The withholding tax is a tax liability collected in advance from any individual or business who earns an income. In this article, we will give you a comprehensive walkthrough about the fundamentals of the country’s withholding tax system.
What is Withholding Tax Expanded?
In the Philippines, income-earning entities — both individuals and non-individuals — are obliged by the law to file income taxes on a quarterly and a yearly basis. Through the so-called expanded withholding tax or EWT, the government can collect certain income tax payments ahead of the quarterly and yearly due dates — this tax is specifically deducted on the income of the payee on a monthly basis. This will be creditable against the income tax due of the payee for the taxable quarter or year wherein the income was earned.
The EWT is one of the measures that the government undertakes to ensure it gets enough revenue, preventing “dry spells in the fiscal conditions by the government”. It’s also a way to cut down the costs of collection efforts.
Who are Required to File Withholding Tax Expanded?
The law requires a withholding tax agent — which refers to an individual or non-individual entity that manages payment subject to this kind of tax — to file the return on behalf of the income earner. The rate of tax is dependent on the nature of the income payment and type of payee.
Failure to pay the right tax at the right time will be subject to 25% surcharge, 12% interest per annum and compromise penalty. The Bureau of Internal Revenue may also disallow said payment as a deductible expense due to non-withholding when they conduct an audit.
The following are the new tax obligations under the Tax Reform for Acceleration and Inclusion (TRAIN) Law:
● For professional and talent fees for services rendered:
○ Individual payees:
♣ If gross income is above Php 3M or is VAT registered, the rate is 10%
♣ If gross income does not exceed Php 3M, the rate is 5%
○ Non-individual payees:
♣ If gross income is above Php 720,000, the rate is 15%
♣ If gross income does not exceed Php 720,000, the rate is 10%
● For real and personal property rentals: 5% of gross payments (Note that for personal properties, the annual gross income should exceed Php 10,000 for the payee to be required)
● For income payments to contractors (e.g. general engineering, general building, specialty contractors): 2% of gross payments
● For income payments to partners of general professional partnerships:
○ If gross income is above Php 720,000, the rate is 15%
○ If gross income does not exceed Php 720,000, the rate is 10%
● For income distributions to estate and trust beneficiaries: 15% of income (except income subject for exemption or final withholding tax)
● For sales of real properties,
o If seller/transferor is habitually engaged in the real estate business and gross selling price or total amount of consideration or fair market value is:
♣ Php 500,000 and below, the rate is 1.5%%
♣ Over Php 500,000 but not more than Php 2,000,000, the rate is 3%
♣ Over Php 2,000,000, the rate is 5%
○ If seller/transferor is not habitually engaged in business, the rate is 6%
○ If seller/transferor is exempt from creditable withholding tax in accordance with Section 2.57.5 of Revenue Regulation No. 2-98, the rate is 0%
● For income payments of importers to government personnel: 15% of gross additional payments
● For income payments of credit card firms to establishments: 50% of 1% of gross payments
● For top withholding agents on payments to local/ resident regular suppliers of:
○ Goods: 1%
○ Services: 2%
● For government money payments to local/ resident suppliers of:
○ Goods: 1%
○ Services: 2%
● For tolling fees to refineries: 5% of tolling fees
● For pre-need company payments to funeral parlors, 1%
● For income payments to embalmers: 1%
● For income payments to agricultural product suppliers, 1%
● For income payments on locally produced sugar: 1%
● For payments for minerals, mineral products, and other quarry resources: 5%, except for BSP payments – 1% on gross payments
● For MERALCO refunds and interest payments:
○ Refunds: 25% if with active contracts or 32% if without active contracts
○ Interest on meter deposits: 10% for residential and general service customers or 20% for non-resident service customers
● For other refunds by electric distribution companies: 10 or 20%
● For political contributions: 5% of gross contribution
● For income payments for Real Estate Investment Trust: 1%
● For interest income for debt instruments other than deposit substitutes: 20%
How do we File and Pay Withholding Tax Expanded?
Tax withholding agents must submit EWT forms monthly apart from the quarterly and yearly filing.
For the closing month of every quarter, you must accomplish and submit the following:
After accomplishing the form, the filing of the return shall be done through the eFPS (online) or eBIR (manual).
When paying EWT, tax agents have two options. For eFPS filers, payment can be done via the payment facilities connected to the company’s online banking system. For eBIR filers, payment should be accomplished through the Authorized Agent Banks within the Revenue District Office where the filer is under. Another option is through other electronic payments like GCash and Paymaya.
As a business owner, it helps to understand tax regulations and be a responsible taxpayer. Moreover, if you have any questions or need assistance, schedule your FREE 30-minute consultation now.