Withholding Tax on Professional Fees under TRAIN RA 10963 Philippines

By: Garry S. Pagaspas, CPA

Tax Reform for Acceleration and Inclusion (TRAIN) or Republic Act No. 10963 (RA 10963) which has been effective January 1, 2018 has introduced reforms in withholding taxes in the Philippines. Implementing rules and regulations of TRAIN RA 10963 Philippines or Revenue Regulations No. 11-2018 (RR 11-18) further amending Revenue Regulations No. 2-1998 (RR 2-98, as amended) has not only provided guidelines on such tax reforms, but went beyond by compiling and consolidating such items subject to expanded withholding tax in Philippines under Section 2.57.2, Revenue Regulations No. 2-1998, as amended, from 29 (Sec.2.57.2(A) to AA) items to 21 items (Section 2.57.2(A) to U). Items of professional fees in the Philippines is one of those consolidated and this is what we will tackle here.

Withholding tax rates of professional fees under TRAIN RA 10963 Philippines

Under RR 11-18 amending Section 2.57.2 of RR 2-98, as amended, the following are the withholding tax rates on professional fees, promotional, talent fees, or for any other form of remuneration:

• Professional fees to individuals: 5% if current year gross income does not exceed P3M, otherwise, 10%, if exceeding.
• Professional fees to juridical entities: 10% if current year gross income does not exceed P720K, otherwise, 15%, if exceeding P720K.

To avail of the 5% for individuals or 10% for non-individuals, the payee taxpayer would need to provide a Bureau of Internal Revenue (BIR) sworn statement – Annex “B-1” of RR 11-18 for individuals, or Annex “B-3” for non-individuals, along with Certificate of Registration in Philippines or BIR Form No. 2303 to withholding agents or payors not later than January 15 of each year or at least prior to the initial payment. For those exceeding P3M individuals, Annex “B-2” of RR 11-18 is applicable.

Who are covered by withholding tax on professional fees under TRAIN RA 10963 Philippines

Payments for professional fees, promotional, talent fees, or for any other form of remuneration to the following are subject to expanded withholding tax on professional fees under TRAIN RA 10963 Philippines:

1. Professional fees to licensed professionals under Professional Regulation Commission (PRC) (e.g. CPAs, doctors, engineers, architects, brokers, actuaries, etc.), Supreme Court (SC) for lawyers, and all other profession requiring government examination regulation be related government agency. For medical doctors, withholding of professional fees shall be the duty and responsibility of hospitals, clinics, health maintenance organizations (HMO) or similar organizations unless, there is proof that no professional fees based on joint affidavit by medical practitioner and patient or representative using Annex A, RR 11-18 amending RR 2-98.
2. Professional entertainers, such as but not limited to, actors and actresses, singers, lyricists, 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 and bookkeeping agencies.
8. Other recipient of talent fees.
9. Directors fees of members of the board of directors who are not employees.
10. Customs, insurance, stock, immigration and commercial brokers, fees of agents of professional entertainers and unlicensed real estate service professionals (RESP).
11. Commissions of independent and/or exclusive sales representatives, and marketing agents of companies.

Professional fees covered above includes per diems, allowances, and other form of income payments. It also includes amounts paid to them for the use of their names or pictures in print, broadcast, or other media or for public appearances, for purposes of advertisements or sales promotion.

Obligations of the withholding agent of professional fees under TRAIN RA 10963 Philippines

Withholding agents or income payors of professional fees subject to withholding tax are required to do the following:

1. File (on or before January 30 of each year or within 15 days following a month of new payees submission) with BIR a sworn declaration (Annex “C”, RR 11-18 amending RR 2-98) stating the number of payees who submitted Annexes “B-1”, “B-2”, and “B-3” with accompanying copies of BIR Certificates of Registration (BOR or BIR Form No. 2303.

For hospitals, clinics, HMO’s or similar establishments, keep on file a sworn declaration that no professional fee was charged by medical practitioners and patient or representative (Annex ‘A” of RR 11-18 amending RR 2-98) forming part of its records for future reference during BIR tax assessment, and report to BIR within 10 days refusal of such medical practitioners, if any.. It is also required to submit a list containing the names and addresses of medical practitioners whose professional fee was paid by patients directly to hospitals and clinics, and practitioners who did not charge professional fees.

2. File and pay monthly withholding taxes on professional fees under TRAIN RA 10963 Philippines within 10 days (within 15 days for electronic filing and payment system or EFPS filers) from end of applicable month using BIR Form No. 0619E in Philippines;
3. File and pay quarterly withholding taxes on professional fees under TRAIN RA 10963 Philippines not later than the last day of the month following the end of the applicable quarter using BIR Form No. 1601EQ accompanied by Quarterly Alphalist of Payees (QAP) in Philippines.
4. Issue income payees a withholding tax statement in Philippines or BIR Form No. 2307 in triplicate within 20 days from end of quarter or every after payment with withholding upon the request of the income payee.
5. File with BIR Annual Information Return of Creditable Withholding Taxes Withheld or BIR Form No. 1604E in Philippines including the corresponding Annual Alphalist of Payees on or before March 1 of the following year.

Failure to comply with the above obligations of withholding tax agent on withholding taxes of professional fees under TRAIN RA 10963 Philippines is subject to applicable penalties.

Garry is a Certified Public Accountant (CPA) and a law degree holder in tax practice for about fifteen (15) years now helping out taxpayers on securing BIR Rulings, appeal of BIR Ruling denials, company registrations in Philippines, tax compliance, tax savings, tax assessments, tax refunds, and other related professional tax services. He has been helping out some foreign clients determine the most appropriate legal entity to register in the Philippines based on intended operations, the eventual registration of such legal business entity and other related professional services. He is presently a frequent speaker of Tax and Accounting Center, Inc. and you may send him mail at garry.pagaspas(@)taxacctgcenter.ph.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may also please send mail at info(@)taxacctgcenter.ph, or you may post a question at Tax and Accounting Center Forum and participate therein.

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