There are many things businesses concern themselves with when it comes to government-related tasks in managing a company. Apart from the usual employee benefits applications and business permit renewals, there’s also a need for tax accounting and proper filing of taxes throughout the year.
While some companies have difficulty keeping up with tax demands, others rise above all. Filing taxes is a crucial responsibility for all businesses, regardless of industry. Failure to do so during audit season may cause you to face penalties, which can hamper your overall operations.
If you’re on top of your tax duties while managing and expanding your company accordingly, you may get categorized as a top withholding agent (TWA). But what does that mean, and how can being a top withholding agent affect your business? Read the complete explanation in the blog below.
Contents
What is a Top Withholding Agent?
The Bureau of Internal Revenue (BIR) previously defined “Top Withholding Agent” as taxpayers whose gross sales/receipts, gross purchases, or claimed deductible itemized expenses amounted to ₱12,000,000 during the prior taxable year.
On the other hand, according to the recent Revenue Regulations (RR) No. 31-2020, a taxpayer who had gross sales or purchases during the previous taxable year that fall under one of the following minimum limits is also considered a top withholding agent.
Top withholding agents are divided into the top 20,000 private corporations, the top 5,000 individual taxpayers, the top 10,000 private corporations, and large taxpayers. Below are the features a taxpayer or business entity needs to meet for each category.
Large taxpayers:
- ₱1,000,000 annual excise tax
- ₱1,000,000 annual withholding tax
- ₱1,000,000 annual income tax
- ₱1,000,000 documentary stamp tax
- ₱250,000 value-added tax per quarter
- ₱100,000 percentage tax per quarter
Top 5,000 individual taxpayers:
- ₱10,000,000 gross purchases
- ₱10,000,000 gross sales
- ₱200,000 annual income tax
- ₱100,000 annual excise tax
- ₱100,000 annual percentage tax
- ₱100,000 value-added tax for the year
Top 10,000 private corporations:
- Large taxpayers
- ₱10,000,000 gross sales
- ₱5,000,000 gross purchases
- ₱200,000 annual income tax
- ₱100,000 annual percentage tax
- ₱100,000 value-added tax for the year
Top 20,000 private corporations:
- Large taxpayers
- Top 5,000 private corporations
- Top 10,000 private corporations
- ₱10,000,000 gross sales
- ₱5,000,000 gross purchases
- ₱200,000 annual income tax
- ₱100,000 annual percentage tax
- ₱100,000 value-added tax for the year
- ₱100,000 annual excise tax
Because there has been some misunderstanding over why some taxpayers with low incomes are put on the top withholding agent list, the BIR Operations Memorandum (OM) Order No. 20-2019 omitted the following taxpayers from the roster:
- Local government entities and government-owned institutions, colleges, and corporations;
- Taxpayers who were included as a result of one-time transactions, such as donor’s tax and estate tax;
- Individual taxpayers who derive their income from commissions, such as but not limited to insurance agents and real estate brokers, if the ₱12 million income threshold was only met during one taxable quarter (subject to proof);
- Taxpayers with no proprietary operations are exempt from withholding taxes like foundations, non-stock non-profit, and tax-exempt educational, religious, and charitable institutions, etc.
Revenue Memorandum Circular (RMC) No. 143-2019 highlighted that taxpayers couldn’t be forced to withhold the 1% and 2% creditable withholding tax if they don’t meet the ₱12 million threshold or if they’re excluded by OM Order No. 20-2019, regardless of whether they were included to the list or not.
How Does Being a Top Withholding Agent Affect Your Company?
If your company appears on the top withholding agent list, you’ve checked off one or more of the criteria listed above. It’s important to note that being a top withholding agent in the Philippines doesn’t require higher tax obligations. Instead, you’ll have to withhold 1% for products or 2% for services from all purchases, which means you have more accountability. These withheld taxes are remitted to the BIR.
Purchases only apply to goods and services bought from a provider at least six times a year. Top withholding agents must withhold 1% or 2% on all transactions of ₱10,000 or more, regardless of whether it was through a regular supplier.
Your company is responsible for remitting and turning the taxes to the BIR as the purchasing party. Any failure to remit these taxes, even online transactions, will be held against your business. The BIR may penalize your company and require you to pay deficiency taxes.
Tax Compliance Tips for a Top Withholding Agent
Since the Philippines’ can be tricky, particularly with the comprehensive tax reform, here’s a list of tips to help you stay compliant with your taxes.
- Record all transactions and purchases
Your business must have a thorough accounting of all sales and transactions. Additionally, you must obtain proper invoices and official receipts to prove these purchases if the BIR asks for them.
- Stay updated with BIR announcements
The best way to stay compliant with any new tax reforms is by staying updated with BIR announcements. The agency also delists TWAs during a rollout for a new cluster, so it’s important to know news about these as they come.
- Partner with the experts
Avoid burdensome penalties by outsourcing professional bookkeeping and accounting personnel that offer tax services. Working with experts in this sector can also help prepare your business for audit season, which in and of itself is taxing.
Be on Top of Your Tax Responsibilities
Being a part of the top withholding agent list can be daunting, especially since it entails more accountability for your business. However, it’s every individual’s and company’s responsibility to pay their taxes accordingly. It needs to be sorted out to avoid any conflicts with authorities, which, if left unattended, can jeopardize your entire operations.
Whether your business is listed as a top withholding agent or not, you must do your best to remain compliant. If you’re looking for a top-tier accounting firm in the Philippines to help you with your tax work, you can check out CloudCfo!
CloudCfo is a cloud accounting firm for startups and small and medium-sized enterprises (SMEs) in the Philippines that can assist with your accounting, bookkeeping, tax, and other finance functions! If you’re ready to get your tax filings in order, check out our process or contact us to learn more.
