If you're running a business, hiring employees, or paying freelancers and suppliers in the Philippines, understanding withholding tax is crucial. The Bureau of Internal Revenue (BIR) requires certain taxes to be withheld at the source—meaning you, as the payor, are responsible for deducting and remitting part of the tax before payment is made.
In this blog, we’ll explain the different types of withholding taxes, who must withhold, how to compute them, and how to stay compliant.
What is Withholding Tax?
Withholding Tax is a government-mandated deduction from income payments such as salaries, professional fees, rent, commissions, and more. Instead of the recipient paying the full tax later, part of the tax is withheld by the payor and remitted to the BIR.
There are three main types:
Expanded Withholding Tax (EWT)
Final Withholding Tax (FWT)
Withholding Tax on Compensation (WTC)
1. Expanded Withholding Tax (EWT)
EWT applies to income payments made by businesses or professionals to other suppliers, service providers, freelancers, etc. It's a creditable tax, meaning the recipient can deduct the amount withheld from their annual income tax.
Examples of Payments Subject to EWT:
Professional or talent fees (e.g., lawyers, consultants, freelancers)
Rentals
Commissions
Payments to suppliers or contractors
Subcontractor fees
Sample Withholding Rates (as of 2023):
| Nature of Income | EWT Rate |
|---|---|
| Professional fees | 5% or 10% (depending on annual income) |
| Rent | 5% |
| Commission | 10% |
| Contractor services | 2% |
Note: You must withhold even if the payee is an individual or not VAT-registered.
2. Final Withholding Tax (FWT)
FWT is a non-creditable tax. Once withheld and paid to the BIR, the payee has no further tax liability for that income.
Examples:
Interest income (usually 20%)
Royalties
Dividends paid to individuals
Winnings from lotteries or contests
Fringe benefits to managerial employees (32%)
These taxes are final and must be remitted by the payor directly to the BIR.
3. Withholding Tax on Compensation (WTC)
This applies to salaries and wages paid to employees. Employers are required to withhold monthly based on the BIR’s withholding tax tables, taking into account personal exemptions and benefits.
This is the standard payroll withholding tax for employees in the Philippines.
Who Needs to Withhold Tax?
Businesses, professionals, or individuals engaged in trade or business
Employers with regular employees
Corporations, partnerships, and government agencies
Even freelancers or online sellers may be required to withhold if they pay other service providers.
When and How to File
Common Withholding Tax Forms:
| Type | Form | Frequency |
|---|---|---|
| Expanded | BIR Form 0619E (monthly), 1601-EQ (quarterly) | Monthly & Quarterly |
| Final | BIR Form 0619F (monthly), 1601-FQ (quarterly) | Monthly & Quarterly |
| Compensation | BIR Form 1601C (monthly), 1604-C (annual) | Monthly & Annual |
Sample Deadlines:
Monthly Remittance Forms (0619E/F): 10th of the following month
Quarterly Returns (1601-EQ/FQ): Last day of the month following quarter-end
Annual Returns (1604-C): January 31 of the following year
Alphalist of Payees: Submitted with annual returns
How to Remit Withheld Taxes
File via eBIRForms or eFPS
Pay via Authorized Agent Banks (AABs), GCash, Maya, or BIR-accredited online channels
Submit Alphalists (list of payees with their TINs and amounts withheld)
Common Mistakes to Avoid
Failing to withhold tax or applying the wrong rate
Late filing or payment (penalties and surcharges apply)
Not issuing BIR-registered Certificate of Tax Withheld (BIR Form 2307/2316)
Not filing zero returns if no payments were made during the period
Why It Matters
Withholding tax isn’t just a formality—non-compliance can lead to stiff penalties and problems with both the BIR and your suppliers or employees.
It ensures tax is collected consistently
Helps businesses track expenses properly
Keeps your BIR records clean and audit-ready
Final Thoughts
As an employer or business owner, understanding withholding tax is part of your responsibility. While it may seem technical at first, getting the hang of it early will help you stay compliant and avoid costly mistakes.
When in doubt, consult a licensed tax advisor or accountant to guide you through the proper processes.
إرسال تعليق