sister, spouse, ancestor nor lineal descendants.
  2. Not a relative by consanguinity in the collateral line within the fourth degree of relationship

  Any donations to a stranger shall be subject outright 30% donor’s tax.

Example 1: Mr. A gave a gift to his niece (second degree of consanguinity) a car worth P500,000 as a birthday present, then Mr. A is liable to pay P32,000 = P14,000 + (P500,000-200,000)x6% as donor’s tax.

Example 2: Mr. A donates a piece of land with a market value of P1M to a friend whom he has no blood relation at all, he is liable to pay P300,000 worth of donors tax.

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