Philippines services
Withholding Tax (WT) is a compliance mechanism where the Bureau of Internal Revenue (BIR) collects income tax at the source.
Instead of the income earner paying later, the payor deducts and remits the tax. The payor acts as the Withholding Agent (WA).
Withholding tax is not a separate tax — It is simply a method of collecting income tax in advance.
| ITEM | Summary |
|---|---|
| Purpose | Tax collected at source by the payor |
| Who withholds | The Withholding Agent (WA) |
| Main types | EWT (creditable), FWT (final), Withholding VAT, E-commerce CWT |
| Time of withholding | Accrual or invoice — whichever comes first |
| Proof to payee | BIR Form 2307 |
| Monthly remittance | 0619-E / 1600-VT |
| Quarterly remittance | 1601-EQ / 1601-FQ |
| Annual summary | 1604-E |
| Government VAT withholding | Creditable, not final (since 2021) |
EWT is an advance tax payment.
The amount withheld:
Income must still be reported in the payee’s annual income tax return even if tax has already been withheld.
Example: Professional Fees
A company pays a consultant ₱100,000 for advisory services.
The company withholds 10% EWT (₱10,000) and pays the consultant ₱90,000.
The ₱10,000 is remitted to the BIR and reported in Form 2307.
The consultant later uses this ₱10,000 as a credit against their income tax.
| Transaction | Rate |
|---|---|
| Professional fees (Corporations) | 10% / 15% depending on income level |
| Professional fees (Individuals) | 5% / 10% depending on annual income level and supported by a Sworn Declaration |
| Rentals | 5% |
| Contractors | 2% |
| Government purchases (goods) | 1% |
| Government purchases (services) | 2% |
| Top Withholding Agent purchases (goods) | 1% |
| Top Withholding Agent purchases (services) | 2% |
| E-commerce remittances | 0.5% effective |
Download the full Withholding Tax Rate & ATC Reference Guide (PDF)
Download the Philippine Withholding Tax Guide
Expanded Withholding Tax is computed based on the taxable amount of the transaction before VAT. The withholding agent must apply the EWT rate only to the net value of the goods or services, excluding the VAT component. This is because VAT is not income of the supplier; it is a pass-through tax collected on behalf of the government.
Basic Formula:
EWT = (Taxable amount before VAT) × applicable EWT rate
Example: Rent Payment
Monthly rent: ₱50,000
VAT: ₱6,000
Total: ₱56,000
EWT (5%): ₱50,000 × 5% = ₱2,500
Tenant pays landlord:
₱56,000 – ₱2,500 = ₱53,500
FWT applies mainly to passive income.
Once withheld:
This is a one-and-done tax.
Example: Professional Fees
A corporation declares ₱100,000 dividends.
The corporation withholds 10% FWT (₱10,000).
The shareholder receives ₱90,000.
No further income tax filing is required for that dividend.
| Income Source | Rate |
|---|---|
| Interest income | 20% |
| Dividends | 10% |
| Literary/book royalties | 10% |
| Other royalties | 20% |
| Prizes & winnings > ₱10,000 | 20% |
| Branch profit remittance | 15% |
| Foreign vessel lease | 4.5% |
| Aircraft/equipment lease | 7.5% |
Download the full Withholding Tax Rate & ATC Reference Guide (PDF)
Download the Philippine Withholding Tax Guide
It’s common to confuse FWT with Creditable Withholding Tax (CWT), but they serve different purposes:
| Feature | Final Withholding Tax (FWT) | Creditable Withholding Tax (CWT) |
| Finality | FINAL. Tax liability is fully settled. | NOT FINAL. It's an advance payment. |
| Reporting | Income NOT included in your ITR. | Income MUST BE included in your ITR. |
| Credit | CANNOT be claimed as a tax credit. | CAN be used as a tax credit. |
VAT is withheld by certain buyers and remitted to the BIR. Government agencies withhold 5% VAT. This VAT is generally creditable to the seller.
Example: Government Purchase
A corporation declares ₱100,000 dividends.
The corporation withholds 10% FWT (₱10,000).
The shareholder receives ₱90,000.
No further income tax filing is required for that dividend.
When paying non-resident foreign entities for services consumed in the Philippines, the local payor may need to withhold and remit the VAT component (generally 12%). While called “final” in practice, the VAT withheld is actually remitted on behalf of the foreign seller. The local payor may usually claim the VAT paid as input VAT, provided the VAT was properly remitted and documented.
Example: Government Purchase
A Philippine company hires a foreign software firm for services consumed in the Philippines.
The local company withholds the applicable VAT and remits it to the BIR.
The VAT is paid on behalf of the foreign firm, and the Philippine company may claim it as input VAT if eligible.
When annual gross remittances of a seller exceed ₱500,000, the e-marketplace operators must withhold 1% of one-half of gross remittances; effectively 0.5% of gross remittances.
This is a creditable tax, not a new tax. This means that the seller can claim the credit against its income tax due.
A Withholding Agent is the entity legally required to deduct and remit tax.
Examples:
Tax must be withheld when the income becomes payable.
This occurs at the earliest of:
Whichever comes first. Cash payment timing does not control the obligation. In other words, delaying payment does not delay withholding.
| Filing | Form | Deadline |
|---|---|---|
| Monthly EWT | 0619-E | 10th day of following month |
| Monthly VAT | 1600-VT | 10th day of following month |
| Quarterly EWT | 1601-EQ | Last day of the month following the close of the quarter |
| Quarterly FWT | 1601-FQ | Last day of the month following the close of the quarter |
| Annual summary | 1604-E | On or before March 1 of the following year |
EWT is creditable; FWT is final. EWT is an advance payment. FWT is the full tax.
At accrual or invoice date — whichever comes first.
No. It became creditable in 2021.
No. It’s advance collection.
National Internal Revenue Code (NIRC) of 1997, as amended:
RRs and RMCs
