 |
| Credits to the owner of the image. |
Withholding Tax is a method of collecting income tax in advance from the taxable income of the recipient of income.
Withholding Tax on Compensation is the tax withheld from income payments to individuals arising from an employer-employee relationship.
Expanded Withholding Tax is a kind of withholding tax which is prescribed on certain income payments and is creditable against the income tax due of the payee for the taxable quarter/year in which the particular income was earned.
Final Withholding Tax is a kind of withholding tax which is prescribed on certain income payments and is not creditable against the income tax due of the payee on other income subject to regular rates of tax for the taxable year. Income Tax withheld constitutes the full and final payment of the Income Tax due from the payee on the particular income subjected to final withholding tax.
Withholding Tax on Government Money Payments (GMP) - Percentage Taxes - is the tax withheld by National Government Agencies (NGAs) and instrumentalities, including government-owned and controlled corporations (GOCCs) and local government units (LGUs), before making any payments to non-VAT registered taxpayers/suppliers/payees
Withholding Tax on GMP - Value Added Taxes (GVAT) - is the tax withheld by National Government Agencies (NGAs) and instrumentalities, including government-owned and controlled corporations (GOCCs) and local government units (LGUs), before making any payments to VAT registered taxpayers/suppliers/payees on account of their purchases of goods and services.
1) What are the types of Withholding Taxes?
There are two main classifications or types of withholding tax. These are:
a) Creditable Withholding Tax
- Withholding Tax on Compensation
- Expanded Withholding Tax
- Withholding of Business Tax (VAT and Percentage)
b) Final Withholding Tax
2) What is compensation?
It means any remuneration received for services performed by an employee from his employer under an employee-employer relationship.
3) What are the different kinds of compensation?
a) Regular compensation - includes basic salary, fixed allowances for representation, transportation
and others paid to an employee
b) Supplemental compensation - includes payments to an employee in addition to the regular
compensation such as but not limited to the following:
- Overtime Pay
- Fees, including director's fees
- Commission
- Profit Sharing
- Monetized Vacation and Sick Leave
- Fringe benefits received by rank & file employees
- Hazard Pay
- Taxable 13th month pay and other benefits
- Other remunerations received from an employee-employer relationship
4) What are exempted from Withholding Tax on Compensation?
1. Remuneration as an incident of employment, such as the following:
a. Retirement benefits received under RA 7641
b. Any amount received by an official or employee or by his heirs from the employer due to
death, sickness or other physical disability or for any cause beyond the control of the said official or employee such as retrenchment, redundancy or cessation of business
c. Social security benefits, retirement gratuities, pensions and other similar benefits
d. Payment of benefits due or to become due to any person residing in the Philippines under
the law of the US administered by the US Veterans Administration
e. Payment of benefits made under the SSS Act of 1954, as amended
f. Benefits received from the GSIS Act of 1937, as amended, and the retirement gratuity
received by the government official and employees
2. Remuneration paid for agricultural labor and paid entirely in products of the farm where the labor is performed
3. Remuneration for domestic services
4. Remuneration for casual labor not in the course of an employer's trade or business
5. Compensation for services by a citizen or resident of the Philippines for a foreign government or an international organization
6. Payment for damages
7. Proceeds of Life Insurance
8. Amount received by the insured as a return of premium
9. Compensation for injuries or sickness
10. Income exempt under Treaty
11. Thirteenth (13th) month pay and other benefits (not to exceed P 30,000)
12. GSIS, SSS, Medicare and other contributions
13. Compensation Income of Minimum Wage Earners (MWEs) with respect to their Statutory
Minimum Wage (SMW) as fixed by Regional Tripartite Wage and Productivity Board
(RTWPB)/National Wage and Productivity Commission (NWPC), including overtime pay, holiday pay, night shift differential and hazard pay, applicable to the place where he/she is assigned.
14. Compensation Income of employees in the public sector if the same is equivalent to or not more than the SMW in the non-agricultural sector, as fixed by RTWPB/NWPC, including overtime pay, holiday pay, night shift differential and hazard pay, applicable to the place where he/she is assigned.
5) What are De Minimis Benefits?
-These are facilities and privileges of relatively small value and are offered or furnished by the employer to his employees merely as means of promoting their health, goodwill, contentment or efficiency. The following shall be considered "De Minimis" benefits not subject to income tax, hence not subject to withholding tax on compensation income of both managerial and rank and file employees:
v Monetized unused vacation leave credits of private employees not exceeding ten (10) days during the year;
v Monetized value of vacation and sick leave credits paid to government officials and employees.
v Medical cash allowance to dependents of employees, not exceeding P750.00 per employee per semester or P125.00 per month;
v Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not more than P1,500;
v Uniform and clothing allowance not exceeding P5,000 per annum;
v Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs, annual medical/executive check-up, maternity assistance, and routine consultations, not exceeding P10,000 per annum;
v Laundry allowance not exceeding P300.00 per month;
v Employees achievement awards, e.g., for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees;
v Gifts given during Christmas and major anniversary celebration not exceeding P5,000.00 per employee perannum;
v Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-five percent (25%) of the basic minimum wage on a per region basis;
6) What is substituted Filing of income tax returns (ITR)?
Substituted Filing of ITR is the manner by which declaration of income of individuals receiving purely compensation income the taxes of which have been withheld correctly by their employers. Instead of the filing of Individual Income Tax Return (BIR Form 1700), the employer’s annual information return (BIR Form No. 1604-CF) duly stamped received by the BIR may be considered as the “substitute” Income Tax Return (ITR) of the employee, inasmuch as the information provided therein are exactly the same information required to be provided in his income tax return (BIR Form No. 1700). However, said employees may still file ITR at his/her option.
7) Who are qualified to avail of the substituted filing of ITR?
Employees who satisfies all of the following conditions:
a. Receiving purely compensation income regardless of amount;
b. Working for only one employer in the Philippines for the calendar year;
c. Tax has been withheld correctly by the employer (tax due equals tax withheld);
d. The employee’s spouse also complies with all three (3) conditions stated above.
e. The employer files the annual information return (BIR Form No. 1604-CF)
f. The employer issues BIR Form No. 2316 to each employee.
Note: For those employees qualified under the substituted filing, the employer shall furnish each employee with the original copy of BIR Form No. 2316 and file/submit to the BIR the duplicate copy not later than February 28 following the close of the calendar year.
8) What income payments are subject to Expanded Withholding Tax?
a) Professional fees / talent fees for services rendered by the following:
- Those individually engaged in the practice of professions or callings such as lawyers; certified
public accountants; doctors of medicine; architects; civil, electrical, chemical, mechanical,
structural, industrial, mining, sanitary, metallurgical and geodetic engineers; marine surveyors;
doctors of veterinary science; dentist; professional appraisers; connoisseurs of tobacco;
actuaries; interior decorators, designers, real estate service practitioners (RESPs), (i. e. real
estate consultants, real estate appraisers and real estate brokers) requiring government
licensure examination given by the Real Estate Service pursuant to Republic Act No. 9646 and all other profession requiring government licensure examinations and/or regulated by the
Professional Regulations Commission, Supreme Court, etc.
- Professional entertainers such as but not limited to actors and actresses, singers, lyricist,
composers and emcees
- Professional athletes including basketball players, pelotaris and jockeys
- Directors and producers involved in movies, stage, radio, television and musical productions
- Insurance agents and insurance adjusters
- Management and technical consultants
- Bookkeeping agents and agencies
- Other recipient of talent fees
- Fees of directors who are not employees of the company paying such fees whose duties are
confined to attendance at and participation in the meetings of the Board of Directors
b) Professional fees, talent fees, etc for services of taxable juridical persons
c) Rentals:
-Rental of real property used in business
-Rental of personal properties in excess of P 10,000 annually
-Rental of poles, satellites and transmission facilities
-Rental of billboards
d) Cinematographic film rentals and other payments
e) Income payments to certain contractors
- General engineering contractors
- General building contractors
- Specialty contractors
- Other contractors like:
1. Filling, demolition and salvage work contractors and operators of mine drilling apparatus
2. Operators of dockyards
3. Persons engaged in the installation of water system, and gas or electric light, heat or power
4. Operators of stevedoring, warehousing or forwarding establishments
5. Transportation Contractors
6. Printers, bookbinders, lithographers and publishers, except those principally engaged in the
publication or printing of any newspaper, magazine, review or bulletin which appears at
regular intervals, with fixed prices for subscription and sale
7. Advertising agencies, exclusive of payments to media
8. Messengerial, janitorial, security, private detective, credit and/or collection agencies and other
business agencies
9. Independent producers of television, radio and stage performances or shows
10. Independent producers of "jingles"
11. Labor recruiting agencies and/or “labor-only” contractors
12. Persons engaged in the installation of elevators, central air conditioning units, computer
machines and other equipment and machineries and the maintenance services thereon
13. Persons engaged in the sale of computer services, computer programmers, software
developer/designer, etc.
14. Persons engaged in landscaping services
15. Persons engaged in the collection and disposal of garbage
16. TV and radio station operators on sale of TV and radio airtime, and
17. TV and radio blocktimers on sale of TV and radio commercial spots
f) Income distribution to the beneficiaries of estates and trusts
g) Gross commissions of customs, insurance, stock, immigration and commercial brokers, fees of
agents of professional entertainers and real estate service practitioners (RESPs), (i. e. real
estate consultants, real estate appraisers and real estate brokers) who failed or did not take up
the licensure examination given by and not registered with the Real Estate Service under the
Professional Regulations Commission
h) Income payments to partners of general professional partnerships
i) Payments made to medical practitioners
j) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for
the sale, exchange or transfer of real property classified as ordinary asset
k) Additional income payments to government personnel from importers, shipping and airline
companies or their agents
l) Certain income payments made by credit card companies
m) Income payments made by the top 20,000 private corporations to their purchase of goods
and services from local/resident suppliers other than those covered by other rates of
withholding
n) Income payments by government offices on their purchase of goods and services, from
local/resident suppliers other than those covered by other rates of withholding
o) Commission, rebates, discounts and other similar considerations paid/granted to independent
and exclusive distributors, medical/technical and sales representatives and marketing agents
and sub-agents of multi level marketing companies.
p) Tolling fees paid to refineries
q) Payments made by pre-need companies to funeral parlors
r) Payments made to embalmers by funeral parlors
s) Income payments made to suppliers of agricultural products (suspended per RR 3-2004)
t) Income payments on purchases of mineral, mineral products and quarry resources
u) On gross amount of refund given by MERALCO to customers with active contracts as classified by MERALCO;
v) Interest income on the refund paid through direct payment or application against customers'
billing by other electric Distribution Utilities in accordance with the rules embodied in ERC
Resolution No. 8 series of 2008 dated June 4, 2008 governing the refund of meter deposits
which was approved and adopted by ERC in compliance with the mandate of Article 8 of the
Magna Carta for Residential Electricity Consumers and Article 3.4.2 of DSOAR exempting all
electricity consumers, whether residential or non-residential from the payment of meter deposit.
w) Income payments made by the top 5,000 individual taxpayers to their purchase of goods and
services from their local/resident suppliers other than those covered by other rates of withholding
x) Income payments made by political parties and candidates of local and national elections of all their campaign expenditures, and income payments made by individuals or juridical persons for their purchases of goods and services intended to be given as campaign contribution to political parties and candidates
y) Interest Income derived from any other debt instruments not within the coverage of deposit substitutes and RR No. 14-2012
z) Income payments subject to Withholding Tax received by Real Estate Investment Trust (REIT)(Sec.12 of RR No. 13-2011)
9) What income payments are subject to Final Withholding Tax?
a) Income Payments to a Citizen or to a Resident Alien Individual:
- Interest on any peso bank deposit
- Royalties
- Prizes [except prizes amounting to P10,000 or less which is subject to tax under Sec. 24(A)(1) of the Tax Code]
- Winnings (except winnings from Philippine Charity Sweepstake Office and Lotto)
- Interest income on foreign currency deposit
- Interest income from long term deposit (except those with term of five years or more)
- Cash and/or property dividends
- Capital Gains presumed to have been realized from the sale, exchange or other disposition of
real property
b) Income Payments to a Non-Resident Alien Engaged in Trade or Business in the Philippines
- On Certain Passive Income
- cash and/or property dividend
- Share in the distributable net income of a partnership
- Interest on any bank deposits
- Royalties
- Prizes (except prizes amounting to P10,000 or less which is subject to tax under Sec. 25(A)(1) of the Tax Code.
- Winnings (except from Philippine Charity Sweepstake Office and Lotto)
- Interest on Long Term Deposits (except those with term of five years or more)
- Capital Gains presumed to have been realized from the sale, exchange or other disposition of
real property
c) Income Derived from All Sources Within the Philippines by a Non-Resident Alien Individual Not Engaged in Trade or Business
- On gross amount of income derived from all sources within the Philippines
- On Capital Gains presumed to have been realized from the sale, exchange or disposition of real
property located in the Philippines
d) Income Derived by Alien Individual Employed by a Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies, Income Derived by Alien Individual Employed by Offshore Banking Units and Income of Aliens Employed by Foreign Petroleum Service Contractors and Subcontractors
e) Income Payment to a Domestic Corporation
- Interest from any currency bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements derived from sources within the Philippines
- Royalties derived from sources within the Philippines
- Interest income derived from a depository bank under the Expanded Foreign Currency Deposit
(FCDU) System
- Income derived by a depository bank under the FCDU from foreign transactions with local commercial banks
- On capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales based on the gross selling price or fair market value as determined in accordance with Sec. 6(E) of the NIRC, whichever is higher
f) Income Payments to a Resident Foreign Corporation
- Offshore Banking Units
- Tax on branch Profit Remittances
- Interest on any currency bank deposits and yield or any other monetary benefit from deposit substitute and from trust funds and similar arrangements and royalties derived from sources within the Philippines
- Interest income on FCDU
- Income derived by a depository bank under the expanded foreign currency deposits system from foreign currency transactions with local commercial banks
g) Income Derived from all Sources Within the Philippines by a Non-Resident Foreign Corporation
- Gross income from all sources within the Philippines such as interest, dividends, rents, royalties, salaries, premiums (except re-insurance premiums), annuities, emoluments or other fixed determinable annual, periodic or casual gains, profits and income or capital gains;
- Gross income from all sources within the Philippines derived by a non-resident cinematographic film owner, lessor and distributor
- On the gross rentals, lease and charter fees derived by a non-resident owner or lessor of vessels from leases or charters to Filipino citizens or corporations as approved by the Maritime Industry Authority
- On the gross rentals, charter and other fees derived by a non-resident lessor of aircraft,
machineries and other equipment
- Interest on foreign loans contracted on or after August 1, 1986
h) Fringe Benefits Granted to the Employee (except Rank and File)
- Goods, services or other benefits furnished or granted in cash or in kind by an employer to an
individual employee (except rank and file) such as but not limited to the following:
- Housing
- Vehicle of any kind
- Interest on loans
- Expenses for foreign travel
- Holiday and vacation expenses
- Educational assistance to employees or his dependents
- Membership fees, dues and other expense in social and athletic clubs or other
- similar organizations
- Health insurance
i) Informers Reward
j) Cash or property dividends paid by a Real Estate Investment Trust (REIT) pursuant to Section 13 of RR 13-2011
10) Aside from the required withholding of income tax by government agencies and instrumentalities on their payments to their suppliers of goods and services, what other tax types must be withheld by them.
a) Value Added Tax – on all income payments subject to VAT
b) Percentage Tax – on all payments subject to percentage tax such as payments to the following:
- Any person engaged in business whose gross sales or receipts do not exceed P1,919,500
(RR 3-2012) and who are not VAT-registered persons. (Persons exempt from VAT under Sec.
109V of the Tax Code)
- Domestic carriers and keepers of garages, except owners of bancas and owners of animal drawn
two wheeled vehicle
- Operators of international carriers doing business in the Philippines.
- Franchise grantees of electric, gas or water utilities
- Franchise grantees of radio and/or television broadcasting companies whose gross annual
receipts of the preceding year do not exceed Ten Million (P10,000,000.00) Pesos and did not opt
to register as VAT Taxpayers
-Communication providers with regards to overseas dispatch, messages or conversation from the
Philippines
- Banks and non-bank financial intermediaries and finance companies
- Life insurance companies
- Agents of foreign insurance companies
- Proprietor, lessee, or operator of cockpits, cabarets, night or day clubs, videoke/karaoke bars,
karaoke television, karaoke boxes, music lounges and other similar establishments, boxing
exhibitions, professional basketball games, jai-alai and race tracks
- Winners in horse races or owner of winning race horses
- Every stock broker who effected a sale, barter, exchange or other disposition of shares of stock
listed and traded through the Local Stock Exchange (LSE) other than the sale by a dealer in
securities
- A corporate issuer/stock broker, whether domestic or foreign, engaged in the sale, barter,
exchange or other disposition through Initial Public Offering (IPO) /secondary public offering of
shares of stock in closely held corporations
11) Who is a withholding agent?
A withholding agent is any person or entity who is required to deduct and remit the taxes withheld to the government.
12) What are the duties and obligations of the withholding agent?
The following are the duties and obligations of the withholding agent:
a) To Register - withholding agent is required to register within ten (10) days after acquiring such status with the Revenue District office having jurisdiction over the place where the business is located
b) To Deduct and Withhold - withholding agent is required to deduct tax from all money payments subject to withholding tax
c) To Remit the Tax Withheld - withholding agent is required to remit tax withheld at the time prescribed by law and regulations
d) To File Annual Return - withholding agent is required to file the corresponding Annual
Information Return at the time prescribed by law and regulations
e) To Issue Withholding Tax Certificates - withholding agent shall furnish Withholding Tax
Certificates to recipient of income payments subject to withholding
13) Who are considered TOP 20,000 Corporate Taxpayers?
Top twenty thousand (20,000) private corporations shall include a corporate taxpayer who has been determined and notified by the Bureau of Internal Revenue (BIR) as having satisfied any of the following criteria:
a) Classified and duly notified by the Commissioner as a large taxpayer under Revenue Regulation No. 1-98, as amended, or belonging to the top five thousand (5,000) private corporations under RR 12-94, or to the top ten thousand (10,000) private corporations under RR 17-2003, unless previously de-classified as such or had already ceased business operations (automatic inclusion);
b) VAT payment or payable whichever is higher, of at least P100,000 for the preceding year;
c) Annual income tax due of at least P200,000 for the preceding year;
d) Total percentage tax paid of at least P100,000 for the preceding year;
e) Gross sales of P10,000,000 and above for the preceding year;
f) Gross purchases of P5,000,000 and above for the preceding year;
g) Total excise tax payment of at least P100,000 for the preceding year.
14) What are the obligations of Top 20,000 Corporate Taxpayers?
a) In addition to the above responsibilities of a withholding agent, Top 20,000 private corporations shall withhold the one percent (1%) creditable expanded withholding tax on the purchase of goods and two percent (2%) on the purchase of services (other than those covered by other withholding tax rates) from local suppliers where it regularly makes purchases. However, casual purchase of goods shall not be subject to withholding tax unless the amount of purchase at any one time involves P10, 000 or more, in which case, it shall then be required to withhold the tax.
The same rule apply to local/resident supplier of services other than those covered by separate rates of withholding tax. Provided, however, that for purchases involving agricultural products in their original state, the tax required to be withheld shall only apply to purchases in excess of the cumulative amount of P300,000 within the same taxable year. For this purpose, agricultural products in their original state shall only include corn, coconut, copra, palay, rice cassava, sugar cane, coffee, fruits, vegetables, marine food products, poultry and livestocks.
b) Taxes withheld shall be remitted using BIR Form 1601-E on a monthly basis thru the use of the Electronic Filing and Payment System (EFPS) on the dates prescribed for e-filers. Filing shall be done on a staggered basis provided under RR 26-2002 and payment shall be made every 15th day following the end of the month for Jan-Nov and Jan. 20 of the following year for the month of December.
c) Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307) shall be issued to the
payees within twenty (20) days following the close of such payees’ taxable quarter or upon
demand of the payees;
d) A list of regular supplier of goods and/or services shall be submitted on a semestral basis
through e-submission facility or as an attachment under Electronic Filing and Payment System
(EFPS). Deadline for submission of the list is not later than July 31 and January 31 of each year.
However, initial list of regular suppliers should be submitted within fifteen (15) days from actual receipt hereof.
15) Who are considered TOP 5,000 Individual Taxpayers?
Top 5,000 Individual Taxpayers shall refer to individual taxpayers engaged in trade or business or exercise of profession who have been determined and notified by the Bureau of Internal Revenue (BIR) as having satisfied any of the following criteria:
a) VAT payment or payable whichever is higher, of at least P100,000 for the preceding year;
b) Annual income tax due of at least P200,000 for the preceding year;
c) Total percentage tax paid of at least P100,000 for the preceding year;
d) Gross sales of P10,000,000 and above for the preceding year;
e) Gross purchases of P5,000,000 and above for the preceding year;
f) Total excise tax payment of at least P100,000 for the preceding year.
16) What are the obligations of Top 5,000 Individual Taxpayers?
a) In addition to the obligations of a withholding agent, Top 5,000 Individual Taxpayers shall
withhold the one percent (1%) creditable expanded withholding on the purchase of goods and
two percent (2%) on the purchase of services (other than those covered by other withholding tax rates) from local suppliers where it regularly makes purchases. However, casual purchase of
goods shall not be subject to withholding tax unless the amount of purchase at any one time
involves P10,000 or more, in which case, it shall then be required to withhold the tax. The same rule apply to local/resident supplier of services other than those covered by separate rates of withholding tax. Provided, however, that for purchases involving agricultural products in their original state, the tax required to be withheld shall only apply to purchases in excess of the cumulative amount of P300,000 within the same taxable year. For this purpose, agricultural products in their original state shall only include corn, coconut, copra, palay, rice cassava, sugarcane, coffee, fruits, vegetables, marine food products, poultry and livestocks.
b) Taxes withheld shall be remitted under BIR Form 1601-E on a monthly basis thru the Electronic Filing and Payment System (EFPS) facility within the prescribed period.
c) Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307) shall be issued to the
payees within twenty (20) days following the close of such payees’ taxable quarter or upon
demand of the payees;
d) A list of regular supplier of goods and/or services shall be submitted on a semestral basis
through e-submission facility or as an attachment under Electronic Filing and Payment System
(EFPS). Deadline for submission of the list is not later than July 31 and January 31 of each year.
However, initial list of regular suppliers should be submitted within fifteen (15) days from actual receipt hereof.
17) Who are the responsible officials in the government offices charged with the duty to deduct, withhold and remit withholding taxes?
The following officials are duty bound to deduct, withhold and remit taxes:
a) For Office of the Provincial Government-province- the Chief Accountant, Provincial Treasurer and the Governor;
b) For Office of the City Government-cities- the Chief Accountant, City Treasurer and the City
Mayor;
c) For Office of the Municipal Government-municipalities- the Chief Accountant, Municipal Treasurer and the Mayor;
d) Office of the Barangay-Barangay Treasurer and Barangay Captain
e) For NGAs, GOCCs and other Government Offices, the Chief Accountant and the Head of Office or the Official holding the highest position.
Sources: Reviewer on Taxation by Atty. Victorino C. Mamalateo
