Gross State (Residence and Citizenship) Citizens of the Philippines The following are considered citizens of the Philippines.

1. Those who are citizens of the Philippines at the time of the adoption of this Constitution; 2. Those whose fathers or mothers are citizens of the Philippines; 3. Those born before January 17, 1973 of Filipino mothers, who elect Philippine citizenship upon attaining the age of majority; 4. Those who are naturalized in accordance with law.

2. 3.

Tangible personal property, within and without Intangible personal property, within and without

In the case of a nonresident alien, the gross estate shall include only the following; 1. 2. 3. Real property within Tangible personal property within Intangible personal property within, unless exempted under the principle of reciprocity The above rule is hereby summarized as follows: Classification of Property Real Property: Within Without Personal Property: Tangible within Tangible without Intangible within Intangible without Yes Yes Yes Yes Yes No Yes No Yes No No No Yes Yes Yes No Yes No Resident or Citizen Nonresident Alien (no reciprocity) Nonresident Alien (with reciprocity)

Residence for estate tax purposes The term residence does not necessarily mean the actual place of residence. It refers to the permanent home, the place to which whenever absent, for business or pleasure, one intends to return, and depends on the fact and circumstances, in the sense that they disclose intent. Properties included in the gross estate The properties to be included in the gross estate will depend on the citizenship and/or residence of the decedent. Filipino citizens are called citizens, while those who are not Filipino citizens are called aliens. The value of the gross estate of a resident shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated. Provided, however, that in the case of a nonresident decedent who at the time of his 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 taxable estate. If the donor is a citizen or resident alien, the gross estate shall include the following properties: 1. Real property within and without

Yes the property is included in the gross estate of the decedent. No the property is not included in the gross estate of the decedent. Rule on reciprocity Reciprocity is a mutual exchange of privileges; specifically : a recognition by one of two countries or institutions of the validity of licenses or privileges granted by the other. The rule on reciprocity applies only to nonresident aliens, particularly on mortis causa donations when the properties are intangible personal which are located within the Philippines. No estate tax shall be collected in respect of intangible personal property in the following instances: 1. If the decedent at that time of his death was a citizen and resident of a foreign country which at the time of his

death did not impose a transfer tax on intangible personal property of the citizens of the Philippines not residing in that foreign country. Illustration 4-1 Jack, a resident and citizen of A foreign country died leaving real properties to Jill which are located in that country and shares of stocks of a domestic corporation in the Philippines. Will these properties be included in the gross estate of Jack and therefore subject to estate tax in the Philippines? 2. If the laws of the foreign country of which the decedent at the time of his death allows a similar exemption from transfer taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country. Illustration 4-2 Philip, a resident and citizen of A foreign country died leaving real properties to Pilar which are located in that foreign country and shares of stock of a domestic corporation in the Philippines. At the time of his death, his country imposes transfer taxes on donations of intangible personal properties located in that country. However, that same tax law grants tax exemption on intangibles owned by Filipinos therein. Will the transfer be included in his gross gift of Philip and therefore subject to estate tax in the Philippines? Real and personal properties Real properties are also known as immovables while the personal properties are known as movables. The real properties are enumerated in Article 415 of the Civil Code of the Philippines. IMMOVABLE PROPERTY Art. 415. The following are immovable property:

(1) Land, buildings, roads and constructions of all kinds adhered to the soil; (2) Trees, plants, and growing fruits, while they are attached to the land or form an integral part of an immovable; (3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object; (4) Statues, reliefs, paintings or other objects for use or ornamentation, placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements; (5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works; (6) Animal houses, pigeon-houses, beehives, fish ponds or breeding places of similar nature, in case their owner has placed them or preserves them with the intention to have them permanently attached to the land, and forming a permanent part of it; the animals in these places are included; (7) Fertilizer actually used on a piece of land; (8) Mines, quarries, and slag dumps, while the matter thereof forms part of the bed, and waters either running or stagnant; (9) Docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast; (10) Contracts for public works, and servitudes and other real rights over immovable property. Personal or movable properties are those that are not real. In order to determine whether an object is movable or not, the following tests must be applied in the successive order. 1. Whether the object can be transported from place to place.

2. 3.

Whether the change of location can take place without injury to the immovable to which it may be attached; Whether it is not included in the enumeration found in Article 415 of the Civil Code.

j. k. l.

Franchise exercised in the Philippines Accounts receivable, debtor residing in the Philippines Accounts receivable, debtor residing in New York

380,000 275,000 240,000 385,000 730,000 300,000 245,000 140,000 250,000 100,000

If the answers to the above questions are in the affirmative, the object is movable. The predominant criterion, however, in the distinction of property into real and personal is the possibility of transfer of the latter or of its movement in space, whether by itself as in the case of animals, or by some external acts. Real or immovable property presupposes stability or the impossibility of transfer from place to place. Intangible personal properties within The following intangible personal properties are considered situated within the Philippines: 1. 2. Franchise which must be executed within the Philippines; Shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws; 3. Shares, obligations or bonds issued by any foreign corporation eighty five per centum (85%) of the business of which is located in the Philippines; 4. Shares, obligations or bonds issued by a foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines; and 5. Shares or rights in any partnerships, business or industry established in the Philippines. Illustration 4-3 Dina Mathay, a decedent, single, left the properties: a. Vacation house in Hongkong b. c. d. e. f. g. h. i. Land in Zamboanga City House in Daet, Camarines Norte Apartment in New York, USA Car in Hongkong Car in the Philippines Jewelries in New York, USA Franchise exercised in New York Franchise exercised in Hongkong P 1,200,00 80,000 3,000,000 4,500,000 700,000 650,000 125,000 300,000 260,000

m. Accounts receivable, debtor residing in Hongkong n. Investment in Lovers Co., partnership established in New York o. Investment in Mahalia Co., partnership established in the Philippines p. q. r. s. t. Investment in Sing Kaw Kaw Co., partnership established in Hongkong Domestic shares, certificate kept in the Philippines Domestic shares, certificate kept in New York City Foreign shares, 90% of business in the Philippines Foreign shares, 30% of business in the Philippines, but acquired business situs in the Philippines. u. Foreign shares, 60% of business in the Philippines Total

270,000

425,000 14,555,000

Compute the gross estate if Dina Mathay is a: 1. 2. 3. Resident or citizen Non-resident alien (no reciprocity) Non-resident alien (with reciprocity)