Expanded withholding tax on certain income payments and withholding tax on compensation are two of the common withholding taxes you should withheld and remit to the government, when applicable. In turn, the payees of these income payments can claim those taxes withheld as creditable against their income tax due for the corresponding quarters or year by attaching the applicable certificate of creditable tax withheld (BIR Form 2316 for taxes withheld on compensation and BIR Form 2307 for taxes withheld at source). In the following discussions, we shall tackle and aim to learn more about the expanded withholding tax in the Philippines.
What is expanded withholding tax?
Expanded Withholding Tax is a kind of withholding tax which is prescribed on certain income payments and is creditable against the income tax due of the payee for the taxable quarter/year in which the particular income was earned.
What income payments are subject to Expanded Withholding Tax?
The following income payments are subject to Expanded Withholding Tax:
1. Professional fees / talent fees for services rendered by the following:
a) Those individually engaged in the practice of profession or callings such as lawyers,certified public accountants, doctors of medicine, architecs, engineers and all other professionals who have undergone licensure examinations regulated by the Professional Regulations Commission, Supreme Court, etc.
b) Professional entertainers such as but not limited to actors and actresses, singers, lyricist, composers and emcees
c) Professional athletes including basketball players, pelotaris and jockeys
d) Directors and producers involved in movies, stage, radio, television and musical productions
e) Insurance agents and insurance adjusters
f) Management and technical consultants
g) Bookkeeping agents and agencies
h) Other recipient of talent fees
i) Fees of directors who are not employees of the company paying such fees whose duties are confined to attendance at and participation in the meetings of the Board of Directors
2. Professional fees, talent fees, etc for services of taxable juridical persons
a) -Rental of real property used in business
b) -Rental of personal properties in excess of P 10,000 annually
c) -Rental of poles, satellites and transmission facilities
d) -Rental of billboards
4. Cinematographic film rentals and other payments
5. Income payments to certain contractors
a) General engineering contractors
b) General building contractors
c) Specialty contractors
d) Other contractors such as transportation contractors, janitorial, security, messengerial, advertising, labor recruiting agencies, computer programmers, etc.
6. Income distribution to the beneficiaries of estates and trusts
7. Gross commission or service fees of customs, insurance, stock, real estate, immigration and commercial brokers and fees of agents of professional entertainers
8. Income payments to partners of general professional partnerships
9. Payments made to medical practitioners
10. Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or transfer of real property classified as ordinary asset
11. J. Additional income payments to government personnel from importers, shipping and airline companies or their agents
12. Certain income payments made by credit card companies
13) Income payments made by the top 20,000 private corporations to their purchase of goods and services from their local/resident suppliers other than those covered by other rates of withholding
14. Income payments by government offices on their purchase of goods and services, from local/resident suppliers other than those covered by other rates of withholding
15. Commission, rebates, discounts and other similar considerations paid/granted to independent and exclusive distributors, medical/technical and sales representatives and marketing agents and sub-agents of multi level marketing companies.
16. Tolling fees paid to refineries
17. Payments made by pre-need companies to funeral parlors
18. Payments made to embalmers by funeral parlors
19. Income payments made to suppliers of agricultural products (suspension not yet lifted)
20. Income payments on purchases of mineral, mineral products and quarry resources
21. On gross amount of refund given by MERALCO to customers with active contracts as classified by MERALCO;
22. Interest income on the refund paid through direct payment or application against customers’ billing by other eletrict Distribution Utilities in accordance with the rules embodied in ERC Resolution No. 8 series of 2008 dated June 4, 2008 governing the refund of meter deposits which was approved and adopted by ERC in compliance with the mandate of Article 8 of the Magna Carta for Residential Electricity Consumers and Article 3.4.2 of DSOAR exempting all electricity consumers, whether residential or non-residential from the payment of meter deposit.
23 Income payments made by the top 5,000 individual taxpayers to their purchase of goods and services from their local/resident suppliers other than those covered by other rates of withholding
24. Income payments made by political parties and candidates of local and national elections of all their campaign expenditures, and income payments made by individuals or juridical persons for their purchases of goods and services intended to be given as campaign contribution to political parties and candidates
Who are required to file the expanded withholding tax returns?
The following individuals and entities are required to file the BIR Form No. 1601-E – Monthly Remittance Return of Income Taxes Withheld (Expanded) and BIR Form No. 1604-E -Annual Information Return of Creditable Income Taxes Withheld (Expanded):
Every registered withholding agent on Expanded Withholding Tax, which may include, but not limited to the following:
1) Individual engaged in business or practice of profession
2) Non-individual (corporation, association, partnership) whether engaged in business or not.
3) Government agencies and instrumentalities (e.g., National Government Agencies, Government-Owned or Controlled Corporations, Local Government Units, etc.)
What are the procedures of filing the expanded withholding tax returns?
For the steps and procedures in computing and filing the expanded withholding tax payable and returns, please read our article titled “How to Compute Expanded Withholding Tax in the Philippines.”
New and subsequent BIR rulings, issuances and or laws may render the whole or part of the article obsolete or inaccurate. Furthermore, there may also be other relevant information that have been missed to include in this article. For more information, please visit the Bureau of Internal Revenue (BIR) website.