REVENUE REGULATIONS NO.

2-98

(April 17, 1998)

WITHHOLDING TAXES ON INCOME PAYMENTS, COMPENSATION

AND CREDITABLE VAT AND PERCENTAGE TAXES

These regulations will govern the collection of taxes at source. It will be applied on all income paid
beginning January 1, 1998.

Final and Creditable Withholding Tax

Withholding taxes on income payments consist of two types: final withholding taxes and creditable
withholding taxes.

Under the final withholding tax system, the amount of tax withheld by the withholding agent represents
the full and final payment of the income tax due from the recipient of income. Thus, the taxpayer is no
longer required to file a tax return for the particular income, or to include such income as part of the
taxable income that he will be reporting under in his annual income tax return. On the other hand, under
the creditable withholding tax system, the income recipient is still required to file an income tax return to
report the income and to pay the difference between the tax due on the income and the tax withheld, if
any.

Withholding Agents

These withholding taxes are required to be deducted from the payment due to the recipient of income.
The following persons are constituted as withholding agents, and thus, must withhold the applicable taxes
on certain income payments they make:

a. Corporations, association, partnerships, non-profit organizations, cooperatives, and other

entities registered with the Securities and Exchange Commission and other government
agencies mandated to register such entities.

a. An individual engaged in business. However, even individuals not engaged in business

are required to withhold taxes when they buy real property.

a. All government offices including government-owned or controlled corporations.

The obligation of the withholding agent to deduct and withhold the tax arises at the time an income is paid
or payable, whichever comes first. The term "payable" refers to the date the obligation becomes due,
demandable or legally enforceable.

Remittance of Withholding Taxes to BIR

The withholding agent must pay the creditable withholding taxes it has deducted with the Authorized
Agent Banks (AAB) located within the Revenue District Office (RDO) having jurisdiction over its residence
or principal place of business.
The withholding tax return covering both creditable and final withholding taxes, must be filed and the
taxes paid within 10 days after the end of each month, except for taxes withheld for December which
should be filed on or before January 25 of the following year. However, the return for final withholding
taxes on interest from bank deposits and yield or any other monetary benefit from deposit substitutes,
trust funds and similar arrangements is required to be filed and the payment made within twenty five (25)
days from the close of each calendar quarter.

For taxpayers classified as Large Taxpayers, the filing of the return and the payment of tax should be
made within twenty five (25) days after the end of each month. Payment must be made with the branch of
the Land Bank of the Philippines or Development Bank of the Philippines located at the BIR National
Office.

Liability of Withholding Agent

The withholding agent will be liable for the withholding tax that should have been collected, together with
the applicable penalties, i.e., the 25% surcharge and 20% interest on the total amount due.

In addition, unless he pays such withholding taxes, his claim for the deductibility of such payments
against his gross income will be disallowed.

Payments Subject to Final Withholding Tax

The following forms of income will be subject to final withholding tax at the rates specified.

Income Payment Tax Rate Payee

Interest from peso bank 20% * Citizen or resident alien

deposit individual

* Non-resident alien engaged in

trade or business

* Domestic corporation

* Resident foreign corporation

25% * Non-resident alien not engaged

in trade or business

34% in 1998; * Non-resident foreign corporation

33% in 1999

32% in 2000 and

thereafter
Interest income from a
depository bank under the
foreign currency deposit
system
Yield from deposit
substitutes and trust funds;
royalties, in general; prizes
exceeding P10,000; other
winnings, except PCSO
and lotto winnings
Royalties on books, other
literary works and musical
compositions
Interest income from long-
term deposit or investment
in savings, trust funds,
deposit substitutes based
on the length of time
instrument was held by
taxpayer
7.5% * Resident citizen or alien
individual
* Domestic corporation
* Resident foreign corporation
Exempt * Non-resident alien
* Non-resident foreign corporation
20% * Citizen or resident alien
individual
* Non-resident alien engaged in
trade or business
* Domestic corporation
* Resident foreign corporation
25% * Non-resident alien not engaged
in trade or business
34% in 1998; * Non-resident foreign corporation
33% in 1999;
32% in 2000 and
thereafter
10% * Citizen or resident alien
individual
* Non-resident alien engaged in
trade or business
More than 5 yrs - * Citizen or resident alien
individual
Exempt
* Non-resident alien engaged in
4 to 5 yrs. - 5% trade or business
3 to less
than 4 yrs. - 12%
 Less than

3 yrs. - 20%

Cash and/or property 6% in 1998; * Citizen or resident alien

dividends from domestic individual
corporation, joint stock 8% in 1999
company, insurance or
mutual fund companies or 10% in 2000
share in distributable net
income of partnership
and thereafter

20% * Non-resident alien engaged in

trade or business

25% * Non-resident alien not engaged

in trade or business

34% in 1998; * Non-resident foreign corporation

33% in 1999;

32% in 2000 and

thereafter

Sale, exchange or other 6% on the gross * Citizen or resident alien

disposition of real property selling price or fair
located in the Philippines market value, * Non-resident alien engaged in
classified as capital asset whichever is higher trade or business

* Non-resident alien not engaged

in trade or business

* Domestic corporation

Compensation income, 15% Alien employees and Filipinos

except income subject to employees occupying the same
fringe benefit tax position as those of alien
employed by

* Regional or area
headquarters

* Regional Operating
headquarters

* Representative offices

* Offshore banking units

* Foreign Petroleum
 Service Contractors and
Sub-contractors

Income derived from 10% FCDUs

foreign currency
transactions with residents, OBU
including local commercial
banks, branches of foreign
banks, and other
FCDUs/OBUs

Profit remitted by Philippine 15% Head office of foreign corporation

branch, except those
registered with PEZA,
SBMA and CDA.

Gross income from all 25% Non-resident cinematographic

sources within the film owners, lessors or
Philippines distributors

Gross rentals, lease and 4.5% Non-resident owner of lessor of

charter fees vessels from leases or charters to
Filipino citizens or corporations

Gross rentals, charter and 7.5% Non-resident lessor of aircraft,

other fees machineries and other equipment

Interest on foreign loans 20% Non-resident foreign corporation

contracted on or after
August 1, 1986

Dividends from a domestic 15% Non-resident foreign corporation

corporation

Fringe benefits granted or 34% in 1998; * Citizen or resident alien

furnished by the employer individual
33% in 1999;
* Non-resident alien engaged in
32% in 2000 and trade or business
thereafter

25% * Non-resident alien not engaged

in trade or business

15% Alien employees and Filipinos

employees occupying the same
position as those of alien
employed by

* Regional or area
headquarters

* Regional Operating
 headquarters

* Representative offices

* Offshore banking units

* Foreign Petroleum
Service Contractors and
Sub-contractors

Informer’s reward 10% Persons instrumental in the

discovery of violations of Tax
Code and discovery and seizure
of smuggled goods

Payments Subject to Creditable Withholding Tax

Creditable withholding taxes will be applied on the following items of income payments made by persons
residing in the Philippines:

Income Payment/Payee Tax

Rate

Professional, promotional and talent fees for the services rendered by the following individuals 10%

* Individuals engaged in the practice of profession

* Professional entertainers

* Professional athletes

* Directors in movies, stage, radio, television and musical productions

* Insurance agents and insurance adjusters

* Management and technical consultants

* Bookkeeping agents and agencies

* Other recipients of talent fees

* 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.
Professional fees, talent fees or other forms of remuneration to taxable juridical persons 5%

Rentals paid to lessors of real property used in business 5%

(Previous minimum lease of P5,000 was deleted.)

Cinematographic film rentals and other payments to resident individuals and corporate 5%
cinematographic film owners, lessors or distributors

Gross payments to 1%

* General engineering contractors

* General building contractors

* Specialty contractors

* Other contractors

- filling, demolition and salvage work contractors and operators of

drilling apparatus

- operators of dockyards

- persons engaged in the installation of water system, and gas or

electric light, heat or power

- operators of stevedoring, warehousing or forwarding establishments

- transportation contractors

- printers, bookbinders, lithographers and publishers

- messengerial, janitorial, private detective and/or security agencies,

credit and/or collection agencies and other business agencies

- advertising agencies

- independent producers of television, radio and stage performances

or shows

- independent producers of "jingles"

- labor recruiting agencies

- persons engaged in the installation of elevators, air conditioning

units, computer machines and other equipment and machineries and
maintenance services thereon;

- persons engaged in the sale of computer services, landscaping

 services and collection and disposal of garbage

- TV and radio station operators on sale of TV and radio airtime

- TV and radio blocktimers on sale of TV and radio commercial spots.

Income distribution to beneficiaries of estates and trusts, except such income subject to final 15%
withholding tax and tax-exempt income

Gross commissions to customs, insurance, real estate and commercial brokers and fees of 5%
agents of professional entertainers

Drawings, advances, sharings, allowances, stipends and other payments made by a general 10%
professional partnership to its partners

Professional fees paid to medical practitioners by hospitals and clinics or by patients through 10%
the hospital or clinic

Gross selling price or total amount of consideration for the sale, exchange or transfer of real
property, other than capital assets, by an individual, corporation, estate, trust, trust fund or
pension fund

a) if habitually engaged in the real estate business

P500,000 or less 1.5%

More than P500,000 but not exceeding P2 M 3.0%

More than P 2 Million 5.0%

b) Not habitually engaged in the real estate business

7.5%

Additional income payment to government personnel for overtime services from importers, 15%
shipping and airline companies, or their agents

Gross amounts paid by credit card company to any business entity, natural or juridical person, ½%
representing sales of goods/services made to cardholders

Income payments made by any of the top 5,000 corporations to their local supplier of goods 1%

Income payments made by a government office on their purchases of goods from local 1%
suppliers, except any single purchase which is P10,000 and below

Tax Credit or Refund

The creditable taxes withheld from the income of a taxpayer are allowed as tax credit against his income
tax liability in the quarter(s) of the taxable year in which the income (subjected to withholding tax) was
earned or received.

In case the total creditable withholding taxes that were deducted during the year from the taxpayer
exceed his income tax due for the year, at his option, the excess creditable withholding taxes may

a. Automatically be applied as a credit against his income tax due for the taxable
quarters/years immediately succeeding the taxable quarters/years in which the excess
credit arose. However, the taxpayer is required to submit with his income tax return a
copy of the first page of his income tax return for the previous taxable period, showing the
amount of his excess withholding tax credits. Such tax return must show that he has not
opted for a cash refund or tax credit, or

a. He may request from the BIR for a cash refund or a tax credit certificate for use in
payment of his other national internal revenue tax liabilities. A written request therefor
must be submitted to the BIR within two (2) years after the payment of the tax.

Withholding Tax on Compensation

In general, the withholding of tax on compensation income will apply to all employed individuals, whether
citizens or aliens, deriving income from compensation for services rendered in the Philippines. An
"employee" is an individual performing services under an employer-employee relationship. An employer-
employee relationship exists when the person for whom the services were performed has the right to
control and direct the individual who performs the services, not only as to the result to be accomplished,
but also as to the details and means by which such results are accomplished. No distinction is made
between classes or grades of employees. Thus, superintendents, managers and officers are considered
as employees.

However, employees whose total annual compensation does not exceed the statutory minimum wage of
P5,000 monthly or annual salary of P60,000, whichever is higher, may exercise any of these options:

a. His compensation income will be subjected to withholding tax, but he would not be
required to file the income tax return, or

a. His compensation income would not be subject to a withholding tax but he will file his
annual income tax.

Where the employee has chosen to have his compensation income subjected to withholding, he must
execute a waiver in a prescribed BIR form of his exemption from withholding. This would constitute as the
authority for the employer to apply withholding tax on his compensation.

Non-resident citizens are taxable only on their income derived from Philippine sources. Thus, their
income from sources outside the Philippines are not taxable, and hence, not subject to withholding tax.

Compensation Subject to Withholding

All compensation paid to the employee is subject to withholding tax. Compensation includes all
remuneration for services performed by an employee for his employer under an employer-employee
relationship. The name by which the payment for employee’s services is called is immaterial. Thus, the
following terms are considered as compensation income:
 o Salaries,
o Wages,
o Emoluments and honoraria,
o Allowances
o Commissions
o Fees, including director’s fees if the director us at the same time an
employee of the employer
o Taxable bonuses
o Fringe benefits, except those which are subject to the fringe benefits tax
o Taxable pensions and retirement pay

Remuneration for services is considered compensation even if the employer-employee relationship no

longer exists at the time when the payment is made. Thus, it is subject to withholding.

Exemption from Withholding Tax

The following payments or benefits paid or provided by the employer are tax-exempt, and thus, not
subject to withholding tax:

1. Retirement benefits received under Republic Act 7641 and those received by officials and
employees of private firms under a reasonable private benefit plan maintained by the
employer which meets the following requirements:

a. The plan must be reasonable;

b. The benefit plan must be approved by the BIR;

c. The retiring official must have been in the service of the same employer for at
least ten (10) years and is not less than fifty (50) years of age at the time of
retirement, and

d. The retiring official or employee should not have previously availed of the
privilege under the retirement benefit plan of the same or another employer.

1. Any amount received by an employee or by his heirs from the employer due to death,
sickness or other physical disability or for any cause beyond the control of said
employee, such as retrenchment, redundancy or cessation of business. Amounts
received by reason of involuntary separation will be exempt from income tax even if the
employee, at the time of separation, had rendered less than ten (10) years of service
and/or is below fifty (50) years of age.

1. Social security benefits, retirement gratuities, pensions and other similar benefits
received by residents or non-resident citizens or aliens who come to reside permanently
in the Philippines from foreign government agencies and other institutions, private or
public.

1. Payment of benefits under the law of the United States administered by the United States
Veterans Administration.

1. Payment of benefits made under the Social Security System Act of 1954.

1. Benefits received from the GSIS Act of 1937, and the retirement gratuity received by
government officials and employees.
 1. Remuneration paid for agricultural labor

1. Remuneration paid for domestic services. However, the services of household personnel
furnished by the employer to an employee who is holding managerial or supervisory
position, shall be subject to the Fringe Benefits Tax.

1. Remuneration paid for labor which is occasional, incidental or irregular, and does not
promote or advance the employer’s trade or business

1. Compensation for services by a citizen or resident of the Philippines for a foreign

government or an international organization

1. Actual, moral, exemplary and nominal damages in connection with a final judgment or
compromise agreement arising out of or related to an employer-employee relationship.

1. Life insurance proceeds paid to the heirs or beneficiaries upon death of the employee.
However, interest payments agreed under the policy for the amounts which are held by
the insured will be included in the gross income.

1. Amounts received by the insured as a return of premium

1. Compensation for injuries or sickness

1. Income exempt under any treaty obligation binding upon the Philippine government

1. Facilities or privileges are of relatively small value which are offered or furnished by the
employer merely as a means of promoting the health, goodwill, contentment or efficiency
of his employees. Thus, if living quarters or meals are furnished to an employee for the
convenience of the employer, the value of such benefits need not be included as part of
compensation income.

1. Advances or reimbursements for travelling, representation and other ordinary and

necessary expenses incurred by the employee in the performance of his duties, if the
employee is required to account/liquidate for said expenses. The excess of actual
expenses over advances made shall be treated as taxable income if such amount is not
returned to the employer.

1. The monetized value of unutilized vacation leave credits of ten (10) days or less which
were paid to the employee during the year.

1. GSIS, SSS, Medicare and Pag-ibig contributions and union dues of individual employees

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1. Thirteenth (13 ) month pay and other benefits such as Christmas bonus, productivity
incentive bonus, loyalty awards, gifts and other benefits of similar nature to the extent
that the total amount thereof does not exceed P30,000.

Computation of Withholding Tax

There is a prescribed table for computing the withholding tax on compensation, with the applicable rates
depending on the range of compensation and the personal and additional exemptions that employee is
entitled to.
Withholding tax on compensation is due when the employer pays such compensation. Hence, the BIR
has provided four (4) types of withholding tables that would suit the payroll period being followed by the
employer - daily, weekly, semi-monthly, and monthly.

The following procedure is followed in computing for the amount of tax to be withheld:

1. Use the appropriate tables for the payroll period: monthly, semi-monthly, weekly or daily,
as the case may be.

1. Determine the total monetary and non-monetary compensation paid to an employee for
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the payroll period, segregating gross benefits which includes thirteenth (13 ) month pay,
productivity incentives, Christmas bonus, and other benefits received by the employee
per payroll period. Gross benefits in the amount of thirty thousand pesos (P30,000) or
less shall be exempted from income tax and from withholding tax.

1. Segregate the taxable compensation from the non-taxable income paid to the employee
for the payroll period. The taxable income refers to all remuneration paid to an employee
not otherwise exempted by law from income tax, while the non-taxable income are those
which are specifically exempted from income tax by the Tax Code or by other special
laws.

1. Segregate the taxable compensation income into regular taxable compensation income
and supplementary compensation income. Regular compensation includes basic salary,
fixed allowances for representation, transportation and other allowances paid to an
employee per payroll period. Supplementary compensation includes payments to an
employee in addition to the regular compensation, with or without regard to a payroll
period.

1. Fix the compensation level as follows:

i. Determine the line (horizontal) corresponding to the status and number of

qualified dependent children using the appropriate symbol for the taxpayer
status.

i. Determine the column to be used by taking into account only the total amount of
taxable regular compensation income. The compensation level is the amount
indicated in the line and column to which the regular compensation income is
equal to or in excess, but not to exceed the amount in the next column of the
same line.

1. Compute the withholding tax due by adding the tax predetermined in the compensation
level indicated at the top of the column, to the tax on the excess of the total regular and
supplementary compensation over the compensation level, which is computed by
multiplying the excess by the rate also indicated at the top of the column.

Annualization of Withholding Tax

When the employer-employee relationship is terminated before the end of the year, or at the end of the
year, the employer is required to determine the amount of tax that still has to be withheld from the total
compensation that he has paid to the employee.
To compute for the final adjustment, the following procedures will be observed:

1. Determine the total taxable regular and supplementary compensation paid to the
employee during the year.

1. If the employee has previous employment/s within the year, add the amount of taxable
regular and supplementary compensation paid to the employee by the previous
employer, if any.

1. Deduct from the aggregate amount of compensation the amount of the total personal and
additional exemptions of the employee.

1. Deduct the amount of premium payments on health and/or hospitalization insurance of

employees who have presented evidence that they have paid during the taxable year
premium payments (the deductible amount shall not exceed P2,400 or P200 per month,
whichever is lower) and that their family’s total gross income does not exceed P250,000
for the calendar year.

For this purpose, the employer should ask the employee to present the
policy contract together with the original official receipt of the premium
payment. The BIR will prescribe in a separate regulation the documents
to be presented to determine the aggregate of the employee’s family
income.

1. Compute the amount of tax on the difference in accordance with the following table:

Not over P10,000…………………………………… 5%

Over P10,000 but not over P30,000……………….. P500 + 10% of the excess
over P10,000

Over P30,000 but not over P70,000……………….. P2,500 + 15% of the excess
over P30,000

Over P70,000 but not over P140,000……………… P8,500 + 20% of the excess
over P70,000

Over P140,000 but not over P250,000…………… P22,500 + 25% of the

excess over P140,000

Over P250,000 but not over P500,000…………… P50,000 + 30% of the

excess over P250,000

Over P500,000……………………………………… P125,000 + 34% of the

excess over P500,000 in
1998; 33% in 1999; 32% in
2000 and thereafter

1. Determine the deficiency (or excess) of the tax computed over the cumulative taxes
already deducted by the present employer and previous employer, if any, since the
beginning of the current calendar year. The deficiency tax shall be deducted from the last
payment of compensation for the calendar year.
 In case the deficiency tax is more than the amount of last compensation
to be paid, the employer shall be liable to pay the amount of tax which
cannot be collected from the employee. The employer and employee
shall come to an agreement on how the amount advanced by the
employer will be settled.

If the tax withheld from the employee since the beginning of the year is
more than the tax required to be withheld, the excess shall be credited or
refunded to the employee not later than January 25 of the following year.
In return, the employer is allowed to deduct the amount refunded from
the remittable amount of taxes withheld from compensation income in
the current month when such refund was made, and in the succeeding
months thereafter until the amount refunded by the employer is fully paid.

Withholding Exemptions

In the computation of the withholding tax due from compensation paid to an employee, the employer must
consider the personal and additional exemptions that such employee is entitled to. In order to receive the
benefit of such exemptions, the employee must file the Application for Registration (BIR Form No. 1902)
upon employment. To report changes in his exemption, he must file a Withholding Compensation and
Exemption Certificate (Form No. 2305).

Beginning January 1, 1998, each employee shall be allowed to claim the following amount of exemptions:

1. Basic Personal exemption

For single individual or married individual judicially decreed as legally

separated with no qualified dependents - Twenty Thousand pesos
(P20,000.00)

For head of a family, Twenty Five Thousand pesos (P25,000.00). A

"head of family" refers to an unmarried or legally separated man or
woman with a parent, brother or sister or legitimate or illegitimate,
recognized naturally or legally adopted children living with and
dependent upon him for their chief support, where such brother or sister
or child are not more than 21 years of age, unmarried and not gainfully
employed or, regardless of age, are incapable of support because of
mental or physical defect. The term also includes an unmarried or legally
separated man or woman who is the benefactor of a qualified senior
citizen.

For each legally married individual, Thirty two thousand pesos (P32,000).

2. Additional Exemption for dependents

A married individual or head of family shall be allowed an additional

exemption of Eight Thousand pesos (P8,000.00) for each qualified
dependent child. However, the total number of dependents for which an
additional exemption can be claimed, must not exceed four (4).
 A dependent may be a legitimate, illegitimate or legally adopted child
who is chiefly dependent for support upon and living with the taxpayer.
He must be not more than 21 years of age, unmarried and not gainfully
employer. If mentally or physically handicapped, he would still qualify as
dependent, regardless of age.

The husband is deemed as the proper claimant of the additional

exemption, unless he explicitly waives his right in favor of his wife.
Where the spouse is unemployed or is a non-resident citizen deriving
income from foreign sources, the employed spouse who is working in the
Philippines shall automatically be entitled to claim the additional
exemption for the children.

Use of Withholding Taxes on Compensation

Withholding taxes on compensation are creditable. The employee is still required to report in his individual
income tax return the compensation subjected to withholding by his employer as part of his gross income
and, using this as basis, compute his total income tax liability. He is then allowed to claim as tax credit the
withholding taxes deducted by his employer, and pay only the remaining balance of the income tax.

Liability of Employer

An "employer" is a person for whom an individual performs or performed any service, of whatever nature,
under an employer-employee relationship. The term also refers to the person having control of the
payment of the compensation in cases where the person for whom the services were performed does not
exercise such control. A person paying compensation on behalf of a non-resident alien individual or
foreign corporation, which is not engaged in business in the Philippines, is also considered as employer.

The amount of any tax withheld by the employer is a special fund held in trust for the government. Any
person who expects to make payment of compensation in the amount of P60,000 or more during the
year, or P5,000 monthly, to any single employee must register by filing with the Revenue District Office
where his legal residence or place of business is located an Application for Registration as withholding
agent not later than ten (10) days after becoming an employer.

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The employer shall make a return and pay such tax on or before the 10 day of the month following the
month in which the withholding was made to any AAB within the Revenue District Office where the
employer’s place of business or legal residence is located. However, taxes withheld from the last
compensation for the year shall be paid to the BIR not later than January 25 of the succeeding year. For
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large taxpayers, the withholding taxes must be remitted on or before the 25 day of the following month.

The employer is required to furnish every employee from whose compensation taxes have been withheld
the Certificate of Income Tax Withheld on Compensation (Form No. 2316, formerly Form No. W-2). The
certification must be issued to the employee on or before January 31 of the following year, or if his
employment is terminated before the close of the year, on the day on which the last payment of
compensation is made.

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On or before January 31 of the following year, the employer is required to file with the BIR the Annual
Information Return of Income Tax Withheld on Compensation (BIR Form No. 1604), together with an
alphabetical list of employees, both in duplicate copies.
Penalties for Non-compliance

1. Failure to Withhold. Every person who is required to withhold the tax from the compensation of an
employee is liable for the payment of such tax to the BIR. In addition to the tax required to be
paid, a penalty equivalent to 25 per cent of the amount due shall be imposed in the following
cases:

a. Failure to file any return and pay the tax due thereon as required under the Tax Code or
regulations on the date prescribed; or

b. Filing a return with the wrong BIR office

c. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment;

d. Failure to pay the full or part of the amount of tax shown on any return required to be
filed, or the full amount of tax due for which no return is required to be filed, or before the
date prescribed for its payment; or

e. In case of willful neglect to file the return within the period prescribed, or in case a false or
fraudulent return is willfully made, the penalty to be imposed shall be 50% of the
deficiency tax, in case any payment has been made on the basis of such return before
the discovery of the falsity or fraud.

In addition, interest shall be assessed and collected on any unpaid amount of tax at the rate of 20
percent per annum, or such higher rate as may be prescribed for payment until the amount is fully
paid.

Such liability stays even if the employee subsequently pays the tax. In such a case, employer
shall be liable for penalties and/or additions to the tax for failure to deduct and withhold the tax
within the prescribed time.

2. Filing of Certain Information Return. For every failure to file an information return, statement or
list, or keep any record or supply any information required, the employer shall subject to penalty
of P1,000. However, the aggregate amount to be imposed for all such failures during a calendar
year will not exceed P25,000.

3. Failure to refund excess tax withheld on Compensation. Any employer who fails or refuses to
refund excess withholding tax not later than January 25 of the succeeding year shall be liable to a
penalty equal to the total amount of refunds which was not refunded to the employee.

In addition, the employer will be fined not less than P10,000 and imprisoned of not less than one
(1) year but not more than ten (10) years.

Registration of Employees as Taxpayers

Every employee is required to register as a taxpayer. For this purpose, he must accomplish the
Application for Registration for Individuals Earning Compensation Income (BIR Form No. 1902) with the
following information:
  Name
 Taxpayer’s Identification Number (TIN)
 Address
 Status of employee - Single/Legally Separated/Widow or widower with no dependent child/
Married/Head of Family
 Status of spouse of the employee
 Qualified dependents - name and date of birth
 Claimant of exemption for children

The following forms, if applicable, are required to be attached to the application:

 Marriage contract
 Court decision of legal separation
 Birth Certificate of each qualified dependent
 Certificate of employment of the husband if he is working abroad
 Waiver of exemptions of children by the husband in case wife is claiming the additional
exemptions of the children
 Waiver from exemption on withholding tax of taxpayers whose total compensation income in a
year does not exceed P60,000
 Medical certificate of dependent if physically or mentally incapacitated
 Court decision of legal adoption of children
 Death certificate
 Current certificate of income tax exemption of qualified senior citizen

The employer with whom the employee’s Application for Registration is filed must indicate the date when
he received the form and accomplish Part V of the application pertaining to Employer’s information such
as TIN, registered name and other relevant information.

All employees who have not filed the application for registration as of December 31, 1997 shall
accomplish and file the application with their employers not later than April 30, 1998. New employees
shall accomplish and file the application within ten (10) days from the start of employment. All applications
must be transmitted by the employer to the Revenue District Officer where the employer has his legal
residence or place of business within 30 days from receipt thereof.

If an employee fails or refuses to file an Application for Registration, the employer shall compute the
withholding tax under the schedule for zero exemption. In case the employee fails to update his
Exemption Certificate, the employer will withhold taxes based on the reported personal exemptions
existing prior to the change of status.

Withholding of Creditable Value-added tax

In general, VAT due on sales of goods and services are not subject to withholding since the tax is not
determinable at the time of sale. However, gross payments made by the government to sellers of goods
and services would be subject to withholding to wit:

Payments for purchases of goods 3%

Payments for services rendered 6%

Payments made to government public work 8.5%

 contractors

Payments for lease or use of property or property 10%

rights to non-resident owners

The withholding agents shall accomplish the Monthly VAT Tax declaration (BIR form 2550M) and pay the
amount withheld with the authorized agent bank located within the Revenue District Office (RDO) having
jurisdiction over the place where the government office is located. The return shall be filed and payments
made within ten (10) days following the end of the month the withholding was made, except taxes
rd
withheld for the 3 month of the quarter which would be remitted through a Quarterly VAT Tax return (BIR
th
Form 2550Q) to be filed not later than the 25 day after the end of the calendar quarter.

The withholding agent is required to furnish each seller of goods and services from whom taxes has been
deducted, the Certificate of Creditable Tax Withheld at Source (BIR Form 2307) in quadruplicate copies.
th
The first three copies will be given to the seller not later than the 15 of the following month, while the
fourth copy will be retained by the withholding agent.

Withholding of Percentage Taxes on Government Money Payments

Money payments made by bureaus, offices and instrumentalities of the government to private individuals,
corporations, partnerships and/or associations are subject to withholding at the following rates:

Type of Income Payment/ Payee Rate

Persons exempt from VAT for the reason that their annual gross sales or receipts do not exceed 3%
P550,000

Domestic carriers and keepers of garages 3%

International air and shipping carriers 3%

Grantees of franchise on radio and or television broadcasting companies whose annual gross 3%
receipts of the preceding year does not exceed P10,000

Grantees of franchise on electric, gas and water utilities 2%

Banks and non-bank financial intermediaries

a) On interest, commissions and discounts based on the remaining maturities of the

instrument-

Short-term (not exceeding 2 years)

Medium-term (2 years - 4 years)

Long-term maturity
5%
 4 years - 7 years 3%

Over 7 years 1%

b) On dividends 0%

c) On royalties, rentals of property, profits from exchange and other gross income 0%

5%

Finance companies and other financial intermediaries not performing quasi-banking functions

a) On interest, discounts and other items of gross income paid to finance 5%

b) On interest, commissions and discounts paid from their loan transactions based on the
remaining maturities of the instruments:

Short-term (not exceeding 2 years) 5%

Medium-term (2 years - 4 years) 3%

Long-term maturity 1%

4 years - 7 years 0%

Over 7 years

Life insurance companies 5%

Agents of foreign insurance companies 10%/5%

Proprietors, lessee or operator of

a) Cockpits 18%

b) cabarets, night and day clubs 18%

c) boxing exhibitions 10%

d) professional basketball games 15%

e) jai-alai and racetracks 30%

Sale, barter or exchange of shares of stock listed and traded through the local stock exchange ½ of 1%
on the
gross
selling
price
Shares of stock sold or exchanges through initial public offering 4%

Not over 25% 2%

25% - 33 1/3% 1%

Over 33 1/3%

Taxes deducted and withheld will be covered by the Monthly Return of Internal Revenue Taxes withheld
on Government Money payments (BIR Form 1600) which should be filed and payments made within ten
(10) days following the end of the month the withholding was made.

Effectivity

The regulations shall be applicable to compensation income paid beginning January 1, 1998. No
penalties will be imposed until May 15, 1998 for non-compliance of these regulations that implement new
provisions of the Code.