Blog – General Information about Philippine Withholding Tax

General Information
About Withholding Tax
in the Philippines

  1. What is BIR ?

BIR is the acronym for Bureau of Internal Revenue. It is the agency mandated by the Philippine government to collect taxes.

  1. What is Withholding Tax?

Withholding Tax (WHT) is tax withheld by a Payor/Withholding Agent (including government money payments made by a government office) when making a payment to a vendor.

The full amount owed to the vendor is reduced by the tax withheld. The withheld tax is then remitted to the Bureau of Internal Revenue (BIR).

  1. Who are Required to Withhold Taxes?

BIR requires taxes to be withheld from payment to vendors under the following circumstances:

    • The vendor is either a Company or an Individual whose transaction fall under income payment subject to Expanded Withholding Tax as specified in details under BIR Form 2307. In which case, the amount of withholding tax shall be allowed as a tax credit against the income tax liability of the vendor/tax recipient.
    • Individuals engaged in business or practice of profession
    • Non-individuals (corporations, associations, partnership, cooperatives) whether engaged in business or not
    • Government agencies and its instrumentalities (National Government Agencies (NGAs), Government-owned or Controlled Corporations (GOCCs), Local Government Units including Barangays (LGUs)
    • Mandatory withholding of top withholding agents:
      • Top 20,000 private corporations
      • Top 5,000 individual taxpayers
      • Medium Taxpayers, and those under the Taxpayer Account Management Program (TAMP).

In Philippines, WHT on Sales is realized upon payment of the customer. WHT on Purchases is realized upon invoice.

  1. What are the types of Withholding Taxes?
    • Creditable withholding tax – tax which is withheld by the buyer/withholding agent from his payment to the seller for the sale of the seller’s ordinary asset/services, and which tax is creditable against the income tax payable of the seller.
    • Expanded Withholding Tax (EWT)- a kind of withholding tax which is prescribed on certain income payments & is creditable against the income tax due of the payee for the taxable quarter/ year in which the income was earned.
    • Final Withholding Tax – a kind of withholding tax which is prescribed on certain income payments & is not creditable against the income tax due of the payee on other income subject to regular rates of tax for the taxable year.
  1. What Forms & When  to Submit or Issue
    • BIR Form 2307 – Certificate of Creditable Tax Withheld At Source
      Issuance:
      • For VAT Withholding – on or before the 10th day of the month following the month in which withholding was made.
      • For EWT – on or before the 20th day of the month following the close of the taxable quarter.
    • BIR Form 2306 (Certificate of Final Tax Withheld at Source).
      • Issuance: on or before January 31 of the year following the year in which income payment was made.