What You Should Know About the Expanded Withholding Tax
The withholding tax is a type of tax that is collected in advance from any individual or business that generates money.
What is Withholding Tax Expanded?
In the Philippines, income-earning businesses both persons and non-individuals are required by law to submit quarterly and annual income taxes. The government can collect some income tax payments ahead of the quarterly and yearly due dates using the so-called extended withholding tax, or EWT – this tax is explicitly withheld on the payee's monthly income. This will be deducted from the payee's income tax liability for the taxable quarter or year in which the income was generated.
Who Is Responsible for Filing Withholding Taxes?
The law requires a withholding tax agent — an individual or non-individual company that administers payments subject to this type of tax — to file the return on the income earner's behalf. The tax rate is determined by the nature of the income payment and the kind of recipient.
Failure to pay the correct tax at the correct time will result in a 25% surcharge, 12% annual interest, and a compromise penalty. When conducting an audit, the Bureau of Internal Revenue may also invalidate the payment as a deductible item owing to non-withholding.
The following are the new tax obligations under the Tax Reform for Acceleration and Inclusion (TRAIN) Law:
● For professional and talent fees for services rendered:
○ Individual payees:
- If gross income is above Php 3M or is VAT registered, the rate is 10%
- If gross income does not exceed Php 3M, the rate is 5%
○ Non-individual payees:
- If gross income is above Php 720,000, the rate is 15%
- If gross income does not exceed Php 720,000, the rate is 10%
● For real and personal property rentals: 5% of gross payments (Note that for personal properties, the annual gross income should exceed Php 10,000 for the payee to be required)
● For income payments to contractors (e.g. general engineering, general building, specialty contractors): 2% of gross payments
● For income payments to partners of general professional partnerships:
○ If gross income is above Php 720,000, the rate is 15%
○ If gross income does not exceed Php 720,000, the rate is 10%
● For income distributions to estate and trust beneficiaries: 15% of income (except income subject for exemption or final withholding tax)
● For sales of real properties,
○ If seller/transferor is habitually engaged in the real estate business and gross selling price or total amount of consideration or fair market value is:
- Php 500,000 and below, the rate is 1.5%
- Over Php 500,000 but not more than Php 2,000,000, the rate is 3%
- Over Php 2,000,000, the rate is 5%
○ If seller/transferor is not habitually engaged in business, the rate is 6%
○ If seller/transferor is exempt from creditable withholding tax in accordance with Section 2.57.5 of Revenue Regulation No. 2-98, the rate is 0%
● For income payments of importers to government personnel: 15% of gross additional payments
● For income payments of credit card firms to establishments: 50% of 1% of gross payments
● For top withholding agents on payments to local/ resident regular suppliers of:
○ Goods: 1%
○ Services: 2%
● For government money payments to local/ resident suppliers of:
○ Goods: 1%
○ Services: 2%
● For tolling fees to refineries: 5% of tolling fees
● For pre-need company payments to funeral parlors: 1%
● For income payments to embalmers: 1%
● For income payments to agricultural product suppliers: 1%
● For income payments on locally produced sugar: 1%
● For payments for minerals, mineral products, and other quarry resources: 5%, except for BSP payments – 1% on gross payments
● For MERALCO refunds and interest payments:
○ Refunds: 25% if with active contracts or 32% if without active contracts
○ Interest on meter deposits: 10% for residential and general service customers or 20% for non-resident service customers
● For other refunds by electric distribution companies: 10 or 20%
● For political contributions: 5% of gross contribution
● For income payments for Real Estate Investment Trust: 1%
● For interest income for debt instruments other than deposit substitutes: 20%
How Do We File and Pay Expanded Withholding Tax?
1. Monthly
Aside from quarterly and yearly filings, tax withholding agents must submit EWT forms on a regular basis.
You must fill out BIR Form No. 0619E for the monthly submission, and the deadline for manual filers is the 10th of the following month. The deadline for eFPS filers is between the 11th and 15th of the following month, depending on the group category. When paying and filing the return, the following information is critical:
○ Date of remittance
○ Total amount to be remitted
○ Penalties, if applicable
2.Quarterly
You must complete and submit the following during the last month of each quarter:
Form BIR No. 1601EQ
Quarterly Payee Alphalist (QAP). This is a document that lists the individuals who paid their withholding tax. It usually contains their names, earnings, and TINs. The QAP must be submitted by email, commonly known as esubmission.
Please keep in mind that for the quarterly filing, you declare the transaction for the quarter but subtract the previous two months payment to get the payable for the quarter. The deadline is the last day of the month following the quarter in which the withholding was made.
3. Annually
Take notice that the annual EWT filing date is always March 1 of the year after the calendar year subject to income tax.
You must prepare the following paperwork:
BIR Form 1604-E, also known as Annual Information Return of Creditable Income Taxes Withheld (Expanded)/Income Payments Exempt from Withholding Tax, is a form used by the Internal Revenue Service.
You must prepare the following documents:
○ BIR Form 1604-E also known as Annual Information Return of Creditable Income Taxes Withheld (Expanded)/Income Payments Exempt from Withholding Tax
○ Alphalist of Payees Subjected to Expanded Withholding Tax (Annualized QAP)
○Alphalist of Other Payees Whose Income Payments Are Exempt from Withholding Tax but Subject to Income Tax
After accomplishing the form, the filing of the return shall be done through the eFPS (online) or eBIR (manual).
Tax agents have two alternatives when it comes to paying EWT. Payment for eFPS filers can be made using payment facilities linked to the company's online banking system. Payment for eBIR filers should be made through the Authorized Agent Banks within the Revenue District Office where the filer is located. Another alternative is to use electronic payment services such as UnionBank or Paymaya.
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