Understanding Donor's Tax
Basics of Donor's Tax
Donor's Tax is a tax imposed on the transfer of property by way of gift or donation. In the Philippines, it is governed by the National Internal Revenue Code and other pertinent regulations. Donor’s tax applies to both real and personal properties and can range from immovable properties like land to movable properties like cash and jewelry.
Tax Rates and Exemptions
The Tax Reform for Acceleration and Inclusion (TRAIN) Law amended the donor's tax rate to a flat rate of 6% based on the net gift, which is computed as the fair market value of the property at the time of donation minus any liabilities that may be attached to it.
Certain exemptions exist for donations made to qualified donees, such as educational and charitable institutions. Further, gifts made to relatives in direct line (parents to children or vice versa) may qualify for exemptions or deductions, such as the "dowry" or "donation propter nuptias," which is a donation made by reason of marriage.
Computation and Valuation
To compute the donor's tax, one needs to ascertain the fair market value of the property being donated at the time of the donation. This value serves as the basis for the application of the 6% tax rate.
Filing and Payment
The donor is required to file a donor's tax return within thirty (30) days after the date the donation was made. Payments must also be made within the same period. Late payments are subject to penalties and interest.
Documentation Required
For a valid donation, a Deed of Donation must be executed. It's advisable to have this notarized for the purpose of registration and as a strong evidentiary document. For immovable properties, the transfer of the title must also be registered with the Registry of Deeds.
Conclusion
Understanding the complexities surrounding donor's tax is essential for both the donor and the donee. Proper valuation, compliance with tax laws, and timely filing can mitigate potential legal issues and ensure a smooth transfer of assets.