WITHHOLDING TAX

Section 22(K), Tax Code

• (K) The term 'withholding agent' means any

person required to deduct and withhold any tax
under the provisions of Section 57.
 Final Withholding Tax

• Under the final withholding tax system, payee received

the income net of the applicable tax. The amount of tax
withheld by the withholding agent(payor) is “constituted
as a full and final payment” of the income tax due from
the payee on the said income.
 CREDITABLE WITHHOLDING TAX
• CWT is a method of collecting income tax “in advance” from
the recipient of the income through the payor thereof, which
is constituted by law as the withholding agent of the
government. Taxes withheld on certain payments are
intended to equal or at least approximate the tax due of
the payee on the said income.
• The recipient of income is still required to file an income tax
return to report the income and pay the difference
between the tax withheld and the tax due on the income.
FINAL WITHHOLDING TAX
 Principles of Final Withholding Tax
• 1. The amount of tax withheld is full and final
• 2. Liability of payment of tax rests primarily on the
withholding agent
• 3. In case he fails to withhold, the withholding agent will be
liable
• 4. Payee is not requires to file a return for the particular
income
• 5. Finality of the withheld tax is limited on that particular
income and will not extend to the payees’ other tax liabilities
 Section 57. Withholding of Tax at Source. -

• (A) Withholding of Final Tax on Certain Incomes. - Subject to rules

and regulations the Secretary of Finance may promulgate, upon the
recommendation of the Commissioner, requiring the filing of income
tax return by certain income payees, the tax imposed or prescribed by
Sections 24(B)(1), 24(B)(2), 24(C), 24(D)(1); 25(A)(2), 25(A)(3), 25(B),
25(C), 25(D), 25(E), 27(D)(!), 27(D)(2), 27(D)(3), 27(D)(5), 28 (A)(4), 28(A)
(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(1), 28(B)(2), 28(B)(3), 28(B)
(4), 28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33; and 282 of this Code on
specified items of income shall be withheld by payor-corporation
and/or person and paid in the same manner and subject to the same
conditions as provided in Section 58 of this Code.
 SECTION 2.57.1.(RR 11-2018) Income
Payments Subject to Final Withholding Tax
Income Payments to a Citizen or to a
Resident Alien Individual:
1. Interest from any peso bank
deposit
2. royalties 20%
3. prizes
4. other winnings
1. Interest income received by an individual taxpayer
from a depository bank 15%
under the Expanded Foreign Currency Deposit system

2. Cash and/or property dividends actually or

constructively received from a domestic corporation
10%
3. share of an individual in the distributable net
income after tax of a 2 / 47 partnership
4. Capital Gains from Sale of Shares of Stock Not
Traded in the Stock Exchange 15%
 Income Payments to Non-resident Aliens Engaged in Trade or Business in
the Philippines
1. Capital Gains from Sale of Shares 15%
of Stock Not Traded in the Stock
Exchange
 Income Derived from All Sources Within the Philippines by a Non-resident
Alien Individual Not Engaged in Trade or Business Within the Philippines
1. Capital Gains from Sale of Shares of Stock 15%
Not Traded in the Stock Exchange
Fringe Benefits Granted to the Employee (Except Rank and File Employee)

1. Employee is a citizen/resident alien/nonresident alien 35%

engaged in trade or business within the Philippines
2. Employee is a non-resident alien not engaged 25%
in trade or business within the Philippines
 Commissioner of Internal Revenue vs.
Smart Communication (August 25, 2010)

“That a person “liable for tax” has sufficient legal interest to

bring a suit for refund of taxes he believes were illegally
collected from him. Since the withholding agent is an agent
of the beneficial owner of the payments (i.e., nonresident),
the authority as agent is held to include the filing of a claim
for refund.”
 PAL vs. Commissioner of Internal Revenue
(January 18, 2018)

To claim a refund, taxpayer needs only to prove that taxes

were withheld. Taxes withheld by the withholding agent are
deemed to be the full and final payment of the income tax
due from the income earner or payee.
CREDITABLE WITHHOLDING TAX
Who are required to deduct and withhold for
the creditable withholding taxes?
• 1. Any juridical person, whether or not engaged in trade
or business
• 2. An individual, with respect to payments made in
connection with his trade or business
• 3. All government offices including government owned
or controlled corporations, as well as provincial, city and
municipal government.
 Section 57. Withholding of Tax at Source.
• (B) Withholding of Creditable Tax at Source. - The Secretary of
Finance may, upon the recommendation of the Commissioner,
require the withholding of a tax on the items of income payable
to natural or juridical persons, residing in the Philippines, by
payor-corporation/persons as provided for by law, at the rate of
not less than one percent (1%) but not more than thirty-two
percent (32%) thereof, which shall be credited against the
income tax liability of the taxpayer for the taxable year. Provided,
That, beginning January 1, 2019, the rate of withholding shall not
be less than one percent(1%) but not more than fifteen
percent(15%) of the income payment.
 SECTION 2.57.2.(RR 11-2018) Income Payments
Subject to Creditable Withholding Tax
and Rates Prescribed Thereon.
(A) Professional fees, talent fees, etc. for services rendered
A. Individual payee:
1. If gross income for the current year did not exceed 5%
₱3M
2. If gross income is more than ₱3M 10%

B. Non-individual payee:
1. If gross income for the current year did not exceed 10%
₱720,000
2. If gross income exceeds ₱720,000 15%
It includes:
• (1)Those individually engaged in the practice of profession or callings
• (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 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
• Commissions of independent and/or exclusive sales representatives, and
marketing agents of companies
 (B) Rentals

1. Real Properties
2. Personal Properties
3. Poles, satellites and transmission facilities
5%
4. Billboards
5. Cinematographic film rentals and other
payments
(C) Income payments to certain contractors 2%
(D) Income distribution to the beneficiaries 15%
(E) Income payments to partners of general 15% - <P720,000, 10% -
professional partnerships >P720,000

(H) Certain income payments made by credit 1%

card companies
(K) Tolling fees paid to refineries 5%
 REVENUE REGULATIONS NO. 12-98
It will be the duty and responsibility of the hospital or
clinic to collect from any patient admitted by such hospital
or clinic the professional fee of the attending medical
practitioner and to withhold the tax prescribed in the
Regulations. The withholding tax prescribed in the
regulations will not apply whenever there is proof that no
professional fee has in fact been charged by the medical
practitioner and paid by his patient
 Filipinas Synthetic Fiber Corporation vs. CA
(October 12, 1999)
• It is the right to receive income, and not the actual
receipt, that determines when to include the amount in
gross income.
• The withholding agent is constituted the agent both the
government and the taxpayer. With respect to the
collection and/or withholding of the tax, he is the
Government's agent.
 CIR vs. La Flor dela Isabela Inc.
(January 14, 2019)

It was never meant to mean that withholding taxes do not

fall within the definition of internal revenue taxes,
especially considering that income taxes are the ones
withheld by the withholding agent. Withholding taxes do
not cease to become income tax just because it is collected
and paid by the withholding agent.
• Hence, John would receive the following amount from Peter:

Rental Payments, with VAT (P112,000 – P 5,000) = P 107,000

Professional Fees, with VAT(P22,400 – P 2,000) = P 20,400
Total Amount Received by John P 127,400
RETURN AND PAYMENT OF TAX
 Section 58. Returns and Payment of Taxes
Withheld at Source.(TAX CODE)
• (A) Quarterly Returns and Payments of Taxes Withheld
…The taxes deducted and withheld by the withholding agent shall be
held as a special fund in trust for the government until paid to the
collecting officers.
The return for final and creditable withholding taxes shall be filed and
the payment made not later than the last day of the month following
the close of the quarter during which withholding was made.
• (B) Statement of Income Payments Made and Taxes Withheld.
…Every withholding agent required to deduct and withhold
taxes under Section 57 shall furnish each recipient, in respect to his
or its receipts during the calendar quarter or year, a written
statement showing the income or other payments made by the
withholding agent during such quarter or year, and the amount of
the tax deducted and withheld therefrom, simultaneously upon
payment at the request of the payee…
• (C) Annual Information Return
…shall submit to the Commissioner an annual information
return containing the list of payees and income payments, amount
of taxes withheld from each payee and such other pertinent
information as may be required by the Commissioner. In the case of
final withholding taxes, the return shall be filed on or before
January 31 of the succeeding year, and for creditable withholding
taxes, not later than March 1 of the year following the year for
which the annual report is being submitted.
• (D) Income of Recipient
Income upon which any creditable tax is required to be withheld
at source under Section 57 shall be included in the return of its
recipient but the excess of the amount of tax so withheld over the
tax due on his return shall be refunded to him subject to the
provisions of Section 204; if the income tax collected at source is
less than the tax due on his return, the difference shall be paid in
accordance with the provisions of Section 56.
• (E) Registration with Register of Deeds.
No registration of any document transferring real property shall be
effected by the Register of Deeds unless the Commissioner or his duly
authorized representative has certified that such transfer has been
reported, and the capital gains or creditable withholding tax, if any, has
been paid
WITHHOLDING ON WAGES
 Section 78(Tax Code)

• (A) Wages. - The term 'wages' means all remuneration (other

than fees paid to a public official) for services performed by an
employee for his employer, including the cash value of all
remuneration paid in any medium other than cash,
Except that such term shall not include remuneration paid:

• (1) For agricultural labor paid entirely in products of the farm

where the labor is performed, or
• (2) For domestic service in a private home, or
• (3) For casual labor not in the course of the employer's trade or
business, or
• (4) For services by a citizen or resident of the Philippines for a
foreign government or an international organization.
• Section 79. Income Tax Collected at Source.
(A) Requirement of Withholding.-– Except in the case of a
minimum wage earner as defined in Section 22(HH) of this code,
every employer making payment of wages shall deduct and withhold
upon such wages a tax determined in accordance with the rules and
regulations
• (B) Tax Paid by Recipient. –
If the employer fails to deduct and withhold the tax as required
under this Chapter the tax so required to be deducted and withheld
shall not be collected from the employer; but this does not relieve
the employer from liability for any penalty or addition to the tax
otherwise applicable in respect of such failure to deduct and
withhold.
• (C) Refunds or Credits.
(1) Employer.- only to the extent that the amount of such
overpayment
(2) Employees. - Any excess of the taxes withheld over the tax
due from the taxpayer shall be returned or credited within three (3)
months from the fifteenth (15th) day of April. Refunds or credits
made after such time shall earn interest at the rate of six percent
(6%) per annum, starting after the lapse of the three-month period
to the date the refund of credit is made.
• (E) Non-resident Aliens. – Wages paid to non-resident alien
individuals engaged in trade or business in the Philippines shall
be subject to the provisions of this Chapter.
 Section 80. Liability for Tax. –

• (A) Employer - The employer shall be liable for the withholding

and remittance of the correct amount of tax required to be
deducted and withheld under this Chapter. With penalties and
additions.
• (B) Employee. – Where an employee fails or refuses to file the
withholding exemption certificate or willfully supplies false or
inaccurate information thereunder, the tax otherwise required to
be withheld by the employer shall be collected from him
including penalties or additions to the tax from the due date of
remittance until the date of payment
 Section 81.Filing of Return and Payment of
Taxes Withheld
…taxes deducted and withheld by the employer on wages of employees
shall be covered by a return and paid to an authorized agent bank,
Collection Agent, or the duly authorized Treasurer of the city or
municipality where the employer has his legal residence or principal
place of business, or in case the employer is a corporation, where the
principal office is located.
shall be filed and the payment made within twenty-five (25) days from
the close of each calendar quarter
 Section 82. Return and Payment in Case of
Government Employees.

• the return of the amount deducted and withheld upon any wage
shall be made by the officer or employee having control of the
payment of such wage, or by any officer or employee duly
designated for the purpose
 Section 83. Statements and Returns.

• (A) Requirements. – Every employer required to deduct and

withhold a tax shall furnish to each such employee in respect of
his employment during the calendar year, on or before January
thirty-first (31st) of the succeeding year.
• (B) Annual Information Returns. – Every employer required to
deduct and withhold the taxes in respect of the wages of his
employees shall, on or before January thirty-first (31st) of the
succeeding year
SECTION 2.78.1.(RR 11-2018) Withholding of
Income Tax on Compensation Income.
• (3) Facilities and privileges of relatively small value. – xxx
The following shall be considered as “de minimis” benefits not subject
to income tax as well as withholding tax on compensation income of both
managerial, and rank and file employees:
(a) Monetized unused vacation leave credits of private employees not
exceeding ten (10) days during the year;
(b) Monetized value of vacation and sick leave credits paid to government
officials and employees
 (c) Medical cash allowance to dependents of employees, not
exceeding ₱1,500 per employee per semester of ₱250 per
month;
(d) Rice subsidy of ₱2,000 or one sack of 50kg. rice per month
amounting to not more than ₱2,000;
(e) Uniform and clothing allowance not exceeding ₱6,000 per
annum;
 (B) Exemption from withholding tax on
compensation

• (11) Thirteenth month pay and other benefits.

• (12) GSIS, SSS, Medicare and other contributions
• (13) Compensation income of Minimum Wage Earners (MWEs)
• (13) Compensation during the year not exceeding Two hundred fifty
thousand pesos (₱250,000).
 Revenue Regulation 1-2006

• Compensation income of individuals that do not exceed the

statutory minimum wage or P5,000.00 per month(P60,000.00 a
year) whichever is higher and of employees of the government
and any of its political subdivisions, agencies or instrumentalities,
with SG 1-3 are exempted from the requirement of withholding
tax on compensation but they are still liable for Income Taxes.
 REVENUE MEMORANDUM CIRCULAR 39-
2012

Requires the withholding of taxes on backwages, allowances

and benefits received by virtue of a labor dispute award through
garnishments of debts due to the employer and the other credits to
which the employer is entitled including bank deposits, financial
interests, royalties and commissions.
 WITHHOLDING TAX BY GOVERNMENT
AGENCIES
• Section 2.57.2., RR 11-2018
• (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
Supplier of goods – One percent (1%)
Supplier of services – Two percent (2%)
Thank You.