21 Items Subject to Expanded Withholding Tax under TRAIN RA 10963

By: Garry S. Pagaspas, CPA

To implement the tax reforms on Creditable or Expanded Withholding Tax (EWT) in the Philippines under the Tax Reform for Acceleration and Inclusion (TRAIN) or Republic Act No. 10963 (RA 10963) effective January 1, 2018, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 11-2018 dated January 31, 2018 (RR 11-18) in Philippines amending Revenue Regulations No. 2-1998 (RR 2-98). Below are the 20 items subject to creditable withholding tax in the Philippines under TRAIN or RA 10963):

1. Withholding tax on professional fees, talent fees, etc. for services rendered – 5% /10% individuals or 10%/ 15% corporations (Sec. 2.57.2(A), RR 2-98)

By implications of the tax reforms under TRAIN RA 10963 in Philippines, withholding tax on professional fees is now 5% of gross income if annual income not exceeding PhP3M, otherwise, 10% of gross income for individuals, while professional fees to juridical entities is 10% of gross income if annual gross income or receipts does not exceed P720K, otherwise, 15%. To apply 5% for individuals or 10% for corporations, the payee individual or corporation may have to file with BIR a sworn declaration of receipts with a copy of BIR Certificate of Registration not later than January 15 of the current year or prior to receiving any professional fees.

Professional fees subject to expanded withholding tax in Philippines under TRAIN or RA 10963 covers those payments to licensed professionals under Professional Regulation Commission (PRC) (e.g. CPAs, medical practitioners, engineers, architects, real estate service practitioners, etc.) and Supreme Court (lawyers), professional entertainers, professional athletes, directors and producers of movie and TV, insurance agent and adjusters, management and technical consultants, bookkeeping agents and agencies, other recipients of talent fees, directors of corporations who are not employees, and commissions of independent sales representatives and marketing agents.

2. Withholding tax on rentals of real and personal properties – 5% of gross rental (Sec. 2.57.2(B), RR 2-98)

Rental payments for the use or possession without taking title of real properties used in business; personal properties in excess of P10,000 annually, except those under finance lease (R.A. No. 8556); rentals of poles, satellites, and transmission facilities; rentals of billboards and similar spaces for advertising in the Philippines; and cinematographic film rentals to resident individual/ corporate owners of cinematographic films, lessors and distributors.

3. Withholding tax on income payments to certain contractors – 2% of gross payments (Sec. 2.57.2(C), RR 2-98)

This applies to payments to certain contractors in the Philippines such as to general engineering constructions, general building contractors, specialty contractors, and other contractors as specifically enumerated in RR 11-2018 amending RR 2-98 under TRAIN or RA 10963 in Philippines. Please refer to RR 2-98, as amended, for the list.

4. Withholding tax on income payments to beneficiaries of estates – 15% of income distribution (Sec. 2.57.2(D), RR 2-98)

This applies to distribution of income earned by estates of deceased persons through their authorized representative (e.g. administrators, administratrix, etc.) to their legal heirs or beneficiaries prior to or during the distribution of such estates either extrajudicial or through the judicial system.

5. Withholding tax on income payments to partners of general professional partnerships – 10% if annual income not exceeding PhP720K, otherwise, 15% of gross income (Sec. 2.57.2(E), RR 2-98)

Partners of general professional partnerships (GPP) do not have salaries as what they get from the GPP are their share in the net income of such GPP either through drawing, advances, sharing, allowances, stipends, etc., and they are subject to 10% if the partner’s current gross income does not exceed P720,000, otherwise, 15% applies.

6. Withholding tax on sales of real properties – 1.5% of gross selling price to 6% (Sec. 2.57.2(F), RR 2-98)

Withholding tax on sale of real property other than capital asset (asset not used in trade or business) is based on classification: exempted from expanded withholding tax if the seller is exempt such as HLURB socialized housing, 6% if the seller or transferor is not habitually engaged in real estate business, or if seller or transferor is habitually engaged in trade or business (e.g. registered with HLURB or HUDCC, or had at least 6 realty transactions on previous year), then, expanded withholding tax on real property in Philippines would depend on the gross selling price or total amount of consideration or fair market value under Section 6(E) of the Tax Code, as amended – 1.5% if up to P500k, 3% if more than P500k to P2M, or 5% if more than P2M.

7. Withholding tax on income payments of importers to government personnel – 15% of gross additional payments (Sec. 2.57.2(G), RR 2-98)

This applies to additional payment of importers, shipping and airline companies or their agents to government personnel for overtime services authorized by law.

8. Withholding tax on income payments of credit card companies to establishments – 50% of 1% of gross payments (Sec. 2.57.2(H), RR 2-98)

Cardholders are using credit cards to acquire goods and services and they are not paying the establishments from whom goods and services are acquired. Instead, it is the credit card company who pays the establishments and required to withhold 50% of 1% of such payments. Cardholders paying credit card companies may be subject to withholding tax in the Philippines is another provision of RR 2-98, as amended.

9. Mandatory withholding of top withholding agents – 1% on goods, 2% on services (Sec. 2.57.2(I), RR 2-98)

The current rules identified those top taxpayers mandated to withhold from local resident regular suppliers of goods (excluding agricultural products under Sec. 2.57.2(N), RR 2-98) or services in Philippines (including those they had at least 6 transactions in the previous or current year) or for casual purchase of casual purchase of P10,000 or more – 1% for purchases of goods, or 2% for services by such top withholding agents – large taxpayers (RR 1-98), top-twenty thousand corporations (RR 6-09), Top 5,000 individuals (RR 6-09), taxpayers identified and notified as medium and those under TAMP.

10. Withholding tax on government money payments to suppliers – 1% on goods, 2% on services (Sec. 2.57.2(J), RR 2-98)

This applies to payments of government offices, agencies, instrumentalities, and GOCCs on purchases from local/resident suppliers of goods at 1%, or of services at 2% of such gross payments.

11. Withholding tax on tolling fees paid to refineries – 5% of tolling fees (Sec. 2.57.2(K), RR 2-98)

This applies to processing or tolling fees for the conversion of molasses to its by-products and raw sugar to refined sugar.

12. Withholding tax on pre-need company payments to funeral parlors – 1% (Sec. 2.57.2(L), RR 2-98)

This applies to payments of pre-need companies to funeral parlors for funeral services.

13. Withholding tax on income payments to embalmers – 1% (Sec. 2.57.2(M), RR 2-98)

This one relates to payments for embalming services rendered to funeral companies.

14. Withholding tax on income payments to agricultural products suppliers – 1% (Sec. 2.57.2(N), RR 2-98)

This applies to payments of establishments (e.g. hotels, restaurants, resorts, caterers, food processors, canneries, supermarkets, agricultural product dealers, etc.) to agricultural suppliers for agricultural, forest and marine food and non-food products, livestock and poultry, breeding stock, etc. Amount subject to withholding tax is the excess of cumulative amount of P300k within same taxable year.

15. Withholding tax on payments for minerals, mineral products, and quarry resources – 5% or 1% for BSP (Sec. 2.57.2(O), RR 2-98)

This applies to purchases of minerals, mineral products, and quarry resources (e.g. silver, gold, marble, granite, gravel, sand, boulders, etc.), except for BSP payments required withholding tax of 1% on gross payments.

16. MERALCO refund/interest payments – 25% / 32% on refunds; 10%/20% interest on meter deposits (Sec. 2.57.2(P), RR 2-98)

This is in relation to MERALCO refunds under Supreme Court case G.R. No. 14814 last 2003 – 25% if with active contracts or 32% if without active contracts, and on interest income on meter deposits – 10% for residential and general service customers, 20% for non-resident service customers.

17. Withholding tax on refund by other electric distribution utilities – 10% / 20% (Sec. 2.57.2(Q), RR 2-98)

This is in reference to ERC Resolution No. 8, series of  2008, dated June 4, 2008, in relation to the mandates of Article 8 of the Magna Carta for Residential Electricity Consumers and Article 3.4.2 of DSOAR, exemption all electricity consumers from payment of meter deposits.

18. Withholding tax on political contributions – 5% of gross contribution (Sec. 2.57.2(R), RR 2-98)

This refers to income payments of political parties or candidates on campaign expenditures, and juridical or individual persons on purchase of goods and services as campaign contributions to political parties and candidates.

19. Withholding tax on interest income other than from deposit substitutes – 20% (Sec. 2.57.2(S), RR 2-98)

This refers to payments for interest income from any other debt instruments other than from “deposit substitutes” defined under the Tax Code, as amended.

20. Withholding tax on income payments to REIT – 1%. (Sec. 2.57.2(T), RR 2-98)

This applies to income payments made to corporate taxpayers registered as Real Estate Investment Trust (REIT) under R.A. No. 9856 implemented by RR No. 13-2011.

21. Withholding tax on income payments on locally produced sugar – 1% (Sec. 2.57.2(U), RR 2-98)

This applies to income payments of proprietors or operators of sugar mills or refineries on their mill share, and direct buyers of Quedans or Molasses Storage Certificates from sugar planters on locally produced raw sugar and mollasses.

Notably, expanded withholding tax in the Philippines under TRAIN or RA 10963 is not applied to exempt income or income tax exempt institutions and the amount withheld in the Philippines is normally treated as tax credit in the hands of payee based on BIR Form No. 2307 under TRAIN or RA 10963 in Philippines duly issued to the payee either within 20 days from the end of the quarter or every after payment. Payment of expanded or creditable withholding tax in Philippines under the TRAIN or R.A. No. 10963 is to be made not later than 10 days following the end of applicable month using BIR Form No. 0619 under TRAIN or RA 10963 in Philippines for the first 2 months of the quarter, and BIR Form No. 1601EQ  under TRAIN or RA 10963 in Philippines for the 3rd month of the calendar quarter along with the attached Quarterly Alphalist of Payees (QAP) under TRAIN or RA 10963 in Philippines. For further details of how each withholding tax rule is being applied, please refer to Revenue Regulations No. 11-2018 and/or the related revenue regulations amended Revenue Regulations 2-98.

Updates on expanded withholding tax (EWT) Philippines

Revenue Regulations No. 2-1998, as amended, has been further amended by Revenue Regulations No. 14-2023 on expanded withholding tax in Philippines of joint ventures and joint venturers, and Revenue Regulations No. 16-2023 on expanded withholding tax in Philippines of electronic marketplace operators and digital financial services providers and accordingly, the list continues as follows:

22. Withholding tax on income payments made by joint ventures/ consortiums – 1% (goods)/ 2% services. (Sec. 2.57.2(V), RR 2-98)

This applies to income payments of joint ventures or consortiums, whether incorporated or not, taxable or non-taxable, to their local suppliers of goods and services. This is somehow similar to expanded withholding tax of top withholding agents (TWA) in Philippines.

22. Withholding tax on distributive shares of co-venturers/members of joint ventures/ consortiums not taxable as corporations -15%. (Sec. 2.57.2(W), RR 2-98)

This applies to the income distribution of joint ventures or consortiums not taxable as corporations to the co-venturers or members prior to actual or constructive distribution. 

23. Withholding tax on remittances of electronic marketplace operators and digital financial services providers – 1% of 1/2 of gross remittance (Sec. 2.57.2(X), RR 2-98)

This applies to (a) digital service platform operators connecting buyers and sellers online using their platform and collecting payment of online buyers on behalf of online merchants, and (b) financial technology of digital financial service providers offering online financial services to the public through e-wallet with respect to their remittances to online merchants relative to their online transactions. This withholding tax applies if the annual total gross income of online merchants is more than PhP500,000 during the past taxable year and that the cumulative gross remittance of platform operator or digital financial service provider to online merchants exceeded PhP500,000 during the taxable year. In other words, this seems to apply to larger online selling operations.

Implications of Republic Act No. 11976 or Ease of Paying Taxes Act in Philippines

Under Republic Act No. 11976 (RA 11976), otherwise known as Ease of Paying Taxes Act in Philippines, Section 34(K) of the Tax Code, as amended, on withholding tax as a requirement for deductibility of certain expenses subject to withholding tax from gross income for income tax computation has been repealed. Accordingly, effective January 2024, expenses subject to withholding tax could be deducted in computing for taxable income subject to income tax even if the taxpayer failed to withhold applicable withholding tax on them such expenses. 

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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