The Withholding

Tax System
Rationale
1. To provide the taxpayer a convenient
manner to meet his probable income
tax liability.

2. To ensure the collection of the income

tax which could otherwise be lost or
substantially reduced through failure
to file the corresponding returns.

3. To improve the government’s cash

flow.
 Kinds of Withholding Income Taxes

Withholding tax at source which may be classified into:

a) Creditable Withholding tax
b) Final Withholding tax
Withholding tax on compensation income
Creditable
Withholding
Tax  Withholding taxes on ordinary business
income
 Includible on the computation of the gross
income
 Therefore, the related withholding tax is
deductible as tax credit

Creditable or Expanded Withholding Tax (EWT) is a kind

of tax that is taken in advance by the buyer (withholding agent) from the
seller’s income, on behalf of the government.
Creditable Withholding Tax
•Compensation - is the tax withheld from income payments
to individuals arising from an employer - employee relationship
•Expanded - is a kind of withholding tax which is prescribed on
certain income payments and is creditable against the
income tax due of the payee for the taxable quarter/year in
which the particular income was earned.
(A) Professional fees , talent fees, etc. for services

INDIVIDUAL
Gross income for the current year did not exceed 3,000,000 - 5%
Gross income for the current year exceeds 3,000,000 - 10%

NON- INDIVIDUAL
Gross income for the current year did not exceed P 720,000 - 10%
Gross income for the current year exceeds P 720,000 - 15%
1. those individually engaged in the practice of profession.
• Lawyers
• CPA
• Doctors of medicine
• Architects
• Engineers

2. Professional entertainers - actors, singers, composers, emcees

3. Professional Athletes - basketball players
4. 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
10.Income Payments to certain brokers and agents
11.Commissions of independent and/or exclusive sales representatives,
and marketing agents of companies
∙ The amounts subject to withholding
tax under this subsection (A) shall
include not only fees but also per
diems , allowances and other
forms of income payments not
subject to withholding tax on
compensation.
Company A secured the professional services of Block A-counting
amounting to P100,000 INCLUSIVE of 12% VAT. What are the related
accounting entries, assuming Block A-counting does not earn a gross
income exceeding P720,000?
What tax rate should be used? Compute the total tax withheld?
∙ Books of Company A ( Withholding Agent )
∙ Professional Fees Expense 100,000
∙ Input VAT 12,000
∙ Cash 102,0000
∙ Withholding tax payable 10,000
∙ Upon Payment to Block A

Withholding tax payable 10,000

Cash 10,000
Upon remittance of Co. A to BIR
∙ Books of Block A
∙ Cash 102,000
∙ Creditable withholding tax 10,000
∙ Revenue 100,000
∙ Output VAT 12,000

Co. A will issue a VAT official receipt for the cash of 102,000 and
will receive a creditable withholding tax certificate CWT BIR Form
2307
(B) Rentals - 5%
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
2. Personal Properties -On gross rental or lease in excess of ₱10,000
annually
3. Poles, satellites and transmission facilities - switchboards, land
lines/aerial cables, underground cables and submarine cables
4. Billboards - used in posting advertisements in public places such as,
but not limited to, buildings, vehicles, amusement places, malls, street
posts, etc
5. Cinematographic film rentals and other payments
 (C) Income payments to certain Contractors - 2%
∙ General engineering contractors ∙ General Building contractors in
such as;
connection with any structure built, for
∙ a) Reclamation works;
the support, shelter and enclosure of
∙ (b) Railroads;
persons, animals, chattels, or movable
∙ (c) Highways, streets and roads;
∙ (d) Tunnels; property of any kind, requiring in its
∙ (e) Airports and airways; construction the use of more than two
∙ (f) Waste reduction plants unrelated building trades or crafts, or to
do or superintend the whole or any part
thereto
∙ (D) Income distribution to the beneficiaries - Estates and Trust
15%
∙ (E) Income payments to Partners of GPP - drawings, advances,
sharing, allowances. stipends ( Gross income 10% < 720,000 > 15%)
∙ (F) 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
∙ (G) 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 —
(15%)
∙ (H) 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 a natural or juridical person,
representing the sales of goods/services made by the aforesaid business entity to
cardholders. 1%
∙(I) Income payment made by top withholding agents, either private
corporations or individuals, to their local/resident supplier of goods and
local/resident supplier of services other than those covered by other rates of
withholding tax
∙Supplier of goods – One percent (1%)
∙Supplier of services – Two percent (2%)
Top withholding agents shall include the following:

a) Classified and duly notified by the Commissioner: top 20,000 private

corp. and top 5,000 individuals.
b) Taxpayers identified and included as Medium Taxpayers, and those
under the Taxpayer Account Management Program
∙ (J) Income Payments made by a government office, national or local,
including barangays, or their attached agencies or bodies, and government-
owned or controlled corporations to its local/resident supplier of goods/services,
other than those covered by other rates of withholding tax.
∙ Income payments, except any single purchase which is P10,000 and below
∙ Supplier of goods – One percent (1%)
∙ Supplier of services – Two percent (2%)
∙ (K) Tolling fees paid to refineries - 5%
∙ (L) Payments made by pre-need companies to funeral parlors - 1%
∙ (M) Payments made to embalmers - 1%
∙ (N) Income payments made to suppliers of agricultural products- 1%
∙ payments made by hotels, restaurants, 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 (₱300,000.00) pesos within the
same taxable year
∙ (O) Income payments on purchases of minerals, mineral products and quarry
resources - 1%
∙ RR 1 -2019 further amends RR-11-2018 relative to some changes in the rate of
Creditable Withholding Tax on certain income payments.
∙ (P) MERALCO Payments
1. MERALCO refunds to customers - 15% of gross amount
2. Interest income on the refund of meter deposits determined

On gross amount of interest paid directly to the customers or applied against

the customer's billings:

i. Residential and General Service customers whose monthly eiectricity

exceeds 200 kwh as ciassified by MERALCO - 10%
ii. Non-Residential Customers -15%
∙ (Q) Interest income on the refund paid either through direct payment or
application against customers’ billings by other electric Distribution
Utilities (DUs)
∙ On gross amount of interest paid directly to the custorners or applied against the customer's
billings:
i. Residential and Genera! Sei'vice customers whose monthly electricity consumption exceeds
200 kwh as classified by the concerned DU -Ten percent (L0%)
ii. Non-Residentlal Customers - Fifteen percent (15%)
∙ (R) Interest income on the refund paid either through direct payment
or application against customers’ billings by other electric
Distribution Utilities (DUs) - 5%
∙ (S) Interest income derived from any other debt instruments not
within the coverage of ‘deposit substitutes - 15%
∙ (T) Income payments to Real Estate Investment Trust (REIT) - 20%
∙ (U) Income payments on sugar - 1%
 Nature of Income Payment Rate

 Professionals, talent fees paid to juridical persons

Professional entertainers
Professional athletes Individual
 Movie, stage, radio, TV and musical directors Gross income < 3M : 5%
Management and technical consultants Gross income > 3M : 10%
Business and bookkeeping agents and agencies
 Insurance agents and insurance adjusters Non - Individual
 Payments to medical practitioners by a partnership Gross income < 720,000 :
Payments for medical/dental veterinary services thru 10%
hospitals/clinics/health/ maintenance organizations Gross income > 720,000 :
 Payment by the GPP to its partners 15%
Other recipients of talent fees
Fees of directors who are not employees of the company

Rentals of real/personal properties, poles, satellites and transmission facilities,

5%
billboards

Cinematographic film rentals 5%

Prime contractors/sub-contractors 2%
 Nature of Income Payment Rate
Income distribution to beneficiaries of estates and trusts 15%

Gross commission or service fees of customs, insurances, stocks, real estate, immigration
10%
and commercial brokers, fees of agents of professional entertainers

Payments made by credit card companies ½ of 1%

Income payments made by the government to its local/resident suppliers of goods and Goods – 1%
services Services – 2%

Commission, rebates, discounts and other similar considerations paid/granted to

independent and exclusive distributors, medical/technical and sales representatives and 10%
marketing agents and sub-agents of multi-level marketing companies

Gross payment to embalmers by funeral companies 1%

Payments made by pre-need companies to funeral parlors 1%
Tolling fee paid to refineries 5%
Income payments made to suppliers of agricultural products 1%
5%
Income payments on purchases of minerals, mineral products by quarry resources BSP needs to
withhold 1%

Income payments on purchases of gold by BSP from gold miners/suppliers 10%

 Tax compliance-related
amendments to the Tax Code

∙1. Changes in the top rate for the EWT

∙2. Filing deadline for the final withholding
tax and EWT returns
∙3. Ceiling of EWT rates.
As of January 1, 2019, the EWT rates will range from 1% to 15%. Prior to this, the top
rate was at 32%.While the said changes are not yet in effect, the BIR has advised the
reduction of the EWT rates for the following income payments from 10% or 15% to
8%:

a) Professional fees, talent fees, commissions for services rendered by individuals.

b) Income distribution to beneficiaries of estates and trusts
c) Income payments to certain brokers and agents.
d) Income payments to partners of GPP
e) Professional fees paid to medical practitioners
f) commissions of independent/or exclusive sales representatives and marketing
agents of companies.
 “
Engr. Calago was hired under a contract of service with Block A
Corporation, whose principal contracting business is in connection with
the construction of the overpass from G7 to USC.
In the past years, Engr. Calago's gross receipts from the said company
never exceeded ₱250,000. This year, his gross receipts from the said
contract amounted to ₱150,000.

Compute the tax to be withheld.

Computation:
In this case, Block A Corp. shall withhold the amount of ₱3,000, computed as follows:

Gross Receipts ₱ 150,000.00

Less: Items not subject to withholding tax ( 0.00)
Income subject to withholding tax ₱ 150,000.00
Multiply by: EWT rate 2%
Amount of withholding tax ₱ 3,000.00

The withholding tax rate applicable in this case is 2%, since Engr. Calago is a supplier of
services considered as service contractor.

Provided, however, that an individual seller-income earner/payee, may not be subjected to withholding under Section 2.57.2
hereof if the source of income comes from a lone income payor and the total income payment is less than ₱250,000 in a
taxable year. In this case, the concerned individual shall execute an Income Payee’s Sworn Declaration of gross
receipts/sales (Annex “B-2”) that shall be submitted to the lone payor.
 Final Withholding Tax
The final withholding tax system imposes upon the person
making income payments the responsibility to withhold
the tax
The tax that will be deducted at source will be final—thus
disregarding the need to file an income tax return for the
same.
The system is inherently territorial—thus it applies only to
passive income earned from sources within the Philippines.
 RATIONALE OF WITHHOLDING
TAX
The system is also built upon taxpayer and government convenience.

TAXPAYER GOVERNMENT
It relieves the taxpayer of the This system is the most effective
obligation to file income tax return and convenient way to collect taxes
on passive income. It is convenient on income where there is high risk
for taxpayers who are limited by of non-compliance or tax evasion
distance, time and costs to comply.

The final income tax is imposed on certain passive income and upon the non-
resident persons not engaged in business in the Philippines (NRA-NETB and NR
FC)
 NIRC
Non-resident person not engaged in trade or business General Final Tax Rate

Non-resident alien not engaged in trade or business 25%

Non-resident foreign corporation 30%

PASSIVE INCOME ∙ NRA-NETBs and NRFCs

Items of passive income are earned with very
∙ These taxpayers do not have principal offices
minimal involvement from the taxpayer and
or fixed places of business in the Philippines
are generally irregular in timing and
thus making it very unlikely for tax
amount.
compliance to be expected.
What and When to File and Pay Final Withholding Tax?
 BIR FORM 1601-F RATE ON
TAX  
 TYPE  DESCRIPTION IND CORP

WF Interest on Foreign loans payable to Non-Resident Foreign Corporation (NRFCs) 20%

Interest and other income payments on foreign currency transactions/loans payable of Offshore Banking Units (OBUs) AND
WF 10%
Foreign Currency Deposits Units (FCDUs)
WF Cash dividend payment by domestic corporation to citizens and residents aliens/NRFCs 10% 30%
WF Property dividend payment by domestic corporation to citizens and resident aliens/NRFCs 10% 30%

Cash dividend payment by domestic corporation to NFRCs whose countries allowed tax deemed paid credit (subject to tax
WF 15%
sparing rule/reciprocity rule)

WF
Property dividend payment by domestic corporation to NFRCs whose countries allowed tax deemed paid credit (subject to
15%
tax sparing rule)
Cash dividend payment by domestic corporation to non-resident alien engaged in Trade or Business within the Philippines
WF 20%
(NRAETB)
WF Property dividend payment by domestic corporation to NRAETB 20%
Share of NRAETB in the distributable net income after tax of a partnership (except GPPs) of which he is a partner, or share
WF in the net income after tax of an association, joint account or a joint venture taxable as a corporation of which he is a member 20%
or a co-venturer
WF On other payments to NRFCs 30%
WF Distributive share of individual partners in a taxable partnership, association, joint account or joint venture or consortium 10%
 RATE ON
TAX  
 TYP  DESCRIPTION IND CORP
E
WF On prizes exceeding P10,000 and other winnings paid to individuals 20%
WF Branch profit remittance by all corporations except PEZA/SBMA/CDA registered 15%
WF On the gross rentals, lease and charter fees derived by non-resident owner or lessor of foreign vessels 4.5%
On gross rentals, charter and other fees derived by non-resident lessor or aircraft, machineries and
WF 7.5%
equipment
WF On payments to oil exploration service contractors/sub-contractors 8% 8%
Payments to non-resident alien not engage in trade or business within the Philippines (NRANETB) except
WF 25%
on sale of shares in domestic corporation and real property
On payments to non-residnet individual/foreign corporate cinematographic film owners, lessors or
WF 25% 25%
distributors
WF Royalties paid to NRAETB on cinematographic films and similar works 25%
Final tax on interest or other payments upon tax-free covenant bonds, mortgages, deeds of trust or other
WF 30%
obligations under Sec. 57C of the NIRC of 1997, as amended
Royalties paid to citizens, resident aliens and nraetb on books, other literary works and musical
WF 10%
compositions
WF Informers cash reward to individuals/juridical persons 10% 10%
WF Cash on property dividend paid by a Real Estate Investment Trust 10% 10%
 BIR FORM 1602
RATE ON RATE ON
Nature of Interest Income INDIVIDUAL CORPORATE
PAYEE PAYEE

On Peso Savings Deposit and Time Deposit 20% 20%

Government Securities 20% 20%
Deposit Substitutes 20% 20%
On pre terminated long term deposit:
Maturity Period less than 3 years 20% 20%
Maturity Period 3 years to less than 4 years 12% 20%
Maturity Period 4 years to less than 5 years 5% 20%
Foreign Currency Deposits 7.5% 15% 7.5% 15%
On amounts Withdrawn from Decendent’s Deposit - 6% - 6%
Account
BIR FORM 1603
Quarterly Remittance Return of Final Income Taxes Withheld on Fringe Benefits Paid to Employees Other than Rank and File

FRINGE BENEFITS GRANTED TO EMPLOYEES (EXCEPT RANK AND FILE EMPLOYEES)

Fringe Benefit means any good, service or other benefits furnished or granted in cash or in kind by an
employer to an individual employee (except rank and file) such as but not limited to the following:
• Housing
• Expense account
• Vehicle of any kind
• Household personnel (maid, driver and others)
• Interest on loan at less than market rate to the extent of the difference between the market rate and
actual rate granted
• membership fees, dues and other expenses borne by the employer for the employee in social and
athletic clubs or other similar organizations
• Expenses for foreign travel
• Holiday and vacation expenses
• Educational assistance to employee or his dependents; and
• Life or health insurance and other non-life insurance premiums or similar amounts in excess of what
the law allows.
 Where to File and Pay Final Withholding Tax?

The return shall be filed and the tax paid/remitted with the
Authorized Agent Bank (AAB) of the Revenue District
Office (RDO) having jurisdiction over the withholding agent’s
place of business/office.

A taxpayer may file a separate return for the head office and for
each branch or place of business/office or a consolidated return
for the head office and all the branches/offices.

In the case of large taxpayers only one consolidated return is

required.
Income Payments Subject to
Final Withholding Tax
Income payments to citizens or a resident citizen
individual
Amount of interest from any currency bank deposit
and yield or any other monetary benefit from deposit
20%
substitutes and from trust funds and similar
arrangements - Short Term

Interest income from long-term deposit or

Exempt
investment
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 which was predetermined by the
holder before the fifth year at the following rates:
5
Holding Period
%
Four (4) years to less than five (5) years
1
Three (3) years to less than (4) years
2%
Less than three (3) years
Interest income received by an individual taxpayer (except a non-
resident individual) from a depository bank under the expanded 15%
foreign currency deposit system

Cash and/or property dividends actually or constructively received

by an individual from a domestic corporation or from a joint stock
company, insurance or mutual fund companies and regional operating
headquarters of multinational companies, or on the share of an
individual in the distributable net income after tax of a partnership 10%
(except a general professional partnership) of which he is a partner, 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 taxable
as a corporation of which he is a member or co-venturer.
Prizes (except prizes amounting to Ten thousand pesos
20%
(PhP10,000))

Other winnings (except winnings amounting to Ten

thousand pesos (PhP10,000) or less from Philippine 20%
Charity Sweepstakes and Lotto which shall be exempt)

Royalties (e.g. oil right or a patent) 20%

Royalties on books, other literary works and musical

10%
compositions
Capital Gains from Sale of Shares of Stock not Traded in
15%
the Stock Exchange

Capital Gains from Sale of Real Property 6%

Income payments to non-resident aliens engaged in trade or business in the
Philippines

Cash and/or property dividends 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
multinational company, or the share of a non-resident alien
individual in the distributable net income after tax of a
partnership (except a general professional partnership) of
20%
which he is a partner, or the share of a non-resident alien
individual in the net income after tax of an association, a joint
account, or a joint venture taxable as a corporation of which
he is a member or a co-venturer
Royalties (e.g. oil right or a patent) 20%

Royalties on books, other literary works and musical

10%
compositions

That cinematographic films and similar works 25%

Interest income from long-term deposit or investment in

the form of savings, common or individual trust funds,
Exempt
deposit substitutes, investment management accounts and
other investments *
 *should the holder of the certificate pre-terminate the deposit
or investment before the fifth (5th) year, a final tax shall be
imposed on the entire income and shall be deducted and
withheld by the depository bank from the proceeds of the long-
term deposit or investment certificate based on the remaining
maturity thereof:

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%.

Capital Gains from Sale of Shares of Stock not
15%
Traded in the Stock Exchange

Capital Gains from Sale of Real Property 6%

Income derived from all sources within the Philippines by a nonresident alien not
engaged in trade or business (NRA-NETB) within the Philippines

On the gross amount of income derived from all

sources within the Philippines by a nonresident alien
individual who is not engaged in trade or business in
the Philippines as interest, cash and/or property
25%
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,
Capital Gains from Sale of Shares of Stock not
15%
Traded in the Stock Exchange
Income payments to a domestic corporations
Interest on currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from
trust funds and similar arrangements received by 20%
domestic corporations, and royalties, derived from
sources within the Philippine

Interest income derived by a domestic corporation from

a depository bank under the expanded foreign currency 15%
deposit system
Capital Gains from the Sale of Shares of Stock Not
15%
Traded in the Stock Exchange.

Interest income from foreign currency loans granted by

such depository banks under said expanded system to
residents other than offshore banking units in the 10%
Philippines or other depository banks under the
expanded system,
Dividends received by a domestic corporation from
Exempt
another domestic corporation

Capital Gains Realized from the Sale, Exchange or

6%
Disposition of Lands and/or Buildings
Income payments to resident foreign corporations

Interest from any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust
20%
funds and similar arrangements and royalties derived from
sources within the Philippines

Interest income derived by a resident foreign corporation from

a depository bank under the expanded foreign currency 7.5%
deposit system
Interest income from foreign currency loans granted by
such depository banks under said expanded system to
residents other than offshore banking units in the 10%
Philippines or other depository banks under the
expanded system,

Capital Gains from the Sale of Shares of Stock Not

Traded in the Stock Exchange.
Not over PhP100,000 5%
On any amount in excess of PhP100,000 10%
Income payments to Non-resident foreign corporations

General Final Tax Rate 30%

Non-resident Cinematographic Film Owner, Lessor or

25%
Distributor.
Non-resident Owner or Lessor of Vessels Chartered by
4.5%
Philippine Nationals.
Non-resident Owner or Lessor of Aircraft, Machineries
7.5%
and Other Equipment.
Interest on foreign loans contracted on or after August
20%
1, 1986

Cash and/or property dividends received from a

15%
domestic corporation,

Capital Gains from the Sale of Shares of Stock Not

Traded in the Stock Exchange.
Not over PhP100,000 5%
On any amount in excess of PhP100,000 10%
 Interest Income
Interest income or yield from local currency bank deposits or
substitutes are subject to final tax as follows:
Sources of Interest Income Individual Corporati
s ons
Short Term 20% 20%

Long Term Exempt * 20%

*Exemption does not include NRA-NETB

Should the holder of the certificate pre-terminate the deposit or
investment before the fifth (5th) year, a final tax shall be imposed on
the entire income and shall be deducted and withheld by the depository
bank from the proceeds of the long-term deposit or investment
certificate based on the remaining maturity thereof:
4 years to less than 5 years 5%

3 years to less than 4 years 12%

less than 3 years 20%

 Example
A taxpayer earned the following interest income from various time deposits.

6 months time deposit 8,000

2 year time deposit …………………………
… 12,000
5 year time deposit 40,000
Total Interest Income
60,000

Compute the final tax if the taxpayer is an individual or if a corporation.

INDIVIDUAL: CORPORATION:

6 months (8,000*20%)……… Final Withholding tax

1,600
2 year (12,000*20%)………
(60,000*20%)
2,400 = 12,000
5 year (40,000*0%)…… ……
0
Final withholding Tax…….. …
4,000
Example
Pil Marie, a resident taxpayer received a P16,000 interest
income from Kuya’s bank. Determine the final tax
withheld at source.
GROSS INTEREST INCOME
20000
(16,000/0.80)

MULTIPLY: FINAL TAX RATE 20%

FINAL TAX WITHHELD 4,000

On January 1, 2015, Ave invested 1,000,000 in Iane Bank's 5 year
time deposit. The deposit pays 10% interest annually. Ave pre-
terminated the deposit on July 1, 2018.

Compute the final tax on pre-termination.

2015-2017 interest income (1,000,000*10%*3)……………………

300,000
2018 accrued interest income (1,000,000*.10*6/12)………………
50,000
Total Interest Income …………………350,000
Final tax applicable to less than 4 year pre-termination
12%
Final tax 42,000
 “
Compute the final proceeds of the deposit and accrued
interest to be released upon pre-termination.

Principal Balance 1,000,000

Accrued Interest 50,000
Final Tax to be Withheld ( 42,000)
Net Proceeds 1,080,000
 Foreign Currency Deposit with FCDB
Resident
Resident Domestic
Foreign Non
Individual Corporatio
Corporatio resident
s n
n

Depository bank
under the 15% 15% 7.5% Exempt
expanded FCDS
 Note
a. Resident Taxpayers include Resident Citizens, Resident Aliens,
Domestic Corporations and Foreign Corporations.
b. Non-resident Taxpayers include Non-resident Citizen, Non-
resident Alien and Non-Resident Foreign Corporations.
c. It should be emphasized that NRA-NETBs and NRFC are also
exempt.
d. There is no long term or short term policy for this item.
Joint Accounts on Forex Deposits
If the bank account is jointly in the name of a non-
resident and a resident taxpayer, 50% of the interest
shall be exempt while the other 50% shall be subject
to the 15% final tax.
Example
Mr. Abella is an OFW. He deposits all his savings in a savings
account under the foreign currency deposit unit (FCDU) of a
domestic bank. During the month, the savings deposit earned
1,000 dollars interest equivalent to 41,500.

Scenario 1: Mr. Abella deposited his savings through the

account of his resident wife.

Solution:
Interest Income 41,500
Final tax rate 15%
Final Tax 6225
 Scenario 2: Mr. Abella deposited his savings through a joint
account with his resident wife.

Interest Income 41,500

Portion Taxable 50%
Taxable Interest Inc. 20,750
Multiply by final tax rate 15%
Final tax 3112.5

Scenario 3: Mr. Abella will deposit it through his own account.

Exempt from final tax
 Dividends
Types of Dividends:
a. Cash
As a rule, dividends are subject
b. Property to tax. However, stock and
c. Scrip liquidating dividends are not
income for taxation purposes
d. Stock
e. Liquidating
 Dividends
Source of Dividends Individual Corporations
s
Domestic Corporation 10% Exempt
Foreign Corporation Regular Regular Tax
Tax
 Note
a. A NRA-ETBs is subject to a 20% final tax on dividends while
NRA-NETB is subject to 25% final tax
b. A NRFC is not exempt but is subject to 30% final tax rule while
15% if the tax sparing rule is used.

Tax Sparring Rule:

NRFC shall be subjected to a 15% final tax on dividend
income instead of 30% if the country of domicile of the NRFC
credits against the tax due of such NRFC taxes presumed to
have been paid by such NRFC from the Philippines equivalent
to 15%
 Example
Cai Company declared a total of 2,000,000 dividends. 800,000 is
due to corporate stockholders while 1,200,000 is due to individual
shareholders

Compute the Final Tax to be withheld:

Shareholder Amount Rate Amount

Individual 1,200,000 10% 120,000

Corporate 800,000 0% 0

Final Tax 120,000

Cai Company declared a total of 1,000,000 dividends in
March 2014. An analysis of the recipient shareholders is as
follows:
Shareholder Amount
Resident Alien and 500,000
Citizen
NRA-ETB 100,000
NRA-NETB 50,000
NRFC 100,000
Total Dividends 750,000
Compute the Final Tax to be withheld.
Shareholder Amount Rate Final Tax
Resident Alien 500,000 10% 50,000
and Citizen
NRA-ETB 100,000 20% 20,000
NRA-NETB 50,000 25% 12,500
NRFC 100,000 30% 30,000
Total 750,000 112,500
 EXEMPT DIVIDENDS
• INTER-CORPORATE DIVIDENDS
• DIVIDENDS FROM COOPERATIVES
ENTITIES TAXABLE AS CORPORATIONS ARE
SUBJECT TO 10% FINAL TAX
• REAL ESTATE INVESTMENT TRUSTS
• BUSINESS PARTNERSHIPS
• TAXABLE ASSOCIATIONS
• TAXABLE JOINT VENTURES, JOINT ACCOUNTS, OR
CONSORTIA
• TAXABLE CO-OWNERSHIPS
 BUSINESS PARTNERSHIPS, TAXABLE ASSOCIATIONS, JOINT venture,
joint accounts or co-ownerships

Net Income of a Partnership Deemed Constructively Received

by Partners. (SEC 73 (D), NIRC) Hence, the 10% final tax
applies at the point of determination of net income not the actual
point of distribution.

“share in net income” - includes share in the residual profit and

provisions for salary, interest and bonus to a partner
Example
The partnership profit distribution of partners Ron and
Zesha based on their agreed profit distribution scheme is
as follows:
Ron Zesha
Salaries to Industrial Partner 40,000 -
Interest to Capitalist Partner - 12,000
Bonus to Industrial Partner 25,000 -
Residual Profit Sharing 8,000 24,000
Profit Sharing 73,000 36,000

Compute the final tax of each partner: 7300 and 3600.

 ROYALTIES
Source of Passive Royalties Individual Corporations
s
Books, Literary Works, and 10% 20%
Musical Compositions
Others 20% 20%
 Note
a. Under the regulations, the 10% preferential royalty
final tax on books and literary work pertain to
printed literature. Royalties on books sold on e-
copies or CDs are subject to 20% final tax

b. Royalties on Cinematography Films and similar

works paid to NRA-ETB, NRA-NETB, and NRFC are
subject to 25% final tax
 PRIZES
Amount of Taxable Prize Individual Corporations
s
More than 10,000 20% Regular
Not exceeding 10,000 Regular Regular
Note:
a. Prizes from foreign corporations are subject to regular income tax as
foreign passive income is not applicable to final withholding tax system.
WINNINGS
Types of Winnings Individua Corporation
ls s
PCSO Winnings (extends to 20%
NRA-NETBs and NRFC)*
Other winnings, in general 20% Regular

*PCSO winnings and prizes amounting to more than

Php 10,000 subject to 20%.
 Example
Prizes/Winnings Amount Final Tax
Won
Dance Contest 15,000 3,000
Raffle Ticket Winnings 35,000 7,000
PCSO Swertres 143,000 28,600

PCSO Swertres lotto winning before TRAIN Law was tax exempt
regardless of amount won.
TAX INFORMER’S REWARD
✴ This reward is subject to 10% final tax.
✴ Amount of cash is 1,000,000 or 10% of recovery of
revenue, surcharges, and fees, or imposition of fine or
penalty, whichever is lower.
REQUISITES
1. Definite sworn information which is not yet possessed by the
BIR.
2. Information leads to a discovery of fraud upon revenue laws or
provisions thereof.
3. Enforcement results in recovery of revenue, surcharges, and
fees, and or conviction of guilty party or imposition of fine or
penalty.
4. The informer must not be:
a) A BIR Employee or Official
b) Other Public Employee
c) Relative to the 6th degree of consanguinity of those
 Example
Madame Chacel provided information to the BIR leading the discovery
of P12,000,000.00 unpaid taxes. The cash reward shall be computed
as follows:
10% cash reward (P12M x 10%) 1,200,000
Cash Reward Limit 1,000,000

Cash Reward (Whichever is lower) 1,000,000

Less: 10% Final Withholding tax 100,000
Net amount to be released to the tax informer 900,000
 ADDITIONAL EXAMPLE
In 2018, Mr. Laude, an NRA-NETB, is a consultant to Claire
Company, a domestic manufacturer. The company pays Mr.
Laude 300,000 in royalties for his invention. During the year,
Mr. Laude purchased shares of Claire Company and sold them
directly to the buyer and earned 40,000. He also earns a
professional fee of 1,000,000 from the company.

Compute the total final tax withheld at source:

Royalties from Invention 300,000

Professional Fee 1,000,000

Total Gross Income 1,300,000

Multiply tax on NRA-NETBs 25%

Total Final Withholding Tax 325,000

WITHHOLDING TAX
ON COMPENSATION
 WHAT IS COMPENSATION OR WAGES?

� Refers to all remuneration for services

performed by an employee for his employer
under an employer-employee relationships
unless exempted by the NIRC and pertinent
laws.
KINDS OF
COMPENSATION

� REGULAR

Basic Salary

Fixed Allowances
KINDS OF
COMPENSATION
� SUPPLIMENTARY
Commission
Overtime Pay
Fees, including Directors Fees
Profit Sharing
Monetized Vacation Leave In Excess Of Ten (10) Days
Sick leave
Fringe Benefits received by Rank and File Employees
Hazard Pay
Taxable 13th Month Pay and Other Benefits
Other Remuneration received from an Employee-Employer
…………………….Relationship
Responsibilities
of the Employer
 “
 Submit the duly accomplished BIR forms Nos. 1902 and/or
1905 to the RDO within thirty (30) days from receipt;
 Withhold the tax due from the employees following the
prescribed manner;
 Remit the amount of tax withheld from the employee within
the prescribed due dates;
 Do the year-end adjustment;
 “
 Submit Annual Information return (BIR Form 1604-C, 1604-F
and 1604-E)
 Issue the Certificate of Compensation Payment/Tax Withheld
(BIR Form No. 2316) to the employees; and
 Refund excess tax withheld
 ‍� MINIMUM WAGE EARNERS ‍‍�

∙ No withholding tax shall be required on the Statutory Minimum Wage (SMW) of the
Minimum Wage earner in the private/public sectors as defined in RR 2-98, as
amended by RR 11-2018, including:
 Holiday pay
 Overtime pay
 Night shift differential
 Hazard pay
∙ of Minimum Wage earners in the private/public sectors as defined by these
Regulations.
 DE MINIMIS BENEFITS NOT SUBJECT TO WITHHOLDING
TAX

 Monetized unused vacation leave credits to employees

not exceeding ten (10) days during the year;
 Monetized value of vacation and sick leave credits paid
to government officials and employees;
 Medical cash allowance to dependents of employees, not
exceeding P1,500 per employee per semester of P250
per month;
 Rice subsidy of P2,000 or one sack of 50kg rice per
month amounting to not more than P2,000;
 DE MINIMIS BENEFITS NOT SUBJECT TO WITHHOLDING
TAX
 Uniform and clothing allowance not exceeding P6,000 per annum;
 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;
 Laundry allowance not exceeding P300 per month;
 Employees achievement awards, e.g. for length of service or safety
achievement, which 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;
 DE MINIMIS BENEFITS NOT SUBJECT TO WITHHOLDING
TAX

 Gifts given during Christmas and major anniversary

celebrations not exceeding P5,000 per employee per annum;
 Daily meal allowance for overtime work not exceeding twenty
five percent (25%) of the basic minimum wage;
 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 (Php
10,000.00)per employee per taxable year;
8 Features of Withholding
tax on compensation in the
Philippines
 Applies to Employer – Employee
relationship

• Employer is required to file tax returns

• Withholding tax rates may vary depending on tax
classification of the employee
• For the withholding tax on compensation to apply, an
employer – employee relationship between the payor and
payee must be established.
Under the Labor Code of the Philippines, the following
are the elements of employer – employee relationship

 Selection and hiring of employees by the employer

 Payment of wages by the employer at agreed intervals and basis –
hourly, daily, weekly, monthly, by piecework, or at any reasonable basis
 Power of dismissal by the employer under established criteria and upon
valid grounds;
 Power of the control of the employer as to the means and methods of
doing of the work

Note: In the absence of the four elements, there could be no such

employer – employee relationship.
 Employee must be a natural
person

 The payee must be a natural person only in order for the

withholding tax on compensation to apply because
withholding tax on compensation is an advance income tax
of individual taxpayers receiving compensation income.
 Employer must be a resident of the
Philippines

 All residents of the Philippines even aliens are subject to

withholding tax on compensation.
 For services that are rendered in the Philippines by non-
residents or non-resident aliens, they are required to
report and pay to the Bureau.
Compensation must be paid or payable in cash
or in kind

 For employers, obligation to withhold is upon payment of

salaries or recording of salaries expense in the books of
accounts, for employees taxability is upon the receipt of
salaries whether in cash or in kind, and advance payment
for taxes is not allowed.
 Taxable amount is the gross compensation
received in furtherance of employer –
employee relationship

General rule: gross taxable compensation comprises of anything that

the employee receives by virtue of the employer-employee
relationship

Exception:
those provided for by law - statutory minimum wage exemptions
provided by rules and regulations - de minimis benefits
Provided by tax treaties with PH – 90 day rule f the RP-US tax treaty
Amount withheld is deductible from employees’
income tax liability

At year end, employer is required to make annual computations of total

compensation provided to each employee and the applicable total income
tax liability to be compared to the total withholding taxes on compensation
made during the year

If income tax > withheld taxes, employee’s compensation as of Jan. next

year is deducted by the entire amount of income tax due

If withheld > income tax, employee is refunded

Employer is required to file tax returns and reports
regularly

Employers are to file:

 BIR Form No. 1604C - monthly withholding tax returns
 BIR Form No. 1604CF – annual summary reports
Withholding tax rates may vary depending on
the tax classification of the employee

 Citizens & resident aliens: rates based on table

 NRANETB – 25% on gross compensation
WITHHOLDING TAX TABLE
 Problem

Mr. Vince Calago, an employee of KIMLIM Co., received a weekly

compensation in the amount of P16,500.00, net of mandatory
contributions. Compute for the daily withholding tax.
Computation

Total taxable compensation P 16,500.00

Less: Compensation Range (15385.00)

(Minimum)

Excess = P 1,115.00

Withholding tax shall be

computed as follows

Tax on P 7,692.00 P 2500.00

Tax on the excess (P 1,115.00 x 334.50

30%)

Total daily withholding tax = P 2834.50

Problem

Ms. Zesha dela Cruz, an employee of BLOCK(A) Co., received a semi-

monthly compensation in the amount of P15,500.00, net of mandatory
contributions. Compute for the semi-monthly withholding tax.
Computation

Total taxable compensation P 15,500.00

Less: Compensation Range (10,417.00)

(Minimum)

Excess = P 5,083.00

Withholding tax shall be

computed as follows

Tax on P 10,417.00 P 0.00

Tax on the excess (P 5,083.00 x 1,016.60

20%)

Total daily withholding tax = P 1,016.60

Problem

Ms. Din Pinili, an employee of PCOC Co., received a daily

compensation in the amount of P2,500.00, net of mandatory
contributions. Compute for the daily withholding tax.
Computation

Total taxable compensation P 2,500.00

Less: Compensation Range (2192.00)

(Minimum)

Excess = P 308.00

Withholding tax shall be

computed as follows

Tax on P 2192 P 356.16

Tax on the excess (P 308.00 x 92.40

30%)

Total daily withholding tax = P 448.56

 Problem

Ms. Lyan Vergara, an employee of PRISAA Co. received a monthly

compensation in the amount of P1,750,000.00 with supplemental
compensation in the amount of P55,000.00, net of mandatory contributions.
Compute for the monthly withholding tax.
Computation

Total taxable compensation P 1,750,000.00

Less: Compensation Range (Minimum) (666,667.00)

Excess = P 1,083,333.00

Add: Supplemental Compensation 55,000.00

Total Taxable Compensation for = P 1,138,333.00

the month

Tax on P 666,667 P 200,833.33

Tax on the excess including 398416.55

supplmenetal compensation (P
1,138,333 x 30%)

Total daily withholding tax = P 599,249.88

 YEAR-END-ADJUSTMENT

On or before the calendar year and prior to the

payment of the compensation for last payroll
period, the employer shall determine the sum of
the taxable regular and supplementary
compensation paid to each employee for the
whole year and must ensure that the tax due is
equal to tax withheld.
 ANNUALIZED WITHHOLDING TAX FORMULA

Gross Compensation Income (present + previous employer) Pxxxx

Less: Non-Taxable/Exempt Compensation Income
13th month pay and other benefits P90,000.00
SSS, GSIS, PHIC, HDMF and union dues (employee share) xxxxxx
Other Non-Taxable salaries (P250,000) xxxxxx xxxx
Taxable Compensation Income Pxxxx

Tax Due Pxxxx

Less: Tax Withheld (January to November/termination date) Pxxxx
Tax to be withheld for December/last payroll period Pxxxx

Collectible : Tax Due > tax withheld - collect before payment of last salary

Refund: Tax Due < tax withheld - refund on or before January 25th of the year/ last payment of salary

Break even: Tax due = tax withheld - no more withholding for December salary
Mr. Shanks Baricuatro receives ₱120,000 as monthly regular compensation
(net of SSS/GSIS, PHIC, HDMF employee share only) starting January 1,
2018 from ALLOK Company. On June 1, 2018, he filed his resignation
effective June 30, 2018. He was unemployed for the rest of the year. The tax
withheld from January 1 to May 31, 2018 was ₱134,164.50. Compute the
amount to be refunded by the employer to Mr. Shanks Baricuatro.
For the period of employment -
Total Regular Compensation (Jan 1 to May 31, 2018) ₱ 600,000.00
Add: Regular Compensation to be received on June 120,000.00  
Total Taxable Compensation Income (Jan-June, 2018) ₱ 720,000.00

Total Income Tax Due:

On ₱400,000.00 ₱ 30,000.00
Tax on Excess (₱720,000.00-₱400,000.00) x 25% 80,000.00
Total tax due ₱ 110,000.00
Less: Tax Withheld from January to May 134,164.50
Amount to be refunded by the employer to Mr. Shanks Baricuatro (₱ 24,164.50)
 WITHHOLDING AGENT: WHERE AND WHEN TO FILE

 Paid upon filing a return in duplicate with the authorized agent

banks located within the RDO having jurisdiction over the
residence or principal place of business of the withholding agent
 No authorized agent banks – return shall be filed directly with the
RDO, Collection Officer of the duly authorized Treasurer of the
city/municipality
 WITHHOLDING TAX STATEMENT

 Each payer required to deduct and withhold taxes shall furnish

each payee with a withholding tax statement within 20 days
following the close of taxable quarter employed by the payee
 For final withholding tax, the statement should be given to the
payee on or before January 31 of the succeeding year
 BIR Form 2316(Certificate of Compensation Payment and Tax
Withheld) shall be filed and paid under BIR Form 1601C, Monthly
Remittance Return on Income Taxes Withheld on Compensation
 EXEMPTION FROM WITHOLDING TAX

1. National government and its instrumentalities, including provincial, city or

municipal governments, as well as government-owned or controlled corporations
2. Persons enjoying tax exemptions
3. Exempt organizations except income derived from real or personal property, or
from any activity conducted for profit
 FAILURE OF WITHHOLDING AGENT TO COLLECT AND REMIT TAX

∙ 25- 50% surcharge ∙ 12% annual interest ∙ Compromise Penalty

based on tax unpaid based on tax unpaid P1,000-25,000
every time you fail
to withhold
 EXPENSES SUBJECT TO WITHHOLDING TAX

∙ it will not be allowed as a deduction for income tax unless it could be shown
that withholding tax has been paid