BIR Briefing on Tax Amnesty on Delinquencies and Estate Tax Amnesty

BIR Briefing on Tax Amnesty on Delinquencies and Estate Tax Amnesty

BIR Briefing on Tax Amnesty on Delinquencies and Estate Tax Amnesty held last July 2, 2019 was very helpful. Some of my notes are as follows:

“The Estate Tax Amnesty shall cover the estate of decedent/s who died on or before December 31, 2017, with or without assessments”

  • Estates “with Assessment” pertain to properties that have been declared to and were assessed by the BIR, but still have not been paid.
  • Estates “without Assessment” pertains to properties that have NOT been declared to the BIR.

The Estate Tax Amnesty shall not extend to the following:
 Delinquent estate tax liabilities which have become final and executory”

  • Delinquent Estate Tax Liabilities pertain to estates where the BIR has issued a Final Assessment Notice (FAN), meaning the delinquency has become final and executory, you can no longer avail the ESTATE TAX AMNESTY. Instead, you can avail of the AMNESTY ON DELINQUENCY.

An Estate Tax Amnesty rate of six percent (6%) shall be imposed on each decedent’s total net taxable estate at the time of death without penalties at every stage of transfer of property…

  • “at every stage of transfer of property” – This pertains to properties that were transferred without passing through the BIR (and heirs never paid for estate tax).
  • For real estate properties, the titles still remain in the original decedent’s name.
  • If A passed away and the sole heir B also passed away, C would have to pay for estate taxes of A and estate tax of B.

“The gross estate of a decedent…shall be comprised of the following properties and interest therein at the time of his/her death, and such lifetime transfers includible in the gross estate…”

  • “Such lifetime transfers includible in the gross estate”
  • An example of this is when an owner, Mr. A, transfers the legal ownership to his son, Mr. B, but has withheld usufruct (beneficial ownership) until the A’s death.
  • In this case, the property shall still be considered part of A’s estate and estate taxes should be paid.

“Cash in bank in local and/or foreign currency shall be based on the peso value of the balance at the date of death.”

  • Gross estate shall not include accrued interest earned, just the balance at the time of death.

“For purposes of determining the Net Estate, the gross estate may be reduced by the deductions allowed by the Estate Tax law applicable at the time of death of the decedent.”

  • The historical allowable deductions are presented in Annex A of the Revenue Regulations.

“…the Estate Tax Amnesty Return … shall be filed…within two (2) years…”

  • The two years shall start on June 15, 2019 and will end June 14, 2021.
  • The Executor/Administrator pertains to the person mandated to manage the estate and distributes the properties to heirs.

“The duly accomplished and sworn Estate Tax Amnesty Return and Acceptance Payment Form …shall be presented to the concerned RDO for endorsement of the APF prior to the payment of the Estate Amnesty Tax with the Authorized Agent Banks or Revenue Collection Officers”

  • Two forms are needed Estate Tax Amnesty Return (ETAR) and Acceptance Payment Form (APF).
  • ETAR will have the computation of the tax due and the APF will serve as proof that you’ve paid the tax due.
  • These need to be approved/signed by the RDO before payment in a bank/RCO.
  • Don’t commit the mistake of using the wrong form (i.e. form 0605), your payment will not be considered!
  • Banks are instructed by the BIR not to accept ETAR if it doesn’t have the signature of the Rev. District Officer (RDO) or the Assistant RDO.

“Failure to submit the ETAR and APF within the two (2)-year period from the effectivity of the Regulations is tantamount to non-availment of the Estate Tax Amnesty and any payment made may be applied against the total regular estate tax due inclusive of penalties.”

  • Once you’ve paid for the estate taxes, and you FAIL to submit to BIR, the payment will be considered as an advance payment, deductible to the estate tax liabilities based on the OLD estate tax regulation.

“In case the estate has properties which were not declared in the previously filed return, the legal heirs/executors/administrators can file an ETAR or an amended ETAR…within two (2) years from the effectivity of the Regulations.”

  • If you have filed and claimed estate tax amnesty for one property, and later realize that there’s another property, you can still claim tax amnesty on the second property–provided filing transpires before June 14, 2021.

“Properties included in the Estate Tax Amnesty availment which are likewise subject of taxable donation/sale shall be assessed of the corresponding donor’s/capital gains/or other applicable taxes at the time of donation/sale including penalties, if applicable.”

  • Example of this is when an heir enters into an Extra Judicial Settlement of Estate with Deed of Sale/Donation before the ETA was implemented, the heirs can still avail estate tax amnesty.
  • However, the relevant Capital Gains Tax or Donor’s Tax are not covered by the estate tax amnesty. Penalties due to failure to pay the relevant CGT/Donor’s Tax within the set deadlines shall apply.
  • Another example of this is if a spouse dies, his 50% share of the property shall be distributed to the surviving spouse and their kids.
  • In case, the surviving spouse decides to forego (donate to her kids) her 50% share as well as the portion that she is in entitled to inherit, this act shall be considered as a donation (to her kids), and corresponding donor’s tax shall apply.
  • If one of the kids, meant to inherit a portion of the property is rich, and decides to waive his inheritance, WITHOUT naming a specific person who shall receive his share, this shall NOT be considered as a donation, but merely a waiver of rights.
  • If the named a specific person to inherit his share, this shall be considered as a donation.

 

Juan Alfredo S. Patag, REB
REB Lic.# 0023114; ID# 18-1612675 until 10/20/2022; PTR#7335646 until 12/31/2019
M: +63 917 520.5826
E: jpatag@remax.ph

RE/MAX Capital
7th Floor, 8 Rockwell, Hidalgo Drive, Rockwell Center, Makati City

DISCLAIMER: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or of any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

 

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Are POGO Operators Allowed by the Chinese Government to Operate?

The Chinese POGO operators may have the license to operate in the PH, but are they allowed by their government? I’m not against them being here, for as long as they follow both Chinese and PH laws.
In the event that they suddenly disappear, it would leave a big hole in the RE market.
Read through the two articles (especially the second one) to see what I mean.
Based on this article, it seems they’re not?
DISCLAIMER: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or of any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

Is a slowdown of pre-selling to Chinese buyers imminent?

Is a slowdown of pre-selling to Chinese buyers imminent?
June 14, 2019
 
In my article “Is there a real estate bubble?” (https://jpatagblog.wordpress.com/2018/12/27/is-there-a-real-estate-bubble/) published last December 21, 2018, I briefly discussed the risks involved in selling pre-selling condos to Mainland Chinese, particularly those who have payment terms.
 
Events are still unfolding but the inherent risks in selling to foreigners with payment terms are slowly becoming more evident. I’ve just heard (though unconfirmed) that certain developers are now seeing the problem of collecting the balance from these buyers. It seems that projects are starting to turnover and balances have become due. Flipping has also become a problem especially since Developers have outright banned re-sales of units without titles. Chinese or local banks won’t lend money to finance these purchases.
 
Then there’s also the problem of remitting funds into the country. True enough, I’ve heard that there’s a Chinese broker who is having trouble remitting funds into the Philippines because their government tightened restrictions on remittances. He defaulted from the hundreds of units he reserved and the developer has taken back the units.
 
So, tread carefully when buying pre-selling units in condos with a large concentration of Mainland Chinese buyers.
 
DISCLAIMER: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or of any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

Revised 2019 Zonal Values for San Juan, Metro Manila Published

Revised 2019 Zonal Values for San Juan, Metro Manila Published

Please be informed that the new zonal values (ZVs) of real properties in San Juan City was published in the Manila Standard on May 8, 2019. It will be effective on May 23, 2019. Prior to this update, ZVs for San Juan were last revised in 2015.

In 2019, a number of cities have published new ZVs including, Mandaluyong, Novaliches Q.C., Quiapo (et. al), and Pasig. Soon to be released is Taguig, which conducted their public hearing last December 2018.

Why is this important?

If you’re buying a property in BGC, you have to sign the Deed of Absolute Sale before the BIR releases the new ZV. Otherwise, the contract price might be lower than the ZV, and higher taxes must be paid by the Seller/Buyer. The Seller may also opt to back out from the deal if he finds out that he’s getting less proceeds than what was originally calculated.

Are my annual real property taxes going to increase?

No, real property taxes (i.e. RPT, amilyar) will not be affected. Zonal Values are determined by the BIR and are used for calculating taxes for sale of properties (CGT, DST, TT, RF).

Feel free to ask me questions.

Juan Alfredo S. Patag, REB
REB Lic.# 0023114; ID# 18-1612675 until 10/20/2022; PTR#7335646 until 12/31/2019
M: +63 917 520.5826
E: jpatag@remax.ph

RE/MAX Capital
7th Floor, 8 Rockwell, Hidalgo Drive, Rockwell Center, Makati City

When Bubbles Burst

When Bubbles Burst
Published: May 10, 2019

Most real estate presentations and articles talk about how the stars have aligned for the Philippine economy and how the time is ripe for people to invest in real estate. I haven’t really heard anybody talk about the flipside: what if a property bubble did exist and what if it bursts?

To have a better grasp of these bubble-burst episodes, we can take a look at the three most recent and historic bubble-burst episodes: Japan’s Property Bubble, the Asian Financial Crisis, and the Global Financial Crisis.

Japan’s Property Bubble: “The Lost Decades” (90s to Present)

Three decades after World War 2, the Japanese economy was once again a world super power. The Japanese dominated the global electronics industry, manufacturing a majority of the world’s consumer electronic products. As their economy grew, the government decided to deregulate financial markets. This meant that banks were given more power to choose whom to lend to and to determine what interest rate to lend at. With low interest rates, Japanese conglomerates borrowed recklessly to purchase real estate. The buying pushed property prices in Tokyo to increase by as much as 62% in 1987 (Takagi, 1989). At a point, Tokyo’s prime neighborhoods were 350 times more expensive than comparable properties in Manhattan (Colombo, 2012). With property prices increasing, conglomerates booked hefty profits and were able to borrow more money to invest into real estate.

By 1989, the government was alarmed by the ballooning property bubble so they tightened monetary policy, increasing interest rates by as much as 3% in a span of 3 months. Companies defaulted (due to higher interest payments); the stock market crashed; and property prices plunged. By 2004, real estate in Tokyo was only worth 10% of their 1990 peak (Barsky). Up to today, prices still haven’t recovered.

Philippine Property Market during the Asian Financial Crisis (1996 to 2003)

Coming from a revolution and a failed coup d’état, the Philippine economy was on its way to a great recovery in the early 90s. Buildings sprouted and the property sector was booming. During this time, it was common for developers to borrow in US dollars given that dollar loans had lower interest rates (5% to 6%) than peso loans (12% to 14%). Everybody was happy, until Thailand’s currency crisis.

In July 1997, the Thai Central Bank was forced to change its currency regime from a “fixed-currency” to a “floating-currency” system, after it ran out of US dollar reserves to support its policy. The Baht depreciated against the US dollar, falling from US$ 1 = THB 25 to THB 49. Fearing emerging market currencies would suffer the same fate; investors quickly sold their holdings of emerging market currencies, pushing them to devalue against the US dollar. The Philippine peso depreciated from a rate of US$ 1 = PHP 26.4 in June 1997 to PHP 42.7 in a period of 6 months.

As the Philippine currency depreciated, the country’s largest companies were at the brink of default from their dollar loans. Since these companies generated most (if not all) of their revenue in PHP, they needed more PHP to convert into US dollars to settle interest and principal payments. Philippine property developers were in turmoil. Property prices fell from their peak in 1997 and the construction of new developments halted. It took 6 years for general property prices to recover and reach their highs. Today, some properties still remain in litigation.

Global Financial Crisis (2006 to Present)

In 2001, the US economy suffered an 8-month long recession after the dot-com bubble burst. To boost the economy, the US central bank lowered its benchmark rate to 1% and the US’ housing boom ensued. Interest rates were so low that Americans could borrow money to purchase houses, rent them out, settle interest and principal payments, and still pocket sizeable profits.

Loans to people with no income, no jobs, and no assets (otherwise known as “NINJA loans”) became prominent. Buyers thought that they could always either flip properties for a profit or refinance the loan at a lower rate, especially since “property prices always increase”. More importantly, they failed to understand that their loans had “teaser rates”, and that these rates would eventually become higher. When the US central bank increased interest rates in 2004, people started to default from their loans. Properties were foreclosed and real estate prices bottomed. It took 13 years for prices to crawl back to their 2006 highs.

Take-Aways

These events show us that real estate investments are not immune to economic downturns. As pointed out by the Asian Financial Crisis, economic shocks may originate from external events/factors. Today, a number of risks exist including: rising global interest rates, a disorderly Brexit, and a military confrontation in the Korean Peninsula. But are these enough reasons to avoid investing in real estate?

In times of economic slowdown, no asset/investment/life is recession-proof. Your business is at risk; your job is at risk; even money kept in a vault is at risk (from devaluation). Real estate prices will also take a hit, but I argue that CERTAIN real estate investments will recover faster than other assets for the simple reason that they are tangible and useable. I’m not saying that you should put all your money in real estate. Global financial advisors recommend allocating 20% to 45% to real estate, depending on age. The younger you are, the more allocation you should have in real estate assets. You can mitigate the inherent risks to real estate investments by choosing which developers to buy from, which properties to buy, where to buy, and what price to buy at. This is where your trusted broker can help.

If you’re wary about a bubble in the condo market, then buy a lot/land. If you think lot prices in the metro are too high, then look in the fringes or outside where they are comparatively lower. Knowing your liquidity needs (do you want/need passive income from the property), risk appetite (are you conservative or risk averse), and investment horizon (how long you’re willing to wait) will help narrow down your options.

If you’re the type who would wait for the market to fall before buying, it’s easier said than done. The world’s most successful real estate tycoons agree that nobody can time the real estate market–not even them. If the pros can’t time it, how can you? Truth is, successful investors know how to create wealth at any point in a cycle. Time in the market is more important than market timing.

What about those who have bought condos at high prices; should they sell now? Based on what I’ve seen in the market, condo sales have started to slow down (and is continuing to do so). For example, some developers have established new rules/fees to prevent the “flipping” of units; extra incentives are given to brokers who are able to sell the remaining inventory at current prices; and some unit owners have decided to simply rent out their condos, instead of selling. This cooling down is actually essential and healthy for the market. I’ll be more concerned if average condo prices continued to rise above Php280,000 per square meter (read my article, The Need to Look Elsewhere).

The key take-away is this: asset bubbles form due to overconfidence and exuberance. They can burst due to unforeseen events. If you had one exit strategy (which is to “flip”) when you bought/buy real estate, what you’re doing is speculation (gambling). You may have profited from the practice before but you’ll have a more difficult time now (read my article, Days of the Quick Flip are Coming to an End). Real estate investment has always been meant for wealth preservation, not for capital growth. It has always been a long-term play.

If anything needs clarification or a trusted real estate broker, send me an email.

 

Juan Alfredo S. Patag
REB Lic.# 0023114; ID# 18-1612675 until 10/20/2022;
PTR#7335646 until 12/31/2019
M: +63 917 520.5826

LinkedIn: https://www.linkedin.com/in/juanpatag/
Facebook: https://web.facebook.com/jpatagrealestate/

RE/MAX Capital
7th Floor, 8 Rockwell, Hidalgo Drive, Rockwell Center, Makati City

DISCLAIMER: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or of any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

The Not as Rosy Real Estate Picture

Published: March 14, 2019

The picture isn’t as rosy as the way as readers interpret it. One report stated that condo pre-sales in the Metro reached a record high in 2018. While true, the year-on-year increase was minimal. In 2018, sales take up was reported to be 54,000 units–a mere 1.89% increase vs. the previous years 24% increase.

Another report claimed that the Philippines had the best performing luxury real estate market in the world, beating Boston, Tokyo, and Paris. The report clearly states “luxury”. So let’s not extend the view to other segments in the market. Choose where you put your money, it doesn’t apply to all segments.

Back in the day, you can wear a blindfold, choose a property to buy, and make money–regardless. Those days are gone. The time deposit today is now at 5%. The SMC Global Power perpetual note yields 6.75%. These are the returns your real estate investment has to beat.

The properties that can beat these returns aren’t offered everywhere. Send me an email, I’ll show you some.

Juan Alfredo S. Patag
REB Lic.# 0023114; ID# 18-1612675 until 10/20/2022; PTR#7335646 until 12/31/2019
T: 505.3584 / M: +63 917 520.5826
7th Floor, 8 Rockwell, Hidalgo Drive, Rockwell Center, Makati City

DISCLAIMER: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or of any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

Once in a Lifetime Chance: Estate Tax Amnesty of 2019

Published March 5, 2019

Edit: July 9, 2019

 

In a move to alleviate the Bureau of Internal Revenue’s backlog of tax cases, increase revenue collection, and free up idle properties, the government finally approved the long-awaited Tax Amnesty Act (TAA). This is great news because it gives all taxpayers the once-in-a-lifetime chance to settle unpaid taxes and have a clean record. In this article, I’ll tackle one of three items covered by the TAA: the Estate Tax Amnesty (ETA).

 

Before the TAA was executed, the estate tax ranged from 0% to 20% of the net estate of the decedent (the person who passes away). Assuming heirs weren’t able to settle the estate taxes to transfer the inherited properties to their name, the BIR automatically slaps a 25% surcharge penalty of the tax payable. Moreover, each year of non-payment subjects the tax payable with a deficiency penalty of 20% annual interest. In short, the tax payable grows exponentially to exorbitant levels, which sometimes are even more than what the property is worth.

 

Let’s take a hypothetical case as example. In 2001, Jose Reyes (90 years old and widowed) passed away, leaving a 2,000 square meter lot in Forbes Park to his only son Joe. At the time of death, the zonal value of the lot was Php70 Mn. The estate tax payable at the time of death was Php12.7 Mn (after reducing the estate by some allowable deductions), which Joe didn’t have the cash to pay for. Years pass and by December 31, 2016, the tax payable had grown to Php82.5 Mn.

 

Sadly, Joe passed away on December 31, 2016, leaving behind his wife Josefina as the only heir.

 

On December 31, 2017, Josefina has to pay estate taxes of Php99 Mn to transfer the title from Jose’s name to Joe’s, and an additional Php88.4 Mn to transfer the title from Joe’s name to hers.

 

With this kind of tax burden, real properties often become idle. Sellers believe that buyers are willing to settle the estate tax payable as part of the acquisition price. More often than not, buyers shy away from these properties for the fear that undisclosed heirs may suddenly appear or for the possibility that sellers may disappear the moment they settle the tax burden.

 

This all changes with the TAA. The new law states that Josefina only has to pay Php4.1 Mn (Php67.3 Mn net estate as of Dec. 31, 2001 * 6% ETA rate) to transfer the title from Jose’s name to Joe’s and Php21.5 Mn (Php357.3 Mn Zonal Value as of Dec. 31, 2016 * 6% ETA rate) to transfer from Joe’s to her name.

 

What if Josefina doesn’t have the Php25.5 Mn needed to settle the estate? She could proceed with an “Extra Judicial Settlement of the Estate WITH ABSOLUTE SALE. This means that Josefina, the heir, will settle the estate as with the proceeds from the consequent sale of the property. This procedure transfers the title of the property straight from Jose’s name to the buyer’s name. Furthermore, the Buyer can acquire an “heir’s bond” from a reputable insurance company, to protect himself from unexpected claims of undeclared heirs.

 

If you would like to avail of the ETA with the goal of selling the property, you have to move quickly since the amnesty is only offered for a period of 2 years , or until June 14, 2021. If you miss this chance, the taxes to paid reverts back to the National Internal Revenue Code of 1997, which means the penalties revert back to what they were and the penalties will continue to continue grow at the old rate per year.

 

Send me an email; we can help provide a concrete plan and solution. It would be best if you’re first in line, especially with the sheer number of people who we believe will be claiming advantage of this development (as well as the General Tax Amnesty and Amnesty on Delinquencies).

Juan Alfredo S. Patag, REB
REB Lic.# 0023114; ID# 18-1612675 until 10/20/2022; PTR#7335646 until 12/31/2019

DISCLAIMER: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or of any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.