Expanded Withholding Tax in the Philippines: A Practical Guide for Payors

Expanded withholding tax (EWT) is a creditable income tax that a payor withholds at source from certain income payments to persons residing in the Philippines, then remits to the Bureau of Internal Revenue (BIR). The payee can credit the amount withheld against its own income tax due. The governing rates and rules are set out in Revenue Regulations No. 11-2018, which amended the withholding provisions of the earlier consolidated regulations to implement the changes introduced by Republic Act No. 10963, the Tax Reform for Acceleration and Inclusion (TRAIN) Law. The payor is the withholding agent and carries the legal duty to withhold, remit, and report — even though the tax is the payee's liability.

What "expanded withholding tax" means

EWT is a creditable withholding tax. Unlike a final withholding tax, which fully settles the payee's tax on that income, EWT is only an advance payment. The payee reports the income, credits the tax withheld, and pays any difference.

The withholding agent is the person or entity that pays for goods or services. Under RR No. 11-2018, the duty attaches to the payor at the time of payment, and the payor must compute, withhold, and remit the correct amount.

Common EWT rates and the income payments covered

RR No. 11-2018 sets out the income payments subject to creditable withholding tax and the rates for each class of payee. The more common ones:

• Professional fees, talent fees, and similar payments. For individual payees: 5% if gross income for the current year does not exceed P3 million; 10% if it exceeds P3 million. For non-individual payees: 10% if gross income does not exceed P720,000; 15% if it exceeds P720,000.
• Rentals of real property used in business: 5% on gross rental.
• Rentals of personal property: 5% on gross rental or lease exceeding P10,000 annually. The threshold does not apply once accumulated rentals to the same lessor exceed, or are reasonably expected to exceed, P10,000 within the year — then 5% applies to the entire amount.
• Income payments to certain contractors: 2% on gross payments, covering general engineering, general building, specialty, and other listed contractors.
• Income payments by top withholding agents to local suppliers: 1% for suppliers of goods and 2% for suppliers of services.
• Commissions of independent or exclusive sales representatives and marketing agents: covered under the same regulation.

The list is not limited to these examples. RR No. 11-2018 also enumerates other categories, including professional entertainers and athletes, directors and producers, insurance agents and adjusters, management and technical consultants, bookkeeping agents, and certain brokers and agents.

The sworn declaration that lowers the rate

Individual payees whose gross receipts or sales in a taxable year will not exceed P3 million must submit a sworn declaration of gross receipts or sales, together with a copy of the Certificate of Registration, to all income payors not later than January 15 of each year, or at least before the initial payment of the professional fees, commissions, or talent fees.

If the payee fails to provide the declaration, the 10% rate applies. The 10% rate also applies if the income payment exceeds P3 million despite the declaration. For non-individual payees with estimated gross income not exceeding P720,000, a notarized sworn statement must be given to all payors so that only 10% is withheld; otherwise, 15% applies.

Duties of the withholding agent

Withholding is not optional. The payor must withhold the correct rate, remit the tax, and issue the payee a Certificate of Creditable Withholding Tax Withheld at Source (BIR Form No. 2307). Under RR No. 11-2018, the certificate is issued every 20th day following the close of the taxable quarter or upon request of the payee.

Payors must also report the payments in the Alphalist of Payees Subject to Expanded Withholding Tax, attached to BIR Form No. 1604-E (Annual Information Return of Creditable Income Taxes Withheld (Expanded)/Income Payments Exempt from Withholding Tax). The same regulation requires payors to execute a sworn declaration stating the number of payees who submitted their sworn declarations, filed with the concerned BIR office on or before January 31 of each year, or within 15 days following the month a new income recipient submits a declaration.

Special rule for hospitals, clinics, and HMOs

For professional fees paid to medical practitioners by hospitals, clinics, or HMOs, it is the duty of the hospital, clinic, HMO, or similar establishment to withhold and remit the tax. These establishments must ensure the correct taxes are withheld and timely remitted. They must also issue BIR Form No. 2307 to the medical practitioners subjected to withholding.

Frequently asked questions

Is expanded withholding tax the same as final withholding tax? No. EWT is creditable — the payee can use it against income tax due. Final withholding tax fully settles the tax on that income.

Who is required to withhold expanded withholding tax? The payor or withholding agent. Under RR No. 11-2018, the obligation attaches to the person making the income payment, such as a business paying professional fees, rent, or contractor services.

What form does the payee receive as proof of withheld tax? BIR Form No. 2307, the Certificate of Creditable Withholding Tax Withheld at Source, issued by the withholding agent.

Practical takeaways

• EWT is a creditable tax withheld at source; the payee credits it against income tax due.
• Rates depend on the type of income and the payee. Common rates are 5% or 10% on professional fees, 5% on rentals, and 2% on payments to certain contractors.
• Individual payees must submit a sworn declaration of gross receipts or sales to avail of the lower 5% rate; otherwise, 10% applies.
• Withholding agents must issue BIR Form No. 2307 and report payments in the Alphalist attached to BIR Form No. 1604-E.
• For medical practitioners, hospitals, clinics, and HMOs carry the withholding and remittance duty.

Primary sources

The rules discussed above are drawn from the following issuances, embedded here in full for your reference.

RR No. 16-2005 — Prescribes the Consolidated Value-Added Tax Regulations of 2005 superseding RR No. 14-2005 (Published in Manila Times on Oct. 21, 2005) Digest | Full TextOpen in Law LibraryDownload PDF

RR No. 11-2018 — Amends certain provisions of RR No. 2-98, as amended, to implement further amendments introduced by RA No. 10963 (TRAIN Law) relative to withholding of Income Tax (Published in Manila Bulletin on March 19, 2018) Digest | Full Text | Annex A | Annex B-1 | Annex B-2 | Annex B-3 | Annex C | Annex D | Annex E | Annex FOpen in Law LibraryDownload PDF

RR No. 7-2024 — Implements Section 113, 235, 236, 237, 238, 242, 243 of the Tax Code of 1997, as amended by RA No. 11976 (Ease of Paying Taxes Act), on the registration procedures and invoicing requirements (Date Posted: April 12, 2024)Open in Law LibraryDownload PDF

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.