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UPDATES ON

WITHHOLDING TAXES
Atty. Vic C. Mamalateo
May 14, 2015
ACPACI, Hotel Intercon, Makati City
SCOPE OF PRESENTATION
INCOME TAX (Title II, NIRC)
Class of taxpayer receiving income
Ordinary income tax on individuals, estates and trusts
Corporate income tax on corporations and partnerships
Residence of taxpayer receiving income
Resident taxpayer
Non-resident taxpayer
Nature of income
Compensation income and fringe benefits
Business or professional income and other income
Capital gain or passive investment income
SCOPE OF PRESENTATION
VALUE ADDED TAX (Title IV, NIRC)
Sale of taxable goods, property or services to
government
Payment to non-resident persons

OTHER PERCENTAGE TAXES (Title V, NIRC)


Money payments by government
OBLIGATIONS OF WITH AGENT
1. To deduct and withhold the income tax at the proper
time
Large Taxpayer or Top 20,000 Corporation
Top 5,000 Individual
To consider sworn statement from professionals to
determine applicable EWT rate
2. To file withholding tax return and pay the tax within
the date prescribed by law or regulation, including
annual information returns
Centralized or decentralized filing of return
3. To issue appropriate BIR certificates (BIR Form 2307)
within the dates prescribed by the regulation
OBLIGATIONS OF WITH AGENT
4. To attach SAWT/MAP to withholding tax returns
filed
5. To submit Alpha Lists of Employees and BIR Forms
2316 to appropriate BIR office
6. To submit semestral list of regular suppliers
7. To comply with the disclosure requirements in
AFS under RR 15-2010 and posting requirements
INCOME TAX
INCOME TAX
Tax on all yearly profits arising from property, professions, trades or
offices, or as a tax on a persons income, emoluments, profits and the
like (Fisher v. Trinidad).
Income tax is a direct tax on taxable actual or presumed income (gross
or net) of a taxpayer received, accrued or realized during the taxable
year.
WHEN IS INCOME TAXABLE?
There is income, gain or profit;
Received, accrued or realized during the taxable year; and
Not exempt from income tax under the Constitution, tax treaty, Tax
Code or special law
Withholding (income) tax applies only when the income is
subject to income tax.
WITHHOLDING TAX
PERSONS AUTHORIZED TO COLLECT
INTERNAL REVENUE TAXES
PRIMARY DUTY
BIR (Sec. 2, NIRC)
DELEGATED POWER
BOC VAT and excise tax on imported goods
Banks duly accredited by CIR (Sec. 12, 269-270, NIRC)
Withholding agents (Sec. 57-59, NIRC).
INCOME TAX SYSTEMS
GLOBAL TAX SYSTEM (Subject to or exempt from CWT)
Compensation income not subject to FWT
Business and/or professional income
Capital gains not subject to FWT
Passive investment income not subject to FWT
Other income not subject to FWT
SCHEDULAR TAX SYSTEM (Subject to FWT)
Compensation income subject to FWT
Capital gains subject to FWT
Passive investment income subject to FWT
Other income subject to FWT
The Philippines adopted the semi-global or semi-schedular tax system.
Either the global or schedular system, or both systems, may apply on
income of a taxpayer, depending on the nature of income.
You apply the schedular tax system only when the income, gain or profit is
subject to FWT.
GENERAL PRINCIPLES ON WT
Creditable withholding tax (CWT) is not an internal revenue tax. Sec.
22, NIRC enumerates the different internal revenue taxes.
Creditable withholding tax is only a method of collecting income tax
in advance from the recipient of income thru the payor thereof,
which is constituted by law as a withholding agent of government.
Subject to the rules and regulations, income tax on specified items
of income shall be withheld by the payor and paid in the same
manner and subject to the same conditions as provided in Sec. 58,
NIRC.
Withholding tax applies only when the income, gain or profit is subject
to income tax. NO INCOME TAX, NO WITHHOLDING TAX!
Not all income, gain or profit subject to income tax are also subject to
withholding tax. The duty to withhold and remit income taxes arises
only on instances required by law or regulation.
The EWT, which shall be not less than 1% but not more than 32% of
income, is creditable against income tax for the year.
GENERAL PRINCIPLES ON WT
WT return shall be filed and tax, paid in WAs legal
residence or principal place of business, or where the WA is
a corporation, where the principal office is located, except
on sales of real property subject to income tax where the
EWT shall be paid in the RDO where the property is
located.
Taxes deducted and withheld by WA shall be held as a
special fund in trust for government until paid to collecting
officers. They should not be commingled with other funds
of the WA (Sec. 58(D), NIRC).
FWT shall be filed and tax paid within 25 days from close of
each calendar quarter. CWT, not later than the last day of
the month following the close of the quarter
GENERAL PRINCIPLES OF WITH TAX
during which withholding was made, provided
that CIR, with approval of Sec. of Finance, may
require WAs to pay or deposit taxes withheld at
more frequent intervals, when necessary to
protect the interest of government (Sec. 58(A), NIRC).

The act of the withholding agent is the act of the


principal (BIR). Thus, non-remittance of the
amount of tax withheld by the withholding agent
from the income of the recipient does not
prejudice the latter.
GENERAL PRINCIPLES
Withholding agent is agent of both the government and the
taxpayer
Obligation to withhold tax is mandatory on the part of the
withholding agent. The agent is not liable for the tax as no
wealth flowed into him or no income was earned by him. He
becomes liable to tax for the breach of his legal duty to
withhold. Liability of withholding agent is direct and different
from the duty to pay income tax of the taxpayer.
Withholding agent becomes personally liable to pay the
withholding tax. The law sets no condition for the personal
liability of WA to attach.
Filing of tax return by local agent did not relieve it from its
duty to withhold tax on premium paid to NRFC
GENERAL PRINCIPLES
Deduction from gross income will be allowed (up to Dec 31,
2012), even if no WT was made, where:
Payee reported the income and pays the tax due thereon and WA pays
the tax, incl. interest, and surcharge, if applicable, at time of audit or
reinvestigation or reconsideration;
Payee failed to report the income on due date, but WA pays the tax,
incl. interest, and surcharge, if applicable, at time of audit or
reinvestigation or reconsideration;
WA erroneously under-withheld the tax but pays the difference, incl.
interest, and surcharge, if applicable, at time of audit or
reinvestigation or reconsideration (RR 14-2002, Sept 9, 2002).
Beginning Jan 1, 2013, no deduction from gross income shall
be allowed if there was no withholding tax and even if the
deficiency withholding tax is paid at time of audit.
Withholding taxes are funds in trust held by the WA for the
government.
NATURE AND PURPOSES OF WITH TAX
NATURE
WT is not an internal revenue tax. It is a method of collecting income
tax in advance from the recipient of income thru the withholding
agent/payor of the income.

PURPOSES
To improve tax administration; existence of audit trail thru the
withholding of advance income tax, although generally small in
amount, makes non- or under-reporting of income by recipient of
income difficult or capable of being discovered by BIR;
To improve liquidity of government;
It is easier to collect from thousands of big, registered WAs than from
millions of small, sometimes unregistered, recipients of income.
To ensure collection of income from non-resident taxpayers thru the
withholding tax system
TYPES OF WITHHOLDING TAXES
Final Withholding Tax (FWT)
Recipient is a resident person
Recipient is a non-resident person

Creditable Withholding Tax (CWT)


Compensation income
Expanded Withholding Tax
Money payments by government
FINAL WITHHOLDING TAX
Income payment is listed in Sec 57(A), NIRC, as subject to FWT.
FWT withheld by the payor of income (e.g., 20% FWT on interest income
on bank deposits) represents FULL payment of income tax due on such
income of the recipient.
Income payee (or recipient of income) does not report income subjected
to FWT in his income tax return (BIR Forms 1701 and 1702), although
income is reflected in his audited financial statements for the year.
However, he is not allowed to claim any tax credit on income subjected to
FWT. New BIR income tax returns require presentation of income
subjected to FWT.
Withholding agent (payor of income) files the withholding tax return,
which includes the FWT deducted from the income of payee, and pays the
tax to the BIR. There is no Certificate of Tax Withheld issued to income
payee.
No Certificate of Tax Withheld (BIR Form 2307) is attached to the income
tax return of recipient of income because he does not claim any tax credit
in his tax return.
FWT: SEC 57(A), NIRC
Income tax is imposed or prescribed by:
Sec. 24(B)(1) Interests, royalties, prizes & other winnings
Sec. 24(B)(2) Cash and/or property dividends
Sec. 24(C) CGs from sale of shares not traded in PSE
Sec. 24(D)(1) CGs from sale of real property
Sec. 25(A)(2) Cash and/or property dividends from DC; interests,
royalties, prizes and other winnings
Sec. 25(A)(3) CGs from sale of shares not traded in PSE and real
property
Sec. 25(B) NRA not engaged in trade or business in the Phil
Sec. 25(C) Alien employed by RHQ and ROHQ
Sec. 25(D) Alien employed by OBU
Sec. 25(E) Alien employed by petroleum service contractor and sub-
contractor
INCOME PAYMENTS SUBJECT TO FWT
Payments to resident persons:
Compensation income
Alien employed by RHQ, ROHQ, OBU and petroleum contractor
Passive investment income
Interests
Peso deposit (long-term or not; individual or corporation)
Foreign currency deposit (FCDU or OBU)
Dividends
Royalties
Capital gains
Sale of real property located in the Philippines
Sale of shares of stocks of a domestic corporation
Other income
Prizes and winnings
INCOME PAYMENTS SUBJECT TO FWT
Payments to non-resident persons:
Business profits
Services rendered in the Philippines
Rental
Vessel
Aircraft, machinery and equipment
Passive investment income
Interests
Foreign currency loan
Dividends
Royalties
COMPENSATION INCOME AND FRINGE
BENEFITS
BIR Form 1601-C (Monthly remittance return of
income taxes withhheld on compensation)
BIR Form 1603 (Quarterly remittance return of
final income taxes withheld on fringe benefits paid
to employees other than rank and file)
WHO ARE REQUIRED TO FILE
BIR Form 1601-C?
Every registered withholding agent on compensation,
including:
Individuals engaged in business or practice of profession with
employees subject to income tax;
All juridical persons, whether or not engaged in business;
Government agencies and instrumentalities, including local
government units
Deadline for filing and payment
Payment via eFPS: On or before the 15th day of following
month withholding was made, except for taxes withheld for
December, on or before Jan 20 of succeeding year
Manual filing and payment: 10th day of following month, except
for December, not later than Jan 15 of following year
RR 10-2008, July 8, 2008
Steps in determining amount of withholding tax:
1. Determine the total monetary and non-monetary compensation paid to an
employee for the payroll period, segregating gross benefits which include 13th
month pay, productivity incentives, Christmas bonus, other benefits, and
employees contributions to SSS, GSIS, HDMF, PHIC, and union dues.
2. Segregate the taxable from the non-taxable income for the payroll period.
3. Segregate the taxable compensation income into regular and
supplementary income. RATA is exempt from income tax and WT.
4. Use appropriate tables (depending on qualified dependents) for the payroll
period monthly, semi-monthly, weekly or daily.
5. Fix the compensation level.
6. Compute the WT due by adding the tax predetermined in the compensation
level to the tax on the excess of total regular and supplementary
compensation over the compensation level, which is computing by multiplying
the excess by the rate indicated at the top of the same column/compensation
level.
RR 10-2008, July 8, 2008
Use of exceptional computations
A. Cumulative average method
B. Annualized withholding tax method
When the employer-employee relationship is terminated before the end of the year; and
When computing for the year-end adjustment.
1. Determine taxable regular and supplementary compensation paid for the
entire year
2. If employee has previous employment within the year, add the amount of
taxable regular and supplementary compensation paid by present employer to
the taxable compensation received from previous employer during the year
3. Deduct from the aggregate amount the total personal and additional
exemptions of the employee
4. Deduct amount of premium payments on health and/or hospitalization
insurance
5. Compute the tax on the difference in Step 4.
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 year.
RR 10-2008, July 8, 2008
Updating Status of Taxpayer
Application for registration for individuals earning
compensation income (BIR Form 1902)
Certificate of Update of Exemption and of Employers
and Employees Information (BIR Form 2305)
Certificate of Compensation Payment/Tax Withheld
(BIR Form 2316) for compensation payment with or
without withholding tax
Sworn declaration and waiver of right to claim
exemptions of dependent children by the husband
RR 10-2008, July 8, 2008
BIR Form 1604 CF (Annual Info Return of IT Withheld on
Compensation Income and FWT)
Every employer is required to file with LTAD/LTDO/RDO where it
is registered on or before Jan 31 of the following year, together
with the alpha list of employees, showing WAs name, address,
and TIN.
Alpha List of Employees
Name and TIN of employees; Gross compensation paid by
present and previous employers for the year; Taxable amount
for rank-and-file and for managerial employees; Non-taxable
13th month and other benefits (present employer); Non-taxable
SMW; Non-taxable holiday pay, overtime pay, night shift diff pay
and hazard pay; amount of exemptions; premium payments on
health and hospitalization insurance not exceeding P2,400; tax
withheld; adjustments, if any.
TAX DISTORTIONS
RA 9504, approved June 17, 2008
Statutory Minimum Wage (SMW) rate fixed by the
Regional Tripartite Wage and Productivity Board, as defined
by BLES of DOLE (Sec. 22(GG), NIRC)
Minimum Wage Earner (MWE) worker in the private
sector paid the statutory minimum wage, or to an employee
in the government sector with compensation income of not
more than the statutory minimum wage in the non-
agricultural sector where he/she is assigned (Sec. 22 (HH), NIRC)
Minimum wage earners shall be exempt from the payment
of income tax on their taxable income: Provided, further,
That the holiday pay, overtime pay, night shift differential
pay and hazard pay received by such MWE shall likewise be
exempt from income tax (Sec. 24(A)(2), NIRC)
TAX DISTORTIONS
RA 9504 (2008)
The following individuals shall not be required to
file an income tax return:
d. A MWE as defined in Sec 22(HH) of this Code (Sec. 51,
NIRC)

Except in the case of a MWE, every employer


making payment of wages shall deduct and
withhold upon such wages a tax determined in
accordance with the rules and regulations to be
prescribed by the Secretary of Finance, upon
recommendation of the CIR (Sec. 79(A), NIRC).
TAX DISTORTIONS
RR 10-2008, July 8, 2008

An employee who receives/earns additional compensation such as


commissions, honoraria, fringe benefits, benefits in excess of the
allowable statutory amount of P30,000, 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 year.
This rule notwithstanding, the SMW, holiday pay, overtime pay, night shift
differential pay, and hazard pay shall still be exempt from withholding tax.
TAX DISTORTIONS
RR 10-2008, July 8, 2008
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.
TAX DISTORTIONS
RMC 91-2010, Dec 2, 2010
If in Dec 2010, the MWE was promoted, her salary for
the month of December will be subject to income tax
if it exceeds her personal and additional exemptions
(Q10).

If an MWE with a salary of P382/day assigned in NCR


was re-assigned in Laguna with the same salary in
May 2010, his salary in Laguna will be subject to
withholding tax because his daily wage is above the
prevailing minimum wage in Laguna region (Q14-15).
TAXES ON LABOR DISPUTE AWARDS
RMC 39-2012, Aug 3, 2012
Backwages, allowances and benefits awarded in a labor
dispute constitute remuneration for services that would
have been performed by the employee in the year when
actually received, or during the period of his dismissal from
the service which was subsequently ruled to be illegal.
The employee should report as income and pay the
corresponding income taxes by allocating or spreading his
backwages, allowances and benefits thru the years from his
separation up to the final decision of the court awarding
the backwages.
The backwages, allowances and benefits are subject to
withholding tax on wages.
TAXES ON LABOR DISPUTE AWARDS
However, when the judgment awarded in a labor dispute is
enforced thru garnishment of debts or having in possession
or control of such credits (e.g., banks or other financial
institutions) would normally release and pay the entire
garnished amount to the employee. As a result, employers
who are mandated to withhold taxes on wages cannot
withhold the appropriate tax due thereon.
In order to ensure the collection of the appropriate
withholding tax on wages, garnishees of a judgment award
in a labor dispute are constituted as withholding agents
with the duty to withhold tax on wages equivalent to five
percent (5%) of the portion of the judgment award,
representing the taxable backwages, allowances and
benefits.
WHO ARE REQUIRED TO FILE
BIR Form 1603 (FBT)
Every withholding agent/payor who is either an
individual or non-individual required to deduct
and withhold taxes on fringe benefits furnished
to employees other than rank and file employees
subject to final withholding tax.
Deadline
eFPS: On or before 15th day of the month following
the end of calendar quarter in which FB were granted
to recipient. In the case of NGAs, on or before 10th day
of the month following the quarter.
Manual: On or before 10th day of the month following
end of calendar quarter
DE MINIMIS BENEFITS
RR 10-2008, July 8, 2008
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.
DE MINIMIS BENEFITS
RR 5-2011, Mar 16, 2011
Monetized unused vacation leave credits of private
employees not exceeding 10 days
Monetized value of vacation and sick leave credits paid
to government employees
Medical cash allowance to dependents of employees,
not exceeding P750 per employee per semester or
P125 per month
Rice subsidy of P1,500 or one sack of 50 kg rice per
month amounting to not more than P1,500
Uniform and clothing allowance not exceeding P4,000
per annum
DE MINIMIS BENEFITS
Actual medicine 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 per annum
Laundry allowance not exceeding P300 per month
Employees achievement awards (e.g., for length of service or safety
achievement, which must be in the form of tangible personal property
other than cash or gift certificate, with an annual monetary value not
exceeding P10,000 received by employee under an established written
plan which does not discriminate in favor of highly paid employees
Gifts given during Xmas and major anniversary celebrations not exceeding
P5,000 per employee per annum
Daily meal allowance for overtime work and night/graveyard shift not
exceeding 25% of basic minimum wage on a per region basis

All other benefits not included above shall not be considered as de


minimis benefits; hence, subject to income tax and withholding tax.
EXCLUSIONS
Sec. 32(B), NIRC
Amounts received thru accident or health insurance or under
workmens compensation acts, as compensation for personal injuries
or sickness, plus the amounts of any damages received, whether by
suit or agreement, on account of such injuries or sickness, is excluded
from gross income (Sec. 32(B)(4), NIRC).
Any amount received by an official or employee or by his heirs from
the employer as a consequence of separation of such official or
employee from the service of his employer because of death, sickness
or other physical disability or for any cause beyond the control of said
official or employee, shall be excluded from gross income [Sec.
32(B)(6)(b), NIRC].
Compensation for damages to personal or family rights, damages
for slander and libel, award for loss of life, damages for injuries to
the goodwill of a taxpayers business, unless they exceeded its cost,
are not taxable (Prentice-Hall Federal Tax Handbook, 1983).
EXPANDED WITHHOLDING TAX ON CERTAIN
INCOME PAYMENTS
BIR Form 1601-E (Monthly remittance return of
income taxes withheld, except for transactions
involving onerous transfer of real property
classified as ordinary asset)
BIR Form 1606 (EWT on onerous transfer of real
property classified as ordinary asset)
REQUISITES OF EWT
Requisites must concur:
1. Expense, which is paid or payable by the payor-
withholding agent, is income to recipient subject
to income tax;
2. Income payment is listed in the regulations
subject to CWT, except when taxpayer is
designated by BIR as a Top 20,000 Corporation or
a Top 5,000 Individual;
3. Income recipient and payor of income are both
residents of the Philippines.
PERSONS REQUIRED TO WITHHOLD
WITHHOLDING AGENT (WA)
WA is a person who has control, receipt, custody, disposal, or payment of
income to person entitled to it, that is designated by law or regulation to act
as agent of government in the collection of tax, and who, at the same time,
claims the expenses (RR 30-2003, as implemented by RMC 9-2006, Jan 25, 2006).
Persons constituted as withholding agents:
Any juridical person, including non-stock, non-profit associations, whether
engaged in trade or business;
An individual, with respect to payments made in connection with his trade or
business, and on taxable sale of real property by the seller;
All government offices, including GOCCs, and LGUs.
All persons, with respect to their income payments made as campaign
expenditures and/or purchase of goods and services intended as campaign
contributions.
Agents or any person purchasing goods or services, or paying for and in behalf
of the WA shall withhold in behalf of said WA.
PERSONS EXEMPT FROM WT
1. National government and its instrumentalities, including LGUs
and barangays, except GOCCs that are not exempt from income tax;
2. Persons enjoying exemption from income tax, such as:
Sales of real property classified as socialized housing (PD 957);
Entities registered with the BOI, PEZA, and SBMA and other freeport
zones (EO 226, RA 7916, RA 7227);
General professional partnerships (Sec. 26, NIRC);
JVs undertaking construction projects or engaged in energy-related
projects pursuant to an operating or consortium agreement with the
government [Sec. 20(B), NIRC];
Revenue derived from carriage of persons, cargo or mail originating
from the Philippines up to final destination, paid to international
shipping line or thru its shipping agent, subject to GPB tax (BIR Ruling
No. DA-204-2006 & 321-2008).
TIME TO WITHHOLD
Sec. 2.57.4, RR 2-98: WT shall be withheld, whichever
comes first:
When income payment is paid; or
When income payment is payable; or
Payable refers to the date the obligation becomes due,
demandable or legally enforceable
When income payment is accrued or recorded as an
expense or asset, whichever is applicable, in the payors
books, whichever comes first. In such a case, 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.
ING v. CIR, CTA EB No. 52, April 5, 2005 (WT on bonus)
TIME TO CLAIM TAX CREDIT
Taxpayer shall report gross income and claim
costs and deductions in the proper year (Sec. 44-45,
NIRC).

The taxpayer cannot advance or delay the


reporting of income, costs and expenses.
Sales or revenues as well as withholding taxes on
costs and deductions subject to tax shall be
reported in the same taxable year.
The withholding tax of the principal cannot be
claimed as a tax credit by the agent thereof.
TOP 20,000 CORPORATION
Corporation that has been determined and notified by
BIR as having satisfied any of the following criteria:
Large Taxpayer or Top 10,000 Corporation, unless
previously de-classified;
VAT payment or payable, whichever is higher, of at least
P100,000 for the preceding year;
Annual income tax due of at least P200,000 for the
preceding year;
Total percentage tax paid of at least P100,000 for the
preceding year;
Gross sales of P10 million or above;
Gross purchases of P5 million or above;
Total excise tax payment of at least P100,000 or above
TOP 5,000 INDIVIDUAL
Individual engaged in trade or business or
exercise of profession, notified by BIR has having
satisfied any of the following criteria:
VAT payment or payable, whichever is higher, of at
least P100,000 for the preceding year;
Annual income tax due of at least P200,000;
Percentage tax paid of at least P100,000;
Gross sales of P10 million or above;
Gross purchases of P5 million or above;
Excise tax paid of at least P100,000.
INCOME TAX ON INDIVIDUAL
COMPENSATION INCOME PROFESSIONAL INCOME
Gross compensation income Gross professional fees
Less: Personal (P50T) and Less: Cost of service
additional exemptions (P25T) Gross income
Tax base Less: Deductions
Multiplied by graduated rates Personal and addl
of income tax (5%-32%) exemptions
Ordinary income tax Net income
Less: Creditable withholding Multiplied by grad tax rates
tax (CWT) Income tax
Balance due upon filing of Less: CWT
return
Balance due
PARTNERSHIPS
EXEMPT
General professional partnership (GPP) is exempt from income tax
Partners are subject to income tax on their share of GPP profit,
whether distributed or not during the year income is earned
EWT must be withheld and remitted by GPP to BIR

TAXABLE
Partnerships, no matter how created or organized, other than GPP
If taxable, partnership is taxed like a corporation.
If taxable partnership derives net income during the year, the entire net
income is deemed received by the partners in the year it was earned by the
partnership.
If GPP adopts itemized deductions during the year, partners must use itemized
deductions during the same year.
RR 14-2013, Sept 20, 2013
(I) Prof fees paid to medical practitioners Any amount
collected for and paid to medical practitioners by hospitals
and clinics or paid directly to the medical practitioners by
HMO and/or similar establishments 15%, if income
exceeds P720,000; and 10%, if otherwise.
A. It shall be the duty of hospitals, clinics, HMOs and similar
establishments to withhold and remit taxes due on the prof fees
of their accredited medical practitioners, paid by patients who
were admitted and confined to them. For this purpose,
hospitals and clinics shall not allow their medical practitioners
to receive payment of prof fees directly from their patients who
were admitted and confined and, instead, must include the fees
in the total medical bill of the patient which shall be payable
directly to the hospital or clinic.
RR 14-2013, Sept 20, 2013
B. Exception. The WT shall not apply whenever there
is proof that no professional fee has been charged by
the medical practitioner and paid by his patient,
provided this fact is shown in a sworn declaration
jointly executed by the medical practitioner and the
patient or his auth representative, if minor or
otherwise incapacitated. Provided, further, the
administrator of the hospital or clinic shall inform the
RDO having jurisdiction about any medical
practitioner who fails or refuses to execute the sworn
statement, within 10 days from the occurrence of
such event.
RR 14-2013, Sept 20, 2013
C. Hospitals and clinics shall submit the names and addresses of
medical practitioners in the following classifications, every 15th day
after the end of every quarter, to Coll Div or LTDP&QAD or LTDO.
D. Medical practitioners shall include medical technologists, allied
health workers (e.g., occupational therapists, physical therapists,
speech therapists, nurses, etc) and other med practitioners who are
not under an employer-employee relationship with the hospital, clinic,
HMO or similar establishments.
Hospitals and clinics and HMOs shall be responsible for the accurate
computation and timely remittance of the withholding tax (10% or
15% EWT, whichever is applicable).
The hospital, clinic or HMO shall issue a Certificate of CTW (BIR Form
2307) to medical practitioners who are subjected to WT every 20th day
following the close of the taxable quarter or upon request of the
payee.
This regulation shall take effect on Oct 1, 2013.
TAX IMPLICATIONS OF RR 14-2013
PATIENT
VAT-registered person (e.g., practicing lawyer or employee of VAT-reg person-employer)
Non-VAT-registered person (e.g., employee or student/elderly)
MEDICAL PRACTITIONER
VAT-registered person or gross receipts exceed P1,919,500
Non-VAT-registered person
HOSPITAL/CLINIC
VAT-registered person
Non-VAT-registered person

TAX ISSUES:

Who is the withholding agent for government?


Who shall issue BIR Form 2307 (Certificate of Tax Withheld)?
What kind of official receipts (VAT/NV) shall be issued to payor and doctor?
RR 10-2013, June 6, 2013
INCOME PAYMENTS SUBJECT TO EWT (RR 2-98, as amended by RR
14-2002 and RR 30-2003):
Professionals, including real estate service practitioners (RE
consultants, RE appraisers, and RE brokers) under RA 9646 (RESA Law)
10% up to P720,000 gross commission; 15%, over P720,000
RE brokers who failed or did not take up the licensure examination
given by RE Service under PRC 10% of gross commission.

If a professional (e.g., doctor of medicine) wants that EWT rate for


payments in the second semester be still at 10% because his total
gross professional fees for the first semester does not exceed
P720,000, he must file with the BIR a Sworn Declaration for this
purpose and give copy thereof to the payor of professional fee.
RMC 38-2011, Sept 1, 2011
PAYMENTS BY PHILHEALTH TO:
Doctor who provided medical services 10%/15%
EWT
Hospital for the use of its medical facilities 2%
EWT
Philhealth is constituted as withholding agent for
the government because it has the receipt, control
and custody of the funds
Doctor and hospital shall issue their respective
official receipts to Philhealth
RR 12-2013, July 12, 2013
Sec. 2.58.5, RR 2-98, as amended by RR 12-2013:
Any income payment which is otherwise deductible
under the Tax Code shall be allowed as a deduction from
the payors gross income only if it is shown that the
income tax required to be withheld has been paid to the
Bureau in acc with Secs. 57 and 58 of the Code.
No deduction will also be allowed notwithstanding
payments of withholding tax at the time of the audit
investigation or reinvestigation/reconsideration in cases
where no withholding of tax was made in acc with Secs
57 and 58 of the Code.
RMC 63-2013, Sept 26, 2013

RR 12-2013 (No WT, no deduction from gross


income) shall apply to audit investigation for
the taxable year 2013.
INCOME PAYMENTS SUBJECT TO EWT
1. Professional fees for services rendered by individuals; and
professional entertainers and athletes, and directors:
If gross income for current year exceeds P720,000 - 15%
If gross income for current year does not P720,000 - 10%
2. If recipient of professional fees, talent fees, etc. is
a juridical person:
If gross income for current year exceeds P720,000 - 15%
If gross income for current year does not P720,000 - 10%
3. Rental income
Real properties - 5%
Personal properties of P10,000 per payment; P10,000
shall not apply when accumulated rental to same
lessor exceeds or is reasonably expected to exceed
P10,000 within a year - 5%
Poles, satellites and transmission facilities - 5%
Billboards - 5%

INCOME PAYMENTS SUBJECT TO EWT


4. Gross payments to resident individuals and corporate cine-
matographic film owners, lessors, or distributors - 5%
5. Gross payments to contractors - 2%
6. Income distribution to beneficiaries - 15%
7. Income payments to certain brokers and agents - 10%
8. Income payments to partners of general professional
partnerships:
If gross income for current year exceedsP720,000 - 15%
If otherwise - 10%
9. Professional fees paid to medical practitioners
If gross income for current year exceedsP720,000 - 15%
If otherwise - 10%
10. Gross additional payments to government personnel from
importers, shipping and airline companies, or their
agents - 15%
11. One-half of gross amounts paid by any credit card
company in the Philippines - 1%
INCOME PAYMENTS SUBJECT TO EWT
12. Income payments made by any Top 20,000 Corp
Supplier of goods - 1%
Supplier of services - 2%
13. Income payments made by government to its local/resident
supplier of goods and services other than those covered
by other rates of withholding taxes
Supplier of goods - 1%
Supplier of services - 2%
14. Commissions of independent and exclusive distributors,
and marketing agents of companies - 10%
15. Tolling fees paid to refineries - 5%
16. Payments made by pre-need companies to funeral parlor - 1%
17. Payments made to embalmers - 1%
18. Income payments made to suppliers of agricultural products - 1%
19. Income payments on purchases of minerals, mineral pro-
ducts and quarry resources (RR 6-12 amended RR 17-03) - 5%
20. MERALCO refund to customers
With active contracts - 25%
With terminated contracts - 32%

WT BASES AND RATES


COMPUTATION OF EWT
Payment to non-VAT seller of service
P100,000 x 2% = P2,000 EWT
Payment to VAT-registered seller of service
P100,000 x 2% = P2,000 EWT
P100,000 + P12,000 VAT = P112,000 (Total invoice
amount) P2,000 = P110,000 (check payment)
If total invoice amount does not separately indicate the
VAT component, remove first the VAT portion.
WT BASES AND RATES
Payments to Meralco and telecommunication
companies are considered as payment for services
subject to 2% EWT.
Tax base shall be amount due as shown in Meralco billing
Payment for installation and removal cost of service
application for temporary service is subject to 2% EWT. All
amounts reimbursed by payor to Meralco for relocation of
poles and other electrical facilities are not subject to EWT.
Tax base paid to telecom companies shall exclude 10%
overseas communication tax.
WT BASES AND RATES
Top 20,000 Corp shall withhold the 2% EWT, whether or not
the electric meter is in its name, provided that valid proof that
payment of particular expense is shouldered by the payor
claiming the expense. Lessee shall present contract of lease,
together with photocopy of the notice from the BIR,
designating the corp as one of Top 20,000 Corp, to Meralco,
PLDT and other utility companies, thru the lessor and shall
issue the corresponding BIR Form 2307 in the name of the
utility companies.
EWT shall be in the current month and may only be deducted
in the billings for the current month.
WT BASES AND RATES
Payments of life and non-life insurance premiums are
considered as payments for sales of services. Tax
base is the amount of premiums paid, exclusive of
VAT and other taxes (DST and local taxes).
Payment thru broker or agent authorized to receive
premium payment on behalf of the insurance
company shall be subject to 2% EWT to be withheld
by the WA. However, WA shall issue BIR Form 2307
in the name of the insurance company, not in the
name of the broker or agent.
WT BASES AND RATES
Payments of interest on loans, service fees and other
charges by TTC to banks are subject to 2% EWT,
excluding payment of principal.
When credit card is used, TTC shall withhold the 2%
EWT on interest and/or service fee and other charges
imposed by the credit card company. The credit card
company shall withhold % of 1% of the gross
amount paid to any business entity.
WT BASES AND RATES
Payments by TTC to a customs broker for arrastre, customs duties, wharfage,
documentation, handling fee, and to forwarders are subject to 2% EWT. However,
advance payment by the customs brokers for expenses such as arrastre, wharfage,
documentation, etc. should not form part of gross receipts, if invoiced directly in
the name of the brokers client and if reimbursement to the broker is not invoiced
with the brokers VAT invoice/ official receipt.
Although the broker has control over the fund, the customer has primary
responsibility to remit the WT to BIR. Broker shall compute and deduct the EWT
due on the income payment and at the same time, issue BIR Form 2307 to and in
the name of the third-party provider of services, as agent of the customer, net of
the VAT.
The provider of services shall then issue OR in the name of the customer of the
broker.
In the subsequent claim for reimbursement of said payment, broker shall demand
from customer only the amount actually paid to service provider (which is net of
EWT), with instructions to the customer to remit to BIR the amount of EWT on said
payment (RMC 9-2006, Jan 25, 2006).
WT BASES AND RATES
Income tax treatment of payments made to security agency
Security Agency (SA) must record as part of its gross
income the agency fee, net of VAT thereon.
Since security guard salaries are tacked in as part of service
fees, SA must always recognize that portion of the fees as a
liability. For this purpose, the contract must provide for a
breakdown of the amount of security services into two
components: (a) agency fee; and (b) security guard
salaries. If contract does not provide for the breakdown,
the whole amount will be taxed as income of the SA.
Client of SA engaged in business can claim as deduction
from gross income the total amount paid to SA, net of VAT
on the agency fee.
RMC 18-2011, April 12, 2011
Exempt from long-term deposit or investment
Depositor or investor is an individual citizen (resident or
non-resident) or alien (RA or NRAE);
LT deposit or investment certificate is in the name of the
individual and not under the name of a corporation or the
bank or trust department/unit of the bank;
LT deposit or investment must be in the form of savings,
common or individual trust funds, depsub, IMA and other
investments evidenced by certificates in such forms
prescribed by BSP;
LT deposit or investment is issued by banks only and not by
other financial institutions;
RMC 18-2011, April 12, 2011
LT deposit or investment must have a maturity period of
not less than five (5) years;
LT deposit or investment is in denomination of P10,000 or
other denominations as prescribed by BSP;
Only interest income from LT deposit or investment is
covered by income tax exemption;
Income tax exemption does not cover any other income,
such as gain from trading, foreign exchange gain;
LT deposit or investment should not be terminated by the
investor before the 5th year; otherwise, it shall be
subjected to the graduated rates of 5%, 12%, or 20% on
interest income earnings.
TIME TO FILE RETURN AND PAY TAX
eFPS Filing (for taxpayers using eFPS based on industry classification groupings per
RR 26-2002):
Group A 15 days following end of month
Group B 14 days
Group C 13 days
Group D 12 days
Group E 11 days
Staggered filing of returns shall not apply in case of NGAs per RR 1-2013.

eFPS Payment
On or before 15th day of month following withholding was made, except for December, on or
before Jan 20 of following year
In case of NGAs, all returns must be electronically filed and payment shall be made in same
day.

Manual Filing and Payment


10th day of the following month, except for December, on or before Jan 15 of following year
FINAL WITHHOLDING TAXES
BIR Form 1601-F (Monthly remittance return
of final income taxes withheld)
BIR Form 1602 (Monthly remittance return of
final income taxes withheld on interest paid
and yield on deposit substitutes/trusts)
BIR Form 1600-WP (Remittance return of
percentage tax on winnings and prizes
withheld by race track operators)
WT RETURNS
1601C - Monthly remittance return of income taxes
withheld on compensation income
1601E - Monthly remittance return of creditable
income taxes withheld (expanded)
1601F - Monthly remittance return of final income
taxes withheld
1603 - Monthly remittance return of final income
taxes withheld on fringe benefits paid to employees
other than rank and file
WT RETURNS
1604CF - Annual information return of income taxes
withheld on compensation and FWT
1604E - Annual information return of creditable
income taxes withheld (expanded)/income payments
exempt from withholding tax
1606 - Withholding tax return for onerous transfer
of real property other than capital asset (including
taxable and exempt)
2306 Certificate of FINAL Withholding Tax
2307 Certificate of CREDITABLE Withholding Tax
ATTACHMENTS
PERSONS REQUIRED TO SUBMIT SAWT
SAWT is alpha list of WAs from whom income was earned or received
and subjected to WT to be submitted by the payee-recipient of
income.
SAWT contains total amounts of income/gross sales or receipts and
claimed tax credits taken from all Certs of Creditable WT (BIR Form
2307) issued by payors of income payments.
All persons claiming refund or applying for creditable tax withheld
against the tax due with not more than 10 WA-payors of income
payment per return period are strictly required to submit SAWT in
hard copy. If the person has more than 10 payors of income, SAWT
shall be submitted in electronic form (3.5 inch floppy diskette).
ATTACHMENTS
PERSONS REQUIRED TO SUBMIT MAP
MAP is a consolidated alpha list of income earners from whom taxes
have been withheld by the payor of income for a given period and in
whose behalf, taxes were remitted.
MAP contains a summary of information on taxes withheld and
remitted thru the monthly remittance returns (BIR Form Nos. 1601-E,
1601-F, or 1600), showing total amounts of income, gross sales or
receipts and taxes withheld and remitted.
All WAs under Secs. 2.57, 4.11, 5.11 of RR 2-98, as amended, who are
required to withhold and remit taxes and have not more than 10
income payees-recipient of income per return period shall submit
MAP in hard copy. If he has more than 10 payees, submit MAP in 3.5
inch floppy diskette (RR 2-2006, Dec 1, 2005).
PENALTIES
1. SURCHARGE
25%: No WT return was filed or there was late filing of return
50%: Willful failure to file return or fraudulent return was filed
2. DEFICIENCY INTEREST
20% per annum from date tax is due to date of payment,
without maximum amount
3. COMPROMISE PENALTY
Criminal liability from certain violation is extinguished by
payment of compromise penalty
4. DISALLOWANCE OF DEDUCTION FROM GROSS INCOME
Payment of WT not paid should result in the allowance of
deduction, provided it is paid during the conduct of the request
for reinvestigation.
ANNUAL INFORMATION RETURNS
BIR Form 1604-E (Annual information return
of creditable income taxes withheld/income
payments exempt from withholding tax)

BIR Form 1604-CF (Annual information return


of income taxes withheld on compensation
and final withholding taxes)
VALUE ADDED TAX AND OTHER
PERCENTAGE TAX

Sale to government
Payment to non-resident person
SEC. 114(C) WITHHOLDING OF VAT
The government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs, shall,
before making payment on account of each purchase of
goods and services which are subject to VAT imposed in
Secs. 106 and 108 of this Code, deduct and withhold the
VAT due at the rate of 5% of gross payment thereof:
Provided, That the payment for lease or use of properties
or property rights to nonresident owners shall be subject to
12% VAT at the time of payment. For purposes of this
Section, the payor or person in control of the payment shall
be considered as the withholding agent.
The VAT withheld under this Section shall be remitted
within 10 days following the end of the month the
withholding was made.
WHO ARE REQUIRED TO FILE
BIR Form 1600?
All government offices on money payments made to private persons as required
under RA Nos. 1051, 7649, 8241, 8424 and 9337.
Payors of income subject to VAT to non-residents.
Payors of income to persons who opted to remits its/its VAT or OPT thru the
withholding and remittance of same by the WA.
Returns previously filed and proof of tax payments, if amended return
Certificate of tax treaty relief, if applicable
eTRA (previously TRA) for NGAs
BIR Form 0605, for advance payment

DEADLINE
10th day of following month, whether eFPS or manual filing and
payment
RELEVANT REV REGULATIONS
2015
RR
2014
RR 1-14, 2-14
2013
RR 1-13, 5-13, 10-13, 11-13, 13-13
2012
RR 3-12, 6-12, 8-12, 14-12, 16-12; RMC 41-12, 42-12, 81-12, 85-12
2011
RR 5-11, 7-11, 13-11; RMC 20-11, 23-11, 38-11, 49-11
2010
RR 11-10; RMC 21-10
RELEVANT REV REGULATIONS
2009
RR 1-09, 2-09, 3-09, 5-09, 6-09, 8-09, 10-09; RMC 4-09, 10-
09,
2008
RR 4-08, 5-08, 6-08, 7-08, 14-08, 10-08
2007
RR 4-07; RMC 23-07 (Govt money payments)
2006
RR 1-06, 2-06, 4-06
2005 (RA 9337)
RR 8-05
RELEVANT REV REGULATIONS
2004
RR 1-04, 3-04, 5-04
2003
RR 14-03, 16-03, 17-03, 30-03
2002
RR 3-02, 4-02, 14-02, 19-02, 26-02
2001
RR 6-01, 9-01, 12-01
2000
RR 8-2000, 10-2000
1999
RR 3-99
1998 (RA 8424)
RR 2-98, 3-98, 8-98, 10-98, 12-98
END OF PRESENTATION

Atty. Vic C. Mamalateo


Mobile: 0939-9209175; 0917-5280445
Email: vicmamalateo@yahoo.com
vic.mamalateo@vcmlaw.com.ph

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