The BIR Form 2307 is often referred to as the Certificate of Creditable Tax Withheld At Source. What does it mean? It means that this form is used to present the income of an individual or business entity that is subject to Expanded Withholding Tax (EWT) paid by the withholding agent. If you’re diligent about your bookkeeping and accounting practices, find out what this form is all about to help you keep track of your overall fiscal health.
What is an EWT and how does it work?
Withholding taxes essentially act as safety deposits for a government to ensure that taxpayers pay their taxes. For example, Atty. A is paid a professional fee amounting to P 100,000 in February of 2021. The withholding tax applicable is 15%, or P 15,000. Atty. A must pay his or her income tax by April 2021. But before filing, the government already collected the P 15,000 withholding tax from the withholding agent in March 2021. Therefore, by April 2021, he would have a tax deductible of P15,000 from the final income tax.
The expanded withholding tax itself, as per the BIR, is a kind of withholding tax prescribed on certain income payments. It is creditable against the income tax due to the taxpayer for the taxable quarter or year where such income was earned. At times, the withholding taxes collected are bigger than the tax dues because of certain deductibles, making the taxpayer eligible to tax credits or refunds.
Though it may be tricky to do, as prices change weekly or even every day, it is essential to do this kind of check and audit regularly to improve the profitability of your business. Moreover, you should not only be looking at what profits you stand to make, but the losses as well, so you can cut them off early on.
What forms of income are subject to EWT?
EWT is often levied on professional fees, talent fees, and other fees for services rendered. Often, professionals, freelancers, and self-employed individuals providing services have their income subject to this tax. This is often done through submission of the BIR Form 2307
The BIR Form 2307 is often filed by freelancers, as they are required to submit it alongside their 1701 or 1701Q form.
Why should you file a BIR Form 2307?
You should file your BIR Form 2307 as it is part of the assets in your accounting books. It serves as a prepaid expense on income tax expense. This would also reflect on your Certificate of Creditable Withholding Tax, which is needed to claim tax credit when filing your year-end tax returns.
You may find a copy of the form on the official BIR website. Noteworthy, some accounting firms are capable of generating and filling this out for you, with others using automated software, which you may also monitor through an online portal, should their firm have one.
Who issues this form?
The withholding agent is tasked to fill out this form. Depending on your kind of business, you may be the issuer or recipient of this form.
The bottomline is if your income is already subjected to expanded withholding tax, you must issue BIR Form2307. In contrast, if payment is not subject to it, you don’t have to use this form.
A three-way-matching system generates a paper trail for every purchase and reduces error and fraud. It is important to incorporate this system into your practices to avoid wastage, cash flow issues, inaccurate stock levels, and erroneous balance sheets.
This system allows you to control your food and beverage costs as well as the purchasing processes. It is given its name as 3 documents are used to validate and confirm the transaction. This includes the purchase order, the delivery receipt, and the vendor’s invoice. Note that the delivery receipt is different from the invoice, as it is merely proof that the item has been delivered, while the invoice is the bill or actual payable.
When should you file?
BIR Form 2307 is often filed along with other forms. Here are the forms that this is usually attached with together with the date it needs to be filed on.
- Income Tax Returns
The BIR Form 2307 is submitted with income tax returns as proof of tax credit. The deadline for filing Income Tax Returns quarterly is on the 15th of May, August, and November. For Annual Income Tax Returns, the BIR Form 2307 must be ready in time for submission on the April 15 deadline. These deadlines are consistent and do not change unless certain orders are issued by the government granting tax amnesty.
- Expanded Withholding Tax
Expanded withholding tax must be issued on or before the 20th of the month after the taxable quarter.
- Percentage Taxes
Government payments require the issuance of a BIR Form 2307 alongside the BIR Form 2551, which must be issued within a 25-day period after the end of each taxable quarter.
- Value Added Tax Withholding
BIR Form 2550 should also accompany BIR Form 2307 and should not be issued later than the 20th day after the end of each month.
It’s essential for every income earner to comply with tax rules and regulations of the BIR. Failure to do so will result in penalties, fines, interest surcharges, possible business closure (if applicable), and potential jail time. Bear in mind that ignorance of the law is not an excuse.
If you’re not confident in preparing the documentary requirements for the BIR, collating the proper supporting evidence, and computing for tax dues, it is best to consult a professional. Call our team for assistance as we proffer guidance on BIR problems and solutions.