Mastering the Ph PFWT: Your Guide to Smooth Tax Compliance

Are you a professional providing services in the Philippines? If so, it’s essential to familiarize yourself with the Professional Fee Withholding Tax (PFWT). This tax is applied to your service fees and other payments, and understanding how to compute and fulfill your tax obligations is crucial. If you’re unsure about the proper procedures for filing your taxes, worry not, as this article will provide you with the necessary guidance.

What is PFWT, and who is required to pay it?

The Professional Fee Withholding Tax (PFWT) is a tax imposed on professional service fees and payments. As a service provider, you are responsible for withholding this tax when receiving payments and remitting the amount to the Bureau of Internal Revenue (BIR) along with your other tax obligations.

 

The PFWT applies to various professionals, including lawyers, accountants, doctors, architects, engineers, professional entertainers (such as actors, actresses, composers, singers, emcees, and influencers), accounting and bookkeeping agencies, insurance adjusters and agents, professional athletes, directors and producers involved in movies, television shows, stage, and musical productions, as well as technical and management consultants who are not employed full-time. Additionally, director fees paid to individuals who are not employees of the company are also subject to PFWT.

 

It’s worth noting that individuals earning income not exceeding PHP 250,000 per year are not 

subject to withholding tax.

How do you compute the PFWT?

The computation of the PFWT depends on the type of professional service you provide. The tax is calculated as a percentage of your gross payment, ranging from 5% to 15%. As the payer, you are responsible for withholding the appropriate amount at the time of payment and subsequently remitting it to the BIR along with your other tax obligations.

 

Professional Fees Rendered to Individuals:

  • 5% Tax Rate: Annual gross income is less than PHP 3 million.
  • 10% Tax Rate: Annual gross income exceeds PHP 3 million.

 

Professional Fees Rendered to Corporations or Partnerships:

  • 15% Tax Rate: Annual gross income exceeds PHP 720,000.
  • 10% Tax Rate: Annual gross income is less than PHP 720,000.

 

When filing your professional fee withholding tax, you will need to include an Alphanumeric Code (ATC). For services rendered to individuals, the ATC ranges from W1010 to W1091, while for corporations, it ranges from WC010 to WC081.

Obligations of Withholding Agents for PFWT

As a withholding agent for the PFWT, you have specific obligations that must be fulfilled to comply with tax regulations. Here are the key obligations:

 

  1. File Sworn Declaration: On or before January 30th, submit a sworn declaration to the BIR, providing information about the number of individuals who have given you copies of their BIR Certificate of Registration.
  2. File Withholding Tax Monthly: File BIR Form 1601-E and pay the withholding tax on or before the 10th day of each succeeding month. If you are not using the Electronic Filing and Payment System (EFPS), you must file within ten days after the end of the applicable quarter.
  3. File Withholding Tax Quarterly: If you are using EFPS, file within ten days after the end of each month’s applicable quarter to ensure your payments are not late.
  4. File Withholding Tax Annually: Use BIR Form 1601EQ to file and pay your withholding tax on or before the last day of the month following the end of each quarter.
  5. Issue Withholding Tax Statement: Provide BIR Form 2307 to the payees within 20 days from the end of each quarter, indicating the taxes withheld.
  6. File Annual Information Return: File BIR Form 1604E annually by March 1st to report the total amount of tax withheld from your employees. 

Penalties for Non-Compliance with Tax Obligations

Failure to fulfill your tax obligations can result in penalties such as:

 

  • Not Filing Income Tax Return: A PHP 5,000 fine for each year in which you fail to file your income tax return.
  • Not Paying Tax Owed: An interest rate of 20% per year on the unpaid amount, and a 5% penalty of the due amount for each month it remains unpaid.
  • Not Withholding and Remitting Tax: A PHP 10,000 fine per year, an interest rate of 20% per year on the unpaid amount, and a 5% penalty of the due amount for each month it remains unpaid.
  • Not Withholding Returns: A PHP 1,000 fine for each instance of failing to file, an interest rate of 20% per year on the unpaid amount, and a 5% penalty of the due amount for each month it remains unpaid.
  • Not Providing Withholding Tax Statements to Payees: A PHP 1,000 fine for each piece of information you fail to provide to the payee, an interest rate of 20% per year on the unpaid amount, and a 5% penalty of the due amount for each month it remains unpaid.

 

For any questions or assistance regarding the Professional Fee Withholding Tax (PFWT) or any other tax-related matters, our accounting and bookkeeping services are here to support you. Feel free to reach out to us, and our friendly and knowledgeable team will help simplify the complexities of PFWT, ensuring that you meet your tax obligations with ease.

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