The Question Everybody Postpones, and the Six Per Cent Nobody Expects

Nobody buys a condominium in Davao while thinking about dying in it.

But a foreign national with a property here, a partner here, and a family somewhere else has created a legal situation that will one day have to be resolved across two jurisdictions by people who are grieving, do not speak the language, and have no idea where the documents are.

It is a solvable problem. It costs very little to solve in advance and a great deal to solve afterwards. Here is what actually happens.

The tax, first, because it is simpler than people fear

The Philippines applies a flat estate tax of six per cent on the net estate, for residents and non-residents alike. There is no progressive scale and no punitive rate for foreigners. Six per cent.

Where residents and non-residents diverge sharply is on deductions.

• •A resident or resident alien decedent gets a standard deduction of PHP 5,000,000, plus, among other reliefs, a family home deduction of up to PHP 10,000,000 of fair market value.
• •A non-resident alien decedent gets a standard deduction of PHP 500,000, and the family home deduction does not apply at all. Only a limited set of deductions is available.

That is a ten-fold difference in the standard deduction alone, and for the ordinary Davao condominium it is very often the difference between a small tax bill and none.

It is also one of the clearest, most concrete arguments for actually being resident rather than merely owning property here. A properly documented residency, of the kind described in what a real residency package contains, is not only about banks and visas. It changes the estate arithmetic materially.

For a non-resident alien, only assets situated in the Philippines fall into the Philippine estate at all, with a reciprocity rule affecting certain intangible property. Your assets elsewhere are somebody else's tax question.

The rule that surprises everyone: whose law decides your heirs

This is the point most people get wrong, in both directions.

Philippine law governs the procedure for transferring Philippine property and the tax on it. But under the Civil Code, the order of succession, the amount of successional rights and the intrinsic validity of testamentary provisions are governed by the national law of the deceased.

So if you are German, German succession law decides who your heirs are and what share they take, even for the flat in Ecoland. If you are British, British law does. The Philippine forced heirship rules that apply to Filipino citizens do not automatically apply to you.

That cuts both ways, and it is why this needs a plan rather than an assumption. A German with children from a first marriage cannot simply leave everything to a Filipina partner, because German law has views about that. An Englishman probably can, because English law largely does not. Two men in the same building, with the same condominium, have different answers.

The land exception nobody knows about

Here is a genuinely surprising point of Philippine constitutional law.

Foreign nationals cannot buy land here, as we set out at length in the piece on building on family land. But the Constitution contains an exception for acquisition by hereditary succession.

The practical effect, as generally understood, is that a foreign heir can inherit land through intestate succession, where the law rather than a will directs the transfer. Attempting to achieve the same outcome by writing a will in favour of a foreigner is a different matter entirely and does not reliably work.

If land is anywhere in your family picture, and it very often is where there is a Filipino spouse, this is a question for a Philippine lawyer and not for a forum.

What your family will actually have to do

The mechanics, in order, so that somebody knows.

An estate tax return must be filed with the Bureau of Internal Revenue. The deadline is one year from death, with extensions possible on application. This is not optional and the penalties for late filing compound.

The BIR then issues an eCAR, an electronic Certificate Authorizing Registration. Nothing moves without it. No registry of deeds will transfer a Condominium Certificate of Title, and no bank will release funds for transfer, until the eCAR exists. It is the single choke point of the entire process.

A will made abroad needs a Philippine court proceeding to be recognised before it can operate on Philippine property. This is real litigation, it takes time, and it costs money.

Bank accounts. A Philippine bank account in the sole name of the deceased is frozen on notice of death, pending estate clearance. There is a mechanism allowing withdrawal subject to a final withholding tax, but the practical experience for a family is a period with no access.

The condominium itself transfers by presenting the eCAR and the estate documents to the Registry of Deeds, which cancels the old title and issues a new one in the heirs' names.

The four things worth doing this month

None of this is expensive to prepare. All of it is expensive to improvise.

One. Make a Philippine will covering your Philippine assets, alongside whatever will you have at home, drafted so that the two do not revoke each other. This is the single highest-value item on the list and it takes an afternoon.

Two. Write down where everything is.** Title numbers, bank names and branches, the location of the CCT, your TIN, your ACR I-Card or PRA card number, the lawyer's name, the insurance policy. Put it somewhere two people can find. **The most common cause of an expensive Philippine estate is not tax. It is that nobody knew what existed.

Three. Look at the ownership structure before it becomes an estate question. Joint ownership, ownership through a properly constituted entity, and outright sole ownership behave very differently on death, and there is no single right answer. What there is, is a right answer for your situation, and it is cheap to obtain now.

Four. Fix your residency position deliberately. The gap between the PHP 5,000,000 and PHP 500,000 standard deduction is decided by whether you were resident, and residency here is a documented state rather than a feeling. That is a tax question as much as an immigration one, and it connects directly to tax residency and to our tax page generally.

The uncomfortable part

If you are supporting a household here, in the way described in what a Filipino family expects, then your death is not only an emotional event for those people. It is a financial one, immediately, and the monthly transfer stops the same week.

The men who handle this well do two things: they say out loud what will happen, and they leave documents that make it happen. The men who handle it badly leave a partner explaining her position to a bank that has never heard of her, and a family in Europe discovering a life they did not know about, and lawyers in two countries billing both.

Six per cent is not the problem. Silence is the problem.

If you want this looked at properly alongside the rest of your position, that is exactly the kind of thing our team in Davao works through, and it starts at how we work.