Business Tips Philippines: Business Owners and Entrepreneurs’ Guide

Business Tips Philippines, an online entrepreneurship, management & marketing guide for Filipinos, business owners, leaders & entrepreneurs around the world.

Expanded Withholding Tax in the Philippines

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

3.  Rentals:

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.”

Disclaimer:
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.

Source:
BIR Income Tax information on withholding tax

Comments

  1. Hi po.

    Bumile po kasi kami ng software application sa non-resident company na walang establishment dito sa Philippinesng nag -invoice sile wala pong VAT. and stated sa contract na we are responsible sa local tax . Does this mean na we are responsible to pay for the VAT in behalf of them po ba?How about po the expanded withholding kami rin po ba ang need to pay in behalf of them.How much po ang rate na gagamitin; 2% or 1% Please advise. Thanks

  2. Good morning. I just want to inquire how can we recover to our subcontractor the 2% expanded withholding tax. Our previous accountant forgot to deduct the 2% withheld tax on our payment but we report it to BIR and paid for it. Now, what is the best remedy in order for us to recover that withheld tax? Is it okay to collect from them directly or deduct on their billing?

  4. Hi,
    can a company claim input VAT for official business travel expenses of employees, e.g. meals, diesel, accommodation?

  5. Hi to all,

    We are a non-stock non-profit organization of architects/engineers, we provide technical assistance to peoples’ organizations. Recently we accepted service contracts with other NGOs providing tech assistance also. Should we be withheld using the 2% or 15%?

    Thank you in advance.

  6. Hi. Is interest expense from related party subject to EWT? If yes, what are the withholding requirements? Any legal basis? Thank you so much.

  7. Hi. just want to ask if a contractual senior citizen employee can be charged expanded withholding tax. thank you

  8. Hi!

    Ask lang po..

    What if meron po kaming truck (we own this, but the OR/CR is under “A” company). Which is bumabyahe yung truck namin under the company’s name. Allowed pa din po ba yung 5%, considered equipment rental po ba yan? Ang nagkeclaim po is yung company.

  9. Hi! I have this scenario. I was hired as an accounting staff last sept.28,2016.but since that company was too afraid to use the term as “contractual employee” they labeled me as an outsource service even i applied direct to their hr department. I receive the legal minimum rate of 366 pesos/day. But in my surprise they deducted 10% expanded tax on my pay check. When i asked about it they told me that is for professional services i rendered.as far as i know i don’t fall to the professional services category since I am not licensed cpa and not practicing the degree i have finished for the last 9 years. Is this legal? What advise you can give me regarding this matter? As of the moment I am no longer in that company since we’ve got a debate regarding this expanded tax thing. Thank you very much.

  10. Hi, May I know is Janitorial Services subject for ewt if the monetary unit being used is Dollar or any other monetary unit.

    Thank you

  12. Sir/Ma’am,

    Can we withheld from our previous payment from our subcontractor at the end of the year, even if those payment are reported and our suppliers book are already closed?

  13. hi,

    Sir,

    May I ask about expanded withholding tax. We have a supplier who is engage on cargo (who deliver only what we ordered from outside the Philippines). My question is ” are we going to withheld on expenses of supplier?” they have receipted expenses such as bank charges, duties and taxes, warehouse charges and lodgement fee. and they have unreceipted expenses on supplier’s part such as documentation, handling fees, delivery expense, documentary stamps, notarial fees, trucking and overtime. are these expenses subject for withholding tax?

  14. Our business is trucking company and once the service was done, we billed the client and issued an SOA. The agreement is , the client will pay us after one month from SOA date.
    Ex
    Dec 2016 (Billing) January 2017 (Payment)
    a/r 500 Cash, 490
    service fee revenue 500 Creditable wtax 10
    A/R 500
    my questions are:
    1. For percentage tax purposes, on what date we need to file my percentage tax, ? On the date i received my payment( gross receipt) or on the time we issue the SOA.
    2. For ITR purposes, should i reported my income for 2016 is P 500 (which i based on the billing date)

    thank you

  15. Hi Sir,

    Even Percentage taxpayer are still required to withheld expanded tax?
    Check ko po sa COR ni client wala naman nkalagay na 1601E,or need ipa-update COR nila?
    Thanks in advance

  16. I am registered as mixed income. Currently, I’m not practicing as a self-employed individual. I’m just employed in a hospital, I get 10% deductions every month. Do I still need to file my wage monthly in form 2551M or should I just file 0 income in 2551M since I haven’t issued any receipts and ask my employer for a 2316 next year for ITR filing like a normal employee together with my 1701?

    • Hi. If your income from the hospital is pure compensation income, then it doesn’t need to be taxed with 2551M (percentage tax). But if it’s a professional income, then it should be taxed with percentage tax. You said, you are deducted with 10%, which seems to be a withholding tax expanded for professional, not as a pure employee. To make sure, confirm if your arrangement with the hospital is a pure employment contract, and not a consulting contract.

  19. Hi… I just want to ask if there is a penalty for not issuing an official receipt to the customers who have issued withholding tax of 1% on our sales.? I was informed late by my assistant regarding this matter and I just discovered it recently when I already settled our tax payments to the BIR office.

    Need your help… Thank you…

  20. EWT for Reimbursement for payment of Utility Expenses such as Water, Telephone and other related expenses were not deducted in local government units? My question is, have we committed a violations of expanded witholding tax law?

    • Hi. Usually it is the agent, and not the principal, who withheld and remit the withholding taxes on reimbursable income payment. However, if there’s a markup on the income payment (that is the agent earns income on the reimbursement), the principal is required to withhold on the income payment. To fully confirm this matter and make sure you are not in violation, please ask advice from the BIR RDO in your jurisdiction.

  21. Good day! Would like to seek for advice. We are paying a monthly professional fee to our customs broker for her license. But we failed to withheld from her income for the last three quarters because she is not issuing us an official receipt. Can we deduct this expense to our annual ITR in absence of the two supporting document? If not, can we still file the missed 3 quarters if both parties agreed to the adjustment. Thank you so much.

    • Hi. You cannot claim it as deductible expense since no withholding has been done. If you will deduct it, you have to file the missed 3 quarters and pay the corresponding taxes payable plus penalties (compromise, interest and surcharge). It is advisable to do only business with professionals who issue official receipts.

  22. Hello.. I would like to inquire if my below calculation is correct. or not. The company is engaged in construction and we do progress billing and collect certain amount to our clients. I am not sure how this should be written on invoice/offical reciept. For illustration purposes assuming collection is VAT inclusive. The client pay the 125,000.00 and the EWT of 2% is already deducted and withhold and then client also issued BIR 2307 for EWT.

    Cash on the face of cheque……. Php 125,000

    Sales……………………………….. 142,857.14
    Less: 12% VAT ……………… 15,306.12
    Total net of VAT…………….. 127,551.02
    Less: 2% EWT………………… 2,551.02
    Net Sales/Collections….. 125,000.00

    Here are my follow up questions.
    1. Is it correct that there is also 12% VAT ?
    2. If there is VAT, should calculation of EWT be based on the amount after 12% VAT?

    Please help me understand as I am thinking it will fall to double taxation.

    • Hello.
      1. If the company is VAT registered then there should be output VAT of 12%.
      2. EWT is based on the sales exclusive or after the 12% VAT.

      It will not be a double taxation since EWT is based on sales exclusive of VAT.
      VAT is also a transfer tax (tax on sales) – transferable to the customer/client, while EWT is a withholding tax on income. As the seller, you’re not actually paying VAT but it’s your customers – you only remit to the BIR the output VAT you additionally charge from customers. On the EWT, it’s a creditable tax deducted by your customers — you can claim it as a deduction from your income tax later thru 2307.

  23. Hi, I have a query, are construction materials subject to EWT? We are in a project mngt business and the project we are dealing with right now is all AT Cost arrangement. Now, we are filing receipts of materials purchased as reflected in the O.Rs and are subject to reimbursement and our client would deduct 2% from the materials cost. Can you please enlighten me on this. Thank you.

  24. Hi! We paid 3 months advanced rent to be used on the last 3 months of our 3rd year of renting at a condominium. How do we pay for the ewt for this? And when do we pay? The payee already put it in their 2307 certificate this quarter. Thank you very much.

    • Hello. Expanded withholding tax for the rent you paid is filed online and paid at any BIR accredited bank. You may file online using eBIRForm, then print the confirmed form and pay at the accredited bank. You may read this post https://businesstips.ph/how-to-file-tax-returns-online-in-the-philippines/ for a guide on how to file taxes online. Since the new TRAIN Law, expanded withholding taxes on rent are already filed quarterly, so I would recommend that you consult with a BIR examiner to properly compute and file your withholding taxes.

  25. Hi Ghar! Say a practising licensed insurance agent gets commissions and are taxed (withholding tax) by the company before being received, is he still required to pay taxes to BIR?

  26. Hello, I just wanna ask if how much withholding tax should be charged of a local services to a Non Resident Foreign Corporation?10% or 15%? Upon checking by our company’s record, for the first 2 months, the local firm charged our company by 15%, then this month the withholding tax charges became 10%. How was that? Thank you

  27. Hi,

    I am a private employee and we are mandated to withhold taxes for any purchases transactions. Now, we will purchase a seedlings from Municipal Agriculture Office as proof of purchase the Municipal Agriculture Office will issue as a LGU Official Receipt. My question is, can we (private company) withhold a 2% EWT from them (LGU)?

  28. Hi,

    Just a question on fleetcard issuing company. Can we withhold an EWT on our payment to them? Another question, ticket on toll fees (not prepaid), can we take up input VAT from that payment? Please enlighten. Thank you so much.