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7 Features of Withholding Tax System in the Philippines July 2017
Withholding tax is the most basic tax type that each and every taxpayer engaged in trade
July 14 Friday BIR Examination: Their
or business or in the practice of profession must learn. Upon registration of their
Procedures and Our Defenses
respective business entities, withholding tax type is a must and it may come in three (3)
(http://taxacctgcenter.org/programs/bir-
tax types as sub classi cations as follows:
examination-their-procedures-and-our-
1. Expanded withholding tax (EWT) or Creditable withholding tax (CWT) under defenses/)
monthly BIR Form No. 1601E and annual BIR Form No. 1604E with Alphalist of
July 15, 2017 Saturday Value Added Tax In
Payees;
and Out
2. Withholding tax on compensation (WC) under monthly BIR Form No. 1601C and
(http://taxacctgcenter.org/programs/value-
part of annual BIR Form No. 1604CF with Alphalist of Employees;
added-tax-in-and-out/)
3. Final withholding tax (FWT) under monthly BIR Form No. 1601F and part of annual
BIR No. 1604CF with Alphalist of Employees/Payees; July 21, 2017 Friday How to Register
To develop a deeper understanding of the withholding tax system in the Philippines, let us Philippine Business Entity, Seminar
discuss some of its basic features. (http://taxacctgcenter.org/programs/how-to-
register-philippine-business-entity-seminar/)
1. Automatic constitution of resident payor of income as withholding
July 22, 2017 Saturday Compensation:
agents.
Computations and Must Know Exemptions
(http://taxacctgcenter.org/programs/compensations-
By force of the law, a Philippine resident payor of speci c income payments are mandated
computation-and-must-know-exemptions/)
by law to withhold, whether he likes it or not. Non-resident foreign corporations and non-
resident alien payors are not included because of obvious logical reasons Philippine July 27-28 Thursday-Friday Basic Business
government does not have jurisdiction over them, and could not run after in case of non- Taxation Simpli ed
compliance. Speci c items of income payments are enumerated in the regulations and (http://taxacctgcenter.org/programs/basic-
once the payment is made upon such items, withholding taxes applies. Example, if a business-taxation-simpli ed/)
taxpayer pays a rental for its of ce space, it is mandated to withhold 5% of the gross
rental payment. July 29, 2017 Saturday Withholding Taxes,
Subjects & Applications
2. A system of advance collection of payees income tax liability (http://taxacctgcenter.org/programs/withholding-
taxes-subjects-application/)
What is withheld is the income tax liability of the payee upon actual payment or upon
accrual. Income tax returns are led quarterly and annual and under pay-as-you- le August 2017
system, income taxes are paid upon ling. However, with the withholding tax, the
August 3-4, 2017 Thursday-Friday Basic
government gets the income tax on the 10th day of the month following the month of
Business Accounting and BIR VAT Compliance
payment or accrual, ahead of the quarterly payment of payees income. Example,
Seminar Workshop
Company A pays Atty. A professional fees amounting to P100,000 on January 2012 and
(http://taxacctgcenter.org/programs/basic-
the applicable withholding tax of 15% or P15,000 was withheld. Atty. A is required to le
business-accounting-bir-compliance-vat-
and pay quarterly income tax (BIR Form No. 1701Q) on April 15, 2012, but, before he
corp/)
could le and pay, the government already collected in advance the P15,000 that was
remitted by A Company not later than February 10, 2012 (BIR Form 1601E). August 05, 2017 Saturday PEZA Registered
Entities: Tax Compliance Seminar
3. Amount withheld is a trust fund for the government (http://taxacctgcenter.org/programs/peza-
registered-philippines-tax-compliance-
At provided in Section 57(A) of the Tax Code, the taxes deducted and withheld by the seminar/)
withholding agent shall be held as a special fund in trust for the government until paid to
the collecting of cers. The withholding agent, as trustee of the funds withheld cannot use August 11, 2017 Friday How to analyze
the funds in any other purpose, but should remit the same to the Bureau of Internal audited nancial statements & Accounting for
Revenue (BIR) through the authorized agent banks (AABs) or other payment facilities. Management
(http://taxacctgcenter.org/programs/how-to-
4. Amount withheld is creditable or nal income tax due of the payees. analyze- nancial-statements-accounting-for-
management/)
Expanded withholding tax rates are carefully studied and crafted to reasonably estimate
payees income tax liability depending on the industry type and nature of payment. This is August 12, 2017 Saturday BIR Returns &
the reason why withholding tax rates are varying and is challenging to memorize for Reports Preparations under eBIR and Online
proper application. Upon ling of quarterly and/or annual income tax of the payee, the Submissions Seminar
amount withheld will be deducted from its income tax liabilities and there would be fewer (http://taxacctgcenter.org/programs/tax-
amounts due because of the withholding tax duly supported by creditable withholding tax returns-reports-preparation-e-bir-forms-
certi cates BIR Form No. 2307/2316. On the other hand, nal withholding taxes are the philippines/)
same rates imposed in the Tax Code for speci c payments. As such, they constitute full
payment of payees income tax and no additional tax liabilities would arise under nal Blog & Updates
withholding tax on top of the amount withheld.
Advantages of Accounting Manual for
Companies in the Philippines
5. Check and balance mechanism
(http://taxacctgcenter.org/advantages-of-
accounting-manual-for-companies-in-the-
Monthly withholding tax returns of the payor attaches a monthly alphalist of payees
philippines/)
(MAP) with the details of the payee and the income payments the name address of
SEC Security Deposit of Branch Of ces in
payee, and the amounts of income payment and corresponding tax withheld. When the
the Philippines
payee les a quarterly and annual income tax returns, it attaches the summary alphalist
(http://taxacctgcenter.org/sec-security-
of withholding taxes (SAWT) with the details of the payor and the income payment. With
deposit-of-branch-of ces-in-the-
these reports, the BIR could easily determine whether or not the payee declared the
philippines/)
income payment, or whether or not the payor correctly declared the expense. As such,
September 2015 Tax and Accounting
this becomes an easy tool in the third party information procedures of the BIR to catch up
Seminar Workshop Schedules Philippines
tax evaders.
(http://taxacctgcenter.org/september-
2015-tax-and-accounting-seminar-
6. A mandatory requirement for deductibility of an expense.
workshop-schedules-philippines-2/)
How to Register a Subsidiary of a Foreign
In effect, Section 34(K) of the tax Code, as amended, provides that if an expense is subject
Company in Philippines
to withholding tax, it will not be allowed as a deduction for income tax unless it could be
(http://taxacctgcenter.org/how-to-
shown that withholding taxes has been paid to the BIR. This explains why assessment of
register-subsidiary-foreign-company-
withholding tax has a dual effect disallowance of expense deduction in income tax
philippines/)
computation for failure to withhold, and assessment for withholding tax liabilities. Upon
July 2015 Tax and Accounting Seminar
payment of withholding taxes, the income tax assessment based on failure to withhold is
Workshop Schedules Philippines
automatically dropped.
(http://taxacctgcenter.org/july-2015-tax-
and-accounting-seminar-workshop-
7. Exclusive enumeration of items subject to withholding taxes.
schedules-philippines/)
June 2015 Tax and Accounting Seminar
Revenue Regulations 2-98, as amended, is the main regulation enumerating the income
Workshop Schedules Philippines
payments subject to creditable withholding tax. Enumeration of expanded withholding
(http://taxacctgcenter.org/june-2015-tax-
tax therein is exclusive and whatever is not included is deemed not subject to creditable
and-accounting-seminar-workshop-
withholding tax. This means to say that as a rule, not all expenses are subject to
schedules-philippines/)
withholding. Exception to this rule is the rule on Top Twenty Thousand Corporation
(TTC) or Top Five Thousand Individuals duly selected and noti ed as such by the BIR. On
top of those enumerated in Revenue Regulations 2-98, as amended, they are mandated to
withhold on income payments to regular supplies of goods 1% or of services 2%, and
from casual purchases amounting to P10,000 in a single transaction.

Failure of the taxpayer to comply the obligation to withhold would expose a taxpayer-
agent with the following consequences:

Non-deductibility of a business expense for income tax computation for failure to

withhold until after payment of the withholding tax and related penalties;
Payment of the basic withholding tax that should have been withheld;
One-time surcharge of 25%, or 50% for willful neglect or fraudulent ling;
Interest on 20% on annual basis based on the basic withholding tax that should have
been withheld;
Compromise penalties ranging from P200 to P50,000 based on the amount of basic Join our Forum
withholding tax that should have been withheld; (http://forum.taxacctgcenter.org)
Or worst, criminal prosecution and imprisonment for willful neglect or fraudulent
ling of withholding tax returns
You would not enjoy paying the above penalties, and wasting your hard earned money References
from your business undertakings and simple ignorance of the above obligation. Its the (http://forum.taxacctgcenter.org)
proper time now to educate and you have all the time and opportunity to do it before it is
too late.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an
expert opinion. Please consult your preferred tax and/or legal consultant for the speci c details
applicable to your circumstances.

Related Services

Quality Seminars, Trainings and Workshops.

(http://taxacctgcenter.org/indexpage/quality-seminars-trainings-and-workshops/)We
conduct tax seminars and workshops on withholding tax such as the following:

Withholding tax, Subjects and Applications

(http://taxacctgcenter.org/programs/withholding-taxes-subjects-application/) One
day program once a month
Compensation, Computations and Must Know Exemptions
(http://taxacctgcenter.org/programs/compensations-computation-and-must-know-
exemptions/)One day program once a month
Tax Management and Compliance Consultancies.With our tax services, we can assist
you ensure tax compliance and in the management of such continuing compliance. Proper
compliance would bring about tax savings form avoiding being penalized to tax
 minimization strategies. Likewise, we could assist you in securing a BIR ruling con rming
the applicable tax exemptions.

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Tax and Accounting Center 2011