RR 2-98

April 17, 1998
REVENUE REGULATIONS NO. 02-98
SUBJECT : Implementing Republic Act No. 8424, "An Act Amending

the National Internal Revenue Code, as Amended" Relative to
the Withholding on Income Subject to the Expanded
Withholding Tax and Final Withholding Tax, Withholding of
Income Tax on Compensation, Withholding of Creditable
Value-Added Tax and Other Percentage Taxes
TO : All Internal Revenue Officers and Others Concerned
Pursuant to Sec. 244 of the National Internal Revenue Code, as amended,

in relation to Sections 57 to 59 , Sections 78 to 83 , Section 114(C) and
Sections 116 to 127 of Republic Act 8424, these regulations are hereby
promulgated which shall govern the collection at source on income paid on or after
January 1, 1998 and prescribing the Revised Withholding Tax Tables on
compensation.
SECTION 2.57. Withholding of Tax at Source.
(A) Final Withholding Tax. Under the final withholding tax system the
amount of income tax withheld by the withholding agent is constituted as a full and
final payment of the income tax due from the payee on the said income. The liability
for payment of the tax rests primarily on the payor as a withholding agent. Thus, in
case of his failure to withhold the tax or in case of under withholding, the deficiency
tax shall be collected from the payor/withholding agent. The payee is not required to
file an income tax return for the particular income. LLpr
The finality of the withholding tax is limited only to the payee's income tax
liability on the particular income. It does not extend to the payee's other tax liability
on said income, such as when the said income is further subject to a percentage tax.
For example, if a bank receives income subject to final withholding tax, the same
Copyright 2016 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2016 1
shall be subject to a percentage tax. cdasia
(B) Creditable Withholding Tax. Under the creditable withholding tax

system, taxes withheld on certain income payments are intended to equal or at least
approximate the tax due of the payee on said income. The income recipient is still
required to file an income tax return, as prescribed in Sec. 51 and Sec. 52 of the
NIRC, as amended, to report the income and/or pay the difference between the
tax withheld and the tax due on the income. Taxes withheld on income payments
covered by the expanded withholding tax (referred to in Sec. 2.57.2 of these
regulations) and compensation income (referred to in Sec. 2.78 also of these
regulations) are creditable in nature.
SECTION 2.57.1. Income Payments Subject to Final Withholding Tax.

The following forms of income shall be subject to final withholding tax at the rates
herein specified;
(A) Income payments to a citizen or to a resident alien individual;
(1) Interest from any peso bank deposit, and yield or any other
monetary benefit from deposit substitutes and from trust funds and
similar arrangements; royalties (except on books as well as other
literary works and musical compositions), prizes (except prizes
amounting to ten thousand pesos (P10,000.00) or less which shall
be subject to tax under Sec. 24 (A) of the Code) and other
winnings (except Philippine Charity Sweepstakes winnings and
lotto winnings) derived from sources within the Philippines
Twenty percent (20%).
(2) Royalties on books, as well as other literary works and musical

compositions Ten percent (10%).
(3) Interest income received by a resident individual taxpayer from a

depository bank under the Foreign Currency Deposit System
Seven and one-half percent (7.5%).
(4) Interest income from long-term deposit or investment in the form

of savings, common or individual trust funds, deposit substitutes,
investment management accounts and other investments evidenced
by certificates in such form prescribed by the Bangko Sentral ng
Pilipinas which was pre-terminated by the holder before the fifth
(5th) year at the rates herein prescribed to be deducted and
withheld from the proceeds thereof based on the length of time that
the instrument was held by the taxpayer
Holding Period Rate
Four (4) years to less than five (5) years 5%

Three (3) years to less than four (4) years 12%
Less than three (3) years 20%
(5) Cash and/or property dividends actually or constructively received

from a domestic corporation, joint stock company, insurance or
mutual fund companies or on the share of an individual partner in
the distributable net income after tax of a partnership (except
general professional partnership) or on the share of an individual in
the net income after tax of an association, a joint account or a joint
venture or consortium of which he is a member or a co-venturer.
6% - beginning January 1, 1998

8% - beginning January 1, 1999 and
10% - beginning January 1, 2000 and thereafter
The tax on cash and property dividends shall only be

imposed on dividends which are declared from profits of
corporations made after December 31, 1997. prLL
(6) 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 Code (i.e., the authority of the Commissioner
to prescribe real property values), whichever is higher Six
percent (6%).
In case of sale on installment of real property classified

as capital asset, the procedures stated under Sec. 2.57.2(J)
hereof on the sale of real property classified as ordinary asset
shall apply with the exception that the withholding tax on the
former shall be final whereas that on the latter shall be
creditable.
In case of dispositions of real property classified as capital
asset by individuals to the government or any of its political
subdivisions or agencies or to government-owned or controlled
corporations, the tax to be imposed shall be determined either
under Section 24(A) of the Code for the normal rate of income
tax for individual citizens or residents or under Section 24(D)(1)
of the Code for the final tax on the presumed capital gains
from sale of property at six percent (6%), at the option of the
taxpayer-seller.
In case of sale/transfer of principal residence, the

Buyer/Transferee shall withhold from the seller and shall
deduct from the agreed selling price/consideration the 6%
capital gains tax which shall be deposited in cash or manager's
check in interest-bearing account with an Authorized Agent
Bank (AAB) under an Escrow Agreement between the
concerned Revenue District Officer, the Seller and the
Transferee, and the AAB to the effect that the amount so
deposited, including its interest yield, shall only be released to
such Transferor upon certification by the said RDO that the
proceeds of the sale/disposition thereof has, in fact, been utilized
in the acquisition or construction of the Seller/Transferor's new
principal residence within eighteen (18) calendar months from
date of the said sale or disposition. The date of sale or
disposition of a property refers to the date of notarization of the
document evidencing the transfer of said property. In general,
the term "Escrow" means a scroll, writing or deed, delivered
by the grantor, promisor or obligor into the hands of a third
person, to be held by the latter until the happening of a
contingency or performance of a condition, and then by him
delivered to the grantee, promisee or obligee.
After depositing the amount representing the six percent

(6%) capital gains tax as mentioned above, the
Buyer/Transferee and the Seller, shall jointly file, within thirty
(30) days from the date of the sale or disposition of the principal
residence, with the Revenue District Office having jurisdiction
over the property, in duplicate, the Final Capital Gains Tax
Return (BIR Form No. 1706, or any form number assigned by
the BIR), covering the property bought with no computed tax
due stating that the supposed-tax due/amount so withheld by
the buyer is maintained in an escrow account, which amount
will be used to satisfy future tax liability, if any, on the subject
transaction. For purposes of the capital gains tax otherwise due
on the sale, exchange or disposition of the said Principal
Residence, the execution of the Escrow Agreement referred to
in the immediately preceding paragraph shall be considered
sufficient. The tax return so filed in pursuance hereof shall bear
the addresses of both the seller and the buyer.
If within thirty (30) days after the lapse of the aforesaid

18-month period, the Seller/Transferor fails to submit
documentary evidence showing that he has utilized the proceeds
of sale or disposition of his old principal residence to
acquire/construct his new principal residence, he shall be
treated as deficient in the payment of his capital gains tax on
the sale or disposition of his aforesaid Principal Residence, and
shall be accordingly assessed for deficiency capital gains tax,
inclusive of penalties and the 20% interest per annum
computed from the 31st day after the date of sale/disposition of
the said principal residence, pursuant to the provisions of
Section 228 of the Code, as implemented by Revenue
Regulations No. 12-99, in relation to Section 249 of the said
Code.
In the issuance of assessments, the Seller shall receive all

the required notices following existing procedures. Upon the
time that the said deficiency tax assessment has become final
and executory, the deposit in escrow, inclusive of its interest
earnings, shall be forfeited and applied against the deficiency
capital gains tax liability. If the same is insufficient to cover the
entire amount assessed, the Seller/Transferor shall remain
liable for the remaining balance of the assessment. On the other
hand, the excess of the deposit in escrow, if any, shall forthwith
be returned to the Seller, by the Bank upon written
authorization from the Commissioner or his duly authorized
representative.
(7) Gross income derived from contracts by subcontractors from
service contractors engaged in 'petroleum operations' as
defined under P.D. 87 (also known as the 'Oil Exploration and
Development Act') in the Philippines Eight percent (8%) of
its gross income derived from such contracts in lieu of any and
all taxes, national and local, as imposed under P.D. 1354.
(B) Income Payment to Non-resident Aliens Engaged in Trade or Business in

the Philippines. The following forms of income derived from sources within
the Philippines shall be subject to final withholding tax in the hands of a non-resident
alien individual engaged in trade or business within the Philippines, based on the
gross amount thereof and at the rates prescribed therefor:
(1) On Certain Passive Income A tax of twenty (20%) percent is

hereby imposed on certain passive income received from all
sources within the Philippines.
(a) Cash and/or property dividend from a domestic corporation

or from a joint stock company, or from an insurance or
mutual fund company or from a regional operating
headquarter of a multinational company;
(b) Share in the distributable net income after tax of a

partnership (except general professional partnership) of
which he is a partner, or share in the net income after tax of
an association, a joint account, or a joint venture of which
he is a member or a co-venturer;
(c) Interests from any currency bank deposit and yield or any
other monetary benefit from deposit substitutes and from
trust funds and similar arrangements;
(d) Royalties (except royalties on books, as well as other

literary works and musical compositions which shall be
subject to 10% final withholding tax);
(e) Prizes (except prizes amounting to ten thousand pesos

(P10,000.00) or less subject to tax under Sec. 25 (A) (1)
of the Code for the normal rates of income tax for
individuals) and other winnings (except Philippine Charity
Sweepstakes winnings and lotto winnings);
(2) Interest income derived from long-term deposit or investment in

the form of savings, common or individual trust funds, deposit
substitutes, investment management accounts and other
investments evidenced by certificates in such form prescribed by
the Bangko Sentral ng Pilipinas which was pre-terminated by the
holder before the fifth (5th) year at the rates herein prescribed to be
deducted and withheld from the proceeds thereof based on the
length of time that the instrument was held by the taxpayer
Holding Period Rate
Four (4) years to less than five (5) years 5%

Three (3) years to less than four (4) years 12%
Less than three (3) years 20%
(3) On capital gains presumed to have been realized from the sale
exchange or other disposition of real property located in the
Sec. 6(E) of the Code (i.e. the authority of the Commissioner to
prescribe zonal values), whichever is higher Six percent (6%).

creditable.

under Sec. 24(A) of the Code for the normal rate of income tax for
individual citizens or residents or under Sec. 24(D)(1) of the Code
for the final tax on the presumed capital gains from sale of
property at six percent (6%) at the option of the taxpayer-seller.
(4) Gross income from all sources within the Philippines derived by
non-resident cinematographic film owners, lessors or
distributors Twenty Five percent (25%).
For purposes of these regulations, the term

'cinematographic film' includes motion picture films, films,
tapes, discs and other such similar or related products.

(C) Income Derived from All Sources Within the Philippines by a

Non-resident Alien Individual Not Engaged in Trade or Business Within the
Philippines. The following forms of income derived from all sources within
the Philippines shall be subject to a final withholding tax in the hands of a
non-resident alien individual not engaged in trade or business within the Philippines
based on the following amounts and at the rates prescribed therefor:
(1) On the gross amount of income derived from all sources within the
Philippines by a non-resident alien individual who is not engaged
in trade or business in the Philippines as interest, cash and/or
property dividends, rents, salaries, wages, premiums, annuities,
compensation, remuneration, emoluments, or other fixed or
determinable annual or periodic or casual gains, profits and income
and capital gains Twenty five percent (25%). Cdpr
(2) On capital gains presumed to have been realized from the sale,
exchange or other disposition of real property located in the
Sec. 6(E) of the Code (i.e. the authority of the Commissioner to
prescribe the real property values), whichever is higher Six
percent (6%).
creditable.

under Section 24(A) of the Code for the normal rate of income tax
for individual citizens or residents or under Section 24(D)(1) of the
Code for the final tax on the presumed capital gains from sale of
property at six percent (6%) at the option of the taxpayer-seller.
(D) Income Derived by Alien Individuals Employed by Regional or Area

Headquarters and Regional Operating Headquarters of Multinational Companies.
A final withholding tax equivalent to fifteen percent (15%) shall be withheld
by the withholding agent from the gross income received by every alien individual
occupying managerial and technical positions in regional or area headquarters and
regional operating headquarters established in the Philippines by multinational
companies as salaries, wages, annuities, compensation, remuneration, and other
emoluments, such as honoraria and allowances, except income which is subject to the
fringe benefits tax, from such regional or area headquarters and regional
operating headquarters.
The same tax treatment is applicable to Filipinos employed and occupying the
same positions as those aliens employed by regional or area headquarters and
regional operating headquarters of multinational companies, regardless of whether
or not there is an alien executive occupying the same position. Provided, that such
Filipinos shall have the option to be taxed at either 15% of gross income or at the
regular tax rate on their taxable income in accordance with the Tax Code of 1997 if
the employer (Regional Operating Headquarters/Regional or Area Headquarters)
is governed by Book III of E.O. 226 as amended by R.A. 8756. In case the Filipino
opted to be taxed at the regular tax rate under Section 24 of the Tax Code of
1997, the provisions of Section 2.79 (A) to (D) of Revenue Regulations No. 2-98
shall apply.
The term "multinational company" means a foreign firm or entity engaged in
international trade with its affiliates or subsidiaries or branch offices in the Asia
Pacific Region and other foreign markets.
(E) Income Derived by Alien Individuals Employed by Offshore Banking

Units. A final withholding tax equivalent to fifteen percent (15%) shall be
withheld by the withholding agent from the gross income of alien individuals
occupying managerial and technical positions in offshore banking units established in
the Philippines, as salaries, wages, annuities, compensation, remuneration, and other
emoluments, such as honoraria and allowances received from such offshore banking
units.
same positions as those aliens employed by offshore banking units, regardless of
whether or not there is an alien executive occupying the same position.
(F) Income of Aliens Employed by Foreign Petroleum Service Contractors

and Subcontractors. A final withholding tax equivalent to fifteen percent
(15%) shall be withheld from the gross income of an alien individual who is a
permanent resident of a foreign country but who is employed and assigned in the
Philippines by a foreign service contractor or by a foreign service subcontractor who
is engaged in petroleum operations in the Philippines. His gross income includes
salaries, wages, annuities, compensation, remuneration and other emoluments, such as
honoraria and allowances, received from such contractor or subcontractor.
same positions as those aliens employed by foreign petroleum service contractors and
subcontractors, regardless of whether or not there is an alien executive occupying
the same position.
(G) Income Payment to a Domestic Corporation. The following

items of income shall be subject to a final withholding tax in the hands of a domestic
corporation, based on the gross amount thereof and at the rate of tax prescribed
therefor:
(1) Interest from any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust fund and
similar arrangements derived from sources within the Philippines
Twenty Percent (20%).
(2) Royalties derived from sources within the Philippines Twenty
percent (20%).
(3) Interest income derived from a depository bank under the

Expanded Foreign Currency Deposit System, otherwise known as a
Foreign Currency Deposit Unit (FCDU) Seven and
one-half percent (7.5%).
(4) Income derived by a depository bank under the Expanded Foreign

Currency Deposit System from foreign transactions with local
commercial banks including branches of foreign banks that may be
authorized by the Bangko Sentral ng Pilipinas (BSP) to transact
business with Foreign Currency Deposit System Units and other
depository banks under the expanded foreign currency deposit
system including interest income from foreign currency loans
granted by such depository bank under the said expanded foreign
currency deposit system to residents Ten percent (10%).
(5) On capital gains presumed to have been realized from the

sale, exchange or other disposition of land and building located in
the Philippines classified as capital assets, based on the gross
Sec. 6(E) of the Code, whichever is higher Six percent (6%).

creditable.

(H) Income Payment to a Resident Foreign Corporation. The

following forms of income shall be subject to a final withholding tax in the hands of a
foreign corporation, based on the gross amount thereof and at the rate of tax
prescribed therefor:
(1) Offshore Banking Units On income derived by offshore

banking units authorized by the Bangko Sentral ng Pilipinas (BSP)
from foreign currency transactions with local commercial banks
and branches of foreign banks that may be authorized by the BSP
to transact business with offshore banking units and other OBUs
including interest income derived from foreign currency loans
granted to resident Ten percent (10%).
(2) Tax on Branch Profit Remittances On any profit remitted

by the Philippine branch of a foreign corporation to its head office
abroad based on the total profits applied or earmarked for
remittance without any deduction for the tax component thereof
except those registered with the Philippine Economic Zones
Authority (PEZA) and other companies within the special
economic zones such as Subic Bay Metropolitan Authority
(SBMA) and Clark Development Authority (CDA) Fifteen
percent (15%).
Interests, dividends, rents, royalties (including

remunerations for technical services), salaries, wages, premiums,
annuities, emoluments or other fixed or determinable annual
periodic or casual gains, profits, income and capital gains received
by a foreign corporation during each taxable year from all sources
within the Philippines shall not be considered as branch profits
unless the same are effectively connected with the conduct of its
trade or business in the Philippines.
(3) Interest on any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust funds and
similar arrangements and royalties derived from sources within the
Philippines Twenty percent (20%).
(4) Interest income derived from a Depository Bank under the

Expanded Foreign Currency Deposit system Seven and one-half
percent (7.5%).
(5) Income derived by a depository bank under the expanded foreign

currency deposit system from foreign currency transactions with
local commercial banks including branches of foreign banks that
may be authorized by the Bangko Sentral ng Pilipinas to transact
business with foreign currency deposit system units and other
depository banks under the expanded foreign currency deposit
system including interest income from foreign currency loans
granted by such depository banks under the said expanded foreign
currency deposit system to resident Ten percent (10%).

(I) Income Derived From all Sources Within the Philippines by Non-Resident
Foreign Corporation. The following shall be subject to final withholding tax based
on the gross amount of income and at the rate of tax prescribed therefor:
(1) In general On gross income derived from all sources within the
Philippines such as interests, dividends, rents, royalties, salaries,
premiums (except reinsurance premiums), annuities, emoluments,
or other fixed or determinable annual, periodic or casual gains,
profits and income and capital gains (except capital gains realized
from sale, exchange, disposition of shares of stock in any domestic
corporation which is subject to capital gains tax under Sec.
28(B)(5)(c) at the following rates:
34% - beginning January 1, 1998

33% - beginning January 1, 1999 and
32% - beginning January 1, 2000 and thereafter
(2) Gross income from all sources within the Philippines derived by
non-resident cinematographic film owners, lessors or distributors
Twenty five percent (25%).
(3) On the gross rentals, lease and charter fees, derived by

non-resident owner or lessor of vessels from leases or charters to
Filipino citizens or corporations as approved by the Maritime
Industry Authority Four and one-half percent (4.5%).
(4) On the gross rentals, charter and other fees derived by non-resident
lessor of aircraft, machineries and other equipment Seven and a
half percent (7.5%).
(5) Interest on foreign loans contracted on or after August 1, 1986

Twenty percent (20%).
(6) Dividends received from a domestic corporation Fifteen percent

(15%) of the cash and/or property dividends received from a
domestic corporation subject to the condition that the country in
which the nonresident foreign corporation is domiciled (a) shall
allow a credit against the tax due from the said nonresident foreign
corporation which are equivalent to taxes deemed to have been
paid in the Philippines equal to twenty percent (20%) for 1997,
nineteen percent (19%) for 1998, eighteen percent (18%) for 1999
and seventeen percent (17%) thereafter, which represents the
difference between the regular income tax of thirty-five percent
(35%) in 1997, thirty four percent (34%) in 1998, thirty three
percent (33%) in 1999, and thirty two percent (32%) thereafter on
corporations and the fifteen percent (15%) tax on dividends as
herein provided; or, (b) does not impose any income tax on
dividends received from a domestic corporation.
(J) Fringe Benefits Granted to the Employee (Except Rank and File
Employee). There shall be imposed a final tax of 34% beginning January 1,
1998; 33% beginning January 1, 1999 and 32% beginning January 1, 2000 and
thereafter, on the grossed-up monetary value of fringe benefits, granted or furnished
by the employer to his employees (except rank and file as defined in the Code).
Fringe benefits however, which are required by the nature of or necessary to the trade,
business or profession of the employer, or where such fringe benefit is for the
convenience and advantage of the employer shall not be subject to the fringe benefits
tax. prcd
The term fringe benefit means any good, service or other benefit furnished or
granted in cash or in kind by an employer to an individual employee (except rank and
file employees) such as but not limited to, the following:
(1) Housing;
(2) Expense account;
(3) Vehicle of any kind;
(4) Household personnel, such as maid, driver and others;
(5) Interest on loan at less than market rate to the extent of the
difference between the market rate and actual rate granted;
(6) Membership fees, dues and other expenses borne by the employer
for the employee in social and athletic clubs or other similar
organizations;
(7) Expenses for foreign travel;
(8) Holiday and vacation expenses;
(9) Educational assistance to the employee or his dependents; and
(10) Life or health insurance and other non-life insurance premiums or

similar amounts in excess of what the law allows.
Fringe benefits granted to the following employees and taxable under Sec. 25
(B), (C), (D) and (E) shall also be subject to the fringe benefit tax to wit:
Sec. 25(B) Non-resident alien individual not engaged in trade or

business in the Philippines.
Sec. 25(C) Alien individual employed by regional or area headquarters

and regional operating headquarters of a multinational company, including any of
its Filipino employees employed and occupying the same position as those of its
aforesaid alien employees;
Sec. 25(D) Alien individual employed by an offshore banking unit of a

foreign bank established in the Philippines, including any of its Filipino
employees employed and occupying the same position as those of its aforesaid
alien employees;
Sec. 25(E) Alien individual employed by a foreign service contractor

and subcontractor engaged in petroleum operations in the Philippines, including
any of its Filipino employees employed and occupying the same position as those
of its aforesaid alien employees.
The computation and the scheme for withholding the tax on fringe benefits
shall be governed by such revenue orders that the Commissioner shall issue as
guidelines and clarifications for its proper and consistent implementation.
(K) Informer's Reward to Persons Instrumental in the Discovery of Violations

of the National Internal Revenue Code and the Discovery and Seizure of Smuggled
Goods. The following rewards shall be subject to a final withholding tax at the rate
of ten percent (10%):
(1) Those given to persons, except an internal revenue official or

employee, or other public official or employee or his relative
within the sixth degree of consanguinity, who voluntarily gives
definite and sworn information not yet in the possession of the
BIR, leading to the discovery of frauds upon the Internal Revenue
Laws or violations of any of the provisions thereof, thereby
resulting in the recovery of revenues, surcharges and fees and/or
the conviction of the guilty party and/or imposition of any fine or
penalty.
(2) Those given to an informer where the offender has offered to

compromise the violation of law committed by him and his offer
has been accepted by the Commissioner and collected from the
offender.
The amount of reward shall be equivalent to ten percent

(10%) of the revenues, surcharges or fees recovered and/or fine or
penalty imposed and collected or one million pesos
(P1,000,000.00) per case whichever is lower.
The reward shall be paid under the rules and regulations

issued by the Secretary of Finance, upon the recommendation of
the Commissioner. However, such person shall not be entitled to a
reward, should no revenue, surcharges or fees be actually
recovered or collected nor shall apply to a case already pending or
previously investigated or examined by the Commissioner or any
of his deputies or agents or examiners, or the Secretary of Finance
or any of his deputies or agents.
(3) Those given to persons instrumental in the discovery and seizure of

such smuggled goods.
The amount of reward shall be equivalent to ten percent of
the market value of the smuggled and confiscated goods or one
million pesos (P1,000,000.00) per case whichever is lower. prLL
SECTION 2.57.2. Income Payments Subject to Creditable Withholding Tax

and Rates Prescribed Thereon. Except as herein otherwise provided, there
shall be withheld a creditable income tax at the rates herein specified for each class of
payee from the following items of income payments to persons residing in the
Philippines:
(A) Professional fees, talent fees, etc., for services rendered by individuals
On the gross professional, promotional and talent fees or any other form of
remuneration for the services of the following individuals Fifteen percent (15%),
if the gross income for the current year exceeds P720,000; and Ten percent
(10%), if otherwise;
(1) Those individually engaged in the practice of professions or

callings; 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;
dentists; 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 professions
requiring government licensure examination regulated by the
Professional Regulations Commission, Supreme Court, etc.
(2) Professional entertainers, such as, but not limited to, actors and
actresses, singers, lyricist, composers and emcees;
(3) Professional athletes, including basketball players, pelotaris and

jockeys;
(4) All directors and producers involved in movies, stage, radio,

television and musical productions;
(5) Insurance agents and insurance adjusters;

(6) Management and technical consultants;
(7) Bookkeeping agents and agencies;
(8) Other recipients of talent fees;
(9) 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.
The amounts subject to withholding tax under this paragraph shall include not
only fees, but also per diems, allowances and any other form of income payments not
subject to withholding tax on compensation.
In the case of professional entertainers, professional athletes, directors

involved in movies, stage, radio, television and musical productions and other
recipients of talent fees, the amounts subject to withholding tax shall also include
amounts paid to them in consideration for the use of their names or pictures in print,
broadcast, or other media or for public appearances, for purposes of advertisements or
sales proportion.
Furthermore, in order to determine the applicable tax rate (10% or 15%) to be

applied/withheld by the withholding agent, every individual
professional/talent/corporate directors herein enumerated, shall periodically
disclose his gross income for the current year to the Bureau of Internal Revenue (BIR)
by submitting a notarized sworn declaration attached as Annex "A" hereof in three
(3) copies (two (2) copies for the BIR and one (1) copy for the taxpayer), copy
furnished all the current payors of the declaration duly stamped received by the BIR
(Collection Division of the Regional Office having jurisdiction over the place
where the income earner is registered/Large Taxpayers Collection Division for
large taxpayers in Metro Manila/LTDO for large taxpayers outside
Metro-Manila). Sworn declaration may likewise be filed by the income payor on
behalf of the professionals/talents/directors whose services were being rendered
exclusively to the aforesaid payor. The disclosure should be filed on June 30 of each
year or within fifteen (15) days after the end of the month the
professional/talent/director's income reaches P720,000, whichever comes earlier. In
case his total gross income is less than P720,000 as of June 30, he/she shall submit a
second disclosure within fifteen (15) days after the end of the month that his/her
gross income for the current year to date reaches P720,000. The payee
professional/talent/director shall furnish each payor a copy of the BIR duly
stamped received sworn declaration not later than five (5) days from the date of
receipt by the BIR. In case of failure to submit the June 30 annual
declaration/disclosure to the BIR, and to furnish the payor/s a copy thereof, the payor
shall withhold the tax at the rate of 15%.
The Collection Division/Large Taxpayers Collection Division/LTDO shall

transmit one (1) copy of the duly submitted notarized sworn declaration, to the
Withholding Tax Division within five (5) days from receipt thereof. The
remaining copy shall be the file copy of the concerned Regional Office/Large
Taxpayer Service/LTDO for monitoring purposes.
These requirements shall likewise apply to taxable juridical persons (sworn

declaration shall be executed by the president/managing partner of the
corporation/company), partners of general professional partnerships and medical
practitioners stated under sub-sections (B), (H) and (I) hereof.
Notwithstanding the foregoing, if an individual recipient receives professional

fees/talent fees/directors fees in addition to salaries from the same payor, the said
fees shall be considered as supplemental compensation and, thus be subject to the
withholding tax on compensation.
(B) Professional fees, talent fees, etc., for services of taxable juridical
persons. On the gross professional, promotional and talent fees, or any other
form of remuneration enumerated in the preceding subparagraph for the services of
taxable juridical persons Fifteen percent (15%), if the gross income for the
current year exceeds P720,000; and Ten percent (10%), if otherwise;
(C) Rentals
(1) Real properties. On gross rental for the continued use or

possession of real property used in business which the payor or
obligor has not taken or is not taking title, or in which he has no
equity Five percent (5%);
(2) Personal properties. On gross rental or lease in excess of Ten

Thousand Pesos (P10,000.00) annually for the continued use or
possession of personal property used in business which the payor
or obligor has not taken or is not taking title, or in which he has no
equity, except those under financial lease arrangements with
leasing and finance companies authorized to operate under
Republic Act No. 8556 (Financing Company Act of 1998).
Five percent (5%)
(3) Poles, satellites and transmission facilities. On gross rentals or

lease for the use of poles, satellites and/or transponder and
transmission facilities which include but not limited to the
following: switchboards, land lines/aerial cables, underground
cables and submarine cables Five percent (5%);
(4) Billboards. On gross rentals or lease of spaces used in posting

advertisements in the form of billboards and/or structures similar
thereto, posted in public places such as, but not limited to,
buildings, vehicles, amusement places, malls, street posts, etc.
Five percent (5%)
(D) Cinematographic film rentals and other payments On gross payments

to resident individuals and corporate cinematographic film owners, lessors or
distributors Five percent (5%).
(E) Income payments to certain contractors On gross payments to

the following contractors, whether individual or corporate Two percent (2%).
(1) General engineering contractors Those whose principal

contracting business in connection with fixed works requiring
specialized engineering knowledge and skill including the
following divisions or subjects:
(a) Reclamation works;
(b) Railroads;
(c) Highways, streets and roads;
(d) Tunnels;
(e) Airports and airways;
(f) Waste reduction plants;
(g) Bridges, overpasses, underpasses and other similar works;
(h) Pipelines and other systems for the transmission of

petroleum and other liquid or gaseous substances;
(i) Land leveling;
(j) Excavating;
(k) Trenching;
(l) Paving; and
(m) Surfacing work.
(2) General Building contractors Those whose principal

contracting business is in connection with any structure built, for
the support, shelter and enclosure of persons, animals, chattels, or
movable property of any kind, requiring in its construction the use
of more than two unrelated building trades or crafts, or to do or
superintend the whole or any part thereto. Such structure includes
sewers and sewerage disposal plants and systems, parks,
playgrounds, and other recreational works, refineries, chemical
plants and similar industrial plants requiring specialized
engineering knowledge and skills, powerhouse, power plants and
other utility plants and installation, mines and metallurgical plants,
cement and concrete works in connection with the
above-mentioned fixed works.
(3) Specialty Contractors Those whose operations pertain to the

performance of construction work requiring special skill and whose
principal contracting business involves the use of specialized
building trades or crafts. cdasia
(4) Other contractors
(a) Filling, demolition and salvage work contractors and

operators of mine drilling apparatus;
(b) Operators of dockyards;
(c) Persons engaged in the installation of water system, and gas

or electric light, heat or power;
(d) Operators of stevedoring, warehousing or forwarding

establishments;
(e) Transportation contractors which include common carriers

for the carriage of goods and merchandise of whatever kind
by land, air or water, where the gross payments by the payor
to the same payee amounts to at least two thousand pesos
(P2,000) per month, regardless of the number of shipments
during the month;
(f) 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;
(g) Messengerial, janitorial, private detective and/or security

agencies, credit and/or collection agencies and other
business agencies;
(h) Advertising agencies, exclusive of gross payments to media;
(i) Independent producers of television, radio and stage

performances or shows;
(j) Independent producers of "jingles";
(k) Labor recruiting agencies and/or "labor-only"

contractors. For this purpose, any person who
undertakes to supply workers to an employer shall be
deemed to be engaged in "labor-only" contracting where
such person does not have substantial capital or
investment in the form of tools, equipment, machineries,
work premises and other materials and the workers
recruited and placed by such person are performing
activities which are directly related to the principal
business or operations of the employer which the workers
are habitually employed;
(l) Persons engaged in the installation of elevators, central air

conditioning units, computer machines and other equipment
and machineries and the maintenance services thereon;
(m) Persons engaged in the sale of computer services, computer

programmers, software/program developer/designer,
internet service providers, web page designing, computer
data processing, conversion or base services and other
computer related activities;
(n) Persons engaged in landscaping services;
(o) Persons engaged in the collection and disposal of garbage;
(p) TV and radio station operators on sale of TV and radio

airtime; and
(q) TV and radio blocktimers on sale of TV and radio

commercial spots.
(F) Income distribution to the beneficiaries. On income distributed to the

beneficiaries of estates and trust as determined under Sec. 60 of the Code,
except such income subject to final withholding tax and tax exempt income
Fifteen percent (15%);
(G) Income payments to certain brokers and agents. On 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.
Ten percent (10%).
(H) Income payments to partners of general professional partnerships.

Income payments made periodically or at the end of the taxable year by a general
professional partnership to the partners, such as drawings, advances, sharings,
allowances, stipends, etc. Fifteen percent (15%), if the income payments to the
partner for the current year exceeds P720,000; and Ten percent (10%), if
otherwise;
(I) Professional fees paid to medical practitioners. Any amount

collected for and paid to medical practitioners (includes doctors of medicine, doctors
of veterinary science and dentists) by hospitals and clinics or paid directly to the
medical practitioners by health maintenance organizations (HMOs) and/or similar
establishments Fifteen percent (15%), if the income payments to the medical
practitioner for the current year exceeds P720,000; and Ten percent (10%), if
otherwise.
(a) It shall be the duty and responsibility of the hospitals, clinics,

HMOs and similar establishments to withhold and remit taxes
due on the professional fees of their respective accredited
medical practitioners, paid by patients who were admitted and
confined to such hospitals and clinics. Hospitals, clinics, HMOs
and similar establishments must ensure that correct taxes due
on the professional fees of their medical practitioners have been
withheld and timely remitted to the Bureau of Internal Revenue
(BIR). For this purpose, hospitals and clinics shall not allow
their medical practitioners to receive payment of professional
fees directly from patients who were admitted and confined to
such hospital or clinic and, instead, must include the
professional fees in the total medical bill of the patient which
shall be payable directly to the hospital or clinic.
(b) Exception The withholding tax herein prescribed shall not apply
whenever there is proof that no professional fee has in fact been
charged by the medical practitioner and paid by his patient.
Provided, however, that this fact is shown in a sworn declaration
jointly executed by the medical practitioner, and the patient or his
duly authorized representative, in case the patient is a minor or
otherwise incapacitated. This sworn declaration, to be executed in
the form presented in Annex "A" of these Regulations, shall form
part of the records of the hospital or clinic and shall constitute as
part of its records and shall be made readily available to any duly
authorized Revenue Officer for tax audit purpose. Provided,
further, that the said administrator of the hospital or clinic shall
inform the Revenue District Office having jurisdiction over such
hospital or clinic about any medical practitioner who fails or
refuses to execute the sworn statement herein prescribed, within
ten (10) days from the occurrence of such event.
(c) Hospitals and clinics shall submit the names and addresses of
medical practitioners in the following classifications, every 15th
day after the end of each calendar quarter, to the Collection
Division of the Revenue Region for non-large taxpayers and at the
Large Taxpayers Document Processing and Quality Assurance
Division (LTDP&QAD) in the National Office or Large Taxpayers
District Office (LTDO) in the Region for large taxpayers, where
such hospital or clinic is registered, using the prescribed format.
(i) Medical practitioners whose professional fee was paid by

patients directly to the hospital or clinic.
(ii) Medical practitioners who did not charge any professional

fee from their patients.
(d) For this purpose, the term 'medical practitioners' shall likewise
include medical technologists, allied health workers (e.g.,
occupational therapists, physical therapists, speech therapists,
nurses, etc.) and other medical practitioners who are not under an
employer-employee relationship with the hospital, clinic or HMO
and other similar establishments.
(e) Hospitals and clinics shall be responsible for the accurate

computation of taxes to be withheld on professional fees paid by
patients thru the hospitals and clinics, in the same way that HMOs
shall be responsible for the computation of taxes to be withheld
from the professional fees paid by them to the medical
practitioners, and timely remittance of the 10% or 15% expanded
withholding tax, whichever is applicable.
The list of all income recipients-payees in this Subsection

shall be included 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).
Likewise, the hospitals, clinics or HMOs shall issue a

Certificate of Creditable Tax Withheld at Source (BIR Form No.
2307) to medical practitioners who are subjected to withholding,
every 20th day following the close of the taxable quarter or upon
request of the payee.
All hospitals and clinics shall submit to the BIR

(Collection Division of the Regional Office having jurisdiction
over the place where the income earner is registered/Large
Taxpayers Collection Division for large taxpayers in Metro
Manila/LTDO for large taxpayers outside Metro Manila), in
three (3) copies [two (2) copies for the BIR and one (1) copy for
the taxpayer], a sworn statement executed by the
president/managing partner of the corporation/company as to
the complete and updated list of medical practitioners
accredited with them.
(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. A creditable withholding tax based on the gross selling
price/total amount of consideration or the fair market value determined in accordance
with Section 6(E) of the Code, whichever is higher, paid to the seller/owner for the
sale, transfer or exchange of real property, other than capital asset, shall be imposed
upon the withholding agent,/buyer, in accordance with the following schedule:
A. Where the seller/transferor is exempt from
creditable withholding tax in accordance with
Sec. 2.57.5 of these regulations Exempt
B. Upon the following values of real property, where the seller/transferor is

habitually engaged in the real estate business:
With a selling price of Five Hundred Thousand Pesos

(P500,000.00) or less 1.5%
With a selling price of more than Five Hundred
Thousand Pesos (P500,000.00) but not more than
Two Million Pesos (P2,000,000.00) 3.0%
With a selling price of more than Two Million Pesos
(P2,000,000.00) 5.0%
C. Where the seller/transferor is not habitually engaged

in the real estate business 6.0%
Registration with the HLURB or HUDCC shall be sufficient for a

seller/transferor to be considered as habitually engaged in the real estate business. If
the seller/transferor is not registered with HLURB or HUDCC, he/it may prove that
he/it is engaged in the real estate business by offering other satisfactory evidence (for
example, he/it consummated during the preceding year at least six taxable real estate
transactions, regardless of amount). Notwithstanding the foregoing, for purposes of
these Regulations, banks shall not be considered as habitually engaged in the real
estate business.
Gross selling price shall mean the consideration stated in the sales document or
the fair market value determined in accordance with Section 6 (E) of the Code,
whichever is higher. In an exchange, the fair market value of the property received in
exchange shall be considered as the consideration.
If the buyer is an individual not engaged in trade or business, the following

rules shall apply:
(i) If the sale is a sale of property on the installment plan (i.e.,

payments in the year of sale do not exceed twenty five percent
(25%) of the selling price), no withholding is required to be made
on the periodic installment payments. In such a case, the applicable
rate of tax based on the gross selling price or fair market value of
the property at the time of the execution of the contract to sell,
whichever is higher, shall be withheld on the last installment or
installments immediately prior to such last installment, if the
last installment is not sufficient to cover the tax due, to be paid
to the seller until the tax is fully paid.
(ii) If, on the other hand, the sale is on a "cash basis" or is a

"deferred-payment sale not on the installment plan" (that is,
payments in the year of sale exceed 25% of the selling price), the
buyer shall withhold the tax based on the gross selling price or fair
market value of the property, whichever is higher, on the first
installment.
However, if the buyer is engaged in trade or business,

whether a corporation or otherwise, these rules shall apply:
(i) If the sale is a sale of property on the installment plan [i.e.,

payments in the year of sale do not exceed twenty five percent
(25%) of the selling price], the tax shall be deducted and withheld
by the buyer from every installment which tax shall be based on
the ratio of actual collection of the consideration against the
agreed consideration appearing in the Contract to Sell applied
to the gross selling price or fair market value of the property at
the time of the execution of the Contract to Sell, whichever is
higher.
The term 'consideration' refers to the selling price

exclusive of interest. Interest earned as an incident of
installment payment, if any, shall be subject to the ordinary
income tax rate.
(ii) If, on the other hand, the sale is on a "cash basis" or is a

"deferred-payment sale not on the installment plan" (that is,
payments in the year of sale exceed 25% of the selling price), the
buyer shall withhold the tax based on the gross selling price or fair
market value of the property, whichever is higher, on the first
installment.
In any case, no Certificate Authorizing Registration (CAR)/Tax Clearance

Certificate (TCL), shall be issued to the buyer unless the withholding tax due on the
sale, transfer, or exchange of real property has been fully paid.
For sale of property on installment basis or deferred payment basis where

the Contract to Sell is always executed before the execution of the Deed of Sale,
the said Contract to Sell must be attached to the Deed of Absolute Sale executed
upon completion of the payments and the duly notarized original duplicate copy of
both documents must be presented to the RDO having jurisdiction of the place
where the property is located for validation of the correctness of issuance of
CAR/TCL.
It is to be noted, however, that in case of sale of real property paid under

installment payment or deferred payment basis, the payment of the documentary
stamp tax (DST) shall accrue upon the execution of the Deed of Absolute Sale but
the basis for the imposition thereof shall be the gross selling price or fair market
value of the property, whichever is higher, at the time of the execution of the
Contract to Sell.
If upon completion of the payment of the purchase price of real property

classified as ordinary asset, but before the execution of the Deed of Sale, the buyer
decides to assign his right over the property to another person for a consideration,
the assignment shall be considered a separate sale of real property and, therefore,
subject to the creditable/expanded withholding tax (EWT) or final withholding of
capital gains tax, as the case may be, which shall be withheld by the assignee of
such property based on the consideration per Deed of Assignment or the fair
market value of such property at the time of assignment, whichever is higher, and
to the DST imposed under Sec. 196 of the same Code using the same basis.
It is to be clarified, however, that sale of interest in real property (real

property purchased on installment covered by Contract to Sell which was sold by
the original buyer before it was fully paid) shall be taxable on the part of the
original buyer (now seller) based on the realized gain thereon which is measured
by the difference between the agreed consideration and the amount actually paid
by the said original buyer.
(K) Additional income payments to government personnel from importers,

shipping and airline companies, or their agents. On gross additional
payments by importers, shipping and airline companies, or their agents to government
personnel for overtime services as authorized by law Fifteen percent (15%);
For this purpose, the importers, shipping and airline companies or their agents,
shall be the withholding agents of the Government;
(L) Certain income payments made by credit card companies On

one-half (1/2) of the gross amounts paid by any credit card company in the
Philippines to any business entity, whether natural or juridical person, representing
the sales of goods/services made by the aforesaid business entity to cardholders
One percent (1%)
(M) Income payments made by the top twenty thousand (20,000) private
corporations to their local/resident supplier of goods and local/resident supplier of
services other than those covered by other rates of withholding tax. Income
payments made by any of the top 20,000 private corporations, as determined by the
Commissioner, to their local/resident supplier of goods and local/resident supplier of
services, including non-resident aliens engaged in trade or business in the Philippines.
Provided, however, that for purchases involving agricultural products in their original
state, the tax required to be withheld under, this sub-section shall only apply to
purchases in excess of the cumulative amount of Three Hundred Thousand Pesos
(P300,000) within the same taxable year. For this purpose, an agricultural product
in their original state as used in these Regulations, shall only include corn,
coconut, copra, palay, rice, cassava, coffee, fruit, vegetable, marine food product,
poultry and livestock.
Supplier of goods One percent (1%)
Supplier of services Two percent (2%)
Top 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 Regulations 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.
Illustrative example for agricultural products:
Question: How do we compute the 1% expanded withholding tax (EWT) on

purchases of palay, an agricultural product, made by ABC Corporation, included
in the BIR's list of Top 20,000 Private Corporations, from Mr. Ben Soriano, a
small supplier/planter based on the following information:
Number of
Transactions Year Purchase Amount
One 2009 P90,000.00
Two 2010 320,000.00
One 2011 400,000.00
One 2012 90,000.00
Answer:
1. In 2009, the transaction is exempt from the 1% EWT since the

amount is less than P300,000.00.
2. In 2010, only the amount in excess of P300,000.00 or P20,000.00

shall be subject to the 1% EWT. Thus, the 1% EWT shall be
P200.00 (P20,000.00 x 1%).
3. In 2011, the amount of P100,000.00 shall be subject to the 1%

EWT since the amount is in excess of the P300,000.00 threshold.
Therefore, the amount of P1,000.00 shall be withheld
(P100,000.00 x 1%).
4. In 2012, the transaction is exempt from the 1% EWT since the

amount involved is only P90,000.00 which is below the
P300,000.00 threshold.
The term "goods" pertains to tangible personal property. It does not include
intangible personal property, as well as real property.
The term "local/resident suppliers of goods" pertains to a supplier from whom

any of the top twenty thousand (20,000) private corporations, as determined by the
Commissioner, regularly makes its purchases of goods. As a general rule, this term
does not include a casual purchase of goods, that is, purchase made from a
non-regular supplier and oftentimes involving a single purchase. However, a single
purchase which involves Ten thousand pesos (P10,000.00) or more shall be subject to
a withholding tax. The term "regular suppliers" refers to suppliers who are engaged in
business or exercise of profession/calling with whom the taxpayer-buyer has
transacted at least six (6) transactions, regardless of amount per transaction, either in
the previous year or current year. The same rules apply to local/resident supplier of
services other than those covered by separate rates of withholding tax.
A corporation shall not be considered a withholding agent for purposes of this

Section, unless such corporation has been determined and duly notified in writing by
the Commissioner that it has been selected as one of the top twenty thousand (20,000)
private corporations.
Any corporation which has been duly classified and notified as large taxpayer
by the Commissioner pursuant to RR 1-98, as amended, shall be automatically
considered one of the top twenty thousand (20,000) private corporations, provided,
however, that its authority as a withholding agent shall be effective only upon receipt
of written notice from the Commissioner that it has been classified as a large
taxpayer, as well as one of the top twenty thousand (20,000) private corporations, for
purposes of these regulations.
Any corporation shall remain a withholding agent for purposes of these

regulations, unless the Commissioner notifies it in writing that it shall cease to be one.
The following, however, are some of the reasons that a taxpayer shall automatically
cease to be a withholding agent, and therefore no prior written notice, for purposes of
these regulations, is required, to wit:
(a) closure/cessation of business/dissolution (for taxpayer with notice

of dissolution given to the BIR);
(b) merger/consolidation (for dissolved or absorbed corporation);
(c) any other form of business combination wherein by operation of

law a corporate taxpayer loses its juridical personality.
The withholding agent shall submit on a semestral basis a list of its regular
suppliers of goods and/or services to the Large Taxpayers Assistance Division/Large
Taxpayers District Office in the case of large taxpayers duly notified as such pursuant
to RR 1-98, as amended, or Revenue District Office (RDO) having jurisdiction over
the withholding agent's principal place of business on or before July 31 and January
31 of each year.
A government-owned or -controlled corporation previously classified as one of

the top five thousand (5,000) corporations under RR 12-94, as amended, shall cease to
be a withholding agent or included in the top twenty thousand (20,000) private
corporations for purposes of these regulations but rather shall be treated as one under
the succeeding sub-section (N) since it is already withholding 1% or 2% of the
amount paid for the purchase of goods/services from local/resident suppliers.
The Commissioner of Internal Revenue may recommend to the Secretary of

Finance the amendment/modification to any or all of the criteria in the determination
and selection of taxpayers forming part of the top twenty thousand (20,000) private
corporations after considering such factors as inflation, volume of business, and
similar factors. Provided, however, that the Commissioner is empowered to conduct
periodic review as to the number of taxpayers who ceased to qualify under the
category of top twenty thousand (20,000) private corporations for purposes of
delisting them or excluding them from the list and to identify taxpayers to be added to
the list of top twenty (20,000) private corporations.
All taxpayers previously included in the list of top 5,000 private corporations
under RR 12-94, as amended, and those who qualified as top ten thousand (10,000)
private corporations under RR 17-2003 shall continue to withhold one percent (1%)
for supplier of goods and 2% for supplier of services upon the effectivity of these
Regulations, unless any of the following situations occur: (a) the Commissioner
communicates in writing that they have ceased to qualify as taxpayers includible in
the list of top twenty thousand (20,000) private corporations, or (b) those officially
identified to have ceased business operations, or undergone any of the business
combinations wherein by operation of law the juridical personality of said taxpayers
ceased.
(N) Income payments made by the government to its local/resident supplier of

goods and local/resident supplier of services other than those covered by other rates
of withholding tax. Income payments, except any casual or single purchase of
P10,000.00 and below, which are made by a government office, national or local,
including barangays, or their attached agencies or bodies, and government-owned or
controlled corporations, on their purchases of goods and purchases of services from
local/resident suppliers.
A government-owned or controlled corporation shall withhold the tax in its

capacity as a government-owned or controlled corporation rather than as a corporation
stated in Subsection (M) hereof.
(O) Commissions of independent and/or exclusive sales representatives, and

marketing agents of companies. On gross commissions, rebates, discounts
and other similar considerations paid/granted to independent and/or exclusive sales
representatives and marketing agents and sub-agents of companies, including
multi-level marketing companies, on their sale of goods or services by way of direct
selling or similar arrangements where there is no transfer of title over the goods
from the seller to the agent/sales representative. Ten percent (10%)
'Multi-level marketing' is a system of direct selling in which consumer products

are sold by individuals where consumer products and services are supplied by an
established multi-level marketing company who encourages the distributor to build
and manage his own sales force by recruiting, motivating, and training others to sell
the product or service. A percentage on the sales of the distributor's sales force would
be his compensation in addition to his personal sales.
'Multi-level marketing companies' means any entity that is engaged in the sale
of its products or services through individual that directly sell such products or
services to the consumers.
(P) Tolling fees paid to refineries. On the gross processing/tolling fees

paid to refineries for the conversion of molasses to its by-products and raw sugar
to refined sugar Five percent (5%)
(Q) Payments made by pre-need companies to funeral parlors. On

gross payments made by pre-need companies to funeral parlors for funeral
services rendered. One percent (1%)
(R) Payments made to embalmers. On gross payments made to

embalmers for embalming services rendered to funeral companies. One
percent (1%)
For purposes of these regulations, all income payments paid to sub-agents

or their equivalent, whether paid directly or indirectly by the agent or the owner
of the goods, shall be subject to withholding tax in the same manner as that of the
agent.
(S) Income payments made to suppliers of agricultural products.

Income payments made to agricultural suppliers such as, but not limited to,
payments made by hotels, restaurants, resorts, caterers, food processors,
canneries, supermarkets, livestock, poultry, fish and marine product dealers,
hardwares, factories, furniture shops and all other establishments, in excess of the
cumulative amount of Three Hundred Thousand Pesos (P300,000.00) within the
same taxable year. One percent (1%)
The term "agricultural suppliers" refers to suppliers/sellers of agricultural,

forest and marine food and non-food products, livestock and poultry of a kind
generally used as, or yielding or producing foods for human consumption, and
breeding stock and genetic materials therefor. "Livestock" shall include cow, bull
and calf, pig, sheep, goat and other animals similar thereto. "Poultry" shall
include fowl, duck, goose, turkey and other animals similar thereto. "Marine
product" shall include fish and crustacean, such as but not limited to, eel, trout,
lobster, shrimp, prawn, oyster, mussel and clam, shell and other aquatic products.
Meat, fruit, fish, vegetable and other agricultural and marine food products,
even if they have undergone the simple processes of preparation or preservation for
the market, such as freezing, drying, salting, smoking or stripping, including those
using advanced technological means of packaging, such as shrink wrapping in
plastics, vacuum packing, tetra-pak and other similar packaging method, shall still be
covered by this subsection.
An agricultural food product shall include, but shall not be limited to the
following: corn, coconut, copra, palay, cassava, coffee, etc. Polished and/or husked
rice, corn grits and ordinary salt shall be considered as agricultural food products.
(T) Income payments on purchases of minerals, mineral products and quarry

resources as defined and discussed in Section 151 of the Code. Income
payments on purchases of minerals, mineral products and quarry resources, such as
but not limited to silver, gold, marble, granite, sand, boulders and other
materials/products Five percent (5%)
(U) MERALCO Payments on the following:
(1) MERALCO Refund arising from Supreme Court Case G.R. No.
14814 of April 9, 2003 to customers under Phase IV as approved
by ERC On gross amount of refund given by MERALCO to
Customers with active contracts as classified by MERALCO
Twenty Five Percent (25%); To Customers with terminated
contracts Thirty Two Percent (32%); and
(2) Interest income on the refund of meter deposits determined,

computed and paid in accordance with the "Rules to Govern
Refund of Meter Deposits to Residential and Non-Residential
Customers", as approved by the Energy Regulatory
Commission under Resolution No. 8, Series of 2008, dated June
4, 2008 implementing Article 8 of the Magna Carta for
Residential Electricity Consumers and ERC Resolution No.
2005-10 RM (otherwise known as DSOAR) dated January 18,
2006, exempting all electricity consumers from the payment of
meter deposit.
On gross amount of interest whether paid directly to the customers or

applied against customer's billing:
(i) Residential and General Service customers whose monthly

electricity consumption exceeds 200 kwh as classified by
MERALCO Ten percent (10%);
(ii) Non-Residential customers Twenty percent (20%);
(V) Interest income on the refund paid either through direct

payment or application against customers' billings by other electric Distribution
Utilities (DUs) 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.
On gross amount of interest whether paid directly to the customers or

applied against customer's billing:
(i) Residential and General Service customers whose monthly

electricity consumption exceeds 200 kwh as classified by the
concerned DU Ten percent (10%)
(ii) Non-Residential Twenty percent (20%).
(W) Income payments made by the top five thousand (5,000) individual
taxpayers to their local/resident suppliers of goods and local/resident suppliers of
services other than those covered by other rates of withholding tax. Income
payments made by the Top 5,000 individual taxpayers engaged in trade or business in
the Philippines, as determined by the Commissioner of Internal Revenue, to their
local/resident suppliers of goods and local/resident suppliers of services other than
those covered by other rates of withholding tax, including non-resident aliens engaged
in trade or business in the Philippines. Provided, however, that for purchases
involving agricultural products in their original state, the tax required to be withheld
under this sub-section shall only apply to purchases in excess of the cumulative
amount of Three Hundred Thousand Pesos (P300,000) within the same year. For this
purpose, agricultural products in their original state as used in these Regulations,
shall include only corn, coconut, copra, palay, rice, cassava, coffee, fruit,
vegetable, marine food product, poultry and livestock.

purchases of corn, an agricultural product, made by Mr. Miguel Andres, included in
the BIR's list of Top 5,000 Individual Taxpayers, from a small supplier/planter and
not a regular supplier (less than 6 transactions) based on the following information:
Number of
Two 2009 P330,000.00
One 2010 420,000.00
One 2011 95,000.00
Answer:
1. In 2009, the amount in excess of P300,000.00 is subject to the 1%

EWT; hence, withholding tax due of P300 shall be withheld and
remitted (P30,000 x 1%).
2. In 2010, the amount in excess of P300,000.00 is subject to the 1%

EWT, hence, withholding tax due of P1,200.00 shall be withheld
and remitted (P120,000.00 x 1%).
3. In 2011, the transaction is not subject to the 1% EWT since the

amount is below the threshold of P300,000.00.

purchases of corn, an agricultural product, made by Mr. Antonio Panganiban,
included in the BIR's list of Top 5,000 Individual Taxpayers, from a small
supplier/planter, a regular supplier of Mr. Panganiban, based on the following
information:
Number of
Seven 2009 P100,000.00
Ten 2010 310,000.00
Two 2011 130,000.00
Answer:
1. In 2009, the total purchases is not subject to 1% EWT since the

amount is below the P300,000.00 threshold.
2. In 2010, the EWT due is P100.00 since only the excess of P10,000
shall be subject to the 1% EWT.
3. In 2011, again the total purchases is not subject to 1% EWT since

the amount is below the threshold of P300,000.00.
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.
For individuals classified as resident citizen with multiple lines of business, the
tax payments, gross sales and gross purchases shall be determined by taking into
consideration all lines of business inasmuch as he/she is required by Section
51(A)(4)(a) of the Tax Code to declare in his/her return his/her income from all
sources. In the case of other individuals (resident alien, non-resident alien and
non-resident citizen) engaged in trade or business in the Philippines, only those
derived in the Philippines shall be included in the computation of his/her gross sales
and purchases for purposes of determining if he/she shall qualify as top 5,000
individual taxpayer.
The term "goods" pertains to tangible personal property used in the ordinary
course of business and/or practice of profession. It does not include intangible
personal property as well as real property.
The term "local/resident supplier of goods" pertains to a supplier from whom

any of the top 5,000 individual taxpayers, as determined by the Commissioner,
regularly makes purchase of goods. As a general rule, this does not include a casual
purchase of goods, that is, purchase made from non-regular suppliers and oftentimes
involving single purchase. However, a single purchase of goods other than agricultural
products as defined in these Regulations which involves ten thousand pesos
(P10,000.00) or more shall be subject to withholding tax. The term "regular suppliers"
refer to suppliers who are engaged in business or exercise of profession/calling with
whom the taxpayer-buyer has transacted at least six (6) transactions, regardless of the
amount per transaction, either in the previous year or current year. The same rule
applies to local/resident suppliers of services other than those covered by other rates
of withholding tax.
An individual shall not be considered as withholding agent for purposes of

these Regulations unless such individual has been determined and duly notified in
writing by the Commissioner that he/she has been selected as one of the Top 5,000
Individual Taxpayers and shall remain as such unless the Commissioner notifies such
individual in writing that he/she shall cease to be one. A taxpayer shall cease to be a
withholding agent for purposes of these Regulations when the individual submits to
the BIR a notice of closure or cessation of all lines of business or fails to meet all the
criteria enumerated herein and a notice of deletion is issued to him/her in writing by
the Commissioner of Internal Revenue.
Top 5,000 Individual Taxpayers shall submit a list of regular suppliers of

goods and/or services to the Revenue District Officer having jurisdiction over their
principal place of business on or before July 31 and January 31 for the first and
second semester of each year, respectively, in diskette/CD format or through
e-submission. The technical specifications of the said list is prescribed in a separate
revenue issuance. The initial list, however, shall be submitted within fifteen (15) days
from receipt of the notice as one of the Top 5,000 Individual Taxpayers.
The Commissioner may recommend to the Secretary of Finance the
amendment to or modification of any or all of the criteria in the determination and
selection of taxpayers forming part of the top 5,000 individual taxpayers considering
such factors as inflation, volume of business and similar factors. Provided, however,
that the Commissioner is empowered to conduct a periodic review as to the number of
taxpayers who ceased to qualify under the category of top five thousand individual
taxpayers for purposes of delisting/excluding them from the list and to identify
taxpayers to be included in the list.
(X) Income payments made by political parties and candidates of local

and national elections of all their purchase of goods and services as 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 Five percent (5%).
(Y) Interest income derived from any other debt instruments not
within the coverage of 'deposit substitutes' and Revenue Regulations No.
___-2012, unless otherwise provided by law or regulations Twenty Percent
(20%).
(Z) Income payments to Real Estate Investment Trust (REIT).

Income payments made to corporate taxpayers duly registered with the Large
Taxpayers Regular Audit Division 3 (now Regular LT Audit Division 3) of the
Bureau of Internal Revenue, as REITs for purposes of availing the incentive
provisions of Republic Act No. 9856, otherwise known as "The Real Estate
Investment Trust Act of 2009", as implemented by RR No. 13-2011. One
percent (1%);
(AA) Income payments on sugar. On gross payments on purchases

of sugar. One percent (1%).
1. Proprietors or operators of sugar mills/refineries on their mill share, and

buyers of Quedans or Molasses Storage Certificates from the sugar planters on
locally produced raw cane sugar, raw sugar and molasses shall withhold the
creditable income tax and remit the same to the BIR based on the following,
subject, however, to adjustment, when deemed necessary by the Commissioner,
depending on the prevailing market price of raw cane sugar, raw sugar and
molasses:
1.1 For locally produced raw cane sugar and raw sugar the
composite price, in metric tons, governing the specified crop
year of raw cane sugar and raw sugar as reflected in one of the
reports (Annex "A") under the weekly Final Sugar Production
Bulletin duly issued by the Sugar Regulatory Administration
(SRA) on the date of sale, or actual selling price, whichever is
higher.
It shall be ensured that a copy of the weekly Final Sugar

Production Bulletin be officially transmitted by the SRA to the
Commissioner of Internal Revenue within twenty four (24)
hours from the date of issuance thereof.
1.2 For Molasses base price of FOUR THOUSAND PESOS

(P4,000.00) per metric ton or actual selling price, whichever is
higher.
2. Buyers of refined sugar, whether locally produced or imported, shall

withhold the creditable income tax based on the actual selling price thereof.
For purposes of this subsection, the following terms shall have the following
meaning:
(i) Buyers of Quedan or Molasses Storage Certificates refer to

traders or industry users duly accredited by the SRA who bid
and/or purchase the Quedans or Molasses Storage Certificates from
the sugar planters.
(ii) Mill Share refers to payment to sugar mill/refinery by the sugar

planter for the milling of sugarcane. As such, it is equivalent to a
sale of locally produced raw sugar.
(iii) Molasses Storage Certificate refers to the warehouse receipt

issued by a sugar mill/refinery to the owner, as stated therein,
attesting to the fact that the volume of molasses is stored at the
mill's facilities, with the commitment that it will be delivered to the
holder of said document upon demand.
(iv) Sugar Mill/Refinery refers to a domestic company engaged in

the business of milling sugarcane into raw sugar, or in the refining
of raw sugar.
(v) Sugar Planter refers to the original owner of sugarcane brought
to the mill for milling purposes.
(vi) Sugar Regulatory Administration (SRA) refers to an agency of

the Philippine government under the Department of Agriculture,
responsible for promoting the growth and development of the sugar
industry, through greater participation of the private sector, and for
improving the working conditions of the laborers, created by
Executive Order No. 18, Series of 1986.
(vii) Quedan refers to a warehouse receipt issued by a sugar

mill/refinery to the owner as stated therein, attesting to the fact that
the volume and class of sugar is kept at the said sugar mill/refinery,
and with the commitment that it will be delivered to the holder of
said document by the sugar mill's/refinery's warehouseman upon
demand. Quedan is issued in the name of the proprietor or operator
of the sugar mill/refinery, for its mill share, and to the sugar
planter, as owner of the sugarcane, as certified by SRA
representative at the sugar mill/refinery.
(viii) Trader refers to a domestic company or person given the

authority and license by the SRA to engage in the business of
trading sugar, molasses, or muscovado, as the case may be.
(ix) Sugar refers to raw cane sugar, raw sugar and refined
sugar.
The Regional Director/Revenue District Officer, which has jurisdiction over

the physical location of the sugar mills/refineries, shall issue the Authority to
Release Locally Produced Raw Sugar/Raw Cane Sugar/Molasses (Annexes "A"
or "B", or "C" as applicable) or Authority to Release Locally Refined Sugar
(Annexes "D" or "E" as applicable) to the proprietors or operators, for purposes of
allowing the transfer/withdrawal of their mill share, or to the buyers of Quedans or
Molasses Storage Certificates on the locally produced sugar; Provided, however,
That, copies of proofs of payment of the creditable withholding tax due thereon (i.e.,
duly validated Monthly Remittance Return of Creditable Income Taxes Withheld
(Expanded) [BIR Form No. 1601-E] and Bank Payment/Deposit Slip/Revenue
Official Receipt [BIR Form No. 2524]) shall have been submitted and attached to the
written request for said authorization.
Provided, finally, That, notwithstanding the presentation of proof of exemption
from the payment of income tax (e.g., BIR ruling, special law, etc.), the concerned
proprietor, or operator of the sugar mill/refinery, or any buyer of Quedan or Molasses
Storage Certificate is still required to withhold and remit the creditable withholding
tax.
SECTION 2.57.3. Persons Required to Deduct and Withhold. The

following persons are hereby constituted as withholding agents for purposes of the
creditable tax required to be withheld on income payments enumerated in Section
2.57.2:
(A) In general, any juridical person, whether or not engaged in trade or

business;
(B) An individual, with respect to payments made in connection with

his trade or business;
However, insofar as taxable sales, exchanges or transfers of

real property are concerned, the buyers, whether or not engaged in
trade or business, are constituted as withholding agents. In
any case, no Certificate Authorizing Registration (CAR)/Tax
Clearance Certificate (TCL) shall be issued to the buyer unless the
withholding tax due on the sale, transfer or exchange of real
property has been duly paid.
Since the tax herein involved and being withheld is income

tax, the burden of the tax is really upon the seller although the
mode of payment of the tax is through withholding by the buyer.
As such, the tax withheld is considered a part of the consideration
agreed between the seller and buyer resulting, therefore, to a net
take to the seller of only the difference between the agreed
consideration/selling price and the tax withheld.
(C) All government offices including government-owned or controlled

corporations, as well as provincial, city and municipal governments
and barangays.
(D) All individuals, juridical persons and political parties, with

respect to their income payments made as campaign
expenditures and/or purchase of goods and services intended as
campaign contributions.
Agents, employees or any person purchasing goods or services/paying for and

in behalf of the aforesaid withholding agents shall likewise withhold in their behalf,
provided that the official receipts of payment/sales invoice shall be issued in the name
of the person whom the former represents and the corresponding certificate of taxes
withheld (BIR Form No. 2307) shall immediately be issued upon withholding of the
tax.
All income payments which are required to be subjected to withholding tax

shall be subject to the corresponding withholding tax rate to be withheld by the person
having control over the payment and who, at the same time, claims the expenses, [e.g.
payments to utility companies which are required to be subjected to withholding tax
shall likewise be subjected to withholding tax even if the meter or billing statement
(e.g. electric or water meter or the telephone bill) is not in the name of the payor, as
long as valid proof that payment of a particular expense is being shouldered by the
aforementioned payor (i. e. contract between the registered user of the meter and the
payor); payments made by persons who are sharing portion of the bill which is in the
name of another person as long as he is a duly constituted withholding agent and shall
only withhold on the portion of the expense being shouldered by him].
Income payments made thru brokers or agents or other person authorized to

collect/receive payments for and on behalf of the payee, whether for consideration or
otherwise, shall likewise be subject to the corresponding withholding tax rates to be
withheld by the payor/person having control over the payment with the corresponding
issuance of certificate of taxes withheld in the name of the payee whom the agent
represents.
The obligation to withhold is imposed upon the buyer-payor of income

although the burden of tax is really upon the seller-income earner hence, unjustifiable
refusal of the latter to be subjected to withholding shall be a ground for the mandatory
audit of his income tax liabilities (including withholding tax) upon verified complaint
of the buyer-payor.
SECTION 2.57.4. Time of Withholding. The obligation of the payor

to deduct and withhold the tax under Section 2.57 of these Regulations arises at the
time an income payment is paid or payable, or the income payment is accrued or
recorded as an expense or asset, whichever is applicable, in the payor's books,
whichever comes first. The term "payable" refers to the date the obligation becomes
due, demandable or legally enforceable.
Provided, however, that where income is not yet paid or payable but the
same has been recorded as an expense or asset, whichever is applicable, in the
payor's books, the obligation to withhold shall arise in the last month of the return
period in which the same is claimed as an expense or amortized for tax purposes.
Example X Corporation, a domestic corporation which reports income

and expenses on a calendar year basis, issues 2-year bonds with face value of
P100,000,000 at a discount amounting to P6,000,000 on January 1, 2002 to twenty
five (25) investors. It records in its books the amortized portion of the discount as
expense in the amount of P250,000/month (P6,000,000 divided by 24 months).
Since the discount is not yet paid or payable but the aliquot portion of
which has already been recorded as expense for tax purposes, the withholding of
the 20% final tax shall be done on the last month of the quarter when the same
has been claimed as an expense in the quarterly income tax returns/final
adjustments returns filed by X Corporation.
Thus, in the above illustration, the amortized discount to be recorded by X

Corporation for the months of January, February and March 2002 amounting to
P750,000 shall be subject to 20% final tax of P150,000 come March 2002, which
tax shall be remitted within 10 days after the quarter ending March 2002 (that is,
on or before April 10, 2002). The said withholding tax shall be reported in its
Monthly Remittance Return of Final Income Taxes Withheld required to be filed
in April 2002. On the other hand, for the calendar quarter ending December
2002, the withholding of the final tax for the amortized discount pertaining to the
months of October, November and December shall be done in December 2002 and
the remittance thereof shall be on or before January 15, 2003. The said
withholding tax shall be reported in its Monthly Remittance Return of Final
Income Taxes Withheld required to be filed in January 2003.
SECTION 2.57.5. Exemption from Withholding. The withholding of

creditable withholding tax prescribed in these Regulations shall not apply to income
payments made to the following:
(A) National government agencies and its instrumentalities including

provincial, city, municipal governments and barangays except
government-owned and controlled corporations.
(B) Persons enjoying exemption from payment of income taxes

pursuant to the provisions of any law, general or special, such as
but not limited to the following:
(1) Sales of real property by a corporation which is registered

with and certified by the Housing and Land Use Regulatory
Board (HLURB) or HUDCC as engaged in socialized
housing project where the selling price of the house and lot
or only the lot does not exceed one hundred eighty thousand
pesos (P180,000) in Metro Manila and other highly
urbanized areas and one hundred fifty thousand pesos
(P150,000) in other areas or such adjusted amount of selling
price for socialized housing as may later be determined and
adopted by the HLURB, as provided under Republic Act
No. 7279 and its implementing regulations;
(2) Corporations duly registered with the Board of Investments,

Philippine Export Processing Zones and Subic Bay
Metropolitan Authority enjoying exemption from income
tax pursuant to E.O. 226, as amended, R.A. 7916,
the Omnibus Investment Code of 1987 and R.A.
7227, as amended, respectively;
(3) Corporations which are exempt from the income tax under
Sec. 30 of the NIRC, to wit: the Government Service
Insurance System (GSIS), the Social Security System (SSS),
the Philippine Health Insurance Corporation (PHIC), the
Philippine Charity Sweepstakes Office (PCSO) and the
Philippine Amusement and Gaming Corporation
(PAGCOR); However, the income payments arising from
any activity which is conducted for profit or income derived
from real or personal property shall be subject to a
withholding tax as prescribed in these regulations;
(4) General professional partnerships;
(5) Joint ventures or consortium formed for the purpose of

undertaking construction projects or engaging in
petroleum, coal, geothermal & other energy operations
pursuant to an operating or consortium agreement under
a service contract with the government.
SECTION 2.58. Returns and Payment of Taxes Withheld at Source.

(A) Monthly return and payment of taxes withheld at source
(1) WHERE TO FILE Creditable withholding taxes (Expanded

Withholding Tax) deducted and withheld by the withholding agent shall be remitted
by accomplishing the Monthly Remittance Return of Creditable Income Taxes
Withheld (BIR Form No. 1601-E) and for final taxes Monthly Remittance Return of
Final Taxes Withheld (BIR Form No. 1601-F) in triplicate copies with Monthly
Alphalist of Payees (MAP), the tax base and the amount withheld paid upon filing the
return with the authorized agent banks under the jurisdiction of the Revenue District
Office (RDO)/Large Taxpayers District Office (LTDO) where the withholding agent
is required to register and file the return. In places where there is no authorized agent
bank, the return shall be filed directly with the Revenue Collection Officer or the duly
authorized Municipal/City treasurer of the Revenue District Office where the
withholding agent is required to register or file the return, except in cases where the
Commissioner otherwise permits.
Those not engaged in trade/business or practice of profession for a limited

time during the election period designated as withholding agent pursuant to
Section 2.57.3 (D) and required to withhold income payment under 2.57.2 (X)
using only Alphanumeric Tax Code Withholding Tax Individual (WI) 680 or
Withholding Tax Corporation (WC) 680 in the remittance of taxes withheld using
Monthly Remittance Return on Creditable Withholding Taxes at Source (BIR
Form No. 1601-E) shall not be required to attach the Monthly Alphalist of Payees
(MAP).
(2) WHEN TO FILE
(a) For both large and non-large taxpayers, the withholding tax
return, whether creditable or final (including final withholding
taxes on interest from any currency bank deposit and yield or any
other monetary benefit from deposit substitutes and from trust
funds and similar arrangements) shall be filed and payments should
be made, within ten (10) days after the end of each month, except
for taxes withheld for the month of December of each year, which
shall be filed on or before January 15 of the following year; and
except for the final capital gains tax on the sale or other onerous
disposition of real property considered as capital asset which must
be taken/withheld from the seller by the buyer and remitted within
thirty (30) days from the date of notarization of the transfer
document to the collecting agent of the RDO having jurisdiction
over the place where the property is located.
MERALCO and other Distribution Utilities (DUs) required to

withhold taxes pursuant to Sec. 2.57.2 (U) and (V) above shall
submit a Monthly Alphalist of Payees (MAP) (Annex "A") for
each calendar quarter, which shall be electronically attached to the
monthly remittance return of the calendar quarter (e.g., BIR Form
1601-E for the quarter ending March with attached MAP for
January, February, March). It shall contain an alphalist of
customers from whom taxes have been withheld for the return
period and in whose behalf, the taxes were remitted under BIR
Form No. 1601-E showing the total amount of income and taxes
withheld and remitted.
Nonetheless, in case of disposition of real property classified

as capital asset by an individual to the government, the tax to be
imposed shall be determined either under the normal income tax
rate imposed in Sec. 24(A) or under a final capital gains tax of six
percent (6%) imposed under Sec. 24(D)(1) of the Code, at the
option of the taxpayer-seller. Thus, if the seller chooses the first
option, the buyer does not have to withhold the six percent (6%)
final capital gains tax but no Certificate Authorizing Registration
shall be issued for the transaction until the seller or the buyer
shows the seller's filed income tax return reflecting the result of the
subject real estate transaction.
(b) With respect, however, to taxpayers, whether large or non-large,

who availed of the electronic filing and payment system (EFPS),
the deadline for electronically filing the applicable withholding tax
returns and paying the taxes due thereon via the EFPS shall be five
(5) days later than the deadlines set above, unless the EFPS
regulations provide for different deadline dates and except for the
final capital gains tax on the sale, barter or exchange of real
property where the law fixes a definite deadline for the payment
thereof.
(c) The return for final withholding taxes on interest from any
currency bank deposit and yield or any other monetary benefit
from deposit substitutes and from trust funds and similar
arrangements shall be filed and the payment made within twenty
five (25) days from the close of each calendar quarter.
(B) Withholding tax statement for taxes withheld Every payor

required to deduct and withhold taxes under these regulations shall furnish, in
triplicate, each payee, whether individual or corporate, with a withholding tax
statement, using the prescribed form (BIR Form No. 2307) showing the income
payments made and the amount of taxes withheld therefrom, for every month of the
quarter, within twenty (20) days following the close of the taxable quarter employed
by the payee in filing his/its quarterly income tax return. The payor, nonetheless,
should always retain a copy of duly issued BIR Form No. 2307. Failure to furnish
the same shall be a ground for the mandatory audit of payor's income tax
liabilities (including withholding tax) upon verified complaint of the payee.
For final withholding taxes, the statement should be given to the payee on or
before January 31 of the succeeding year.
Upon request of the payee, however, the payor must furnish such certificate
simultaneously with the income payment.
(C) Annual information return for income tax withheld at source.

The payor is required to file with the BIR-Large Taxpayers Assistance Division,
Large Taxpayer District Office or Excise Taxpayers Assistance Division, or the
Revenue District Office where the payor/employer is registered as Withholding
Agent, on or before March 1 of the following year in which payments were made, an
Annual Information Return of Creditable Taxes Withheld (Expanded)/Income
Payments Exempt from Withholding Tax (BIR Form No. 1604E) except withholding
agents for a limited time during the election period under Sec. 2.57.3(D) who are
not engaged in business or practice of profession and using only Alphanumeric
Tax Code Withholding Tax Individual (WI) 680 or Withholding Tax Corporation
(WC) 680 whose due date shall be within thirty (30) days after the day of election,
and on or before January 31 of the said year an Annual Information Return on Income
Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form No.
1604-CF), showing among other the following information:
(1) Name, address and taxpayer's, identification number (TIN); and
(2) Nature of income payments, gross amount and amount of tax
withheld from each payee and such other information as may be
required by the Commissioner.
If the payor is the Government of the Philippines or any political subdivision

or agency thereof, or any government-owned or controlled corporation, the return
shall be made by the officer or employee having control of the payments or by any
designated officer or employee.
An individual whose sole income has been subjected to final withholding tax
provided under Section 57(A) shall not be required to file an income tax return
pursuant to Section 51(A)(2)(c) of the Tax Code. For purposes of documentation, as
may be required by other agencies in the government (including, but not limited to,
the Bureau of Immigration as well as for purposes of establishing financial capacity
for bank loans or credit card application in private and public entities and other
purposes, BIR Form No. 2306 duly signed by the employer and the employee shall
suffice. The term "an individual whose compensation income has been subjected to
final withholding tax" shall include aliens or Filipino citizens occupying the same
positions as the alien employees, as the case may be, who are employed by regional
operating headquarters, regional or area headquarters, offshore banking units,
petroleum service contractors and sub-contractors, pursuant to pertinent provisions of
Sections 25(C), (D), (E) and 57(A) of the Tax Code of 1997, Republic Act No. 8756,
Presidential Decree No. 1354, and other pertinent laws.
SECTION 2.58.1. Income of Recipient. Income upon which any creditable

tax is required to be withheld at source shall be included in the return of its recipient.
The excess of the withheld tax over the tax due on his return shall be refunded to him
subject to the authority of the Commissioner to refund taxes under Sec. 204 of
the NIRC. If the income tax collected at source is less than the tax due on his return,
the difference shall be paid in accordance with the provisions of Sec. 56 of the
Code.
The taxes withheld by the withholding agents shall be maintained in separate

accounts and should not be commingled with any other funds of the withholding
agent. They shall be considered as a trust fund held for government until they are
remitted.
SECTION 2.58.2. Registration with the Register of Deeds. Deeds of

conveyances of land or land and building/improvement thereon arising from sales,
barters, or exchanges subject to the creditable expanded withholding tax shall not be
recorded by the Register of Deeds unless the Commissioner or his duly authorized
representative has certified that such transfers and conveyances have been reported
and the expanded withholding tax, inclusive of the documentary stamp tax, due
thereon have been fully paid, pursuant to the provisions of Sections 57 and 196
of the Code, respectively.
The Register of Deeds shall annotate on the Original Certificate of Title,

Transfer Certificate of Title or Condominium Certificate of Title of the said
property such information required under Section 58(E) of the Tax Code. In
case of any violation of the said requirement, he shall be liable to the penalties
provided under Section 269 of the said Tax Code.
SECTION 2.58.3. Claim for Tax Credit or Refund.
(A) The amount of creditable tax withheld shall be allowed as a tax credit
against the income tax liability of the payee in the quarter of the taxable year in which
income was earned or received.
(B) Claims for tax credit or refund of any creditable income tax which was
deducted and withheld on income payments shall be given due course only when it is
shown that the income payment has been declared as part of the gross income and the
fact of withholding is established by a copy of the withholding tax statement duly
issued by the payor to the payee showing the amount paid and the amount of tax
withheld therefrom.
Proof of remittance is the responsibility of the withholding agent.
(C) Excess Credits An individual or corporate taxpayer's excess expanded

withholding tax credits for the taxable quarter/year shall automatically be allowed as a
credit against his income tax due for the taxable quarters/years immediately
succeeding the taxable quarters/years in which the excess credit arose, provided he
submits with his income tax return, a copy of the first page of his income tax return
for the previous taxable period showing the amount of his excess withholding tax
credits, and on which return he has not opted for a cash refund or tax credit
certificate. cdtai
(1) If in lieu of the automatic application of his excess credit, the taxpayer
wants a cash refund or a tax credit certificate for use in payment of his other national
internal revenue tax liabilities, he shall make a written request therefor, within two
years after the payment of the tax (Ref. Secs. 204(c) and 229 of the Code ),
provided however, that if the taxpayer has indicated in his income tax return his
option for either a cash refund or a tax credit certificate, such indication shall be
considered sufficient for the purpose. Upon filing of his request, the taxpayer's
income tax return showing the excess expanded withholding tax credits shall be
examined. The excess expanded withholding tax so determined, shall be
refunded/credited to the taxpayer.
(2) Sample computation of application of excess credits-ordinary
Taxable Period
1997 1998-QTR1 1998-QTR2 1998-QTR3
Tax Due 1,000 200 200 500
Less: Tax
Withheld (1,500) (500) (300) 0
Net Tax
Payable/
Creditable (500) (300) (100) 500
In the above illustration, there is an excess credit in 1997 that can be applied to
the subsequent quarter. And if the option to apply the excess credit is initiated in the
first quarter of 1998, the taxpayer cannot avail of a refund/tax credit certificate of the
excess credit of P500 in 1997.
SECTION 2.58.4. Verification of Returns and Statement. Any return,

statement or other documents required to be filed under these Regulations shall
contain a written declaration that it is made under penalties of perjury and such
declaration shall be under oath.
It shall be the duty of tax officials to accept the income tax return or other
documents submitted under oath.
SECTION 2.58.5. Requirement for Deductibility. Any income

payment which is otherwise deductible under the Code shall be allowed as a
deduction from the payor's gross income only if it is shown that the income tax
required to be withheld has been paid to the Bureau in accordance with Secs. 57 and
58 of the Code.
A deduction will also be allowed in the following cases where no withholding

of tax was made: LexLib
(A) The payee reported the income and pays the tax due thereon and
the withholding agent pays the tax including the interest incident to
the failure to withhold the tax, and surcharges, if applicable, at the
time of the audit investigation or reinvestigation/reconsideration.
(B) The recipient/payee failed to report the income on the due date
thereof, but the withholding agent/taxpayer pays the tax, including
the interest incident to the failure to withhold the tax, and
surcharges, if applicable, at the time of the audit/investigation or
reinvestigation/reconsideration.
(C) The withholding agent erroneously underwithheld the tax but pays
the difference between the correct amount and the amount of tax
withheld, including the interest, incident to such error, and
surcharges, if applicable, at the time of the audit/investigation or
reinvestigation/reconsideration.
Items of deduction representing return of capital such as those pertaining

to purchases of raw materials forming part of finished product or purchases of
goods for resale, shall be allowed as deductions upon the withholding agent's
payment of the basic withholding tax and penalties incident to non-withholding or
underwithholding.
SECTION 2.58.6. Tax Paid by Recipient of Income. Every person who is

required to withhold the tax from the compensation of an employee is liable for the
payment of such tax to the BIR. Such liability stays even if the employee
subsequently pays the tax. The payment of the tax by the employee does not relieve
the employer from the liability for penalties and/or additions to the tax for failure to
deduct and withhold within the time prescribed by law or regulations. The employer
will not be relieved of his liability for payment of the tax required to be withheld
unless he can show that the tax has been paid by the employee. The amount of any tax
withheld/collected by the employer is a special fund in trust for the government of the
Philippines.
SECTION 2.78. Withholding Tax on Compensation. The withholding of

tax on compensation income is a method of collecting the income tax at source upon
receipt of the income. It applies to all employed individuals whether citizens or aliens,
deriving income from compensation for services rendered in the Philippines. The
employer is constituted as the withholding agent.
SECTION 2.78.1. Withholding of Income Tax on Compensation Income.
(A) Compensation Income Defined. In general, the term

"compensation" means all remuneration for services performed by an employee for
his employer under an employer-employee relationship, unless specifically excluded
by the Code.
The name by which the remuneration for services is designated is immaterial.

Thus, salaries, wages, emoluments and honoraria, allowances, commissions (e.g.,
transportation, representation, entertainment and the like); fees including director's
fees, if the director is, at the same time, an employee of the employer/corporation;
taxable bonuses and fringe benefits except those which are subject to the fringe
benefits tax under Sec. 33 of the Code; taxable pensions and retirement pay; and
other income of a similar nature constitute compensation income.
The basis upon which the remuneration is paid is immaterial in determining

whether the remuneration constitutes compensation. Thus, it may be paid on the basis
of piece-work, or a percentage of profits; and may be paid hourly, daily, weekly,
monthly or annually. cdrep
Remuneration for services constitutes compensation even if the relationship of

employer and employee does not exist any longer at the time when payment is made
between the person in whose employ the services had been performed and the
individual who performed them.
(1) Compensation paid in kind. Compensation may be paid in money or in

some medium other than money, as for example, stocks, bonds or other forms of
property. If services are paid for in a medium other than money, the fair market value
of the thing taken in payment is the amount to be included as compensation subject to
withholding. If the services are rendered at a stipulated price, in the absence of
evidence to the contrary, such price will be presumed to be the fair market value of
the remuneration received. If a corporation transfers to its employees its own stock as
remuneration for services rendered by the employee, the amount of such remuneration
is the fair market value of the stock at the time the services were rendered.
Where compensation is paid in property other than money, the employer shall
make necessary arrangements to ensure that the amount of the tax required to be
withheld is available for payment to the Commissioner.
(2) Living quarters or meals. If a person receives a salary as remuneration
for services rendered, and in addition thereto, living quarters or meals are provided,
the value to such person of the quarters and meals so furnished shall be added to the
remuneration paid for the purpose of determining the amount of compensation subject
to withholding. However, if living quarters or meals are furnished to an employee for
the convenience of the employer, the value thereof need not be included as part of
compensation income.
(3) Facilities and privileges of relatively small value. Ordinarily,

facilities, and privileges (such as entertainment, medical services, or so-called
"courtesy" discounts on purchases), otherwise known as "de minimis benefits,"
furnished or offered by an employer to his employees, are not considered as
compensation subject to income tax and consequently to withholding tax, if such
facilities or privileges are of relatively small value and are offered or furnished by the
employer merely as means of promoting the health, goodwill, contentment, or
efficiency of his employees.
The following shall be considered as "de minimis" benefits not subject to

income tax as well as withholding tax on compensation income of both managerial
and rank and file employees:
(a) Monetized unused vacation leave credits of private employees not

exceeding ten (10) days during the year;
(b) Monetized value of vacation and sick leave credits paid to

government officials and employees;
(c) Medical cash allowance to dependents of employees, not

exceeding P750 per employee per semester or P125 per month;
(d) Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month
amounting to not more than P1,500;
(e) Uniform and Clothing allowance not exceeding P5,000 per annum;
(f) 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
P10,000.00 per annum;
(g) Laundry allowance not exceeding P300 per month;
(h) 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;
(i) Gifts given during Christmas and major anniversary celebrations

not exceeding P5,000 per employee per annum;
(j) 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;
(k) Benefits received by an employee by virtue of a collective

bargaining agreement (CBA) and productivity incentive
schemes provided that the total annual monetary value received
from both CBA and productivity incentive schemes combined
do not exceed ten thousand pesos (Php10,000.00) per employee
per taxable year;
All other benefits given by employers which are not included in the above
enumeration shall not be considered as "de minimis" benefits, and hence, shall be
subject to income tax as well as withholding tax on compensation income.
Any amount given by the employer as benefits to its employees, whether

classified as "de minimis" benefits or fringe benefits, shall constitute as deductible
expense upon such employer.
Where compensation is paid in property other than money, the employer shall
make necessary arrangements to ensure that the amount of the tax required to be
withheld is available for payment to the Bureau of Internal Revenue.
(4) Tips and gratuities. Tips or gratuities paid directly to an employee by a

customer of the employer which are not accounted for by the employee to the
employer are considered as taxable income but not subject to withholding.
(5) Pensions, retirement and separation pay. Pensions, retirement

and separation pay constitute compensation subject to withholding, except those
provided under Subsection B of this section.
(6) Fixed or variable transportation, representation and other allowances
(a) IN GENERAL, fixed or variable transportation, representation and

other allowances which are received by a public officer or
employee of a private entity, in addition to the regular
compensation fixed for his position or office, is compensation
subject to withholding. Provided, however, that
Representation and Transportation Allowance (RATA) granted to
public officers and employees under the General Appropriations
Act and the Personnel Economic Relief Allowance (PERA) which
essentially constitute reimbursement for expenses incurred in the
performance of government personnel's official duties shall not be
subject to income tax and consequently to withholding tax.
Provided further, that pursuant to E.O. 219 which took
effect on January 1, 2000, Additional Compensation Allowance
(ACA) given to government personnel shall not be subject to
withholding tax pending its formal integration into the basic pay.
Consequently, and effective for the taxable year 2000, ACA shall
be classified as part of the "other benefits" under Section
32(B)(7)(e) of the Code which are excluded from gross
compensation income provided the total amount of such benefits
does not exceed P30,000.00.
(b) Any amount paid specifically, either as advances or

reimbursements for travelling, representation and other bonafide
ordinary and necessary expenses incurred or reasonably expected
to be incurred by the employee in the performance of his duties are
not compensation subject to withholding, if the following
conditions are satisfied:
(i) It is for ordinary and necessary travelling and representation

or entertainment expenses paid or incurred by the employee
in the pursuit of the trade, business or profession; and
(ii) The employee is required to account/liquidate for the

expenses in accordance with the specific requirements of
substantiation for each category of expenses pursuant to
Sec. 34 of the Code. The excess of advances made
over actual expenses shall constitute taxable income if such
amount is not returned to the employer. Reasonable
amounts of reimbursements/advances for travelling and
entertainment expenses which are pre-computed on a daily
basis and are paid to an employee while he is on an
assignment or duty need not be subject to the requirements
of substantiation and to withholding.
(7) Vacation and sick leave allowances. Amounts of "vacation allowances

or sick leave credits" which are paid to an employee constitute compensation. Thus,
the salary of an employee on vacation or on sick leave, which is paid notwithstanding
his absence from work constitutes compensation. However, the monetized value of
unutilized vacation leave credits of ten (10) days or less which are paid to private
employees during the year and the monetized value of leave credits paid to
government officials and employees shall not be subject to income tax and
consequently to withholding tax.
(8) Deductions made by employer from compensation of employee. Any

amount which is required by law to be deducted by the employer from the
compensation of an employee including the withheld tax is considered as part of the
employee's compensation and is deemed to be paid to the employee as compensation
at the time the deduction is made.
(9) Remuneration for services as employee of a nonresident alien individual

or foreign entity. The term "compensation" includes remuneration for services
performed by an employee of a nonresident alien individual, foreign partnership or
foreign corporation, whether or not such alien individual or foreign entity is engaged
in trade or business within the Philippines. Any person paying compensation on
behalf of a non-resident alien individual, foreign partnership, or foreign corporation
which is not engaged in trade or business within the Philippines is subject to all
provisions of law and regulations applicable to an employer.
(10) Compensation for services performed outside the Philippines.

Remuneration for services performed outside the Philippines by a resident citizen for
a domestic or a resident foreign corporation or partnership, or for a non-resident
corporation or partnership, or for a non-resident individual not engaged in trade or
business in the Philippines shall be treated as compensation which is subject to tax.
A non-resident citizen as defined in these regulations is taxable only on income

derived from sources within the Philippines. In general, the situs of the income
whether within or without the Philippines, is determined by the place where the
service is rendered.
(B) Exemptions from withholding tax on compensation. The
following income payments are exempted from the requirement of withholding tax on
compensation:
(1) Remunerations received as an incident of employment, as follows:
(a) Retirement benefits received under Republic Act under 7641

and those received by officials and employees of private firms,
whether individual or corporate, under a reasonable private benefit
plan maintained by the employer which meet the following
requirements:
(i) The plan must be reasonable;
(ii) The benefit plan must be approved by the Bureau;
(iii) The retiring official or employee must have been in the

service of the same employer for at least ten (10) years and
is not less than fifty (50) years of age at the time of
retirement; and
(iv) The retiring official or employee should not have previously

availed of the privilege under the retirement benefit plan of
the same or another employer.
(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. cdrep
The phrase "for any cause beyond the control of the said
official or employee" connotes involuntariness on the part of the
official or employee. The separation from the service of the official
or employee must not be asked for or initiated by him. The
separation was not of his own making. Whether or not the
separation is beyond the control of the official or employee, being
essentially a question of fact, shall be determined on the basis of
prevailing facts and circumstances. It shall be duly established by
the employer by competent evidence which should be attached to
the monthly return for the period in which the amount paid due to
the involuntary separation was made.
Amounts received by reason of involuntary separation remain

exempt from income tax even if the official or the employee, at the
time of separation, had rendered less than ten (10) years of service
and/or is below fifty (50) years of age.
Any payment made by an employer to an employee on

account of dismissal, constitutes compensation regardless of
whether the employer is legally bound by contract, statute, or
otherwise, to make such payment.
(c) Social security benefits, retirement gratuities, pensions and other

similar benefits received by residents or non-resident citizens of
the Philippines or aliens who come to reside permanently in the
Philippines from foreign government agencies and other
institutions private or public;
(d) Payments of benefits due or to become due to any person residing

in the Philippines under the law of the United States administered
by the United States Veterans Administration;
(e) Payments of benefits made under the Social Security System Act of
1954 as amended ; and
(f) Benefits received from the GSIS Act of 1937, as amended,

and the retirement gratuity received by government officials and
employees.
(2) Remuneration paid for agricultural labor
(a) Remuneration for services which constitute agricultural labor and

paid entirely in products of the farm where the labor is performed
is not subject to withholding. In general, however, the term,
"agricultural labor" does not include services performed in
connection with forestry, lumbering or landscaping.
(b) Remuneration paid entirely in products of the farm where the labor
is performed by an employee of any person in connection with any
of the following activities is excepted as remuneration for
agricultural labor:
(i) The cultivation of soil;
(ii) The raising, shearing, feeding, caring for, training, or

management of livestock, bees, poultry, or wildlife; or
(iii) The raising or harvesting of any other agricultural or

horticultural commodity. The term "farm" as used in this
subsection includes, but is not limited to stock, dairy,
poultry, fruits and truck farms, plantations, ranches,
nurseries ranges, orchards, and such greenhouse and other
similar structures as are used primarily for the raising of
agricultural or horticultural commodities.
(c) The remuneration paid entirely in products of the farm where labor
is performed for the following services in the employ of the owner
or tenant or other operator of one or more farms is not considered
as remuneration for agricultural labor, provided the major part of
such services is performed on a farm:
(i) Services performed in connection with the operation,

management, conservation, improvement, or maintenance of
any such farms or its tools or equipments; or
(ii) Services performed in salvaging timber, or clearing land

brush and other debris left by a hurricane or typhoon.
The services described in (i) above may include for example,

services performed by carpenters, painters, mechanics, farm
supervisors, irrigation engineers, bookkeepers, and other skilled or
semi-skilled workers, which contribute in any way to the conduct
of the farm or farms, as such, operated by the person employing
them, as distinguished from any other enterprise in which such
person may be engaged. Since the services described in this
paragraph must be performed in the employ of the owner or tenant
or other operator of the farm, the exception does not extend to
remuneration paid for services performed by employees of a
commercial painting concern, for example, which contracts with a
farmer to renovate his farm properties. cdasia
(d) Remuneration paid entirely in products of the farm where labor is
performed by an employee in the employ of any person in
connection with any of the following operations is not considered
as remuneration for agricultural labor without regard to the place
where such services are performed:
(i) The making of copra, stripping of abaca, etc.;
(ii) The hatching of poultry;
(iii) The raising of fish;
(iv) The operation or maintenance of ditches, canals, reservoirs,

or waterways used exclusively for supplying or storing
water for farming purposes; and
(v) The production or harvesting of crude gum from a living

tree or the processing of such crude gum into gum spirits or
turpentine and gum resin, provided such processing is
carried on by the original producer of such crude gum.
(e) Remuneration paid entirely in products of the farm where labor is

performed by an employee in the employ of a farmer or a farmer's
cooperative, organization or group in the handling, planting,
drying, packing, packaging, processing, freezing, grading, storing
or delivering to storage or to market or to carrier for transportation
to market, of any agricultural or horticultural commodity, produced
by such farmer or farmer-members of such organization or group,
is excepted as remuneration for agricultural labor. Services
performed by employees of such farmer or farmer's organization or
group in handling, planting, drying, packaging, processing,
freezing, grading, storing, or delivering to storage or to market or
to carrier for transportation to market of commodities produced by
persons other than such farmer or members of such farmer's
organization or group are not performed "as an incident to ordinary
farming operation".
All payments made in cash or other forms other than products

of the farm where labor is performed, for services constituting
agricultural labor as explained above, are not within the exception.
(3) Remuneration for domestic services. Remuneration paid for services of

a household nature performed by an employee in or about the private home of the
person by whom he is employed is not subject to withholding. However, the services
of household personnel furnished to an employee (except rank and file employees) by
an employer shall be subject to the fringe benefits tax pursuant to Sec. 33 of the
Code, as amended.
A private home is the fixed place of abode of an individual or family. If the

home is utilized primarily for the purpose of supplying board or lodging to the public
as a business enterprise, it ceases to be a private home and remuneration paid for
services performed therein is not exempted.
In general, services of a household nature in or about a private home include

services rendered by cooks, maids, butlers, valets, laundresses, gardeners, chauffeurs
of automobiles for family use.
The remuneration paid for the services above enumerated which are performed
in or about rooming or lodging houses, boarding houses, clubs, hotels, hospitals or
commercial offices or establishments is considered as compensation;
Remuneration paid for services performed as a private secretary, even if they

are performed in the employer's home is considered as compensation;
(4) Remuneration for casual labor not in the course of an employer's trade or
business. The term "casual labor" includes labor which is occasional, incidental or
regular. The expression "not in the course of the employer's trade or business"
includes labor that does not promote or advance the trade or business of the employer.
Thus, any remuneration paid for labor which is occasional, incidental or

irregular, and does not promote or advance the employer's trade or business, is not
considered as compensation. cdasia
EXAMPLE: A's business is that of operating a sawmill. He employs B, a

carpenter, at an hourly wage to repair his home. B's work is irregular and he spends,
the greater part of two days in completing the work. Since B's labor is casual and is
not in the course of A's business, the remuneration paid for such services is exempted.
Any remuneration paid for casual labor, that is, labor which is occasional,
incidental or irregular, but which is rendered in the course of the employer's trade or
business, is considered as compensation.
EXAMPLE: E is engaged in the business of operating a department store. He
employs additional clerks for a short period. While the services of the clerks may be
casual, they are rendered in the course of the employer's trade or business and
therefore the remuneration paid for such services is considered as compensation.
Any remuneration paid for casual labor performed for a corporation is

considered as compensation;
(5) Compensation for services by a citizen or resident of the Philippines for a

foreign government or an international organization. Remuneration paid for
services performed as an employee of a foreign government or an international
organization is exempted. The exemption includes not only remuneration paid for
services performed by ambassadors, ministers and other diplomatic officers and
employees but also remuneration paid for services performed as consular or other
officer or employee of a foreign government or as a non-diplomatic representative of
such government.
(6) Damages. Actual, moral, exemplary and nominal damages received by

an employee or his heirs pursuant to a final judgment or compromise agreement
arising out of or related to an employer-employee relationship.
(7) Life Insurance. The proceeds of life insurance policies paid to the heirs
or beneficiaries upon the death of the insured, whether in a single sum or otherwise,
provided however, that interest payments agreed under the policy for the amounts
which are held by the insured under such an agreement shall be included in the gross
income.
(8) Amount received by the insured as a return of premium. The amount

received by the insured, as a return of premium or premiums paid by him under life
insurance, endowment, or annuity contracts either during the term or at the maturity
of the term mentioned in the contract or upon surrender of the contract.
(9) Compensation for injuries or sickness. Amounts received through

Accident or Health Insurance or under Workmen's Compensation Acts, as
compensation for personal injuries or sickness, plus the amount of any damages
received whether by suit or agreement on account of such injuries or sickness.
(10) Income exempt under treaty. Income of any kind to the extent required
by any treaty obligation binding upon the Government of the Philippines.
(11) Thirteenth (13th ) month pay and other benefits.
(a) Thirteenth (13th) month pay equivalent to the mandatory one (1)
month basic salary of officials and employees of the government,
(whether national or local), including government-owned or
controlled corporations, and or private offices received after the
twelfth (12th) month pay; and
(b) Other benefits such as Christmas bonus, productivity incentives,

loyalty award, gift in cash or in kind and other benefits of similar
nature actually received by officials and employees of both
government and private offices, including the additional
compensation allowance ("ACA") granted and paid to all officials
and employees of the national government agencies (NGAs)
including state universities and colleges (SUCs),
government-owned and/or controlled corporations (GOCCs),
government financial institutions (GFIs) and local government
units (LGUs).
The above stated exclusions (a) and (b) shall cover benefits paid or accrued
during the year provided that the total amount shall not exceed thirty thousand pesos
(P30,000.00) which may be increased through rules and regulations issued by the
Secretary of Finance, upon recommendation of the Commissioner, after considering,
among others, the effect on the same of the inflation rate at the end of the taxable
year.
(12) GSIS, SSS, Medicare and other contributions. GSIS, SSS, Medicare
and Pag-Ibig contributions, and union dues of individual employees.
(13) Compensation income of MWEs who work in the private sector

and being paid the Statutory Minimum Wage (SMW), as fixed by Regional
Tripartite Wage and Productivity Board (RTWPB)/National Wages and
Productivity Commission (NWPC), applicable to the place where he/she is
assigned.
The aforesaid income shall likewise be exempted from income tax.
'Statutory Minimum Wage'' (SMW) shall refer to the rate fixed by the
Regional Tripartite Wage and Productivity Board (RTWPB), as defined by the
Bureau of Labor and Employment Statistics (BLES) of the Department of Labor
and Employment (DOLE). The RTWPB of each region shall determine the wage
rates in the different regions based on established criteria and shall be the basis of
exemption from income tax for this purpose.
Holiday pay, overtime pay, night shift differential pay and hazard pay
earned by the aforementioned MWE shall likewise be covered by the above
exemption. Provided, however, that an employee who receives/earns additional
compensation such as commissions, honoraria, fringe benefits, benefits in excess of
the allowable statutory amount of P30,000.00, taxable allowances and other
taxable income other than the SMW, holiday pay, overtime pay, hazard pay and
night shift differential pay shall not enjoy the privilege of being a MWE and,
therefore, his/her entire earnings are not exempt from income tax, and
consequently, from withholding tax.
MWEs receiving other income, such as income from the conduct of trade,
business, or practice of profession, except income subject to final tax, in addition
to compensation income are not exempted from income tax on their entire income
earned during the taxable year. This rule, notwithstanding, the SMW, Holiday
pay, overtime pay, night shift differential pay and hazard pay shall still be exempt
from withholding tax.
For purposes of these regulations, hazard pay shall mean the amount paid
by the employer to MWEs who were actually assigned to danger or strife-torn
areas, disease-infested places, or in distressed or isolated stations and camps,
which expose them to great danger of contagion or peril to life. Any hazard pay
paid to MWEs which does not satisfy the above criteria is deemed subject to
income tax and consequently, to withholding tax.
In case of hazardous employment, the employer shall attach to the monthly

Remittance Return of Withholding Tax on Compensation (BIR Form No. 1601C)
for return periods March, June, September and December a copy of the list
submitted to the nearest DOLE Regional/Provincial Offices Operations
Division/Unit showing the names of MWEs who received the hazard pay, period
of employment, amount of hazard pay per month; and justification for payment of
hazard pay as certified by said DOLE/allied agency that the hazard pay is
justifiable.
The NWPC shall officially submit a Matrix of Wage Order by region

(Annex "A"), and any changes thereto, within ten (10) days after its effectivity to
the Assistant Commissioner, Collection Service, for circularization in the BIR.
Any reduction or diminution of wages for purposes of exemption from

income tax shall constitute misrepresentation and therefore, shall result to the
automatic disallowance of expense, i.e. compensation and benefits account, on the
part of the employer. The offenders may be criminally prosecuted under existing
laws.
(14) Compensation income of employees in the public sector with

compensation income of not more than the SMW in the non-agricultural sector, as
fixed by RTWPB/NWPC, applicable to the place where he/she is assigned.
The aforesaid income shall likewise be exempted from income tax.
The basic salary of MWEs in the public sector shall be equated to the
SMW in the non-agricultural sector applicable to the place where he/she is
assigned. The determination of the SMW in the public sector shall likewise adopt
the same procedures and consideration as those of the private sector.
Holiday pay, overtime pay, night shift differential pay and hazard pay
earned by the aforementioned MWE in the public sector shall likewise be covered
by the above exemption. Provided, however, that a public sector employee who
receives additional compensation such as commissions, honoraria, fringe benefits,
benefits in excess of the allowable statutory amount of P30,000.00, taxable
allowances and other taxable income other than the SMW, holiday pay, overtime
pay, night shift differential pay and hazard pay shall not enjoy the privilege of
being a MWE and, therefore, his/her entire earnings are not exempt from income
tax and, consequently, from withholding tax.
MWEs receiving other income, such as income from the conduct of trade,
business, or practice of profession, except income subject to final tax, in addition
to compensation income are not exempted from income tax on their entire income
earned during the taxable year. This rule, notwithstanding, the SMW, Holiday
pay, overtime pay, night shift differential pay and hazard pay shall still be exempt
from withholding tax.
For purposes of these regulations, hazard pay shall mean the amount paid
by the employer to MWEs who were actually assigned to danger or strife-torn
areas, disease-infested places, or in distressed or isolated stations and camps,
which expose them to great danger of contagion or peril to life. Any hazard pay
paid to MWEs which does not satisfy the above criteria is deemed subject to
income tax and consequently to withholding tax.
In case of hazardous employment, the employer shall attach to the Monthly
Remittance Return of Withholding Tax on Compensation (BIR Form No. 1601C)
for return periods March, June, September and December a copy of Department
of Budget and Management (DBM) circular/s, or equivalent, as to who are
allowed to receive hazard pay.
SECTION 2.78.2. Payroll Period. The term "payroll period" means

the period of services for which a payment of compensation is ordinarily made to an
employee by his employer. It is immaterial that the compensation is not always paid at
regular intervals.
EXAMPLE: If an employer ordinarily pays the weekly wages of his employees

at the end of the week, but if for some reason a particular employee receives payment
of his salaries for the past week in the middle of the current week and receives the
remainder at the end of the same week, the payroll period is still the calendar week; or
if, instead, the employee is sent on a three (3)-week trip by his employer and receives
at the end of the trip a single compensation payment for three (3)-week services, the
payroll period is still the calendar week, and the compensation payment shall be
treated as though it were three (3) separate weekly compensation payments. LLphil
For the purpose of determining the tax, an employee can have but one payroll
period with respect to the compensation paid by any one employer. Thus, if an
employee is paid a regular compensation for the weekly payroll and in addition
thereto is paid supplemental compensation (for example taxable bonuses) determined
with respect to a different period, the payroll period is the weekly payroll period.
SECTION 2.78.3. Employee. The term "employee" is an individual

performing services under an employer-employee relationship. The term covers all
employees, including officers and employees, whether elected or appointed, of the
Government of the Philippines, or any political subdivision thereof or any agency or
instrumentality.
In general, the relationship of the employer and employee exists when the
person for whom services were performed has the right to control and direct the
individual who performs the services, not only as to the result to be accomplished by
the work but also as to the details and means by which the result is accomplished. An
employee is subject to the will and control of the employer not only as to what shall
be done, but how it shall be done. In this connection, it is not necessary that the
employer actually directs or controls the manner in which the services are performed.
It is sufficient that he has the right to do so.
The right to dismiss an employee is also an important factor indicating that the
person possessing that right is an employer. Other factors or characteristics of an
employer, which may not be necessarily present in every case, are furnishing the tools
and furnishing of a place to work, to the individual who performs the services. In
general, an individual is not considered an employee if he is subject to the control or
direction of another merely on to the result to be accomplished by the work, and not
on to the means and methods for accomplishing the result.
In general, individuals who follow an independent trade, business, or

profession, in which the offer their services to the public, are not employees.
The measurement, method or designation of compensation is also immaterial if

the relationship of employer and employee in fact exists.
No distinction is made between classes or grades of employees. Thus

superintendents, managers, and others belonging to similar levels are employees. An
officer of a corporation is an employee of the corporation. An individual, performing
services for a corporation, both as an officer and director, is an employee subject to
withholding on compensation, including director's fees.
SECTION 2.78.4. Employer. The term employer means any person

for whom an individual performs or performed any service, of whatever nature, under
an employer-employee relationship. It is not necessary that the services be continuing
at the time the wages are paid in order that the status of employer may exist. Thus for
purposes of withholding, a person for whom an individual has performed past services
and from whom he is still receiving compensation is an "employee".
(A) Person for whom the services are or were performed does not have
control. The term "employer" also refers to the person having control of the
payment of the compensation in cases where the services are or were performed for a
person who does not exercise such control. For example, where compensation, such
as certain types of pensions or retirement pay, are paid by a trust and the person for
whom the services were performed has no control over the payment of such
compensation, the trust is deemed to be the "employer".
(B) Person paying compensation on behalf of a nonresident. The term

"employer" also means any person paying compensation on behalf of a non-resident
alien individual, foreign partnership, or foreign corporation, who is not engaged in
trade or business within the Philippines.
It is the responsibility of the employer to withhold, pay, or refund the tax and
furnish the statements required under these Regulations. The term "employer" as
defined in (A) and (B) above is intended to determine who is the withholding agent.
As a matter of business administration, certain mechanical details of the

withholding process may be handled by representatives of the employer. Thus, in the
case of a corporate employer with branch offices, the branch manager or other
representative may actually, as a matter of internal administration, withhold the tax or
prepare the statements required under the law. Nevertheless, the legal responsibility
for withholding, paying and returning the tax and furnishing such statements rests
with the corporate employer.
An employer may be an individual, a corporation, a partnership, a trust, an

estate, a joint-stock company, an association, or a syndicate, group, pool, joint
venture, or other unincorporated organization, group or entity. A trust or estate, rather
than the fiduciary acting for or on behalf of the trust or estate, is generally the
employer.
The term "employer" embraces not only an individual and an organization

engaged in trade or business, but it also includes an organization exempt from income
tax, such as charitable and religious organizations, clubs, social organizations and
societes, as well as the Government of the Philippines, including its agencies,
instrumentalities, and political subdivisions.
(C) Compensation paid on behalf of two or more employers. If a

payment of compensation is made to an employee by an employer through an agent,
fiduciary, or other person who has the control, receipt, custody, or disposal of, or pays
the compensation payable by another employer to such employee, the amount of tax
required to be withheld on each compensation payment made through such agent,
fiduciary, or person shall, whether the compensation is paid separately on behalf of
each employer or paid in lump-sum on behalf of all such employers, be determined
based on the aggregate amount of such compensation payment or payments in the
same manner as if such aggregate amount had been paid by one employer. Hence, the
tax shall be determined based on the aggregate amount of the compensation paid. prcd
In any such case, each employer shall be liable for the return and payment of a
pro-rata portion of the tax so determined in accordance with the ratio of the amount
contributed by each employer relative to the aggregate of such compensation.
A fiduciary, agent, or other person acting for two or more employers may be
authorized to withhold the tax under these regulations with respect to the wages of the
employees of such employers. Such fiduciary, agent, or other person may also be
authorized to make and file returns of the tax withheld at source on such
compensation and to furnish the receipts required under these Regulations.
Application for the authorization to perform such act should be addressed to the
Commissioner or his duly authorized representative. If such authority is granted by
the Commissioner, all provisions of the law (including penalties) and regulations
prescribed in pursuance of the law applicable in respect of an employer for whom
such fiduciary, agent or other person acts shall remain subject to all provisions of law
(including penalties) and regulations prescribed in pursuance of the law applicable in
respect of employers.
SECTION 2.78.5 Computation of Wages.
The basis of the computation of the minimum wage rates prescribed by law
shall be the normal working time of eight (8) hours a day.
The computation of wages shall be in accordance with the Collective

Bargaining Agreement (CBA), if any, or the provisions of the Labor Code as
implemented. Unless otherwise amended or repealed by subsequent pertinent
laws, rules and regulations, the holiday pay, overtime pay, night shift differential
and hazard pay shall be understood to be computed based on such agreement or
labor law provisions.
In the determination of the minimum wage on a monthly basis, the

withholding agent shall be guided by the prevailing minimum wage as reflected in
the latest Matrix of Wage Order and its own policy on whether employees are (a)
not considered paid on Saturdays and Sundays or rest days, (b) not considered
paid on Sundays or rest days, (c) considered paid on rest days, special days and
regular holidays, or (d) required to work everyday including Sundays or rest
days, special days and regular holidays. The resulting number of days in the
above enumerated categories are referred to as the factor or number of
working/paid days in a year. (Annex "B")
On the first classification, the monthly SMW is computed by multiplying

the applicable daily wage rate by the factor of 261 days and divide the same by
twelve; the semi-monthly at one-half (1/2) of the monthly rate and the weekly
SMW is arrived at by spreading the annual minimum basic wage over fifty-two
(52) weeks. Thus, on a P382.00 minimum daily wage in Metro Manila, the
monthly SMW is P8,308.00, the semi-monthly at P4,154.00 and weekly P1,917.00.
On the second category, the monthly SMW is computed by multiplying the

applicable daily wage rate by the factor of 313 days and divide the product by
twelve. Hence, on a P382.00 minimum daily wage, the monthly SMW is
P9,964.00, the semi-monthly at P4,982.00 and weekly at P2,300.00.
On the third classification, the monthly SMW is computed by multiplying

the applicable daily wage rate by the factor of 365 days, divided by twelve. Thus,
on a 382 minimum daily wage, the monthly SMW is P11,619.00, the semi-monthly
at P5,810.00 and weekly at P2,681.00.
On the fourth classification, the monthly SMW is computed by multiplying

the applicable daily wage rate by the factor of 392.5 days, divided by twelve.
Hence, on a 382 minimum daily wage, the monthly SMW is P12,495.00, the
semi-monthly at P6,247.00 and weekly at P2,883.00.
SECTION 2.79. Income Tax Collected at Source on Compensation Income.
(A) Requirement of Withholding. Every employer must withhold

from compensation paid an amount computed in accordance with these Regulations.
Provided, that no withholding of tax shall be required on the SMW, including
holiday pay, overtime pay, night shift differential and hazard pay of MWEs in the
private/public sectors as defined in these Regulations. Provided, further, that an
employee who receives additional compensation such as commissions, honoraria,
fringe benefits, benefits in excess of the allowable statutory amount of P30,000.00,
taxable allowances and other taxable income other than the SMW, holiday pay,
overtime pay, hazard pay and night shift differential pay shall not enjoy the
privilege of being a MWE and, therefore, his/her entire earnings are not exempt
from income tax and, consequently, shall be subject to withholding tax.
(B) Computation of Withholding Tax on Compensation Income in General.

The procedures provided herein below shall govern the computation of
withholding tax on the taxable compensation income of the employees. Provided,
however, that taxable fringe benefits received by employees other than the rank and
file, as defined in the Labor Code of the Philippines, as amended, shall be subject to a
Fringe Benefits Tax, instead of the rates prescribed in the Revised Withholding
Tax Tables pursuant to Sec. 24 (A) of the Code, as amended.
(1) Use of Withholding Tax Tables. In general, every employer
making payment of compensation shall deduct and withhold from such compensation
a tax determined in accordance with the prescribed Revised Withholding Tax
Tables (Annex "C") which shall be used starting January 1, 2009.
There are four (4) withholding tables prescribed in these regulations, as

follows:
(a) Monthly Tax Table to be used by employers using the monthly

payroll period;
(b) Semi-Monthly Tax Table to be used by employers using the

semi-monthly payroll period;
(c) Weekly Tax Table to be used by employers using the weekly

payroll period;
(d) Daily Tax Table to be used by employers using the daily payroll
period.
If the compensation is paid other than daily, weekly, semi-monthly or monthly,

the tax to be withheld shall be computed as follows:
(a) Annually use the annualized computation referred to in Sec.

2.79 (B)(5)(b) of these Regulations;
(b) Quarterly and semi-annually divide the compensation by three

(3) or six (6), respectively, to determine the average monthly
compensation. Use the monthly withholding tax table to compute
the tax, and the tax so computed shall be multiplied by three (3) or
six (6) accordingly.
For the year 2008, however, being the initial year of implementation of
R.A. 9504, there shall be a transitory withholding tax table for the period from
July 6 to December 31, 2008 (Annex "D") determined by prorating the annual
personal and additional exemptions under R.A. 9504 over a period of six months.
Thus, for individuals, regardless of personal status, the prorated personal
exemption is P25,000, and for each qualified dependent child (QDC), P12,500.
(2) Components of the Withholding Tax Table.
(a) Each tax table is grouped into Tables A and B.
A Table for employees with no QDC
B Table for employees with QDC
(b) The columns in the Tables reflect the following:
1st column reflects the exemption status of employee

represented by letter symbols. (refer to the explanation of the
legend of symbols in letter (d) below)
2nd column reflects the total amount of personal and additional

exemption, in pesos, to which an employee is entitled.
(c) Column numbers 1 to 8 reflect the portion of the amount of taxes

to be withheld on the amount of compensation of the employees.
Every amount in all the columns within Tables A and B represent
the compensation level.
(d) Legend of symbols The symbols used in the new withholding

tax table represent the following:
Z Zero exemption
(a) Employee with multiple employers simultaneously, with

respect to second, third, etc., employer; and
(b) Employee who fails to file Application for Registration

(BIR Form No. 1902);
S Single, legally separated spouses/widow/widower;
ME Married employee who is not legally separated;
The numerals (1-4) affixed to the status symbols "ME" and "S" represent the
number of qualified legitimate, illegitimate, or legally adopted children.
Exemption means the amount of exemption in thousand pesos an employee

is entitled to claim as a deduction from gross compensation income in accordance
with the status and number of qualified dependent children.
(3) Steps to determine the amount of tax to be withheld:
Step 1. Determine the total monetary and non-monetary compensation
paid to an employee for the payroll period, segregating gross benefits which include
thirteenth (13th) month pay, productivity incentives, Christmas bonus, other benefits,
received by the employee per payroll period, and employees' contributions to SSS,
GSIS, HDMF, PHIC, and union dues. Gross benefits which are received by officials
and employees of both public and private entities in the amount of thirty thousand
pesos (P30,000.00) or less shall be exempted from income and withholding taxes. The
13th Month Pay is equivalent to the total basic salary earned during the year divided
by 12 months.
Step 2. Segregate the taxable from the non-taxable compensation income

paid to the employee for the payroll period. The taxable income refers to all
remuneration paid to an employee not otherwise exempted by law from income tax
and consequently from withholding tax. The non-taxable income are those which are
specifically exempted from income tax by the Code or by other special laws as listed
in Sec. 2.78.1 (B) hereof (e.g. benefits not exceeding P30,000, non-taxable retirement
benefits and separation pay).
Step 3. Segregate the taxable compensation income as determined in Step

2 into regular taxable compensation income and supplementary compensation income.
Regular compensation includes basic salary, fixed allowances for representation,
transportation and other allowances paid to an employee per payroll period.
Supplementary compensation includes payments to an employee in addition to the
regular compensation such as commission, overtime pay, taxable retirement pay,
taxable bonus and other taxable benefits, with or without regard to a payroll period.
Representation & Transportation Allowance (RATA) granted to public

officers and employees under the General Appropriations Act and the Personnel
Economic Relief Allowance (PERA) which essentially constitute reimbursement
for expenses incurred in the performance of government personnel's official duties
shall not be subject to income tax and consequently to withholding tax.
Step 4. Use the appropriate tables mentioned under Section 2.79 (B) (1)
for the payroll period: monthly, semi-monthly, weekly or daily, as the case may be.
Step 5. Fix the compensation level as follows:
(i) Determine the line (horizontal) corresponding to the status and

number of qualified dependent children using the appropriate
symbol for the taxpayer status.
(ii) Determine the column to be used by taking into account only the
total amount of taxable regular compensation income. The
compensation level is the amount indicated in the line and column
to which the regular compensation income is equal to or in excess,
but not to exceed the amount in the next column of the same line.
Step 6. Compute the withholding tax due by adding the tax predetermined
in the compensation level indicated at the top of the column, to the tax on the excess
of the total regular and supplementary compensation over the compensation level,
which is computed by multiplying the excess by the rate also indicated at the top of
the same column/compensation level.
(4) Sample Computations on the use of the Withholding Tax Tables:
EXAMPLE I: Mr. A, single with no dependent, receives P12,000.00 (net of

SSS/GSIS, PHIC, HDMF employee share only) as monthly regular compensation and
P5,000,00 as supplementary compensation for January 2009 or a total of P17,000.00.
COMPUTATION: Using the monthly withholding tax table (Revised

Withholding Tax Tables beginning January 1, 2009), the withholding tax for January
2009 is computed by referring to Table A line 2 S of column 5 (fix compensation
level taking into account only the regular compensation income of P12,000.00 which
shows a tax of P708.33 on P10,000.00 plus 20% of the excess of P2,000.00
(P12,000.00 less P10,000.00) plus P5,000.00 supplementary compensation.
Regular compensation P12,000.00

Less: compensation level
(line A-2 Column 5) 10,000.00

Excess P2,000.00
Add: Supplementary compensation 5,000.00

Total P7,000.00

Tax on P10,000.00 P708.33
Tax on excess (P7,000 x 20%) 1,400.00

Withholding tax for January 2009 P2,108.33
========
MONTHLY 1 2 3 4 5 6 7 8
Exemption 0.00 0.00 41.67 208.33 708.33 1,875.00 4,166.67 10,416.67
Status (000P +0% over +5% over +10% over +15% over +20% over +25% over +30% over +32% over
A. Table for employees without qualified dependent.
1. Z 0.0 1 0 833 2,500 5,833 11,667 20,833 41,667
2. S/ME 50.0 1 4,167 5,000 6,667 10,000 15,833 25,000 45,833
EXAMPLE II: Mr. B, married with three (3) qualified dependent children
receives P12,000.00 (net of SSS/GSIS, PHIC, HDMF employee share only) as regular
semi-monthly compensation. Mrs. B, his wife, is also employed. Mr. B did not waive
his right in favor of the wife to claim for the additional exemptions.
COMPUTATION: Using the semi-monthly withholding tax tables (Revised

Withholding Tax Tables beginning January 1, 2009), the withholding tax due is
computed by referring to Table B line 3 ME3 of column 6 which shows a tax of
P937.50 on P11,042 plus 25% of the excess (P12,000 11,042 = P958.00)
Total taxable compensation P12,000.00

Less: compensation level
(line B-3 Column 6) 11,042.00
Excess P958.00

Tax on P11,042 P937.50
Tax on excess (P958 x 25%) 239.50

Semi-monthly withholding tax P1,177.00
=========
SEMI-MONTHLY 1 2 3 4 5 6 7 8
Exemption 0.00 0.00 20.83 104.17 354.17 937.50 2,083.33 5,208.33
A. Table for employees without qualified dependent
1. Z 0.0 1 0 417 1,250 2,917 5,833 10,417 20,833
2. S/ME 50.0 1 2,083 2,500 3,333 5,000 7,917 12,500 22,917
B. Table for employees with qualified dependent child(ren)
1. ME 1/S1 75.0 1 3,125 3,542 4,375 6,042 8,958 13,542 23,958
2. ME 2/S2 100.0 1 4,167 4,583 5,417 7,083 10,000 14,583 25,000
3. ME 3/S3 125.0 1 5,208 5,625 6,458 8,125 11,042 15,625 26,042
4. ME 4/S4 150.0 1 6,250 6,667 7,500 9,167 12,083 16,667 27,083
EXAMPLE III: For the month of August 2008, Mrs. C, married with three
qualified dependent children, with a basic salary equivalent to the SMW, receives
P9,964.00 (P382/day x 313 days 12) as statutory monthly minimum wage plus other
compensation such as commission of P10,000, transportation allowance of P2,000,
hazard pay of P1,000, overtime pay of P5,000 and night shift differential pay of
P2,000.00. Compute the withholding tax of Mrs. C for the month of August 2008
using the Revised Transitional Withholding Tax Table for the period July 6 to
December 31, 2008.
COMPUTATION:
Statutory Minimum Wage P9,964.00
Gross Benefits
Hazard pay 1,000.00
Overtime Pay 5,000.00
Night Shift Differential 2,000.00 8,000.00

Sub-total P17,964.00
========
Taxable compensation
Commission * 10,000.00
Transportation allowance * 2,000.00 12,000.00

Total Taxable Compensation Income P29,964.00
========
Regular compensation P9,964.00
Less: Compensation level (line B-3 column 4) 7,708.00

Excess P2,256.00
Add: Supplementary compensation (8,000 + 12,000) 20,000.00

Total P22,256.00

Tax on P9,964.00 (Line B3, col. 4) P208.33
Tax on excess (P22,256.00 x 15%) 3,338.40

Withholding tax for the month of August 2008 P3,546.73
========
MONTHLY 1 2 3 4 5 6 7 8
Exemption 0.00 0.00 41.67 208.33 708.33 1,875.00 4,166.67 10,416.67
A. Table for employees without qualified dependent
1. Z 0.0 1 0 833 2,500 5,833 11,667 20,833 41,667
2. S/ME 25.0 1 2,083 2,917 4,583 7,917 13,750 22,917 43,750
B. Table for employees with qualified dependent child(ren)
1. ME1/S1 37.5 1 3,125 3,958 5,625 8,958 14,792 23,958 44,792
2. ME2/S2 50.0 1 4,167 5,000 6,667 10,000 15,833 25,000 45,833
3. ME3/S3 62.5 1 5,208 6,042 7,708 11,042 16,875 26,042 46,875
4. ME4/S4 75.0 1 6,250 7,083 8,750 12,083 17,917 27,083 47,917
* An employee who receives compensation other than the SMW, holiday, overtime, night
shift differential and hazard pay shall not enjoy the privilege of being a minimum wage earner, and his
entire earnings are no longer considered exempt.
(5) Use of Exceptional Computations
(a) Cumulative average method. If in respect of a particular employee, the

regular compensation is exempt from withholding tax because the amount thereof is
below the compensation level, but supplementary compensation is paid during the
calendar year; or the supplementary compensation is equal to or more than the regular
compensation to be paid; or the employee was newly hired and had a previous
employer/s within the calendar year, other than the present employer doing this
cumulative computation, the present employer shall determine the tax to be deducted
and withheld in accordance with the cumulative average method provided hereunder:
Step 1. Add the amount of taxable regular and supplementary

compensation to be paid to an employee for the payroll period subject of computation
to the sum of the taxable regular and supplementary compensation since the beginning
of the current calendar year including the compensation paid by the previous
employers within the same calendar year, if any;
Step 2. Divide the aggregate amount of compensation computed in step 1

by the number of payroll period to which the amount relates;
Step 3. Compute the tax to be deducted and withheld on the cumulative

average compensation determined in Step No. (2) in accordance with the withholding
tax table; cdphil
Step 4. Multiply the tax computed in Step No. (3) by the number of
payroll period to which it relates;
Step 5. Determine the excess, if any, of the amount of tax computed in

Step No. (4) over the total amount of tax already deducted and withheld from the
beginning payroll period to the last payroll period, including that withheld by the
previous employer/s within the calendar year, if any. The excess, as computed, shall
be deducted and withheld from the compensation to be paid for the last payroll period
of the current calendar year.
The cumulative average method, once applicable to a particular employee at

any time during the calendar year, shall be the same method to be consistently used
for the remaining payroll period/s of the same calendar year.
EXAMPLE IV: The regular compensation is exempt from withholding tax but
supplementary compensation (commission) is paid during the calendar year.
Employee A, married, with three (3) qualified dependents (ME3), received the
following compensation beginning January, 2009.
Month Regular Supplementary Total

Compensation Compensation Compensation
January P8,500.00 P15,000.00 P23,500.00

February P8,500.00 P15,000.00 P23,500.00
March P8,400.00 P15,500.00 P23,900.00
COMPUTATION:
1. For Jan. P23,500.00 + 0 = P23,500.00
For Feb. P23,500.00 + 23,500.00 = P47,000.00
For Mar. P23,500.00 + 23,500.00 + 23,900.00 = P70,900.00
2. For Jan. P23,500.00/1 = P23,500.00
For Feb. P47,000.00/2 = P23,500.00
For Mar. P70,900.00/3 = P23,633.33
3. For January
Tax on P22,083.00 (Line B.3, Col. 6) = P1,875.00
Tax on excess (P1,417.00 x 25%) = P354.25

Tax on P23,500.00 P2,229.25
========
For February
Tax on excess (P1,417.00 x 25%) = 354.25

Tax on P23,500.00 = P2,229.25
========
For March
Tax on excess (P1,550.33 x 25%) = 387.58

Tax on P23,633.33 = P2,262.58
=======
4. For Jan. P2,229.25 x 1 = P2,229.25
For Feb. P2,229.25 x 2 = P4,458.50
For Mar. P2,262.58 x 3 = P6,787.74
5. For Jan. P2,229.25 0 = P2,229.25
For Feb. P4,458.50 2,229.25 = P2,229.25
For Mar. P6,787.74 4,458.50 = P2,329.24
EXAMPLE V: Supplementary compensation is equal to or more than the

regular compensation received:
Employee B, married with three (3) qualified dependents (M3) whose spouse
is also employed, received the following compensation beginning January, 2009.
Month Regular Supplementary Total

Compensation Compensation Compensation
January P11,000.00 P11,000.00 P22,000.00

February P11,000.00 P11,500.00 P22,500.00
March P11,000.00 P12,000.00 P23,000.00
COMPUTATION:
1. For Jan. P22,000.00 + 0 = P22,000.00
For Feb. P22,000.00 + 22,500.00 = P44,500.00
For Mar. P22,000.00 + 22,500.00 + 23,000.00 = P67,500.00
2. For Jan. P22,000.00/1 = P22,000.00
For Feb. P44,500.00/2 = P22,250.00
For Mar. P67,500.00/3 = P22,500.00
3. For January
Tax on P16,250.00 (Line B.3, Col. 5) = P708.33
Tax on excess (P5,750.00 x 20%) = P1,150.00

Tax on P22,000.00 P1,858.33
========
For February
Tax on excess (P167 x 25%) = P41.75

Tax on P22,250.00 = P1,916.75
========
For March
Tax on excess (P417 x 25%) = P104.25

Tax on P22,500.00 = P1,979.25
=======
4. For Jan. P1,858.33 x 1 = P1,858.33
For Feb. P1,916.75 x 2 = P3,833.50
For Mar. P1,979.25 x 3 = P5,937.75
5. For Jan. P1,858.33 0 = P1,858.33
For Feb. P3,833.50 1,858.33 = P1,975.17
For Mar. P5,937.75 3,833.50 = P2,104.25
EXAMPLE VI: A newly hired employee with previous employer within the
calendar year 2009.
Employee C, single, was hired by Z Company on July 6, 2009. Her total

taxable income per month is P15,000.00. She was previously employed by X
Company from January to June 30, 2009 with a monthly taxable income of
P13,000.00 or P13,000.00 x 6 months = P78,000 for 6 months. Per BIR Form No.
2316 (Certificate of Compensation Payment/Tax Withheld) issued by the previous
employer, which was presented by Employee C to her present employer, the total tax
withheld is P7,849.98. In computing for the tax withheld on the compensation of
Employee C starting the month of July 6, 2000, Z Company shall use the cumulative
average method.
Month Present Total Total

Compensation Previous Taxable
Income Income Income
July 6 P15,000.00 P78,000.00 P93,000.00

August 15,000.00 15,000.00
September 15,000.00 15,000.00
October 15,000,00 15,000.00
November 15,000.00 15,000.00
December 15,000.00 15,000.00

P90,000.00 P78,000.00 P168,000.00
========= ========= =========
COMPUTATION:
STEP 1
For July 6 P15,000.00 + P78,000.00 = P93,000.00
For Aug. P93,000.00 + P15,000.00 = P108,000.00
For Sep. P93,000.00 + P15,000.00 + P15,000.00 = P123,000.00
For Oct. P93,000.00 + P15,000.00 + P15,000.00 + P15,000.00 = P138,000.00
For Nov. P93,000.00 + P15,000.00 + P15,000.00 + P15,000.00 + P15,000.00 = P153,000.00
STEP 2
For July 6 P93,000.00/7 = P13,285.71
For Aug. P108,000.00/8 = P13,500.00
For Sep. P123,000.00/9 = P13,666.67
For Oct. P138,000.00/10 = P13,800.00
For Nov. P153,000.00/11 = P13,909.09
STEP 3
For July 6 P13,285.71
Tax On P10,000.00 = P708.33
Tax On Excess (P3,285.71 x 20%) 657.14

Tax On P13,285.71 = P1,365.47
========
For August P13,500.00
Tax On P10,000.00 = P708.33
Tax On Excess (P3,500.00 x 20%) 700.00

Tax On P13,500.00 = P1,408.33
========
For Sept. P13,666.67
Tax On P10,000.00 = P708.33
Tax On Excess (P3,666.67 x 20%) 733.33

Tax On P13,666.67 = P1,441.66
========
For October P13,800.00
Tax On P10,000.00 = P708.33
Tax On Excess (P3,800.00 x 20%) = 760.00

Tax On P13,800.00 = P1,468.33
========
For November P13,909.09
Tax On P10,000.00 = P708.33
Tax On Excess (P3,909.09 x 20%) = 781.82

Tax On P13,818.18 = P1,490.15
========
STEP 4
For July 6 P1,365.47 x 7 = P9,558.29
For August 1,408.33 x 8 = P11,266.64
For September 1,441.66 x 9 = P12,974.94
For October 1,468.33 x 10 = P14,683.30
For November 1,490.15 x 11 = P16,391.65
Step 5
For July 6 P9,558.29 - P7,849.98 = P1,708.31
For August 11,266.64 - P9,558.29 = P1,708.35
For September 12,974.94 - P11,266.64 = P1,708.30
For October 14,683.30 - P12,974.94 = P1,708.36
For November 16,391.65 - P14,683.30 = P1,708.35
(b) Annualized withholding tax method. (1) When the employer-employee

relationship is terminated before the end of the calendar year; and (2) when
computing for the year-end adjustment, the employer shall determine the amount to be
withheld from the compensation on the last month of employment or in December of
the current calendar year in accordance with the following procedures:
Step 1. Determine the taxable regular and supplementary compensation

paid to the employee for the entire calendar year. Refer to steps 1 to 3 of Sec. 2.79
(B) (3), as amended, using as basis the compensation received for the calendar year.
Step 2. If the employee has previous employment/s within the year, add
the amount of taxable regular and supplementary compensation paid to the employee
by the present employer doing the annualized computation to the taxable
compensation income received from previous employer/s during the calendar year:
(i) When the employer-employee relationship is terminated before

December The taxable regular and supplementary compensation
income shall be the amount paid since the beginning of the current
calendar year to the termination of employment.
(ii) Year-end adjustment The taxable regular and supplementary

compensation income shall be the amount paid since the beginning
of the current calendar year to December.
(iii) Taxable fringe benefits received by employees holding managerial

or supervisory positions shall be subject to a final fringe benefit tax
as prescribed in Section 2.79 (D) of RR 2-98, as amended.
Hence, the same shall not form part of the taxable supplementary
compensation, of managers and supervisors, subject to the
withholding tax tables
Step 3. Deduct from the aggregate amount of compensation computed in

Step No. (2) the amount of the total personal and additional exemptions of the
employee.
Step 4. Deduct the amount of premium payments on Health and/or

Hospitalization Insurance of employees who have presented evidence that they have
paid during the taxable year premium payments (the deductible amount shall not
exceed P2,400 or P200 per month whichever is lower) and that their family's total
gross income does not exceed P250,000 for the calendar year. For purposes of
substantiating the claim of insurance expense and determining the aggregate family
income, the policy contract shall be presented to the employer together with the
original official receipt of the premium payment for the current year, BIR Form No.
2316 for the current year or Certificate of Gross Income for the Current Year
(Annex "E") issued by the employer/s of the nuclear family.
Total family income includes primary income and other income from sources
received by all members of the nuclear family, i.e., father, mother, unmarried children
living together as one household, or a single parent with children. A single person
living alone is considered as a nuclear family.
The spouse claiming the additional exemptions for the QDC shall be the same
spouse to claim the deductions for premium payments.
Step 5. Compute the amount of tax on the difference arrived at in Step 4,

in accordance with the schedule provided in Sec. 24 (A) of the Code, as follows:
OVER BUT NOT AMOUNT/RATE OF

OVER EXCESS
OVER
Not over 10,000 5%

10,000 30,000 500 + 10% 10,000
30,000 70,000 2,500 + 15% 30,000
70,000 140,000 8,500 + 20% 70,000
140,000 250,000 22,500 + 25% 140,000
250,000 500,000 50,000 + 30% 250,000
500,000 over 125,000 + 32% 500,000
Step 6. Determine the deficiency or excess, if any, of the tax computed in

Step 5 over the cumulative tax already deducted and withheld since the beginning of
the current calendar year. The deficiency tax (when the amount of tax computed in
Step 5 is greater than the amount of cumulative tax already deducted and withheld or
when no tax has been withheld from the beginning of the calendar year) shall be
deducted from the last payment of compensation for the calendar year. If the
deficiency tax is more than the amount of last compensation to be paid to an
employee, the employer shall be liable to pay the amount of tax which cannot be
collected from the employee. The obligation of the employee to the employer arising
from the payment by the latter of the amount of tax which cannot be collected from
the compensation of the employee is a matter of settlement between the employee and
employer.
The excess tax (when the amount of cumulative tax already deducted and
withheld is greater than the tax computed in Step 5) shall be credited or refunded to
the employee not later than January 25 of the following year. However, in case of
termination of employment before December, the refund shall be given to the
employee at the payment of the last compensation during the year. In return, the
employer is entitled to deduct the amount refunded from the remittable amount of
taxes withheld from compensation income in the current month in which the refund
was made, and in the succeeding months thereafter until the amount refunded by the
employer is fully repaid.
EXAMPLE VII: (Use of annualized computation when employer-employee

relationship was terminated before December)
a) Mr. D, single with a qualified dependent brother receives P18,000 as

monthly regular compensation starting January 1, 2008. On June 1, 2008, he filed his
resignation effective June 30, 2008 and was not reemployed for the rest of the year.
The tax withheld from January to May was P15,208.75.
COMPUTATION:
Total compensation received from
January 1 to May 31, 2008 P90,000.00
Add: Compensation to be received on June 18,000.00

Gross compensation Jan-June 108,000.00
Less: Personal Exemption (HF old exemption) 25,000.00


Net Taxable Compensation P83,000.00

Tax Due P11,100.00 *
Less: Tax Withheld from Jan to May P15,208.75

To be refunded to Mr. D (P4,108.75)

* Tax on P70,000.00 8,500.00

Tax on excess (P13,000 x 20%) 2,600.00

Tax on P83,000.00 P11,100.00
==========
b) Mr. Z, single with a qualified dependent brother receives P18,000 as

monthly regular compensation starting January 1, 2008. On June 1, 2008, he filed his
resignation effective June 30, 2008 and was subsequently reemployed on July 6,
2008. The BIR Form 2316 he gave to his new employer showed that the amount he
received from his previous employer was P108,000 and a tax withheld of P11,100.
His withholding tax from the new employer amounted to P15,000.
COMPUTATION:
Previous employer P108,000.00
Add: Compensation from new employer 115,000.00

Gross compensation 223,000.00
Less: Personal Exemption (HF) 37,500.00

Tax Due P33,875.00*
Less: Tax Withheld (11,100 + 15,000) 26,100.00

To be deducted from Mr. Z P7,775.00

* Tax on P140,000.00 P22,500.00
Tax on excess (P45,500 x 25%) 11,375.00

Tax on P185,500.00 P33,875.00
==========
c) Mr. Y, single with a qualified dependent brother, had his first job on July
2008. He receives P18,000 as monthly regular compensation. The tax withheld was
P12,083.75.
COMPUTATION:
July to November 2008 P90,000.00
Add: Compensation to be received in December 18,000.00

Gross compensation 108,000.00
Less: Personal Exemption (pro-rated) 37,500.00

Tax Due P8,600.00 *
Less: Tax Withheld 12,083.75

To be refunded to Mr. Y (P3,483.75)
*Tax on P70,000.00 P8,500.00
Tax on excess (P500 x 20%) 100.00

Tax on P83,000.00 P8,600.00
=========
EXAMPLE VIII: (Year-end adjustments computation) For taxable year

2009, WTD Corporation (Full exemption per R.A. 9504 shall be used for calendar
year 2009) has the following employees:
1. Mr. E, married with two qualified dependent children who received the
following compensation for the year:
Basic Monthly Salary P45,000.00

Overtime Pay for November P5,000.00
Thirteenth Month Pay P45,000.00
Other Benefits P12,000.00
Withholding tax (Jan.-Nov.) P98,082.00
2. Mr. F, married, whose wife is also employed, with two qualified

dependent children, received for the year:

Withholding tax (Jan.-Nov.) P12,924.23
3. Mr. G, single, who was hired on July 6, 2009 received the following:

Monthly Salary from Previous
Employer (Jan.-June) P6,000.00
Withholding tax Previous employer P2,899.68
Present employer 17,500.50
He paid for the year an annual premium on health and hospitalization

insurance amounting to P2,400.00.
4. Mrs. H, married, whose husband is also working received the following:

Thirteenth Month Pay (8/12 x 35,000.00) P23,333.33
Withholding tax (Jan.-August) 57,333.36
She resigned effective August 31, 2009.
COMPUTATION OF WITHHOLDING TAX FOR DECEMBER 2009:
1. Mr. E
Compensation Received
For the Year Non-Taxable Taxable
Basic Salary (45,000 x 12mos.) P540,000 P540,000
Overtime (Nov.) 5,000 5,000
13th month pay 45,000 P30,000 15,000
Other benefits 12,000 12,000

Totals P602,000 P30,000 P572,000
=========
Total Gross Compensation P572,000.00
Less: Personal exemption P50,000.00
Additional exemption (2 x P25,000) 50,000.00 100,000.00

Net Taxable compensation P472,000.00

Tax Due *
250,000 P50,000.00
222,000 x 30% 66,600.00

116,600.00
Less: Tax withheld from previous months (Jan.-Nov.) 98,082.27

Tax to be collected in December 2009 P18,517.73
=========
* Tax Due is computed by using the rates prescribed in Sec. 24 (A), NIRC.
2. Mr. F
Basic Salary P198,000 P198,000
13th month pay 16,500 P16,500
Other benefits 16,500 13,500 3,000 *

Totals P231,000 P30,000* P201,000
======= ======= =======
* Excess of 13th month pay and other benefits over the P30,000.00
ceiling under Sec. 32 (b) (7) (e).
Total Compensation P201,000.00

Less: Personal and additional exemptions (ME2) 100,000.00

Net taxable compensation income P101,000.00
Tax Due P14,700.00

Amount to be withheld in December 2009 P1,775.77
=========
3. Mr. G, Single Computation of withholding tax for December

Compensation from previous employer (Jan. to June) P36,000.00
Compensation from present employer (July 6 to Dec.) 120,000.00

Total taxable compensation (Jan. to Dec.) 156,000.00
Less: Personal exemptions 50,000.00
Premium payments on health &
hospitalization insurance * 2,400.00 52,400.00

Net taxable compensation P103,600.00

Tax Due P15,220.00
Less: Taxes Withheld
** Previous employer P2,899.68
*** Present employer 17,500.50 20,400.18

Amount to be refunded in December (P5,180.18)
========
* Premium payment on health and/or hospitalization shall be allowed

considering that gross compensation amounted to P156,000 only and did not
exceed P250,000.00.
** Refer to Certificate of Compensation Payment/Tax Withheld (BIR

Form No. 2316) issued by previous employer.
*** Taxes withheld from July 6 to December 31, 2008 computed by

the present employer using the cumulative computation. aHECST
4. Mrs. H, married (computation of tax upon resignation):

Thirteenth Month Pay 8/12 x 35,000 P23,333.33
She resigned effective August 31, 2009.
Basic Salary P280,000.00 P280,000.00
13th month pay 23,333.33 P23,333.33
Other benefits 20,000.00 6,666.67 13,333.33

Totals P323,333.33 30,000.00 P293,333.33
==========
Total Compensation P293,333.00
Less: Personal and additional exemptions 50,000.00

Net taxable compensation income P243,333.33
Tax Due (Jan. to August 31, 2009) P48,333.33
Less: Tax withheld (Jan.-August 31, 2009) 57,333.36

Excess tax withheld, to be refunded in August (P9,000.03)
==========
EXAMPLE IX: (Year-end adjustments computation) For taxable year 2008,

WTD Service Company employed Mr. J, married with two qualified dependent
children. He received the following compensation for the year:
Basic Monthly Salary

(excluding SSS/HDMF/PHIC employee's share) P45,000.00
Overtime Pay per month P5,000.00
Hazard Pay per month P2,000.00
Thirteenth Month Pay given Dec. 2008 P45,000.00
Other Benefits given Dec. 2008 P12,000.00
COMPUTATION:
Total Compensation
(681,000 - 30,000 non-taxable benefits)* P651,000.00
Less: Personal 41,000.00
Additional exemptions 33,000.00 74,000.00

Net taxable compensation income 577,000.00

Tax Due *
500,000 125,000.00
77,000 x 32% 24,640.00

149,640.00

Tax to be collected in December 2008 P13,030.07
=========
* Exempt from taxation per Sec. 32 (B) (7) (e) of the Tax Code, as
amended re: 13th month pay and other benefits not exceeding P30,000.
The annualized computation done for each employee shall be reflected by the
employer at the alphabetical list attached to BIR Form No. 1604-CF.
(c) If the compensation is paid other than daily, weekly, semi-monthly or

monthly, compute the tax to be deducted and withheld as follows:
a) Annually refers to computation on annualized income;
b) Quarterly and semi-annually divide the compensation by three

(3) or six (6), respectively, to determine the average monthly
compensation. Use the monthly withholding tax table to compute
the tax, and the tax so computed shall be multiplied by three (3) or
six (6), accordingly; LLjur
c) Bi-weekly divide the compensation by two (2) to determine the

average weekly compensation. Use the weekly withholding tax
table to compute the tax, and the tax so computed shall be
multiplied by two (2);
d) Miscellaneous if compensation is paid irregularly, or for a

period other than those mentioned above, divide the compensation
by the number of days from last payment to date of payment
(excluding Sundays and holidays). Use the daily tax table, the tax
so computed shall be multiplied by the number of days.
(C) Computation of Withholding Tax on Salaries and Benefits Received by

Employees other than rank and file. The procedures provided herein below shall
govern the computation of withholding tax on the taxable compensation income of
employees other than the rank and file pursuant to Sec. 2.79 (B) of these regulations.
(1) Determine the total monetary and non-monetary compensation,

segregating gross benefits which includes thirteenth (13th) month pay, productivity
incentives, Christmas bonus and fringe benefits received by the employee per payroll
period. When computing under the annualized computation, the total monetary and
non-monetary compensation shall be that received for the calendar year. Gross
benefits received by officials and employees of public and private entities shall be
exempted from income tax and from withholding tax; provided that the amount of
exemption shall not exceed thirty thousand pesos (P30,000); llcd
(2) Segregate the taxable from the non-taxable compensation (excluding the
fringe benefits ) paid to the employee. The taxable income refers to all
remuneration paid to an employee not otherwise exempted by law from income tax
and consequently from withholding tax. The non-taxable income are those which are
specifically exempted from income tax by the Code or other special laws as listed in
Sec. 2.78.1 (B) of these Regulations (e.g., benefits not exceeding P30,000,
non-taxable retirement benefits and separation pay);
(3) Segregate the taxable fringe benefit and subject the same to
withholding pursuant to Subsection D of these section of the Regulations;
(4) Compute withholding tax on the taxable regular and supplementary

compensation in accordance with the procedures prescribed in Sec. 2.79(B)(1)(b) of
these regulations, for purposes of withholding per payroll period; and Sec. 2.79(B)(2)
for purposes of computing under the cumulative average method or for the year-end
adjustment.
(D) Computation of Withholding Tax on Fringe Benefit.
(1) Final withholding tax on Fringe Benefits paid to employees other than
rank and file. There shall be imposed a final tax of 34% beginning January 1,
1998, 33% beginning January 1, 1999 and 32% beginning January 1, 2000 and
thereafter, on the grossed-up monetary value of fringe benefits pursuant to Sec. 33
of the Code and its implementing regulations, granted or furnished by the
employer to his employees (except rank and file employees) unless the fringe benefit
is required by the nature of or necessary to the trade, business or profession of the
employer, and when the fringe benefit is for the convenience and advantage of the
employer.
The fringe benefit tax shall be paid by the employer in the same manner as
provided in Sec. 2.58 of these Regulations. It shall not form part of the gross income
of the employee. The imposition of the fringe benefits tax should be the subject of a
separate set of rules and regulations which shall be issued for the purpose.
(2) Grossed-up monetary value of Fringe Benefit.
(a) In general the grossed-up monetary value of the fringe benefit shall
be determined by dividing the monetary value of the fringe benefit
by sixty six percent (66%) in 1998; sixty seven percent (67%) in
1999; and sixty eight percent (68%) in 2000 and thereafter.
(b) The grossed-up monetary value of fringe benefits furnished to

employees and which are taxable under subsections B, C, D, and E
of Section 25 of the Code shall be determined by dividing
the monetary value of the fringe benefit by the difference between
one hundred percent (100%) and the applicable rates of income tax
prescribed on the aforesaid sub-sections of Section 25, to wit: cdasia
Subsection (B) Twenty-five percent on income derived
from sources within the Philippines by a non-resident alien
individual not engaged in trade or business in the
Philippines.
Subsection (C) Fifteen percent (15%) on income of an

alien individual employed by regional or area headquarters
of a multinational company or regional operating
headquarters of a multinational company, including any of
its Filipino employees employed and occupying the same
position as those of its aforesaid alien employees.
Subsection (D) Fifteen percent (15%) on income of an

alien individual employed by an offshore banking unit of a
foreign bank established in the Philippines, including any of
its Filipino employees employed and occupying the same
position as those of its aforesaid alien employees.
Subsection (E) Fifteen percent (15%) on the income of

an alien individual employed by a foreign service
subcontractor engaged in petroleum operations in the
Philippines, including any of its Filipino employees
employed and occupying the same position as those of its
aforesaid alien employees.
(3) Non-taxable Fringe Benefits. The following fringe benefits are

not subject to the fringe benefits tax.
(a) Fringe benefits paid to rank and file employees. Fringe benefits
furnished or granted to rank and file employees shall form part of
the employees gross compensation income subject to the
withholding tax table on compensation under Section 2.79 (B) of
these Regulations.
(b) Fringe benefits which are authorized and exempted from income
tax and consequently from withholding tax under the Code, as
amended, or under any special law.
(c) Contributions of the employer for the benefit of the employee to

retirement, insurance and hospitalization benefit plans.
(d) De minimis benefits. For purposes of determining whether the
fringe benefit shall be considered payments of de minimis benefits,
the employer shall submit a written representation to the
Commissioner for the issuance of a ruling taking into account the
peculiar nature and special need of the said employer's trade,
business or profession.
The term "de minimis benefits" which is exempt from the fringe benefit tax
shall, in general, be limited to facilities or privileges (such as entertainment,
Christmas party and other cases similar thereto; medical and dental services; or the
so-called courtesy discount on purchases), furnished or offered by an employer to his
employees, provided such facilities or privileges are of relatively small value and are
offered or furnished by the employer merely as a means of promoting the health,
goodwill, contentment, or efficiency of his employees. LLpr
(E) Computation of Withholding Tax on Compensation Paid to Alien

Employees of Certain Employers. There shall be imposed a final withholding tax
of fifteen percent (15%) on the salaries, annuities, compensation, remuneration and
other emoluments such as honoraria and allowances paid to its alien employees
occupying managerial and technical positions and Filipino employees occupying
similar positions by the following employers:
(1) Area or regional headquarters of multinational corporations and

regional operating headquarters under Sec. 25 (C);
(2) Offshore banking units under Sec. 25 (D) and FCDU;
(3) Petroleum service contractors and sub-contractors under Sec. 25

(E) of the Code.
(F) Requirement for Deductibility. The provisions of Sec. 2.58.5 of

RR 2-98, as amended, shall apply. Provided, that compensation income where no
income taxes were withheld pursuant to Section 2.79 (A) of these regulations,
shall be allowed as deduction from an employer's gross income when the required
employees withholding statement (BIR Form No. 2316) have been issued to
subject employees in accordance with Sec. 2.83.1 of RR 2-98, as amended.
Provided, further, that the Alphabetical List of the subject employees, including
MWEs, shall be submitted under BIR Form No. 1604-CF in accordance with Sec.
2.83.2 of RR 2-98, as amended.
(G) Tax Paid by Recipient. The provisions of Sec. 2.58.6 of these
Regulations shall apply.
(H) Non-deductibility of Tax and Credit for Tax Withheld. The tax
deducted and withheld at source on compensation income shall neither be allowed as
a deduction from the employer's gross income nor from the recipient's gross
compensation income. The entire amount of the compensation from which the tax is
withheld shall be included in gross income to be reported in the return required to be
made by the recipient of the income without deduction for such tax. The creditable
tax withheld at source, however, is allowable as a credit against the tax imposed by
the NIRC to the recipient of the income. Any excess of the tax withheld at source,
over the tax ascertained to be due on the income tax return shall be refunded or
automatically credited, at the taxpayer's option, to the recipient of the income. Such
refund or credit shall be without prejudice to whatever adjustments may be proper
after field investigation or upon information relative to the taxpayer's income tax
liability under the main provisions of the Code, as amended. If the tax has actually
been withheld at source, a credit or a refund shall be made to the recipient of the
income even though such withheld tax has not been paid to the government by the
employer. For the purpose of the credit, the recipient of the income is the person
subject to tax, on whose compensation the tax was withheld. cdtai
Any excess of the tax which was withheld on compensation over the tax due
from the taxpayer shall be returned not later than July 15 of the following year.
Refunds made after such time shall earn interest at the rate of six percent (6%) per
annum, starting after the lapse of the three month period up to the date when the
refund is made.
Refunds shall be made upon warrants drawn by the Commissioner or by his

authorized representative without the necessity of counter-signature by the Chairman,
Commission on Audit or the latter's duly authorized representative as an exception to
the requirement prescribed by Section 49, Chapter 8, Subtitle B, Title I of Book
V of Executive Order No. 292, otherwise known as the Administrative Code of
1987.
(I) Right to Claim Withholding Exemptions. An employee receiving

compensation shall be entitled to withholding exemptions as provided in the Code, as
amended. In order to receive the benefit of such exemptions, the employee must file
the Application for Registration (BIR Form No. 1902), upon employment, or a
Certificate of Update of Exemption and of Employer's and Employee's
Information (BIR Form No. 2305), in case of updates on changes in his exemption.
The withholding exemption to which an employee is entitled depends upon his status
and the number of dependents qualified for additional exemptions. Each employee
shall be allowed to claim the following amount of exemptions, with respect to
compensation paid on or after July 6, 2008.
(1) Personal and additional exemptions.
(a) Basic personal exemptions. Individual taxpayers regardless of

status are entitled to P50,000 personal exemption.
(b) Additional exemptions for taxpayers with dependents. An individual

whether single or married, shall be allowed an additional exemption of Twenty Five
Thousand Pesos (P25,000) for each qualified dependent child, provided that the total
number of dependents for which additional exemptions may be claimed shall not
exceed four (4) dependents. The additional exemptions for QDC shall be claimed by
only one of the spouses in the case of married individuals.
A dependent means a legitimate, illegitimate or legally adopted child chiefly

dependent upon and living with the taxpayer if such dependent is not more than
twenty-one (21) years of age, unmarried and not gainfully employed or if such
dependent, regardless of age, is incapable of self-support because of mental or
physical defect.
The husband shall be the proper claimant of the additional exemption for
qualified dependent children unless he explicitly waives his right in favor of his wife
in the Application for Registration (BIR Form No. 1902) or in the Certificate of
Update of Exemption and of Employer's and Employee's Information (BIR Form
No. 2305), whichever is applicable: Provided, however, that where the spouse of the
employee is unemployed or is a non-resident citizen deriving income from foreign
sources, the employed spouse within the Philippines shall be automatically entitled to
claim the additional exemptions for children.
Every employer should ascertain whether or not a child being claimed is a

qualified dependent under the provisions of these Regulations. If the employee
should have additional dependent(s), as defined above, during the taxable year, he
may claim the corresponding additional exemption, as the case may be, in full for
such year.
If the taxpayer dies during the taxable year, his estate may still claim the
personal and additional exemptions for himself and his dependent(s) as if he died
at the close of such year. If the spouse or any of the dependents dies or if any of
such dependents marries, becomes twenty-one (21) years old or becomes gainfully
employed during the taxable year, the taxpayer may still claim the same
exemptions as if the spouse or any of the dependents died, or as if such dependents
married, became twenty-one (21) years old or became gainfully employed at the
close of such year. Provided, that in 2008, the pro-rated personal and additional
exemptions shall apply as stated in the regulations.
The personal and additional exemptions herein above stated shall apply
after the transitory period.
EXAMPLE X: Mr. M got married on July 20, 2008, when his girlfriend was
four (4) months pregnant. On December 26, 2008, the wife gave birth to twins.
Earnings from January 1 to July 5, 2008 is P150,000.00 and for the rest of 2008, he
earned P200,000.00 more. The tax due for 2008 is computed as follows:
Compensation Income (January 1-July 5, 2008) P150,000.00

Compensation Income (July 6 to December 31, 2008) 200,000.00

Total Compensation for 2008 350,000.00
=========
Less: Personal Exemption P41,000.00
Additional Exemption (16,500 x 2) 33,000.00 74,000.00
Taxable Compensation Income P276,000.00

Tax Due: 250,000.00 P50,000.00
266,000.00 x 30% 7,800.00

Total P57,800.00
==========
SECTION 2.79.1. Application for Registration for Individuals Earning

Compensation Income (BIR Form No. 1902). The application for
registration of employees shall be accomplished by both employer and employee
relating to the following information and other requirements:
(A) Employee.
(1) Name/Taxpayer's Identification Number (TIN)/Address of employee/other

information required as stated in BIR Form No. 1902;
(2) Status of employee whether SINGLE/legally separated/widow or widower
with no dependent child or married;
(3) Status of spouse of the employee. If the employee is legally married,

the Name/TIN, if any, of the spouse and whether said spouse is employed,
unemployed, employed abroad, or is engaged in trade or business should be indicated
on the application;
(4) Qualified dependents. Name and date of birth of qualified dependent/s

child(ren);
(5) Claimant of exemption for children. The husband is the proper

claimant of additional exemptions for qualified dependent children. However, the
wife shall claim full additional exemption for children in the following cases:
(a) Husband is unemployed;
(b) Husband is a non-resident citizen deriving income from foreign

sources;
(c) The husband waives his right to claim the exemptions of children
(waiver should be for all children) in a sworn statement to be
attached to his Application for Registration (BIR Form No. 1902)
and that of his wife's, in accordance with the procedures prescribed
in this Section;
(6) Required forms and attachments. Upon filing the Application for
Registration (BIR Form No. 1902) or Certificate of Update of Exemption and of
Employer's and Employee's Information (BIR Form No. 2305), whichever is
applicable, the taxpayer is required to attach any of the following documents to
establish the status of the taxpayer, if applicable, to the application:
(a) Marriage Contract;
(b) Birth Certificate of each qualified dependent child(ren), certified

by the Local Civil Registry Office/National Statistics Office
(NSO)/equivalent document issued by a government office
previously requiring certified copy showing the name of
parents/and the name of the QDC with birth date (e.g. passport
of QDC as certified by company's Human Resource Officer);
(c) Certificate of employment of the husband if he is working abroad;
(d) Sworn Declaration and Waiver of Right to Claim Exemptions of

Qualified Dependent Child(ren) by the Husband (Annex "F")
in case wife is claiming the additional exemptions of the
children;
(e) Medical Certificate of qualified dependent child, if

physically/mentally incapacitated;
(f) Court decision of legal adoption of children;
(g) Death Certificate; and
(h) Other documentary evidence, where the above documents are

not available.
(7) Concurrent multiple employments. An employee who is employed

concurrently by two or more employers within the same period of time during the
taxable year shall file the Application for Registration (BIR Form No. 1902) with
his main employer (employer to whom the said employee renders his services for
most of his time during the taxable year) and shall furnish a copy of the duly
received Application with his secondary employers (2nd, 3rd, etc. employers). The
employed husband and wife shall each file a separate application with their respective
employers;
(8) Successive multiple employment An employee who transferred to

another employer during the taxable year, shall furnish his new Employer with a
Certificate of Update of Exemption and of Employer's and Employee's
Information (BIR Form No. 2305) indicating therein his previous employments
during the taxable year (name of employer/s, address/es, TIN/s and the date/s of his
separation) and attach to the said certificate, a copy of the Certificate of
Compensation Payment/Tax Withheld (BIR Form No. 2316) for compensation
payment with or without withholding tax for the calendar year issued by previous
employer/s.
For an employee with successive employment beginning July 6, 2008 to

December 31, 2008, the employer/s for the second semester shall apply the
pro-rated exemption prevailing for the first semester ending July 5, 2008 based on
BIR Form No. 2316 issued by the previous employer which was submitted by the
employee and the pro-rated exemption prevailing for the second semester ending
December 31, 2008 in the computation of year-end adjustment;
(9) Mixed Income An individual receiving a combination of compensation

and business/professional income shall first deduct the allowable personal and
additional exemptions from compensation income, only the excess therefrom can be
deducted from business or professional income. In the case of husband and wife, the
husband shall be the proper claimant of the additional exemptions unless he waives it
in favor of his wife.
(B) Employer. The employer with whom the Application for Registration
(BIR Form No. 1902) is filed, must indicate the date of receipt thereon and
accomplish Part V of the said Application pertaining to Employer's Information such
as TIN, Employer's Registered Name, and other relevant information.
(C) Procedures for the filing of the Application for Registration (BIR Form
No. 1902)
(1) All employers shall require their employees to accomplish in triplicate the
Application for Registration BIR Form 1902 (Original copy - RDO; Duplicate -
employer; Triplicate - employee) described above as follows:
(a) New employee/s shall accomplish and file the Application for
Registration for Individuals Earning Compensation Income
(BIR Form No. 1902) within ten (10) days from the date of
employment;
(b) In case of changes in the information data in the Application for

Registration (BIR Form No. 1902) previously submitted by the
employee, consisting of changes in status and personal and
additional exemptions, employment/working status of the
spouse of the employee, multiple employment status and amount
of compensation income, a Certificate of Update of Exemption
and of Employer's and Employee's Information (BIR Form No.
2305) reflecting the changes, together with the required
documents/evidence of changes must be submitted to the
employer within ten (10) days after such change. The employer
shall then make the necessary adjustments on the withholding
tax of the employee based on the new information;
(2) The employer shall transmit all copies of the Application for
Registration (BIR Form No. 1902) or Certificate of Update of Exemption and of
Employer's and Employee's Information (BIR Form No. 2305), whichever is
applicable, (after accomplishing the portion of Employer's information of either
forms) to the RDO where the employer is registered within thirty (30) days
following its receipt from the employee. The RDO or his duly authorized
representative, where the employer is registered, shall receive and stamp the
three copies. The triplicate copy duly stamped received by the BIR shall be given to
the employee.
(3) The employer shall review the exemptions of the employees and shall, in
the computation of taxes required to be withheld on the compensation of employees,
apply the correct and applicable exemptions as provided in these regulations.
(4) In case the husband waives his right to claim the additional exemptions of
children in favor of his wife, he shall accomplish a Sworn Declaration and Waiver
of Right to Claim Exemptions of Qualified Dependent Child(ren) by the Husband
(Annex "F") in accordance with the following procedures:
(a) Fill up three (3) copies of the prescribed waiver form.
(b) Submit the waiver form together with the BIR Form No. 1902 to
his employer within ten (10) days from employment, for
acknowledgment in the space provided for that purpose.
The employer of the husband shall:
(i) After filling up the acknowledgment portion of the waiver

form, retain the duplicate copy of the form and furnish the
employee the original and triplicate copies for submission to
the employer of the wife and for file of the employee,
respectively.
(ii) Stop deductions of additional exemptions for qualified

dependent children from the husband's compensation
income starting the following month.
The employer of the wife shall, upon receipt of copy of the waiver form duly
acknowledged by the employer of the husband, start deducting additional exemptions
for children from the wife's income on the month when the employer of the husband
stopped deducting the exemptions of children from the husband's income.
(c) The employed husband and wife shall apply the waiver in the
computation of their respective taxable income in the income tax
return required to be filed by them following the procedure for
filing the waiver under Section 2.79.1 (C)(4) of these regulations,
that is, the husband shall not deduct exemptions of children from
his compensation income because he has waived the same
(exemptions of children) in favor of his wife who will now deduct
said exemptions from her income in computing her tax due.
Waiver exercised during the calendar year shall be made only once in a
calendar year and shall take effect for the present calendar year and succeeding year/s
until revoked by the husband. Any waiver/revocation of such waiver shall take effect
only starting the succeeding calendar year. In no case should an employer of the wife
deduct exemptions of children from the wife's income unless the waiver by the
husband has been duly acknowledged by the employer of the husband.
Registration of employees receiving purely compensation income shall be at

the RDO having jurisdiction over the employee's place of assignment considering
that the employee submits application for registration/exemption updates to their
employer. In cases of multiple employment, it shall be at the RDO where the main
employer is registered.
SECTION 2.79.2. Failure to file Application for Registration (BIR Form No.
1902) or Certificate of Update of Exemption and of Employer's and Employee's
Information (BIR Form No. 2305). Where an employee, in violation of
these regulations either fails or refuses to file an Application for Registration (BIR
Form No. 1902) together with the required attachments, the employer shall withhold
the taxes prescribed under the Schedule for Zero Exemption of the Revised
Withholding Tax Table. In case of failure to file the Certificate of Update of
Exemption and of Employer's and Employee's Information (BIR Form No. 2305)
together with the attachments, the employer shall withhold the taxes based on the
reported personal exemptions existing prior to the change of status and without
reflecting any change. Any refund or underwithholding that shall arise due to the
violations shall be covered by the penalties prescribed in Section 80 of the NIRC, as
amended.
SECTION 2.79.3. Withholding on the Basis of Average Compensation.

The employer may withhold the tax under the NIRC, as amended, on the basis of
the employee's average estimated compensation, with the necessary adjustments, for
any month/quarter/year.
SECTION 2.79.4. Husband and Wife. Where both husband and wife
are each recipients of compensation either from the same or different employers, taxes
to be withheld shall be determined on the following basis:
(A) The husband shall be deemed the proper claimant of the additional
exemption in respect to any dependent children, unless he
explicitly waives his right in favor of his wife in the application for
registration or in the withholding exemption certificate. The waiver
may be done any time during the year.
(B) In general, taxes shall be withheld from the wages of the wife in
accordance with the schedule for a married person without any
qualified dependent.
SECTION 2.79.5. Non-Resident Aliens. Compensation for services

rendered in the Philippines paid to non-resident aliens engaged in trade or business
shall be subject to withholding under these Regulations.
SECTION 2.79.6. Year-End Adjustment. On or before the end of the

calendar year, and prior to the payment of the compensation for the last payroll
period, the employer shall determine the sum of the taxable regular and
supplementary compensation paid to each employee for the entire year, including the
last compensation to be paid and compute for the amount of income tax on the
annualized gross compensation income; Provided however, that the taxable fringe
benefits received by employees except those given to the rank and file shall be subject
to a final fringe benefits tax.
SECTION 2.80. Liability for Tax.
(A) Employer.
(1) In general, the employer shall be responsible for the withholding and
remittance of the correct amount of tax required by deducting and withholding from
the compensation income of his employees. If the employer fails to withhold and
remit the correct amount of tax, such tax shall be collected from the employer
together with the penalties or additions to the tax otherwise applicable.
(2) The employer who is required to collect, account for and remit any tax
imposed by the NIRC, as amended, who willfully fails to collect such tax, or account
for and remit such tax or willfully assist in any manner to evade any payment thereof,
shall in addition to other penalties, provided for in the Code, as amended, be liable,
upon conviction, to a penalty equal to the amount of the tax not collected nor
accounted for or remitted. Cdpr
(3) Any employer/withholding agent who fails, or refuses to refund excess

withholding tax not later than January 25 of the succeeding year shall, in addition to
any penalties provided in Title X of the Code, as amended, be liable to a
penalty equal to the total amount of refund which was not refunded to the employee
resulting from any excess of the amount withheld over the tax actually due on their
return.
(B) Employee. Where an employee fails or refuses to file the

Application of Registration or Certificate of Update of Exemption and of
Employer's and Employee's Information (BIR Form No. 2305) together with the
attachments or willfully supplies false or inaccurate information thereunder after due
written notice by the employer, the tax otherwise to be withheld by the employer shall
be collected from him including penalties or additions to the tax from the due date of
remittance until the date of payment. On the other hand, where the employee, after
due written notice from the employer, willfully fails or refuses to file the Application
for Registration or the Certificate of Update of Exemption and of Employer's and
Employee's Information, whichever is applicable, or willfully supplies false and
inaccurate information, the excess taxes withheld by the employer shall not be
refunded to the employee but shall be forfeited in favor of the government.
(C) Additions to Tax.
(1) There shall be imposed, in addition to the tax required to be paid, a

penalty equivalent to twenty five percent (25%) of the amount due, in the following
cases:
(a) Failure to file any return and pay the tax due thereon as required
under the provisions of the Code or these regulations on the date
prescribed; or
(b) Unless otherwise authorized by the Commissioner, filing a return

with an internal revenue officer other than those with whom the
return is required to be files; or
(c) Failure to pay the deficiency tax within the time prescribed for its
payment in the notice of assessment; or
(d) Failure to pay the full or part of the amount of tax shown on any
return required to be filed under the provisions of the Code or
these regulations, or the full amount of tax due for which no return
is required to be filed, or before the date prescribed for its
payment; or
(e) In case of willful neglect to file the return within the period
prescribed by the Code or regulations, or in case a false or
fraudulent return is willfully made, the penalty to be imposed shall
be fifty percent (50%) of the deficiency tax, in case any payment
has been made on the basis of such return before the discovery of
the falsity or fraud.
(f) The penalties imposed hereunder shall apply in the case of a

deficiency tax assessment which has become final and executory
but which is not paid within the time prescribed for payment. The
interest shall be imposed on the total amount due, inclusive of the
deficiency increments.
(2) Interest There shall be assessed and collected on any unpaid amount of
tax, an interest at the rate of twenty percent (20%) per annum, or such higher rate as
may be prescribed for payment until the amount is fully paid.
(3) Deficiency Interest Any deficiency in the basic tax due, as the term is
defined in the Code, shall be subject to the interest prescribed in paragraph (a) hereof,
which interest shall be assessed and collected from the date prescribed for its payment
until the full payment thereof. Cdpr
If the withholding agent is the government or any of its agencies, political

subdivisions, or instrumentalities or a government-owned or controlled corporation,
the employee thereof responsible for the withholding and remittance of tax shall be
personally liable for the surcharge and interest imposed herein.
(D) Failure to File Certain Information Returns (Sec. 250 of the Code). In
the case of each failure to file an information return, statement or list, or keep any
record, or supply any information required by this Code or by the Commissioner on
the date prescribed therefor, unless it is shown that such failure is due to reasonable
cause and not to willful neglect, there shall, upon notice and demand by the
Commissioner, be paid by the person failing to file, keep or supply the same, one
thousand pesos (P1,000) for each such failure: Provided, however, That the aggregate
amount to be imposed for all such failures during a calendar year shall not exceed
twenty-five thousand pesos (P25,000).
(E) Specific Penalties. Notwithstanding the penalties hereunder provided,

the following violations may be extrajudicially settled through compromise pursuant
to Sec. 204 of the Code.
(1) Failure to file return, supply correct and accurate information, pay tax,
withhold and remit tax and refund excess tax withheld on compensation (Sec. 255 of
the Code). Any person required under the Code, as amended, or by regulations to
pay any tax, make a return, keep any record/s, or supply correct and accurate
information, who willfully fails to pay such tax, make such return, keep any record/s,
or supply correct and accurate information, or withhold or remit taxes withheld, or
refund excess taxes withheld on compensation, at the time or times required by law,
shall in addition to the other penalties provided by law, upon conviction thereof, be
fined not less than ten thousand pesos (P10,000) and imprisonment of not less than
one (1) year but not more than the (10) years.
(2) Declarations under penalties of perjury (Sec. 267 of the Code). Any
declaration, return and other statements required under the Code, as amended, shall,
in lieu of an oath, contain a written statement that they are made under the penalties
of perjury. Any person who willfully files a declaration, return or statement
containing information which is not true and correct as to every material matter shall,
upon conviction, be subject to the penalties prescribed for perjury under the Revised
Penal Code.
(3) Violation of withholding tax provision by a government officer (Sec. 272

of the Code). Every officer or employee of the government of the Republic
of the Philippines or any of its agencies and instrumentalities, its political
subdivisions, as well as government-owned or controlled corporation including the
Central Bank who, under the provisions of the Code, as amended, or regulations
promulgated thereunder, is charged with the duty to deduct and withhold any internal
revenue tax and to remit the same in accordance with the provisions of the Code as
amended, and other laws shall be guilty of any offense herein below specified and
upon conviction of each act or omission, be fined in a sum not less than five thousand
pesos (P5,000) but not more than fifty thousand pesos (P50,000) or imprisoned for a
term of not less than six months and one day but not more than two years, or both:
(a) Those who fail or cause the failure to deduct and withhold any
internal revenue tax under any of the withholding tax laws and
implementing regulations;
(b) Those who fail or cause the failure to remit taxes deducted and
withheld within the time prescribed by law, and implementing
regulations; and
(c) Those who fail or cause the failure to file a return or statement
within the time prescribed, or render or furnish a false or
fraudulent return or statement required under the withholding tax
laws and regulations.
(4) Violation of other provisions of the Code or regulations in general (Sec.

275 of the Code). A person who violates any provision of the Code, as amended,
or any regulation, for which no specific penalty is provided by law shall, upon
conviction for its act or omission, be fined in a sum of not more than one thousand
pesos or imprisoned for a term of not more than six months, or both.
The specific schedule of penalties shall be provided in a separate regulation.
SECTION 2.81. Filing of Return and Payment of Income Tax Withheld on

Compensation (Form No. 1601). Every person required to deduct and
withhold the tax on compensation, including large taxpayers as determined by the
Commissioner, shall make a return and pay such tax on or before the 10th day of the
month following the month in which withholding was made to any authorized agent
bank within the Revenue District Office (RDO) or in places where there are no agent
banks, to the Revenue District Officer of the City or Municipality where the
withholding agent/employer's legal residence or place of business or office is located;
provided, however, that taxes withheld from the last compensation (December) for the
calendar year shall be paid not later than January 15 of the succeeding year;
Provided, however, that with respect to taxpayers, whether large or non-large,
who availed of the EFPS, the deadline for electronically filing the aforesaid
withholding tax return and paying the tax due thereon via the EFPS shall be five
(5) days later than the deadlines set above.
If the person required to withhold and pay the tax is a corporation, the return
shall be made in the name of the corporation and shall be signed and verified by the
president, vice-president, or authorized officers.
With respect to any tax required to be withheld by a fiduciary, the returns shall
be made in the name of the individual, estate, or trust for which such fiduciary acts,
and shall be signed and verified by such fiduciary. In the case of two or more joint
fiduciaries the return shall be signed and verified by one of such fiduciaries.
SECTION 2.82. Return and Payment in Case Where the Government is the
Employer. If the Government of the Philippines, its political subdivision or
any agency or instrumentality, as well as government-owned or controlled corporation
is the employer, the returns of the tax may be made by the officer or employee having
control of payment of compensation or other officer or employee appropriately
designated for the purpose.
SECTION 2.83. Statement and Returns.
SECTION 2.83.1. Employees Withholding Statements (BIR Form No. 2316).

In general, every employer or other person who is required to deduct and
withhold the tax on compensation including fringe benefits given to rank and file
employees, shall furnish every employee from whose compensation taxes have been
withheld the Certificate of Compensation Payment/Tax Withheld (BIR Form No.
2316) on or before January 31 of the succeeding calendar year, or if employment is
terminated before the close of such calendar year, on the day on which the last
payment of compensation is made. Failure to furnish the same shall be a ground for
the mandatory audit of payor's income tax liabilities (including withholding tax) upon
verified complaint of the payee.
Employers of MWEs are still required to issue BIR Form No. 2316 (June
2008 Encs version) to the MWEs on or before January 31 of the following year.
The employer shall furnish each employee with the original and duplicate
copies of BIR Form No. 2316 showing the name and address of the employer;
employer's TIN; name and address of the employee; employee's TIN; amount of
exemptions claimed amount of premium payments on health and/or hospitalization
insurance not exceeding P2,400.00, if any; the sum of compensation paid including
the non-taxable benefits; the amount of statutory minimum wage received by
MWEs; Overtime pay, holiday pay, night shift differential pay and hazard pay
received by MWEs; the amount of tax due; the amount of tax withheld during the
calendar year and such other information as may be required. The statement must be
signed by both the employer or other authorized officer and the employee, and shall
contain a written declaration that it is made under the penalties of perjury. If the
employer is the Government of the Philippines, its political subdivision, agency or
instrumentality or government-owned or controlled corporation, the statement shall be
signed by the duly designated officer or employee.
The Certificate of Compensation Payment/Tax Withheld (BIR Form No. 2316)
shall contain a certification to the effect that the employer's filing of BIR Form No.
1604-CF shall be considered as a substituted filing of the employee's income tax
return to the extent that the amount of compensation and tax withheld appearing in
BIR Form No. 1604CF as filed with the BIR is consistent with the corresponding
amounts indicated in BIR Form No. 2316. It shall be signed by both the employee and
employer attesting to the fact that the information stated therein has been verified and
is true and correct to the best of their knowledge. However, the withholding
agents/employers are required to retain copies of the duly signed BIR Form No. 2316
for a period of three (3) years as required under the NIRC.
Where the employee is a MWE defined under RA 9504 whose income is

exempt from income tax and, consequently, from withholding tax, BIR Form No.
2316 shall show the sum of non-taxable SMW paid including the non-taxable
benefits such as holiday pay, overtime pay, night shift differential pay and hazard
pay earned during the calendar year and such other information as may be
required. Provided, that the applicable box for MWEs under BIR Form No. 2316
(June 2008 Encs. version) are sufficiently filled-up. This serves as proof of
financial capacity for purposes of loans, and for other purposes with various
government agencies.
Separated/terminated employees within the period from January 1 to July

5, 2008, where the total exemptions (e.g. married-P32,000) used in the annualized
computation were likewise shown in the issued BIR Form 2316, shall be reported
by the employer under the alphalist of terminated employees with date of
termination/separation.
For those with changes in exemptions, such as that of having an additional

dependent child, or for those with successive employment for taxable year 2008,
the applicable apportioned exemption for January 1 to July 5, 2008 shall be
applied for the first semester and the applicable apportioned exemption for July 6
to December 31, 2008 shall be applied for the second semester.
The employee who is qualified for substituted filing of income tax return under
these regulations shall no longer be required to file income tax return (BIR Form No.
1700) since BIR Form No. 1604-CF with alphalists of employees shall be considered
a substituted return filed by the employer. BIR Form No. 2316, duly certified by both
employee and employer, shall serve the same purpose as if a BIR Form No. 1700 had
been filed, such as proof of financial capacity for purposes of loan, credit card, or
other applications, or for the purpose of availing tax credit in the employee's home
country and for other purposes with various government agencies. This may be used
for purposes of securing travel tax exemption, when necessary.
However, information referring to the certification, appearing at the bottom of

BIR Form No. 2316, shall not be signed by both the employer and the employee if the
latter is not qualified for substituted filing. In which case, BIR Form No. 2316
furnished by the employer to the employee shall be attached to the employee's Income
Tax Return (BIR Form Nos. 1700 or 1701 in the case of mixed income earners) to
be filed on or before April 15 of the following year.
In case of successive employments during the taxable year, an extra copy of

BIR Form No. 2316 shall be furnished by the employee, duly certified by his
previous employer/s and by him, to his new employer.
SECTION 2.83.2. Annual Information Return of Income Taxes Withheld on

Compensation and Final Withholding Taxes (BIR Form No. 1604-CF).
Every employer or other persons required to deduct and withhold the tax is required
to file with the Large Taxpayers Assistance Division (LTAD)/Large Taxpayers
District Office (LTDO)/RDO where the payor/employer is registered as
Withholding Agent on or before January 31 of the following year an Annual
Information Return of Income Taxes Withheld on Compensation and Final
Withholding Taxes (BIR Form No. 1604-CF), to be submitted with the alphabetical
list of employees/payees.
(A) The Annual Information Return of Income Taxes Withheld on

Compensation must show among others, the following:
(1) Withholding Agent's registered name, address and Taxpayer's

Identification Number (TIN);
(B) The alphabetical list of employees must show the following:
(1) Name and TIN of employees;
(2) Gross compensation paid by present and previous employers for

the calendar year;
(3) (a) Taxable 13th month pay/other benefits for the rank and file
employees
(b) Taxable fringe benefits for managerial employees;
(4) Non-taxable 13th month pay/other benefits (Present employer)
(5) Non-taxable statutory minimum wage;
(6) Non-taxable holiday pay, overtime pay, night shift differential

pay and hazard pay (minimum wage earners only);
(7) (a) For 2008, Amount of Exemptions (January 1 to July 5, 2008)

and Amount of Exemptions (July 6 to December 31, 2008);
(b) For 2009 and thereafter, Amount of Exemptions;
(8) Amount of premium payments on health and/or hospitalization

insurance not exceeding P2,400.00, if any;
(9) Tax required to be withheld computed in accordance with Sec. 24

(A) of the Code;
(10) Tax withheld by all present employers for the calendar year; and
(11) Adjustment, if any.
(C) The alphabetical list of employees shall be prepared indicating, among

others, separate listings of the following:
(1) Employees Separated/Terminated before December 31 of the

taxable year (indicate date of separation/termination);
(2) Employees whose compensation income are exempt from

withholding tax BUT subject to income tax;
(3) Employees whose total compensation income are exempt from

withholding tax and not subject to income tax (indicate if
MWE);
(4) Employees as of December 31 of the taxable year with no

previous employment within the year;
(5) Employees as of December 31 of the taxable year with previous
employment within the year;
(6) Employees who received Fringe Benefits subjected to Fringe

Benefit Tax;
(7) Alien employees subject to withholding tax.
Employers with centralized accounting system, or those mandated to

consolidate remittances (e.g. large taxpayers), shall prepare alphalists on a
regional basis or per branch office, due to the identification of SMW per region
where the employee is assigned, which shall be submitted to the BIR where the
head office is located.
In cases where no information was provided by a previous employer, such fact

shall be stated in BIR Form No. 1604-CF and the present employer shall not be
liable to any penalties.
SECTION 2.83.3. Requirement for List of Payees. All withholding

agents shall, regardless of the number of employees and payees, whether the
employees/payees are exempt or not, submit an alphabetical list of employees and
list of payees on income payments subject to creditable and final withholding
taxes which are required to be attached as integral part of the Annual
Information Returns (BIR Form No. 1604CF/1604E) and Monthly Remittance
Returns (BIR Form No. 1601C, etc.), under the following modes:
(1) As attachment in the Electronic Filing and Payment System (eFPS);
(2) Through Electronic Submission using the BIR's website address at

esubmission@bir.gov.ph; and
(3) Through Electronic Mail (email) at dedicated BIR addresses using the
prescribed CSV data file format, the details of which shall be issued in a separate
revenue issuance.
In cases where any withholding agent does not have its own internet facility
or unavailability of commercial establishments with internet connection within
the location of the withholding agent, the alphalist prescribed herein may be
electronically mailed (e-mail) thru the e-lounge facility of the nearest revenue
district office or revenue region of the BIR.
The submission of the herein prescribed alphalist where the income

payments and taxes withheld are lumped into one single amount (e.g., "Various
employees", "Various payees", "PCD nominees", "Others", etc.) shall not be
allowed. The submission thereof, including any alphalist that that does not
conform with the prescribed format thereby resulting to the unsuccessful
uploading into the BIR system shall be deemed not as received and shall not
qualify as a deductible expense for income tax purposes.
Accordingly, the manual submission of the alphabetical lists containing less

than ten (10) employees/payees by withholding agents under Annual Information
Returns BIR Form No. 1604CF and BIR No. 1604E shall be immediately
discontinued beginning January 31, 2014 and March 1, 2014, respectively, and
every year thereafter.
SECTION 2.83.4. Substituted Filing of Income Tax Returns by Employees

Receiving Purely Compensation Income. Individual taxpayers receiving
purely compensation income, regardless of amount, from only one employer in the
Philippines for the calendar year, the income tax of which has been withheld correctly
by the said employer (tax due equals tax withheld) shall not be required to file BIR
Form No. 1700. In lieu of BIR Form No. 1700, the Annual Information Return of
Income Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form
No. 1604-CF) (hard copy) filed by their respective employers, duly stamped
"received" by the BIR, shall be tantamount to the substituted filing of income tax
returns by said employees.
The following individuals, however, are not qualified for substituted filing and
therefore, still required to file BIR Form No. 1700 in accordance with existing
regulations:
(A) Individuals deriving compensation from two or more employers

concurrently or successively at anytime during the taxable year.
(B) Employees deriving compensation income, regardless of the

amount, whether from a single or several employers during the
calendar year, the income tax of which has not been withheld
correctly (i.e. tax due is not equal to the tax withheld) resulting to
collectible or refundable return.
(C) Minimum wage earners including employees of the government

of the Philippines, or any political subdivisions, agencies or
instrumentalities, with Salary Grades 1 to 3 whose income were
not subjected to withholding tax but subject to income tax from
January 1 to July 5, 2008.
(D) Individuals deriving other non-business, non-profession-related

income in addition to compensation income not otherwise subject
to a final tax.
(E) Individuals receiving purely compensation income from a single

employer, although the income tax of which has been correctly
withheld, but whose spouse falls under Section 2.83A(A), (B), (C)
and (D) of these Regulations.
(F) Non-resident aliens engaged in trade or business in the Philippines

deriving purely compensation income, or compensation income
and other non-business, non-profession-related income.
In case of married individuals who are still required to file returns under
existing provisions of the law, i.e., in those instances not covered by the substituted
filing of returns, only one return for the taxable year shall be filed by either spouse to
cover the income of the spouses, which return shall be signed by the husband and
wife unless it is physically impossible to do so, in which case signature of one of the
spouses would suffice.
Employees not qualified for substituted filing but are required to file the
Income Tax Return shall file the same not later than April 15 of the year
immediately following the taxable year. Provided, that employees with
previous/successive employer/s within the taxable year shall furnish their new
employer with BIR Form No. 2316 issued by the previous employer/s.
SECTION 2.83.5. Registration as Withholding Agent. Any person

who makes payment or expects to make payment of compensation in the amount
exceeding the statutory minimum wage, to any single employee shall register by filing
in duplicate, with the Revenue District Office (RDO) of the city or municipality
where his legal residence or place of business is located, an Application for
Registration as a withholding agent using the form prescribed by the Bureau not later
than ten (10) days after becoming an employer.
SECTION 2.83.6. Applicability of Constructive Receipt of Compensation.

The withholding tax on compensation shall apply to compensation actually
or constructively paid. Compensation is constructively paid within the meaning of
these Regulations when it is credited to the account of or set apart for an employee so
that it may be drawn upon by him at any time although not then actually reduced to
possession. To constitute payment in such a case, the compensation must be credited
or set apart for the employee without any substantial limitation or restriction as to
time or manner of payment or condition upon which payment is to be made, and must
be made available to him so that it may be drawn upon at any time, and its payment
brought with his control and disposition. A book entry, if made, should indicate an
absolute transfer from one account to another. If the income is not credited, but it is
set apart, such income must be unqualifiedly subject to the demand of the taxpayer.
Where a corporation contingently credits its employees with a bonus stock, which is
not available to such employees until some future date, the mere crediting on the
books of the corporation does not constitute payment. LexLib
SECTION 2.83.7. Extension of Time for Furnishing Statements to Employee.

An extension of time, not exceeding thirty (30) days, within which to
furnish the Certificate of Income Tax Withheld on Compensation (Form No. 2316)
required by Sec. 2.83 of these Regulations upon termination of employment is hereby
granted to any employer with respect to any employee whose employment is
terminated during the calendar year. In the case of intermittent or interrupted
employment where there is a reasonable expectation on the part of both employer and
employee or further employment, there is no requirement that an employee's
withholding statement be immediately furnished the employee; but when such
expectation cease to exist, the statement must be furnished within thirty (30) days
from the date of termination of employment. The extension mentioned under this
Section refers to extension of time for furnishing the Certificate of Income Tax
Withheld on Compensation (Form No. 2316) upon termination of employment.
SECTION 4.114. Withholding of Value-Added Tax.
In general, value-added tax due on the sale of goods and services are not
subject to withholding since the tax is not determinable at the time of sale. However,
gross payments to non-residents by both government and private entities for
services rendered in the Philippines shall be subject to final withholding tax at the
rate of 10% to be filed and paid using BIR Form No. 1600 Monthly
Remittance Return of Value-Added Tax and Other Percentage Taxes Withheld.
Moreover, sale of goods and services subject to VAT to the government

shall be subject to withholding pursuant to Sec. 114(C) of the National Internal
Revenue Code of 1997.
(A) Rates and basis of value-added tax to be withheld. The gross payments
made by the government to sellers of goods and services shall be subject to
withholding tax at the rates herein prescribed:
(1) In general, payments by the government or any of its political

subdivisions, instrumentalities or agencies including
government-owned or controlled corporations (GOCCs) on
account of its purchase of goods from sellers and services rendered
by contractors/service providers who are subject to the
value-added tax
On gross selling price for the purchase of goods (creditable)

3%
On gross payment for services rendered (creditable)
6%
(2) Payments made to government public works contractors

(creditable)
8.5%
(3) Payments for services rendered in the Phils. by non-residents
For lease or use of property or property rights

owned by non-residents in the Phils. (final)
10%
Services rendered to local insurance companies,

with respect to reinsurance premiums payable
to non-resident insurance or reinsurance
companies (final)
10%
Other services rendered in the Phil.

by non-residents (final)
10%
(B) Persons required to deduct and withhold. All local government

units, represented by the Provincial Treasurer in the provinces, the City Treasurer in
the cities, the Municipal Treasurer in the municipalities, and Barangay Treasurer in
the barangays, Treasurers of GOCCs and the Chief Accountants or any person
holding similar position and performing similar function in government offices and
GOCCs, as withholding agents, shall deduct and withhold the value-added tax before
making any payment to the seller of goods and services.
Where the government as herein defined has regional offices, branches or

units, the withholding and remittance of the VAT withheld may be done on a
decentralized basis. As such the treasurer or the chief accountant or any person
holding similar function in said regional office, branch or unit shall deduct and
withhold the VAT before making any payment to the seller of goods and services.
Decentralized remittance, however, is not applicable if the taxpayer-withholding
agent is classified as large taxpayer by the Commissioner of Internal Revenue.
Private entities are likewise considered as withholding agents on gross

payments made to non-residents, applying the final withholding tax rate of ten
(10%) percent.
(C) Returns and payment of taxes withheld. The withholding agents

shall accomplish the Monthly Remittance Return of Value Added tax and Other
Percentage Taxes Withheld (BIR Form No. 1600) in triplicate copies with Monthly
Alphalist of Payees (MAP), the tax base and the amount withheld paid upon filing
the return with the authorized agent banks under the jurisdiction of the Revenue
District Office (RDO)/Large Taxpayers District Office (LTDO) where the
withholding agent is required to register and file the return. In places where there is
no authorized agent bank, the return shall be filed directly with the Revenue
Collection Officer or the duly authorized Municipal/City treasurer of the Revenue
District Office where the withholding agent is required to register or file the return,
except in cases where the Commissioner otherwise permits.
(D) Certificate of Value-Added Tax Withheld At Source. Every

government agent, whether a large or non-large taxpayer, shall furnish each seller of
goods and services from whom value-added taxes (VAT) have been deducted and
withheld, the Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307)
to be accomplished in quadruplicate, the first three copies of which shall be given to
the seller/payee not later than the 10th day of the following month. The rule stated
herein shall also apply to private payors/persons in control of the payment, whether
large or non large taxpayers, for: a) the lease or use of properties or property rights
owned by non-residents; b) services rendered to local insurance companies, whether
large or non-large taxpayers, with respect to reinsurance premiums payable to
non-resident insurance or reinsurance companies; and c) services rendered in the
Philippines by non-residents; but the certificate or statement to be issued in this case
is the Certificate of Final Tax Withheld at Source (BIR Form No. 2306) which should
be issued upon request of the payee. Provided, however, that for income
(interest/discount/trading gain) earned by financial institutions (FI) on Treasury
Bills/Bonds, the Bureau of Treasury (BTR) may be allowed to issue one
consolidated Certificate of Value-Added Tax Withheld at Source (BIR Form No.
2307) covering the total income payment and the corresponding value-added tax
withheld during the month. The Certificate of Value-Added Tax Withheld at
Source (BIR Form No. 2307) shall have as its attachment a summary list
reflecting the following: (1) Name of the financial institution; (2) TIN (Taxpayer
Identification Number; (3) Period covered; (4) Amount of Income
(interest/discount/trading gain earned on Treasury Bills/Bonds); and (5) VAT
Remitted to the account of the Bureau of Internal Revenue. Such Certificate of
Creditable Tax Withheld at Source (BIR Form No. 2307) and Attachment shall
bear the signature of the Treasurer of the Philippines or his duly authorized
representative and shall be submitted directly to the Bureau of Internal Revenue
(BIR), Attention: ISOS DC Head. Provided, further, that the Revenue District
Officer having jurisdiction over the principal place of business of the Bureau of
Treasury shall be responsible for the issuance of individual
certificates/certification to the financial institutions reflecting exactly on a per
FI/payee basis, the information/data in the Certificate of Creditable Tax Withheld
at Source (BIR Form No. 2307) and the Attachment issued by the BTR. Said
certification is required to be attached to the VAT return in lieu of BIR Form No.
2307 as proof of the creditable value-added tax withheld claimed as deduction
thereof.
(E) Liability of designated officers.
(1) Additions to the tax. The designated Treasurers, Chief Accountants

and other persons holding similar positions, who have the duty to withhold and remit
the value added tax in their respective offices shall be personally liable for the
additions to the tax prescribed in Sec. 247 of the Code.
(2) Punishable acts or omissions. Every officer or employee of the

government of the Republic to the Philippines or any of its agencies and
instrumentalities, its political subdivisions, as well as government owned or controlled
corporations charged with the duty to deduct and withhold any internal revenue tax
and to remit the same in accordance with these regulations shall, upon conviction for
each act or omission herein-below specified, be fined in a sum of not less than five
thousand pesos (P5,000.00) but not more than fifty thousand pesos (P50,000.00) or
imprisoned for a term of not less than six months and one day but not more than two
years, or both.
(a) Fails or causes the failure to deduct and withhold any internal
revenue tax covered by these regulations;
(b) Fails or causes the failure to remit the taxes deducted and withheld
within the time prescribed therein;
(c) Fails or causes the failure to file the return or issue certificate
required.
SECTION 5.116. Withholding of Percentage Tax.
Bureaus, offices and instrumentalities of the government, including

government-owned or controlled corporations as well as their subsidiaries, provinces,
cities and municipalities making any money payment to private individuals,
corporations, partnerships and/or associations are required to deduct and withhold the
percentage taxes due from the payees on account of such money payments.
(A) Internal revenue taxes required to be withheld. Percentage taxes on

gross money payments, to the following shall be subjected to withholding at the rates
herein prescribed:
(1) Persons exempt from value-added tax (VAT). On gross

payments to persons who are exempt under Sec. 109 (z) of
the Code from payment of value-added tax and who is not a VAT
registered person except payment to cooperatives Three percent
(3%) Cdpr
(2) Domestic carriers and keepers of garages. On gross payments

to operators of cars for rent or hire driven by the lessee,
transportation contractors, including those who transports
passengers for hire, and other domestic carriers by land, air or
water, for transport of passengers, except owner of bancas and
owners of animal-drawn two wheeled vehicle, and keepers of
garages Three percent (3%)
(3) International carriers
(a) On gross payments to international air carriers doing

business in the Philippines Three percent (3%)
(b) On gross payments to international shipping carriers doing

business in the Philippines Three percent (3%)
(4) Franchises
(a) On gross payments to all franchises on radio and/or

television broadcasting companies whose annual gross
receipts of the preceding year does not exceed P10,000.00
Three percent (3%)
(b) On gross payments to franchises on electric, gas and water

utilities Two percent (2%)
(5) Banks and non-bank financial intermediaries
(a) On interest, commissions and discounts paid or given to

banks and non-bank financial intermediaries arising out of
lending activities as well as financial leasing, on the basis of
the remaining maturities of the instrument
Short-term maturity (not exceeding 2 years)

5%
Medium-term maturity (over 2 year but not exceeding 4
years)
3%
Long-term maturity
(i) over 4 years but not exceeding 7 years 1%

(ii) over 7 years 0%
(b) On dividends 0%
(c) On royalties, rentals of property, real or personal, profits

from exchange and all other gross income Five percent
(5%)
(6) Finance companies
(a) On interest, discounts and other items of gross income paid

to finance companies and other financial intermediaries not
performing quasi-banking functions Five percent (5%)
(b) On interests, commissions and discounts paid from their

loan transactions from finance companies as well as
financial leasing based on the remaining maturities of the
instruments:
Short-term maturity (not exceeding 2 years)

5%
Medium-term maturity (over 2 years but not exceeding 4
years)
3%
Long-term maturity
(i) over 4 years but not exceeding 7 years 1%

(ii) over 7 years 0%
(7) Life insurance premiums On the total premiums paid to persons

doing life insurance business of any sort in the Philippines Five
percent (5%)
However the following shall not be included in the taxable receipts

and consequently not subject to withholding tax:
(a) Premiums refunded within six (6) months after payment on

account of rejection of risk or returned for other reasons to
the insured;
(b) reinsurance premiums where the tax has previously been

paid;
(c) premiums collected or received by any branch of a domestic

corporation, firm or association doing business outside the
Philippines on account of any life insurance of a
non-resident insured, if any tax on such premium is imposed
by a foreign country where the branch is established;
(d) premiums collected or received on account of any

reinsurance, if the insured, in case of personal insurance
resides outside the Philippines, if any tax on such premiums
is imposed by a foreign country where the original
insurance has been issued or perfected; LLphil
(e) portion of the premiums collected or received by the
insurance companies on variable contracts in excess of the
amounts necessary to insure the lives of the variable
contract workers.
(8) Agents of foreign insurance companies
(a) On premiums paid to every fire, marine, or miscellaneous

insurance agent legally authorized under the Insurance Code
to procure policies of insurance on risk located in the
Philippines for companies not authorized to transact
business in the Philippines except on reinsurance premium
Ten percent (10%)
(b) On premium payments obtained directly with foreign

companies where the owner of the property does not make
use of the services of any agent, company or corporation
residing or doing business in the Philippines, in which case,
it shall be the duty of said owners to report to the Insurance
Commissioner and to the BIR Commissioner each case
where insurance has been so effected Five percent (5%)
(9) Amusements On gross payments to the proprietor, lessee, or

operator of cockpits, cabarets, night or day clubs, boxing
exhibitions, professional basketball games, jai-alai and racetracks
at the rates herein prescribed:
(a) cockpits Eighteen percent (18%)
(b) Cabarets, night and day clubs Eighteen percent (18%)
(c) Boxing exhibitions except those wherein World or Oriental

Championship in any division is at stake and at least one of
the contenders is a citizen of the Philippines and promoted
by a citizen/s of the Philippines or by a corporation or
association at least 60% of the capital of which is owned by
such citizens Ten percent (10%)
(d) Professional basketball games as envisioned in Presidential

Decree No. 871 Fifteen percent (15%)
(e) Jai-alai and racetracks irrespective of whether or not any
amount is charged for admission Thirty percent (30%)
(10) Sale, barter or exchange of shares of stock listed and traded

through the local stock exchange. On the gross selling
price or gross value in money derived on every sale, barter or other
disposition of shares of stock listed and traded through the local
stock exchange other than the sale by a dealer in securities
One-half of one percent (1/2 of 1%)
(11) Shares of stock sold or exchanged through initial public offering.

On the gross selling price or gross value in money
derived on every sale, barter, exchange or other disposition through
initial public offering of shares of stock in closely held
corporations in accordance with the proportion of such shares to
the total outstanding shares of stock after the listing in the local
stock exchange at the rates herein prescribed:
Not over 25% 4%

Over 25% but not exceeding 33 1/3% 2%
Over 33 1/3% 1%
(B) Returns and payments of taxes withheld. No money payments

shall be made by any government office or agency unless the taxes due thereon shall
have been deducted and withheld.
Taxes deducted and withheld shall be covered by the Monthly Remittance

Return of VAT and Other Percentage Taxes Withheld (BIR Form No. 1600) in
triplicate copies with Monthly Alphalist of Payees (MAP), that likewise presents
the tax base and tax withheld to be filed and the tax to be paid to the authorized
agent bank under the jurisdiction of the Large Taxpayer Service including the Large
Taxpayer's District Office, in case of large taxpayer, or the Authorized Agent Bank
under the jurisdiction of the Revenue District Office were the withholding agent is
located, for non-large taxpayer. In places where there are no authorized agent bank,
the return shall be filed directly with the Revenue Collection Officer or the duly
authorized Treasurer of the City or Municipality where the withholding agent is
required to register except in cases where the Commissioner otherwise permits. The
required return shall be filed and payments made within ten (10) days following the
end of the month the withholding was made or the withholding tax has accrued.
(C) Certificate of percentage tax withheld at source. Every
withholding agent shall furnish each proprietor, operator, common carrier, franchise
holder, bank and non-bank financial intermediaries, finance company, insurance
company or agent from whom taxes under these regulations had been deducted and
withheld the Certificate of Creditable Tax Withheld at Source (BIR Form 2307) to be
accomplished in triplicate, two copies to be given to the payee simultaneously with
the money payments not later than the fifth (5th) day of the following month. The
third copy of the certificate shall be the file copy of the withholding agent.
(D) Liability of designated officers
(1) Additions to the tax The designated Treasurers, Chief

Accountants and other persons holding similar positions, who have the duty to
withhold and remit the value added tax in their respective offices shall be personally
liable for the additions to the tax prescribed in Sec. 247 of the Code.
(2) Punishable acts or omissions Every officer or employee of the

government of the Republic of the Philippines or any of its agencies and
instrumentalities, its political subdivisions, as well as government owned or controlled
corporations charged with the duty to deduct and withhold any internal revenue tax
and to remit the same in accordance with these regulations shall, upon conviction for
each act or omission herein-below specified, be fined in a sum of not less than five
thousand pesos (P5,000.00) but not more than fifty thousand pesos (P50,000.00) or
imprisoned for a term of not less than six months and one day but not more than two
years, or both.
(a) Fails or causes the failure to deduct and withhold any internal
revenue tax covered by these regulations;
(b) Fails or causes the failure to remit the taxes deducted and withheld
within the time prescribed therein;
(c) Fails or causes the failure to file the return or issue certificate
required.
SECTION 5.128. Withholding of Percentage Tax on Purchases of Goods

and/or Payments for Services Acquired in the Course of Trade or Business and
Rendered by Persons Subject to the 3% Percentage Tax Pursuant to Section 116 of
the Code.
(A) Persons Required to Withhold the Percentage Tax. In general, any

person, natural or juridical, with respect to his/its purchase of goods or payments
for purchase of services not arising from or incident to an employer-employee
relationship but made in the course of trade or business (including exercise of
profession or calling), from Non-VAT registered persons subject to the 3%
percentage tax under Section 116 of the Code [i.e., those whose gross annual sales,
for sale of goods, or gross annual receipts, for sale of services, do not exceed five
hundred fifty thousand pesos (P550,000.00), and who do not opt to be registered
as VAT taxpayers and, therefore, chose to be registered as non-VAT persons
pursuant to Section 236(I) of the Code], shall be subject to a percentage tax
withholding at source at the rate of three percent (3%), based on the payee's
gross sales/receipts, pursuant to Section 116, in relation to Sections 128 and
245(g), (i) and (j) of the Code if the taxpayer-payee opts to remit his percentage
tax through the withholding and remittance of the same by the withholding
agent-payor which option is manifested by filing the "Notice of Availment of the
Option to Pay the Tax through the Withholding Process" (Annex E),
copy-furnished the withholding agent-payor and the Revenue District Offices of
both the payor and payee.
The percentage tax withheld shall be remitted by the withholding agent

using BIR Form No. 1600 (Monthly Remittance Return of Value-added Tax and
Other Percentage Taxes Withheld) to the appropriate collection agents
[Accredited Agent Bank (AAB) or Revenue Collection Officer (RCO), whichever
is applicable] of the Bureau of Internal Revenue (BIR). Such return serves as the
withholding tax return of the payor-withholding agent and, likewise, serves as the
substituted percentage tax return of the payee if the said income recipient-payee
has only one payor from whom he generates his income and provided, further,
that a "Notice of Availment of the Substituted Filing of Percentage Tax Return"
(Annex "A") is filed with the Revenue District Office (RDO) where the
income-recipient is registered or required to register (Home RDO). Such Notice
of Availment shall state that the income recipient is a non-VAT taxpayer, having
not opted to be covered by the VAT system, with actual annual gross sales (for
sale of goods) or gross receipts (for sale of service), or expected annual gross
sales/receipts (for new taxpayer) of not more than P550,000 from just one payor
and that he is opting to file under the substituted filing of percentage tax return.
A copy of the said Notice shall be furnished the lone payor of the income.
Moreover, BIR Form No. 2306 (Certificate of Final Tax Withheld at
Source-March 2003 version), duly signed by both the payor and the payee, shall
be attached to the duly filed BIR Form No. 1600 and shall constitute as the
authority given by the payee to the payor to file and consider the payor's duly
filed BIR Form 1600 as the substituted percentage tax return of the payee. The
duly filed or stamped "Received" BIR Form 2306 shall serve the same purpose as
the percentage tax return (BIR Form 2551M) of the payee. Accordingly, a
taxpayer availing of the Substituted Filing of Percentage Tax Return shall update
his registration data with his Home RDO.
On the other hand, if the payee has more than one payor, the percentage
tax withheld and remitted by the payor under BIR Form No. 1600 shall be treated
as creditable tax by the payee when he files the monthly percentage tax return
under BIR Form No. 2551M. The claimed tax credit shall be evidenced by BIR
Form No. 2307 (Certificate of Creditable Tax Withheld at Source-March 2003
version) duly executed and signed by both the payor and the payee attesting to the
correctness of the figures reflected therein. Since the percentage tax has already
been withheld at source based on gross amount and remitted by the payors under
BIR Form No. 1600, the Percentage Tax Return (BIR Form No. 2551M) to be
filed by the payee which will not be reflecting any amount payable, shall just
serve as a return consolidating all the transactions with all the payors which have
already been subjected to withholding tax and which return (BIR Form No.
2551M) shall be filed directly with the appropriate BIR office without the need of
passing through an Accredited Agent Bank (AAB) or Revenue Collection Officer
(RCO). Nonetheless, in case the total amount of tax withheld by the payors who
are engaged in business is incorrect or the payee has transactions with payors
who are not engaged in business and therefore not obliged to withhold, the
percentage tax return (BIR Form No. 2551M) of the payee which will be
reflecting an amount payable shall be filed with the AAB or the RCO, in the
absence of an AAB, of the Revenue District Office that has jurisdiction over the
taxpayer-payee.
Provided, further that, if at any time of the year, the accumulated gross
sales or gross receipts exceed P550,000, the income recipient-payee shall change
its/his registration with the BIR from Non-VAT to VAT within one month from
the close of the month when the threshold amount was reached. Such payee shall
become VAT-registered taxpayer starting the first day of the month following the
month of his VAT registration. Accordingly, notification to the payors of income
shall be made with respect to such change in "taxpayer classification" of the
payee. Change in the tax type and rate of withholding shall correspondingly be
made by the income payor.
(B) Returns and Payments of Taxes Withheld. Except in cases where the
Commissioner otherwise permits, taxes deducted and withheld pursuant to this
Section shall be remitted using the Monthly Remittance Return of VAT and
Other Percentage Taxes Withheld (BIR Form 1600) in triplicate which return to
be filed and the tax to be paid to the Authorized Agent Banks (AABs) under the
jurisdiction of the Large Taxpayer's Service including Large Taxpayer's District
Offices, in case of large taxpayer, or the AAB under the jurisdiction of the
Revenue District Office (RDO) where the withholding agent is located, in case of
non-large taxpayer. In places where there is no AAB, the return shall be filed
with and the tax paid directly to the Revenue Collection Officer (RCO) or the
duly authorized Treasurer of the City or Municipality where the withholding
agent is required to register. The required return shall be filed and payments
made within ten (10) days following the end of the month the withholding was
made or the withholding has accrued. If the withholding agent is enrolled in
Electronic Filing and Payment System (EFPS), the filing of returns and payment
of withholding taxes shall be in accordance with the rules and regulations
governing EFPS.
(C) Certificate of Percentage Taxes Withheld. The payor-withholding

tax agent shall issue to the payee a "Certificate of Final Tax Withheld at Source"
(BIR Form No. 2306) for the 3% final percentage tax withheld, to be
accomplished in quadruplicate, two copies of which shall be given to the Payee
within ten (10) days following the end of the month the withholding was made, one
copy of the Certificate shall be the file copy of the withholding agent and the last
copy shall be attached to the filed BIR Form No. 1600. The Certificate (BIR Form
No. 2306) to be issued by the withholding agent shall be signed by both the
withholding agent and the payee attesting to the correctness and accuracy of the
information contained therein and likewise stating that it serves as the authority
given by the payee to the payor to file and consider the payor's duly filed BIR
Form 1600 as the substituted percentage tax return of the payee for a payee with
only one payor. BIR Form No. 2307 (Certificate of Creditable Tax Withheld at
Source) is the certificate that should be issued to the payee by the payor if the
payee has several other payors as signified by such payee. Such Certificate shall
be issued in quadruplicate, two copies to be issued to the payee for attachment to
the Percentage Tax Return (BIR Form No. 2551M) to be filed by the payee
consolidating all its/his taxable transactions for the month, one copy to be
attached by the payor to the filed BIR Form No. 1600 and one copy serves as the
file copy of the payor.
(D) Substituted Percentage Tax Return. In the case of sale of goods or

services by persons subject to 3% percentage tax under Section 116 of the Code,
whose gross sales or receipts have already been subjected to the withholding of
the 3% percentage tax by the lone payor, the payee shall no longer be required to
file the monthly percentage tax return (BIR Form No. 2551M) with respect to
such receipts. The BIR Form No. 1600 duly filed by the payor serves as the
substituted return of the payee with lone payor provided that the BIR Form No.
2306 duly executed and signed by both the payor and the payee is attached to the
filed BIR Form No. 1600.
(E) Regular Percentage Tax Return. Payees with several payors are still
required to file the regular percentage tax return reflecting therein the
consolidated total of all the taxable transactions for the taxable period and
applying as tax credit the taxes withheld by several payors evidenced by the duly
issued BIR Form No. 2307 which must be attached to the Percentage Tax Return
(BIR Form No. 2551M). If all the transactions reflected/consolidated in the
Percentage Tax Return (BIR Form No. 2551M) are with several payors who are
engaged in business and therefore have been subjected to the 3% withholding tax,
the Percentage Tax Return will no longer reflect any tax payable but will just be
a simple consolidation of all the taxable transactions for a given taxable period
which may be filed directly with the appropriate BIR office and thus need not
pass through any AAB or collecting RCO. Nonetheless, in case the total amount
of tax withheld by the payors who are engaged in business is incorrect or the
payee has transactions with payors who are not engaged in business and therefore
not obliged to withhold the tax, the percentage tax return (BIR Form No. 2551M)
of the payee which will be reflecting an amount payable shall be filed with the
AAB or the RCO, in the absence of an AAB, of the Revenue District Office that
has jurisdiction over the taxpayer-payee.
(F) Substituted Official Receipt. For sellers of services whose gross

receipts have been subjected to the withholding of the 3% percentage tax, they
shall be exempted from the obligation of issuing duly registered non-VAT receipts
covering their receipt of payments for services sold. In lieu thereof, the issued
"Certificate of Final Tax Withheld at Source" (BIR Form No. 2306), for payee
with just one payor, or "Certificate of Creditable Tax Withheld at Source" (BIR
Form No. 2307), for payee with several payors, shall be constituted and treated as
the substituted official receipt, pursuant to the provisions of Section 237 of the
Code, the pertinent portion of which provides:
"SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. . . . .
"The Commissioner may, in meritorious cases, exempt any person subject

to an internal revenue tax from compliance with the provisions of this
Section."
(G) The Option to Remit the Tax under the Withholding Tax System and
the Option to Avail of the Substituted Filing of the Percentage Tax Return. The
option to remit the Percentage Tax under the withholding system once chosen
remains as the manner of remitting the tax unless said option is cancelled by the
payee (Annex F). Meanwhile, the option to file under the Substituted Filing of the
Percentage Tax Return allowed to a payee with just one payor in a given taxable
year shall continue to apply to subsequent taxable years until such time that the
taxpayer-payee files the "Notice of Cancellation of Availment of the Substituted
Filing of Return" (Annex D) not later than the 10th day of the month following
the close of taxpayer's taxable year which shall automatically revert said taxpayer
to the status of taxpayers filing the returns under the regular filing procedures. If
within the taxable year, an additional client or customer comes in, the
taxpayer-payee shall immediately file the 'Notice of Cancellation of Availment of
the Substituted Filing of Returns'.
SECTION 9.245. Withholding of VAT on Purchase of Goods and/or on

Payments for Services Acquired in the Course of Trade or Business and Rendered
by Persons Subject to VAT Pursuant to Sections 106 and 108 of the Code.
(A) Persons Required to Withhold the Value-Added Tax. In general, any

person, natural or juridical, with respect to his/its purchase of goods or payments
for purchase of services not arising from or incident to an employer-employee
relationship but made in the course of trade or business (including exercise of
profession or calling), from VAT registered persons subject to value-added tax
under Sections 106 and 108 of the Code, shall be subject to VAT withholding at
source at the rate of ten percent (10%), based on the payee's gross sales/receipts,
pursuant to Sections 106 and 108 in relation to Section 245(g), (i) and (j) of the
Code, provided that the payee has executed the "Waiver of the Privilege to Claim
Input Tax Credits" (Annex C) and opted to remit the VAT through the
withholding and remittance of the same by the withholding agent-payor by
likewise executing the "Notice of Availment of the Option to Pay the Tax through
the Withholding Process" (Annex E), which waiver and notice are copy-furnished
the payor-withholding agent and the RDOs of both the payors and the payee.
The VAT withheld shall be remitted by the withholding agent using BIR
Form 1600 (Monthly Remittance Return of Value-added Tax and Other
Percentage Taxes Withheld) to the appropriate collection agents [Accredited
Agent Bank (AAB) or Revenue Collection Officer (RCO), whichever is
applicable] of the Bureau of Internal Revenue (BIR). Such return serves as the
withholding tax return of the payor-withholding agent and at the same time,
likewise, serves as the substituted VAT return of the payee if the said income
recipient-payee has only one payor from whom he generates his income and
provided, further, that a "Notice of Availment of the Substituted Filing of VAT
Return" (Annex "B") is filed with the RDO where the income-recipient is
registered or required to register (Home RDO). Such Notice of Availment shall
state that the income recipient is a VAT-registered taxpayer with gross sales (for
sale of goods) or gross receipts (for sale of service) for the whole year coming
from just one payor and that he is opting to file under the substituted filing of
VAT return having waived the privilege to claim VAT input credits. Copy of the
said Notice must be furnished the lone payor of the income and the RDOs of both
the payors and the payee. Upon receipt of the said Notice, the payor is
mandatorily required to withhold the 10% VAT on the income payment to the
payee and shall remit the same to the appropriate collection agents (AAB or
RCO, whichever is applicable) of the BIR. Moreover, BIR Form No. 2306
(Certificate of Final Tax Withheld at Source-March 2003 version) duly signed by
both the payor and the payee attesting to the accuracy of the figures stated
therein shall be attached to BIR Form No. 1600 filed with the BIR and shall
constitute as the authority given by the payee to the payor to file and consider the
payor's duly filed BIR Form 1600 as the substituted VAT return of the payee.
The duly filed and stamped "Received" BIR Form 2306 shall serve the same
purpose as the VAT return (BIR Form 2550Q) of the payee. Moreover, taxpayer
availing of the Substituted Filing of VAT Return shall update his registration
data with his Home RDO.
On the other hand, even if the payee has more than one payor but has
executed the "Waiver of the Privilege to Claim VAT Input Tax Credits" (Annex
C), and the "Notice of Availment of the Option to Pay the Tax through the
Withholding Process" (Annex E), copy-furnished the payors, the RDOs of both
the payors and the payee, said payors are mandatorily required to withhold the
10% VAT which value-added tax shall be withheld and remitted by the payor
using BIR Form No. 1600. Under this instance, the VAT withheld shall be treated
as creditable tax by the payee when he files the quarterly value-added tax return
under BIR Form No. 2550Q. The claimed tax credit shall be evidenced by BIR
Form No. 2307 (Certificate of Creditable Tax Withheld at Source-March 2003
version) duly executed and signed by both the payor and the payee attesting to the
correctness of the figures reflected therein. Since the value-added tax has already
been withheld at source based on gross amount in pursuance of the waiver of the
right to claim input VAT (Annex C) executed by the payee and remitted by the
payors under BIR Form No. 1600, the Value-added Tax Return (BIR Form No.
2550Q) to be filed by the payee which will not be reflecting any amount payable
shall just serve as a return consolidating all the transactions with all the payors
which have already been subjected to withholding tax and which return shall be
filed directly with the appropriate BIR office without the need of passing through
an Accredited Agent Bank (AAB) or Revenue Collection Officer (RCO).
Considering that under an instance where all the payors who are engaged in
business have already withheld and remitted the 10% VAT as withholding agents
of the payee the latter will no longer be remitting any single amount of tax, the
requirement of filing the monthly VAT Declaration (BIR Form No. 2550M) by
the payee shall be dispensed with. Nonetheless, in case the total amount of tax
withheld by the payors who are engaged in business is incorrect or the payee has
transactions with payors who are not engaged in business and therefore not
obliged to withhold the tax, the monthly VAT Declaration (BIR Form No. 2550M)
and the quarterly VAT Return (BIR Form No. 2550Q) of the payee which will be
reflecting an amount payable shall still be filed with the AAB or the RCO, in the
taxpayer-payee.
(B) Returns and Payments of Taxes Withheld. Except in cases where the
Commissioner otherwise permits, taxes deducted and withheld pursuant to this
Section shall be remitted using the Monthly Remittance Return of VAT and
Other Percentage Taxes Withheld (BIR Form 1600) in triplicate which return to
be filed and the tax to be paid to Authorized Agent Banks (AABs) under the
jurisdiction of the Large Taxpayer's Service including Large Taxpayer's District
Office, in case of large taxpayer, or the AAB under the jurisdiction of the
Revenue District Office (RDO) where the withholding agent is located, in case of
non-large taxpayer. In places where there is no AAB, the return shall be filed
with and the tax paid directly to the Revenue Collection Officer (RCO) or the
duly authorized Treasurer of the City or Municipality where the withholding
agent is required to register. The required return shall be filed and payments
made within ten (10) days following the end of the month the withholding was
made or the withholding has accrued. If the withholding agent is enrolled in
Electronic Filing and Payment System (EFPS), the filing of returns and payment
of withholding taxes shall be in accordance with the rules and regulations
governing EFPS.
(C) Certificate of VAT Withheld. The payor-withholding agent shall
issue to the payee a "Certificate of Final Tax Withheld at Source" (BIR Form No.
2306) for the 10% final VAT withheld, for payee with just one payor, or the
"Certificate of Creditable Tax Withheld at Source" (BIR Form No. 2307), for
payee with several payors, to be accomplished in quadruplicate, two copies of
which shall be given to the Payee within ten (10) days following the end of the
month the withholding was made, one copy shall be attached to BIR Form No.
1600 duly filed by the payor and the fourth copy of the Certificate shall be the file
copy of the withholding agent. The Certificate (BIR Form No. 2306) to be issued
by the withholding agent shall be signed by both the withholding agent and the
payee attesting to the correctness and accuracy of the information contained
therein and likewise stating that it serves as the authority given by the payee to
the payor to file and consider the payor's duly filed BIR Form 1600 as the
substituted VAT return of the payee for payee with only one payor. BIR Form
No. 2307 (Certificate of Creditable Tax Withheld at Source) is the certificate that
should be issued to the payee by the payor if payee has several other payors as
signified by such payee. Such Certificate shall be signed by both the withholding
agent and the payee attesting to the correctness and accuracy of the information
contained therein and shall be issued in quadruplicate, two copies to be given to
the payee for attachment to the Value-added Tax Return (BIR Form No. 2550Q)
to be filed by the payee consolidating all its/his taxable transactions for the
quarter, one copy to be attached to the filed BIR Form No. 1600 of the payor and
one copy serves as the payor's file copy.
(D) Substituted VAT Return. In the case of sale of goods or services by

persons subject to 10% VAT under Sections 106 and 108 of the Code, whose gross
sales or receipts have already been subjected to the 10% final VAT by the lone
payor, the payee shall no longer be required to file the monthly VAT declarations
(BIR Form No. 2550 M) and quarterly VAT returns (BIR Form No. 2550 Q) with
respect to such receipts. The BIR Form No. 1600 duly filed by the payor serves as
the substituted return of the payee with lone payor provided that the BIR Form
No. 2306 duly executed and signed by both the payor and the payee is attached to
the filed BIR Form No. 1600.
(E) Regular Value-added Tax Return. Payees with several payors are
still required to file the regular value-added tax return reflecting therein the
consolidated total of all the taxable transactions for the taxable period and
applying as tax credit the taxes withheld by several payors evidenced by the duly
issued BIR Form No. 2307 which must be attached to the Value-added Tax
Return (BIR Form No. 2550Q). If all the transactions are with several payors
who are engaged in business and therefore have been subjected to the 10%
withholding tax, the Value-added Tax Return will no longer reflect any tax
payable but will just be a simple consolidation of all the taxable transactions for a
given taxable period which may be filed directly with the appropriate BIR office
and thus need not pass through any AAB or collecting RCO.
In case of a payee whose all transactions are with payors who are engaged
in business and who have subjected the transactions to the withholding of the 10%
VAT, the payee is no longer required to file the monthly VAT Declaration (BIR
Form No. 2550M).
Nonetheless, in case the total amount of tax withheld by the payors who are
engaged in business is incorrect or the payee has transactions with payors who
are not engaged in business and therefore not obliged to withhold the tax, the
Monthly Value-added Tax Declaration (BIR Form No. 2550M) and the Quarterly
Value-added Tax Return (BIR Form No. 2550Q) of the payee which will be
reflecting an amount payable shall be filed with the AAB or the RCO, in the
taxpayer-payee.
(F) Substituted Official Receipt. For sellers of services whose gross

receipts have been subjected to 10% final VAT, they shall be exempted from the
obligation of issuing duly registered VAT official receipts covering their receipt of
payments for services sold. In lieu thereof, the issued "Certificate of Final Tax
Withheld at Source" (BIR Form No. 2306), for payee with one payor, or the
"Certificate of Creditable Tax Withheld at Source" (BIR Form No. 2307), for
payee with several payors, shall be constituted and treated as the substituted
official receipt, pursuant to the provisions of Section 237 of the Code, the
pertinent portion of which provides:
"SEC. 237.Issuance of Receipts or Sales or Commercial

Invoices. . . . .
"The Commissioner may, in meritorious cases, exempt any

person subject to an internal revenue tax from compliance with the
provisions of this Section."
(G) The Option to Remit the Tax under the Withholding Tax System and
the Option to Avail of the Substituted Filing of the VAT Return. The option to
remit the VAT under the withholding system once chosen remains as the manner
of remitting the tax unless said option is cancelled by the payee (Annex F).
Meanwhile, the option to file under the Substituted Filing of the VAT Return
allowed to payee with just one payor in a given taxable year shall continue to
apply to subsequent taxable years until such time that the taxpayer-payee files the
"Notice of Cancellation of Availment of the Substituted Filing of Return" (Annex
D) not later than the 10th day of the month following the close of taxpayer's
taxable year which shall automatically revert said taxpayer to the status of
taxpayers filing the returns under the regular filing procedures. If within the
taxable year, an additional client or customer comes in, the taxpayer-payee shall
immediately file the 'Notice of Cancellation of Availment of the Substituted filing
of Returns'.
REPEALING CLAUSE. All existing rules and regulations or parts thereof

which are inconsistent with the provisions of these regulations are hereby revoked.
EFFECTIVITY. These regulations shall take effect on compensation

income paid beginning January 1, 1998. No penalties shall apply until May 15, 1998
for non-compliance with the new features of the Code as implemented in these
regulations. cdasia
(SGD.) MILWIDA M. GUEVARA

Acting Secretary of Finance
Recommending Approval:
(SGD.) LIWAYWAY VINZONS-CHATO

Commissioner of Internal Revenue

RR 2-98

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

RR 2-98

Încărcat de

Drepturi de autor:

Formate disponibile

April 17, 1998

REVENUE REGULATIONS NO. 02-98

SUBJECT : Implementing Republic Act No. 8424, "An Act Amending

TO : All Internal Revenue Officers and Others Concerned

Pursuant to Sec. 244 of the National Internal Revenue Code, as amended,

SECTION 2.57. Withholding of Tax at Source.

(B) Creditable Withholding Tax. Under the creditable withholding tax

SECTION 2.57.1. Income Payments Subject to Final Withholding Tax.

(A) Income payments to a citizen or to a resident alien individual;

(2) Royalties on books, as well as other literary works and musical

(3) Interest income received by a resident individual taxpayer from a

(4) Interest income from long-term deposit or investment in the form

Holding Period Rate

Four (4) years to less than five (5) years 5%

(5) Cash and/or property dividends actually or constructively received

6% - beginning January 1, 1998

The tax on cash and property dividends shall only be

(6) On capital gains presumed to have been realized from the

In case of sale on installment of real property classified

In case of sale/transfer of principal residence, the

After depositing the amount representing the six percent

If within thirty (30) days after the lapse of the aforesaid

In the issuance of assessments, the Seller shall receive all

(B) Income Payment to Non-resident Aliens Engaged in Trade or Business in

(1) On Certain Passive Income A tax of twenty (20%) percent is

(a) Cash and/or property dividend from a domestic corporation

(b) Share in the distributable net income after tax of a

(d) Royalties (except royalties on books, as well as other

(e) Prizes (except prizes amounting to ten thousand pesos

(2) Interest income derived from long-term deposit or investment in

Holding Period Rate

Four (4) years to less than five (5) years 5%

In case of sale on installment of real property classified

In case of dispositions of real property classified as capital

For purposes of these regulations, the term

(5) Gross income derived from contracts by subcontractors from

(C) Income Derived from All Sources Within the Philippines by a

In case of dispositions of real property classified as capital

(D) Income Derived by Alien Individuals Employed by Regional or Area

(E) Income Derived by Alien Individuals Employed by Offshore Banking

(F) Income of Aliens Employed by Foreign Petroleum Service Contractors

(G) Income Payment to a Domestic Corporation. The following

(3) Interest income derived from a depository bank under the

(4) Income derived by a depository bank under the Expanded Foreign

(5) On capital gains presumed to have been realized from the

In case of sale on installment of real property classified

(6) Gross income derived from contracts by subcontractors from

(H) Income Payment to a Resident Foreign Corporation. The

(1) Offshore Banking Units On income derived by offshore

(2) Tax on Branch Profit Remittances On any profit remitted

Interests, dividends, rents, royalties (including

(4) Interest income derived from a Depository Bank under the

(5) Income derived by a depository bank under the expanded foreign

(6) Gross income derived from contracts by subcontractors from

34% - beginning January 1, 1998

(3) On the gross rentals, lease and charter fees, derived by

(5) Interest on foreign loans contracted on or after August 1, 1986

(6) Dividends received from a domestic corporation Fifteen percent

(3) Vehicle of any kind;

(4) Household personnel, such as maid, driver and others;

(7) Expenses for foreign travel;

(8) Holiday and vacation expenses;

(9) Educational assistance to the employee or his dependents; and

(10) Life or health insurance and other non-life insurance premiums or