RR 2-98 - Withholding Taxes

REVENUE REGULATIONS NO.
02-98
SUBJECT : Implementing Republic Act No. 8424, "An Act Amending the National Internal
Revenue Code, as Amended" Relative to the Withholding on Income Subject to the Expanded
Withholding Tax and Final Withholding Tax, Withholding of Income Tax on Compensation, Withholding
of Creditable Value-Added Tax and Other Percentage Taxes
TO : All Internal Revenue Officers and Others Concerned
Pursuant to Sec. 244 of the National Internal Revenue Code, as amended, in relation to Sections 57 to
59 , Sections 78 to 83 , Section 114(C) and Sections 116 to 127 of Republic Act 8424, these regulations
are hereby promulgated which shall govern the collection at source on income paid on or after January
1, 1998 and prescribing the Revised Withholding Tax Tables on compensation.
SECTION 2.57. Withholding of Tax at Source. —
(A) Final Withholding Tax. — Under the final withholding tax system the amount of income tax
withheld by the withholding agent is constituted as a full and final payment of the income tax due from
the payee on the said income. The liability for payment of the tax rests primarily on the payor as a
withholding agent. Thus, in case of his failure to withhold the tax or in case of under withholding, the
deficiency tax shall be collected from the payor/withholding agent. The payee is not required to file an
income tax return for the particular income. LLpr
The finality of the withholding tax is limited only to the payee's income tax liability on the particular
income. It does not extend to the payee's other tax liability on said income, such as when the said
income is further subject to a percentage tax. For example, if a bank receives income subject to final
withholding tax, the same shall be subject to a percentage tax. cdasia
(B) Creditable Withholding Tax. — Under the creditable withholding tax system, taxes withheld on
certain income payments are intended to equal or at least approximate the tax due of the payee on said
income. The income recipient is still required to file an income tax return, as prescribed in Sec. 51 and
Sec. 52 of the NIRC, as amended, to report the income and/or pay the difference between the tax
withheld and the tax due on the income. Taxes withheld on income payments covered by the expanded
withholding tax (referred to in Sec. 2.57.2 of these regulations) and compensation income (referred to in
Sec. 2.78 also of these regulations) are creditable in nature.
SECTION 2.57.1.Income Payments Subject to Final Withholding Tax. — The following forms of income
shall be subject to final withholding tax at the rates herein specified;
(A) Income payments to a citizen or to a resident alien individual;
(1) Interest from any peso bank deposit, and yield or any other monetary benefit from deposit
substitutes and from trust funds and similar arrangements; royalties (except on books as well as other
literary works and musical compositions), prizes (except prizes amounting to ten thousand pesos
(P10,000.00) or less which shall be subject to tax under Sec. 24 (A) of the Code) and other winnings
(except Philippine Charity Sweepstakes winnings and lotto winnings) derived from sources within the
Philippines — Twenty percent (20%).
(2) Royalties on books, as well as other literary works and musical compositions — Ten percent
(10%).
(3) Interest income received by a resident individual taxpayer from a depository bank under the
Foreign Currency Deposit System — Seven and one-half percent (7.5%).
(4) Interest income from long-term deposit or investment in the form of savings, common or
individual trust funds, deposit substitutes, investment management accounts and other investments
evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas which was pre-
terminated by the holder before the fifth (5th) year at the rates herein prescribed to be deducted and
withheld from the proceeds thereof based on the length of time that the instrument was held by the
taxpayer —
Holding Period Rate
Four (4) years to less than five (5) years 5%
Three (3) years to less than four (4) years 12%
Less than three (3) years 20%
(5) Cash and/or property dividends actually or constructively received from a domestic corporation,
joint stock company, insurance or mutual fund companies or on the share of an individual partner in the
distributable net income after tax of a partnership (except general professional partnership) or on the
share of an individual in the net income after tax of an association, a joint account or a joint venture or
consortium of which he is a member or a co-venturer.
6% - beginning January 1, 1998
8% - beginning January 1, 1999 and
10% - beginning January 1, 2000 and thereafter
The tax on cash and property dividends shall only be imposed on dividends which are declared from
profits of corporations made after December 31, 1997. prLL
(6) On capital gains presumed to have been realized from the sale, exchange or other disposition of
real property located in the Philippines, classified as capital assets, including pacto de retro sales and
other forms of conditional sales based on the gross selling price or fair market value as determined in
accordance with Sec. 6(E) of the Code (i.e., the authority of the Commissioner to prescribe real property
values), whichever is higher — Six percent (6%).
In case of sale on installment of real property classified as capital asset, the procedures stated under
Sec. 2.57.2(J) hereof on the sale of real property classified as ordinary asset shall apply with the
exception that the withholding tax on the former shall be final whereas that on the latter shall be
creditable.
In case of dispositions of real property classified as capital asset by individuals to the government or any
of its political subdivisions or agencies or to government-owned or controlled corporations, the tax to be
imposed shall be determined either under Section 24(A) of the Code for the normal rate of income tax
for individual citizens or residents or under Section 24(D)(1) of the Code for the final tax on the
presumed capital gains from sale of property at six percent (6%), at the option of the taxpayer-seller.
In case of sale/transfer of principal residence, the Buyer/Transferee shall withhold from the seller and
shall deduct from the agreed selling price/consideration the 6% capital gains tax which shall be
deposited in cash or manager's check in interest-bearing account with an Authorized Agent Bank (AAB)
under an Escrow Agreement between the concerned Revenue District Officer, the Seller and the
Transferee, and the AAB to the effect that the amount so deposited, including its interest yield, shall
only be released to such Transferor upon certification by the said RDO that the proceeds of the
sale/disposition thereof has, in fact, been utilized in the acquisition or construction of the
Seller/Transferor's new principal residence within eighteen (18) calendar months from date of the said
sale or disposition. The date of sale or disposition of a property refers to the date of notarization of the
document evidencing the transfer of said property. In general, the term "Escrow" means a scroll, writing
or deed, delivered by the grantor, promisor or obligor into the hands of a third person, to be held by the
latter until the happening of a contingency or performance of a condition, and then by him delivered to
the grantee, promisee or obligee.
After depositing the amount representing the six percent (6%) capital gains tax as mentioned above, the
Buyer/Transferee and the Seller, shall jointly file, within thirty (30) days from the date of the sale or
disposition of the principal residence, with the Revenue District Office having jurisdiction over the
property, in duplicate, the Final Capital Gains Tax Return (BIR Form No. 1706, or any form number
assigned by the BIR), covering the property bought with no computed tax due stating that the supposed-
tax due/amount so withheld by the buyer is maintained in an escrow account, which amount will be
used to satisfy future tax liability, if any, on the subject transaction. For purposes of the capital gains tax
otherwise due on the sale, exchange or disposition of the said Principal Residence, the execution of the
Escrow Agreement referred to in the immediately preceding paragraph shall be considered sufficient.
The tax return so filed in pursuance hereof shall bear the addresses of both the seller and the buyer.
If within thirty (30) days after the lapse of the aforesaid 18-month period, the Seller/Transferor fails to
submit documentary evidence showing that he has utilized the proceeds of sale or disposition of his old
principal residence to acquire/construct his new principal residence, he shall be treated as deficient in
the payment of his capital gains tax on the sale or disposition of his aforesaid Principal Residence, and
shall be accordingly assessed for deficiency capital gains tax, inclusive of penalties and the 20% interest
per annum computed from the 31st day after the date of sale/disposition of the said principal residence,
pursuant to the provisions of Section 228 of the Code, as implemented by Revenue Regulations No. 12-
99, in relation to Section 249 of the said Code.
In the issuance of assessments, the Seller shall receive all the required notices following existing
procedures. Upon the time that the said deficiency tax assessment has become final and executory, the
deposit in escrow, inclusive of its interest earnings, shall be forfeited and applied against the deficiency
capital gains tax liability. If the same is insufficient to cover the entire amount assessed, the
Seller/Transferor shall remain liable for the remaining balance of the assessment. On the other hand,
the excess of the deposit in escrow, if any, shall forthwith be returned to the Seller, by the Bank upon
written authorization from the Commissioner or his duly authorized representative.
(7) Gross income derived from contracts by subcontractors from service contractors engaged in
'petroleum operations' as defined under P.D. 87 (also known as the 'Oil Exploration and Development
Act') in the Philippines — Eight percent (8%) of its gross income derived from such contracts in lieu of
any and all taxes, national and local, as imposed under P.D. 1354.
(B) Income Payment to Non-resident Aliens Engaged in Trade or Business in the Philippines. — The
following forms of income derived from sources within the Philippines shall be subject to final
withholding tax in the hands of a non-resident alien individual engaged in trade or business within the
Philippines, based on the gross amount thereof and at the rates prescribed therefor:
(1) On Certain Passive Income — A tax of twenty (20%) percent is hereby imposed on certain
passive income received from all sources within the Philippines.
(a) Cash and/or property dividend from a domestic corporation or from a joint stock company, or
from an insurance or mutual fund company or from a regional operating headquarter of a multinational
company;
(b) Share in the distributable net income after tax of a partnership (except general professional
partnership) of which he is a partner, or share in the net income after tax of an association, a joint
account, or a joint venture of which he is a member or a co-venturer;
(c) Interests from any currency bank deposit and yield or any other monetary benefit from deposit
substitutes and from trust funds and similar arrangements;
(d) Royalties (except royalties on books, as well as other literary works and musical compositions
which shall be subject to 10% final withholding tax);
(e) Prizes (except prizes amounting to ten thousand pesos (P10,000.00) or less subject to tax under
Sec. 25 (A) (1) of the Code for the normal rates of income tax for individuals) and other winnings (except
Philippine Charity Sweepstakes winnings and lotto winnings);
(2) Interest income derived from long-term deposit or investment in the form of savings, common
or individual trust funds, deposit substitutes, investment management accounts and other investments
evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas which was pre-
terminated by the holder before the fifth (5th) year at the rates herein prescribed to be deducted and
withheld from the proceeds thereof based on the length of time that the instrument was held by the
taxpayer —
Holding Period Rate
Four (4) years to less than five (5) years 5%
Three (3) years to less than four (4) years 12%
Less than three (3) years 20%
(3) On capital gains presumed to have been realized from the sale exchange or other disposition of
accordance with Sec. 6(E) of the Code (i.e. the authority of the Commissioner to prescribe zonal values),
whichever is higher — Six percent (6%).
creditable.
imposed shall be determined either under Sec. 24(A) of the Code for the normal rate of income tax for
individual citizens or residents or under Sec. 24(D)(1) of the Code for the final tax on the presumed
capital gains from sale of property at six percent (6%) at the option of the taxpayer-seller.
(4) Gross income from all sources within the Philippines derived by non-resident cinematographic
film owners, lessors or distributors — Twenty Five percent (25%).
For purposes of these regulations, the term 'cinematographic film' includes motion picture films, films,
tapes, discs and other such similar or related products.
(C) Income Derived from All Sources Within the Philippines by a Non-resident Alien Individual Not
Engaged in Trade or Business Within the Philippines. — The following forms of income derived from all
sources within the Philippines shall be subject to a final withholding tax in the hands of a non-resident
alien individual not engaged in trade or business within the Philippines based on the following amounts
and at the rates prescribed therefor:
(1) On the gross amount of income derived from all sources within the Philippines by a non-resident
alien individual who is not engaged in trade or business in the Philippines as interest, cash and/or
property dividends, rents, salaries, wages, premiums, annuities, compensation, remuneration,
emoluments, or other fixed or determinable annual or periodic or casual gains, profits and income and
capital gains — Twenty five percent (25%). Cdpr
accordance with Sec. 6(E) of the Code (i.e. the authority of the Commissioner to prescribe the real
property values), whichever is higher — Six percent (6%).
creditable.
imposed shall be determined either under Section 24(A) of the Code for the normal rate of income tax
for individual citizens or residents or under Section 24(D)(1) of the Code for the final tax on the
presumed capital gains from sale of property at six percent (6%) at the option of the taxpayer-seller.
(D) Income Derived by Alien Individuals Employed by Regional or Area Headquarters and Regional
Operating Headquarters of Multinational Companies. — A final withholding tax equivalent to fifteen
percent (15%) shall be withheld by the withholding agent from the gross income received by every alien
individual occupying managerial and technical positions in regional or area headquarters and regional
operating headquarters established in the Philippines by multinational companies as salaries, wages,
annuities, compensation, remuneration, and other emoluments, such as honoraria and allowances,
except income which is subject to the fringe benefits tax, from such regional or area headquarters and
regional operating headquarters.
The same tax treatment is applicable to Filipinos employed and occupying the same positions as those
aliens employed by regional or area headquarters and regional operating headquarters of multinational
companies, regardless of whether or not there is an alien executive occupying the same position.
Provided, that such Filipinos shall have the option to be taxed at either 15% of gross income or at the
regular tax rate on their taxable income in accordance with the Tax Code of 1997 if the employer
(Regional Operating Headquarters/Regional or Area Headquarters) is governed by Book III of E.O. 226 as
amended by R.A. 8756. In case the Filipino opted to be taxed at the regular tax rate under Section 24 of
the Tax Code of 1997, the provisions of Section 2.79 (A) to (D) of Revenue Regulations No. 2-98 shall
apply.
The term "multinational company" means a foreign firm or entity engaged in international trade with its
affiliates or subsidiaries or branch offices in the Asia Pacific Region and other foreign markets.
(E) Income Derived by Alien Individuals Employed by Offshore Banking Units. — A final withholding
tax equivalent to fifteen percent (15%) shall be withheld by the withholding agent from the gross
income of alien individuals occupying managerial and technical positions in offshore banking units
established in the Philippines, as salaries, wages, annuities, compensation, remuneration, and other
emoluments, such as honoraria and allowances received from such offshore banking units.
aliens employed by offshore banking units, regardless of whether or not there is an alien executive
occupying the same position.
(F) Income of Aliens Employed by Foreign Petroleum Service Contractors and Subcontractors. — A
final withholding tax equivalent to fifteen percent (15%) shall be withheld from the gross income of an
alien individual who is a permanent resident of a foreign country but who is employed and assigned in
the Philippines by a foreign service contractor or by a foreign service subcontractor who is engaged in
petroleum operations in the Philippines. His gross income includes salaries, wages, annuities,
compensation, remuneration and other emoluments, such as honoraria and allowances, received from
such contractor or subcontractor.
aliens employed by foreign petroleum service contractors and subcontractors, regardless of whether or
not there is an alien executive occupying the same position.
(G) Income Payment to a Domestic Corporation. — The following items of income shall be subject
to a final withholding tax in the hands of a domestic corporation, based on the gross amount thereof
and at the rate of tax prescribed therefor:
(1) Interest from any currency bank deposit and yield or any other monetary benefit from deposit
substitutes and from trust fund and similar arrangements derived from sources within the Philippines —
Twenty Percent (20%).
(2) Royalties derived from sources within the Philippines — Twenty percent (20%).
(3) Interest income derived from a depository bank under the Expanded Foreign Currency Deposit
System, otherwise known as a Foreign Currency Deposit Unit (FCDU) — Seven and one-half percent
(7.5%).
(4) Income derived by a depository bank under the Expanded Foreign Currency Deposit System
from foreign transactions with local commercial banks including branches of foreign banks that may be
authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with Foreign Currency Deposit
System Units and other depository banks under the expanded foreign currency deposit system including
interest income from foreign currency loans granted by such depository bank under the said expanded
foreign currency deposit system to residents — Ten percent (10%).
land and building located in the Philippines classified as capital assets, based on the gross selling price or
fair market value as determined in accordance with Sec. 6(E) of the Code, whichever is higher — Six
percent (6%).
creditable.
(H) Income Payment to a Resident Foreign Corporation. — The following forms of income shall be
subject to a final withholding tax in the hands of a foreign corporation, based on the gross amount
thereof and at the rate of tax prescribed therefor:
(1) Offshore Banking Units — On income derived by offshore banking units authorized by the
Bangko Sentral ng Pilipinas (BSP) from foreign currency transactions with local commercial banks and
branches of foreign banks that may be authorized by the BSP to transact business with offshore banking
units and other OBUs including interest income derived from foreign currency loans granted to resident
— Ten percent (10%).
(2) Tax on Branch Profit Remittances — On any profit remitted by the Philippine branch of a foreign
corporation to its head office abroad based on the total profits applied or earmarked for remittance
without any deduction for the tax component thereof except those registered with the Philippine
Economic Zones Authority (PEZA) and other companies within the special economic zones such as Subic
Bay Metropolitan Authority (SBMA) and Clark Development Authority (CDA) — Fifteen percent (15%).
Interests, dividends, rents, royalties (including remunerations for technical services), salaries, wages,
premiums, annuities, emoluments or other fixed or determinable annual periodic or casual gains,
profits, income and capital gains received by a foreign corporation during each taxable year from all
sources within the Philippines shall not be considered as branch profits unless the same are effectively
connected with the conduct of its trade or business in the Philippines.
(3) Interest on any currency bank deposit and yield or any other monetary benefit from deposit
substitutes and from trust funds and similar arrangements and royalties derived from sources within the
Philippines — Twenty percent (20%).
(4) Interest income derived from a Depository Bank under the Expanded Foreign Currency Deposit
system — Seven and one-half percent (7.5%).
(5) Income derived by a depository bank under the expanded foreign currency deposit system from
foreign currency transactions with local commercial banks including branches of foreign banks that may
be authorized by the Bangko Sentral ng Pilipinas to transact business with foreign currency deposit
system units and other depository banks under the expanded foreign currency deposit system including
interest income from foreign currency loans granted by such depository banks under the said expanded
foreign currency deposit system to resident — Ten percent (10%).
(I) Income Derived From all Sources Within the Philippines by Non-Resident Foreign Corporation.
— The following shall be subject to final withholding tax based on the gross amount of income and at
the rate of tax prescribed therefor:
(1) In general — On gross income derived from all sources within the Philippines such as interests,
dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments,
or other fixed or determinable annual, periodic or casual gains, profits and income and capital gains
(except capital gains realized from sale, exchange, disposition of shares of stock in any domestic
corporation which is subject to capital gains tax under Sec. 28(B)(5)(c) — at the following rates:
34% - beginning January 1, 1998
33% - beginning January 1, 1999 and
32% - beginning January 1, 2000 and thereafter
(2) Gross income from all sources within the Philippines derived by non-resident cinematographic
film owners, lessors or distributors — Twenty five percent (25%).
(3) On the gross rentals, lease and charter fees, derived by non-resident owner or lessor of vessels
from leases or charters to Filipino citizens or corporations as approved by the Maritime Industry
Authority — Four and one-half percent (4.5%).
(4) On the gross rentals, charter and other fees derived by non-resident lessor of aircraft,
machineries and other equipment — Seven and a half percent (7.5%).
(5) Interest on foreign loans contracted on or after August 1, 1986 — Twenty percent (20%).
(6) Dividends received from a domestic corporation — Fifteen percent (15%) of the cash and/or
property dividends received from a domestic corporation subject to the condition that the country in
which the nonresident foreign corporation is domiciled (a) shall allow a credit against the tax due from
the said nonresident foreign corporation which are equivalent to taxes deemed to have been paid in the
Philippines equal to twenty percent (20%) for 1997, nineteen percent (19%) for 1998, eighteen percent
(18%) for 1999 and seventeen percent (17%) thereafter, which represents the difference between the
regular income tax of thirty-five percent (35%) in 1997, thirty four percent (34%) in 1998, thirty three
percent (33%) in 1999, and thirty two percent (32%) thereafter on corporations and the fifteen percent
(15%) tax on dividends as herein provided; or, (b) does not impose any income tax on dividends received
from a domestic corporation.
(J) Fringe Benefits Granted to the Employee (Except Rank and File Employee). — There shall be
imposed a final tax of 34% beginning January 1, 1998; 33% beginning January 1, 1999 and 32% beginning
January 1, 2000 and thereafter, on the grossed-up monetary value of fringe benefits, granted or
furnished by the employer to his employees (except rank and file as defined in the Code). Fringe benefits
however, which are required by the nature of or necessary to the trade, business or profession of the
employer, or where such fringe benefit is for the convenience and advantage of the employer shall not
be subject to the fringe benefits tax. prcd
The term fringe benefit means any good, service or other benefit furnished or granted in cash or in kind
by an employer to an individual employee (except rank and file employees) such as but not limited to,
the following:
(1) Housing;
(2) Expense account;
(3) Vehicle of any kind;
(4) Household personnel, such as maid, driver and others;
(5) Interest on loan at less than market rate to the extent of the difference between the market
rate and actual rate granted;
(6) Membership fees, dues and other expenses borne by the employer for the employee in social
and athletic clubs or other similar organizations;
(7) Expenses for foreign travel;
(8) Holiday and vacation expenses;
(9) Educational assistance to the employee or his dependents; and
(10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of
what the law allows.
Fringe benefits granted to the following employees and taxable under Sec. 25 (B), (C), (D) and (E) shall
also be subject to the fringe benefit tax to wit:
Sec. 25(B) Non-resident alien individual not engaged in trade or business in the Philippines.
Sec. 25(C) Alien individual employed by regional or area headquarters and regional operating
headquarters of a multinational company, including any of its Filipino employees employed and
occupying the same position as those of its aforesaid alien employees;
Sec. 25(D) Alien individual employed by an offshore banking unit of a foreign bank established in
the Philippines, including any of its Filipino employees employed and occupying the same position as
those of its aforesaid alien employees;
Sec. 25(E) Alien individual employed by a foreign service contractor and subcontractor engaged in
petroleum operations in the Philippines, including any of its Filipino employees employed and occupying
the same position as those of its aforesaid alien employees.
The computation and the scheme for withholding the tax on fringe benefits shall be governed by such
revenue orders that the Commissioner shall issue as guidelines and clarifications for its proper and
consistent implementation.
(K) Informer's Reward to Persons Instrumental in the Discovery of Violations of the National
Internal Revenue Code and the Discovery and Seizure of Smuggled Goods. — The following rewards shall
be subject to a final withholding tax at the rate of ten percent (10%):
(1) Those given to persons, except an internal revenue official or employee, or other public official
or employee or his relative within the sixth degree of consanguinity, who voluntarily gives definite and
sworn information not yet in the possession of the BIR, leading to the discovery of frauds upon the
Internal Revenue Laws or violations of any of the provisions thereof, thereby resulting in the recovery of
revenues, surcharges and fees and/or the conviction of the guilty party and/or imposition of any fine or
penalty.
(2) Those given to an informer where the offender has offered to compromise the violation of law
committed by him and his offer has been accepted by the Commissioner and collected from the
offender.
The amount of reward shall be equivalent to ten percent (10%) of the revenues, surcharges or fees
recovered and/or fine or penalty imposed and collected or one million pesos (P1,000,000.00) per case
whichever is lower.
The reward shall be paid under the rules and regulations issued by the Secretary of Finance, upon the
recommendation of the Commissioner. However, such person shall not be entitled to a reward, should
no revenue, surcharges or fees be actually recovered or collected nor shall apply to a case already
pending or previously investigated or examined by the Commissioner or any of his deputies or agents or
examiners, or the Secretary of Finance or any of his deputies or agents.
(3) Those given to persons instrumental in the discovery and seizure of such smuggled goods.
The amount of reward shall be equivalent to ten percent of the market value of the smuggled and
confiscated goods or one million pesos (P1,000,000.00) per case whichever is lower. prLL
SECTION 2.57.2.Income Payments Subject to Creditable Withholding Tax and Rates Prescribed Thereon.
— Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates
herein specified for each class of payee from the following items of income payments to persons
residing in the Philippines:
(A) Professional fees, talent fees, etc., for services rendered by individuals — On the gross
professional, promotional and talent fees or any other form of remuneration for the services of the
following individuals — Fifteen percent (15%), if the gross income for the current year exceeds
P720,000; and Ten percent (10%), if otherwise;
(1) Those individually engaged in the practice of professions or callings; lawyers; certified public
accountants; doctors of medicine; architects; civil, electrical, chemical, mechanical, structural, industrial,
mining, sanitary, metallurgical and geodetic engineers; marine surveyors; doctors of veterinary science;
dentists; professional appraisers; connoisseurs of tobacco; actuaries; interior decorators, designers, real
estate service practitioners (RESPs), (i.e., real estate consultants, real estate appraisers and real estate
brokers) requiring government licensure examination given by the Real Estate Service pursuant to
Republic Act No. 9646 and all other professions requiring government licensure examination regulated
by the Professional Regulations Commission, Supreme Court, etc.
(2) Professional entertainers, such as, but not limited to, actors and actresses, singers, lyricist,
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.
The amounts subject to withholding tax under this paragraph shall include not only fees, but also per
diems, allowances and any other form of income payments not subject to withholding tax on
compensation.
In the case of professional entertainers, professional athletes, directors involved in movies, stage, radio,
television and musical productions and other recipients of talent fees, the amounts subject to
withholding tax shall also include amounts paid to them in consideration for the use of their names or
pictures in print, broadcast, or other media or for public appearances, for purposes of advertisements or
sales proportion.
Furthermore, in order to determine the applicable tax rate (10% or 15%) to be applied/withheld by the
withholding agent, every individual professional/talent/corporate directors herein enumerated, shall
periodically disclose his gross income for the current year to the Bureau of Internal Revenue (BIR) by
submitting a notarized sworn declaration attached as Annex "A" hereof in three (3) copies (two (2)
copies for the BIR and one (1) copy for the taxpayer), copy furnished all the current payors of the
declaration duly stamped received by the BIR (Collection Division of the Regional Office having
jurisdiction over the place where the income earner is registered/Large Taxpayers Collection Division for
large taxpayers in Metro Manila/LTDO for large taxpayers outside Metro-Manila). Sworn declaration
may likewise be filed by the income payor on behalf of the professionals/talents/directors whose
services were being rendered exclusively to the aforesaid payor. The disclosure should be filed on June
30 of each year or within fifteen (15) days after the end of the month the professional/talent/director's
income reaches P720,000, whichever comes earlier. In case his total gross income is less than P720,000
as of June 30, he/she shall submit a second disclosure within fifteen (15) days after the end of the
month that his/her gross income for the current year to date reaches P720,000. The payee —
professional/talent/director shall furnish each payor a copy of the BIR duly stamped received sworn
declaration not later than five (5) days from the date of receipt by the BIR. In case of failure to submit
the June 30 annual declaration/disclosure to the BIR, and to furnish the payor/s a copy thereof, the
payor shall withhold the tax at the rate of 15%.
The Collection Division/Large Taxpayers Collection Division/LTDO shall transmit one (1) copy of the duly
submitted notarized sworn declaration, to the Withholding Tax Division within five (5) days from receipt
thereof. The remaining copy shall be the file copy of the concerned Regional Office/Large Taxpayer
Service/LTDO for monitoring purposes.
These requirements shall likewise apply to taxable juridical persons (sworn declaration shall be executed
by the president/managing partner of the corporation/company), partners of general professional
partnerships and medical practitioners stated under sub-sections (B), (H) and (I) hereof.
Notwithstanding the foregoing, if an individual recipient receives professional fees/talent fees/directors

fees in addition to salaries from the same payor, the said fees shall be considered as supplemental
compensation and, thus be subject to the withholding tax on compensation.
(B) Professional fees, talent fees, etc., for services of taxable juridical persons. — On the gross
professional, promotional and talent fees, or any other form of remuneration enumerated in the
preceding subparagraph for the services of taxable juridical persons — Fifteen percent (15%), if the
gross income for the current year exceeds P720,000; and Ten percent (10%), if otherwise;
(C) Rentals
(1) Real properties. — On gross rental for the continued use or possession of real property used in
business which the payor or obligor has not taken or is not taking title, or in which he has no equity —
Five percent (5%);
(2) Personal properties. — On gross rental or lease in excess of Ten Thousand Pesos (P10,000.00)
annually for the continued use or possession of personal property used in business which the payor or
obligor has not taken or is not taking title, or in which he has no equity, except those under financial
lease arrangements with leasing and finance companies authorized to operate under Republic Act No.
8556 (Financing Company Act of 1998). — Five percent (5%)
(3) Poles, satellites and transmission facilities. — On gross rentals or lease for the use of poles,
satellites and/or transponder and transmission facilities which include but not limited to the following:
switchboards, land lines/aerial cables, underground cables and submarine cables — Five percent (5%);
(4) Billboards. — On gross rentals or lease of spaces used in posting advertisements in the form of
billboards and/or structures similar thereto, posted in public places such as, but not limited to, buildings,
vehicles, amusement places, malls, street posts, etc. — Five percent (5%)
(D) Cinematographic film rentals and other payments — On gross payments to resident individuals
and corporate cinematographic film owners, lessors or distributors — Five percent (5%).
(E) Income payments to certain contractors — On gross payments to the following contractors,
whether individual or corporate — Two percent (2%).
(1) General engineering contractors — Those whose principal contracting business in connection
with fixed works requiring specialized engineering knowledge and skill including the following divisions
or subjects:
(a) Reclamation works;
(b) Railroads;
(c) Highways, streets and roads;
(d) Tunnels;
(e) Airports and airways;
(f) Waste reduction plants;
(g) Bridges, overpasses, underpasses and other similar works;
(h) Pipelines and other systems for the transmission of petroleum and other liquid or gaseous
substances;
(i) Land leveling;
(j) Excavating;
(k) Trenching;
(l) Paving; and
(m) Surfacing work.
(2) General Building contractors — Those whose principal contracting business is in connection with
any structure built, for the support, shelter and enclosure of persons, animals, chattels, or movable
property of any kind, requiring in its construction the use of more than two unrelated building trades or
crafts, or to do or superintend the whole or any part thereto. Such structure includes sewers and
sewerage disposal plants and systems, parks, playgrounds, and other recreational works, refineries,
chemical plants and similar industrial plants requiring specialized engineering knowledge and skills,
powerhouse, power plants and other utility plants and installation, mines and metallurgical plants,
cement and concrete works in connection with the above-mentioned fixed works.
(3) Specialty Contractors — Those whose operations pertain to the performance of construction
work requiring special skill and whose principal contracting business involves the use of specialized
building trades or crafts. cdasia
(4) Other contractors —
(a) Filling, demolition and salvage work contractors and operators of mine drilling apparatus;
(b) Operators of dockyards;
(c) Persons engaged in the installation of water system, and gas or electric light, heat or power;
(d) Operators of stevedoring, warehousing or forwarding establishments;
(e) Transportation contractors which include common carriers for the carriage of goods and
merchandise of whatever kind by land, air or water, where the gross payments by the payor to the same
payee amounts to at least two thousand pesos (P2,000) per month, regardless of the number of
shipments during the month;
(f) Printers, bookbinders, lithographers and publishers except those principally engaged in the
publication or printing of any newspaper, magazine, review or bulletin which appears at regular
intervals, with fixed prices for subscription and sale;
(g) Messengerial, janitorial, private detective and/or security agencies, credit and/or collection
agencies and other business agencies;
(h) Advertising agencies, exclusive of gross payments to media;
(i) Independent producers of television, radio and stage performances or shows;
(j) Independent producers of "jingles";
(k) Labor recruiting agencies and/or "labor-only" contractors. For this purpose, any person who
undertakes to supply workers to an employer shall be deemed to be engaged in "labor-only" contracting
where such person does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises and other materials and the workers recruited and placed by such person
are performing activities which are directly related to the principal business or operations of the
employer which the workers are habitually employed;
(l) Persons engaged in the installation of elevators, central air conditioning units, computer
machines and other equipment and machineries and the maintenance services thereon;
(m) Persons engaged in the sale of computer services, computer programmers, software/program
developer/designer, internet service providers, web page designing, computer data processing,
conversion or base services and other computer related activities;
(n) Persons engaged in landscaping services;
(o) Persons engaged in the collection and disposal of garbage;

(p) TV and radio station operators on sale of TV and radio airtime; and
(q) TV and radio blocktimers on sale of TV and radio commercial spots.
(F) Income distribution to the beneficiaries. — On income distributed to the beneficiaries of estates
and trust as determined under Sec. 60 of the Code, except such income subject to final withholding tax
and tax exempt income — Fifteen percent (15%);
(G) Income payments to certain brokers and agents. — On gross commissions of customs,
insurance, stock, immigration and commercial brokers, fees of agents of professional entertainers and
real estate service practitioners (RESPs), (i.e., real estate consultants, real estate appraisers and real
estate brokers) who failed or did not take up the licensure examination given by and not registered with
the Real Estate Service under the Professional Regulations Commission. — Ten percent (10%).
(H) Income payments to partners of general professional partnerships. — Income payments made
periodically or at the end of the taxable year by a general professional partnership to the partners, such
as drawings, advances, sharings, allowances, stipends, etc. — Fifteen percent (15%), if the income
payments to the partner for the current year exceeds P720,000; and Ten percent (10%), if otherwise;
(I) Professional fees paid to medical practitioners. — Any amount collected for and paid to medical
practitioners (includes doctors of medicine, doctors of veterinary science and dentists) by hospitals and
clinics or paid directly to the medical practitioners by health maintenance organizations (HMOs) and/or
similar establishments — Fifteen percent (15%), if the income payments to the medical practitioner for
the current year exceeds P720,000; and Ten percent (10%), if otherwise.
(a) It shall be the duty and responsibility of the hospitals, clinics, HMOs and similar establishments
to withhold and remit taxes due on the professional fees of their respective accredited medical
practitioners, paid by patients who were admitted and confined to such hospitals and clinics. Hospitals,
clinics, HMOs and similar establishments must ensure that correct taxes due on the professional fees of
their medical practitioners have been withheld and timely remitted to the Bureau of Internal Revenue
(BIR). For this purpose, hospitals and clinics shall not allow their medical practitioners to receive
payment of professional fees directly from patients who were admitted and confined to such hospital or
clinic and, instead, must include the professional fees in the total medical bill of the patient which shall
be payable directly to the hospital or clinic.
(b) Exception — The withholding tax herein prescribed shall not apply whenever there is proof that
no professional fee has in fact been charged by the medical practitioner and paid by his patient.
Provided, however, that this fact is shown in a sworn declaration jointly executed by the medical
practitioner, and the patient or his duly authorized representative, in case the patient is a minor or
otherwise incapacitated. This sworn declaration, to be executed in the form presented in Annex "A" of
these Regulations, shall form part of the records of the hospital or clinic and shall constitute as part of its
records and shall be made readily available to any duly authorized Revenue Officer for tax audit
purpose. Provided, further, that the said administrator of the hospital or clinic shall inform the Revenue
District Office having jurisdiction over such hospital or clinic about any medical practitioner who fails or
refuses to execute the sworn statement herein prescribed, within ten (10) days from the occurrence of
such event.
(c) Hospitals and clinics shall submit the names and addresses of medical practitioners in the
following classifications, every 15th day after the end of each calendar quarter, to the Collection Division
of the Revenue Region for non-large taxpayers and at the Large Taxpayers Document Processing and
Quality Assurance Division (LTDP&QAD) in the National Office or Large Taxpayers District Office (LTDO)
in the Region for large taxpayers, where such hospital or clinic is registered, using the prescribed format.
(i) Medical practitioners whose professional fee was paid by patients directly to the hospital or
clinic.
(ii) Medical practitioners who did not charge any professional fee from their patients.
(d) For this purpose, the term 'medical practitioners' shall likewise include medical technologists,
allied health workers (e.g., occupational therapists, physical therapists, speech therapists, nurses, etc.)
and other medical practitioners who are not under an employer-employee relationship with the
hospital, clinic or HMO and other similar establishments.
(e) Hospitals and clinics shall be responsible for the accurate computation of taxes to be withheld
on professional fees paid by patients thru the hospitals and clinics, in the same way that HMOs shall be
responsible for the computation of taxes to be withheld from the professional fees paid by them to the
medical practitioners, and timely remittance of the 10% or 15% expanded withholding tax, whichever is
applicable.
The list of all income recipients-payees in this Subsection shall be included in the Alphalist of Payees
Subject to Expanded Withholding Tax attached to BIR Form No. 1604-E (Annual Information Return of
Creditable Income Taxes Withheld (Expanded)/Income Payments Exempt from Withholding Tax).
Likewise, the hospitals, clinics or HMOs shall issue a Certificate of Creditable Tax Withheld at Source (BIR
Form No. 2307) to medical practitioners who are subjected to withholding, every 20th day following the
close of the taxable quarter or upon request of the payee.
All hospitals and clinics shall submit to the BIR (Collection Division of the Regional Office having
jurisdiction over the place where the income earner is registered/Large Taxpayers Collection Division for
large taxpayers in Metro Manila/LTDO for large taxpayers outside Metro Manila), in three (3) copies
[two (2) copies for the BIR and one (1) copy for the taxpayer], a sworn statement executed by the
president/managing partner of the corporation/company as to the complete and updated list of medical
practitioners accredited with them.
(J) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for
the sale, exchange or transfer of real property classified as ordinary asset. — A creditable withholding
tax based on the gross selling price/total amount of consideration or the fair market value determined in
accordance with Section 6(E) of the Code, whichever is higher, paid to the seller/owner for the sale,
transfer or exchange of real property, other than capital asset, shall be imposed upon the withholding
agent,/buyer, in accordance with the following schedule:
A. Where the seller/transferor is exempt from
creditable withholding tax in accordance with
Sec. 2.57.5 of these regulations Exempt

B. Upon the following values of real property, where the seller/transferor is habitually engaged in the
real estate business:
With a selling price of Five Hundred Thousand Pesos
(P500,000.00) or less 1.5%
With a selling price of more than Five Hundred
Thousand Pesos (P500,000.00) but not more than
Two Million Pesos (P2,000,000.00) 3.0%
With a selling price of more than Two Million Pesos
(P2,000,000.00) 5.0%
C. Where the seller/transferor is not habitually engaged
in the real estate business 6.0%
Registration with the HLURB or HUDCC shall be sufficient for a seller/transferor to be considered as
habitually engaged in the real estate business. If the seller/transferor is not registered with HLURB or
HUDCC, he/it may prove that he/it is engaged in the real estate business by offering other satisfactory
evidence (for example, he/it consummated during the preceding year at least six taxable real estate
transactions, regardless of amount). Notwithstanding the foregoing, for purposes of these Regulations,
banks shall not be considered as habitually engaged in the real estate business.
Gross selling price shall mean the consideration stated in the sales document or the fair market value
determined in accordance with Section 6 (E) of the Code, whichever is higher. In an exchange, the fair
market value of the property received in exchange shall be considered as the consideration.
If the buyer is an individual not engaged in trade or business, the following rules shall apply:
(i) If the sale is a sale of property on the installment plan (i.e., payments in the year of sale do not
exceed twenty five percent (25%) of the selling price), no withholding is required to be made on the
periodic installment payments. In such a case, the applicable rate of tax based on the gross selling price
or fair market value of the property at the time of the execution of the contract to sell, whichever is
higher, shall be withheld on the last installment or installments immediately prior to such last
installment, if the last installment is not sufficient to cover the tax due, to be paid to the seller until the
tax is fully paid.
(ii) If, on the other hand, the sale is on a "cash basis" or is a "deferred-payment sale not on the
installment plan" (that is, payments in the year of sale exceed 25% of the selling price), the buyer shall
withhold the tax based on the gross selling price or fair market value of the property, whichever is
higher, on the first installment.
However, if the buyer is engaged in trade or business, whether a corporation or

otherwise, these rules shall apply:
(i) If the sale is a sale of property on the installment plan [i.e., payments in the year of sale do not
exceed twenty five percent (25%) of the selling price], the tax shall be deducted and withheld by the
buyer from every installment which tax shall be based on the ratio of actual collection of the
consideration against the agreed consideration appearing in the Contract to Sell applied to the gross
selling price or fair market value of the property at the time of the execution of the Contract to Sell,
whichever is higher.
The term 'consideration' refers to the selling price exclusive of interest. Interest earned as an incident of
installment payment, if any, shall be subject to the ordinary income tax rate.
(ii) If, on the other hand, the sale is on a "cash basis" or is a "deferred-payment sale not on the
installment plan" (that is, payments in the year of sale exceed 25% of the selling price), the buyer shall
withhold the tax based on the gross selling price or fair market value of the property, whichever is
higher, on the first installment.
In any case, no Certificate Authorizing Registration (CAR)/Tax Clearance Certificate (TCL), shall be issued
to the buyer unless the withholding tax due on the sale, transfer, or exchange of real property has been
fully paid.
For sale of property on installment basis or deferred payment basis where the Contract to Sell is always
executed before the execution of the Deed of Sale, the said Contract to Sell must be attached to the
Deed of Absolute Sale executed upon completion of the payments and the duly notarized original
duplicate copy of both documents must be presented to the RDO having jurisdiction of the place where
the property is located for validation of the correctness of issuance of CAR/TCL.
It is to be noted, however, that in case of sale of real property paid under installment payment or
deferred payment basis, the payment of the documentary stamp tax (DST) shall accrue upon the
execution of the Deed of Absolute Sale but the basis for the imposition thereof shall be the gross selling
price or fair market value of the property, whichever is higher, at the time of the execution of the
Contract to Sell.
If upon completion of the payment of the purchase price of real property classified as ordinary asset, but
before the execution of the Deed of Sale, the buyer decides to assign his right over the property to
another person for a consideration, the assignment shall be considered a separate sale of real property
and, therefore, subject to the creditable/expanded withholding tax (EWT) or final withholding of capital
gains tax, as the case may be, which shall be withheld by the assignee of such property based on the
consideration per Deed of Assignment or the fair market value of such property at the time of
assignment, whichever is higher, and to the DST imposed under Sec. 196 of the same Code using the
same basis.
It is to be clarified, however, that sale of interest in real property (real property purchased on
installment covered by Contract to Sell which was sold by the original buyer before it was fully paid)
shall be taxable on the part of the original buyer (now seller) based on the realized gain thereon which is
measured by the difference between the agreed consideration and the amount actually paid by the said
original buyer.
(K) Additional income payments to government personnel from importers, shipping and airline
companies, or their agents. — On gross additional payments by importers, shipping and airline
companies, or their agents to government personnel for overtime services as authorized by law —
Fifteen percent (15%);
For this purpose, the importers, shipping and airline companies or their agents, shall be the withholding
agents of the Government;
(L) Certain income payments made by credit card companies — On one-half (1/2) of the gross
amounts paid by any credit card company in the Philippines to any business entity, whether natural or
juridical person, representing the sales of goods/services made by the aforesaid business entity to
cardholders — One percent (1%)
(M) Income payments made by the top twenty thousand (20,000) private corporations to their
local/resident supplier of goods and local/resident supplier of services other than those covered by
other rates of withholding tax. — Income payments made by any of the top 20,000 private
corporations, as determined by the Commissioner, to their local/resident supplier of goods and
local/resident supplier of services, including non-resident aliens engaged in trade or business in the
Philippines. Provided, however, that for purchases involving agricultural products in their original state,
the tax required to be withheld under, this sub-section shall only apply to purchases in excess of the
cumulative amount of Three Hundred Thousand Pesos (P300,000) within the same taxable year. For this
purpose, an agricultural product in their original state as used in these Regulations, shall only include
corn, coconut, copra, palay, rice, cassava, coffee, fruit, vegetable, marine food product, poultry and
livestock.
Supplier of goods — One percent (1%)
Supplier of services — Two percent (2%)
Top 20,000 private corporations shall include a corporate taxpayer who has been determined and
notified by the Bureau of Internal Revenue (BIR) as having satisfied any of the following criteria:
(a) Classified and duly notified by the Commissioner as a large taxpayer under Revenue Regulations
No. 1-98, as amended, or belonging to the top five thousand (5,000) private corporations under RR 12-
94, or to the top ten thousand (10,000) private corporations under RR 17-2003, unless previously de-
classified as such or had already ceased business operations (automatic inclusion);
(b) VAT payment or payable, whichever is higher, of at least P100,000 for the preceding year;
(c) Annual income tax due of at least P200,000 for the preceding year;
(d) Total percentage tax paid of at least P100,000 for the preceding year;
(e) Gross sales of P10,000,000 and above for the preceding year;
(f) Gross purchases of P5,000,000 and above for the preceding year;
(g) Total excise tax payment of at least P100,000 for the preceding year.
Illustrative example for agricultural products:

Question: How do we compute the 1% expanded withholding tax (EWT) on purchases of palay, an
agricultural product, made by ABC Corporation, included in the BIR's list of Top 20,000 Private
Corporations, from Mr. Ben Soriano, a small supplier/planter based on the following information:
Number of
Transactions Year Purchase Amount
One 2009 P90,000.00
Two 2010 320,000.00
One 2011 400,000.00
One 2012 90,000.00
Answer:
1. In 2009, the transaction is exempt from the 1% EWT since the amount is less than P300,000.00.
2. In 2010, only the amount in excess of P300,000.00 or P20,000.00 shall be subject to the 1%
EWT. Thus, the 1% EWT shall be P200.00 (P20,000.00 x 1%).
3. In 2011, the amount of P100,000.00 shall be subject to the 1% EWT since the amount is in
excess of the P300,000.00 threshold. Therefore, the amount of P1,000.00 shall be withheld
(P100,000.00 x 1%).
4. In 2012, the transaction is exempt from the 1% EWT since the amount involved is only
P90,000.00 which is below the P300,000.00 threshold.
The term "goods" pertains to tangible personal property. It does not include intangible personal
property, as well as real property.
The term "local/resident suppliers of goods" pertains to a supplier from whom any of the top twenty
thousand (20,000) private corporations, as determined by the Commissioner, regularly makes its
purchases of goods. As a general rule, this term does not include a casual purchase of goods, that is,
purchase made from a non-regular supplier and oftentimes involving a single purchase. However, a
single purchase which involves Ten thousand pesos (P10,000.00) or more shall be subject to a
withholding tax. The term "regular suppliers" refers to suppliers who are engaged in business or exercise
of profession/calling with whom the taxpayer-buyer has transacted at least six (6) transactions,
regardless of amount per transaction, either in the previous year or current year. The same rules apply
to local/resident supplier of services other than those covered by separate rates of withholding tax.
A corporation shall not be considered a withholding agent for purposes of this Section, unless such
corporation has been determined and duly notified in writing by the Commissioner that it has been
selected as one of the top twenty thousand (20,000) private corporations.
Any corporation which has been duly classified and notified as large taxpayer by the Commissioner
pursuant to RR 1-98, as amended, shall be automatically considered one of the top twenty thousand
(20,000) private corporations, provided, however, that its authority as a withholding agent shall be
effective only upon receipt of written notice from the Commissioner that it has been classified as a large
taxpayer, as well as one of the top twenty thousand (20,000) private corporations, for purposes of these
regulations.
Any corporation shall remain a withholding agent for purposes of these regulations, unless the
Commissioner notifies it in writing that it shall cease to be one. The following, however, are some of the
reasons that a taxpayer shall automatically cease to be a withholding agent, and therefore no prior
written notice, for purposes of these regulations, is required, to wit:
(a) closure/cessation of business/dissolution (for taxpayer with notice of dissolution given to the
BIR);
(b) merger/consolidation (for dissolved or absorbed corporation);
(c) any other form of business combination wherein by operation of law a corporate taxpayer loses
its juridical personality.
The withholding agent shall submit on a semestral basis a list of its regular suppliers of goods and/or
services to the Large Taxpayers Assistance Division/Large Taxpayers District Office in the case of large
taxpayers duly notified as such pursuant to RR 1-98, as amended, or Revenue District Office (RDO)
having jurisdiction over the withholding agent's principal place of business on or before July 31 and
January 31 of each year.
A government-owned or -controlled corporation previously classified as one of the top five thousand
(5,000) corporations under RR 12-94, as amended, shall cease to be a withholding agent or included in
the top twenty thousand (20,000) private corporations for purposes of these regulations but rather shall
be treated as one under the succeeding sub-section (N) since it is already withholding 1% or 2% of the
amount paid for the purchase of goods/services from local/resident suppliers.
The Commissioner of Internal Revenue may recommend to the Secretary of Finance the
amendment/modification to any or all of the criteria in the determination and selection of taxpayers
forming part of the top twenty thousand (20,000) private corporations after considering such factors as
inflation, volume of business, and similar factors. Provided, however, that the Commissioner is
empowered to conduct periodic review as to the number of taxpayers who ceased to qualify under the
category of top twenty thousand (20,000) private corporations for purposes of delisting them or
excluding them from the list and to identify taxpayers to be added to the list of top twenty (20,000)
private corporations.
All taxpayers previously included in the list of top 5,000 private corporations under RR 12-94, as
amended, and those who qualified as top ten thousand (10,000) private corporations under RR 17-2003
shall continue to withhold one percent (1%) for supplier of goods and 2% for supplier of services upon
the effectivity of these Regulations, unless any of the following situations occur: (a) the Commissioner
communicates in writing that they have ceased to qualify as taxpayers includible in the list of top twenty
thousand (20,000) private corporations, or (b) those officially identified to have ceased business
operations, or undergone any of the business combinations wherein by operation of law the juridical
personality of said taxpayers ceased.
(N) Income payments made by the government to its local/resident supplier of goods and
local/resident supplier of services other than those covered by other rates of withholding tax. —
Income payments, except any casual or single purchase of P10,000.00 and below, which are made by a
government office, national or local, including barangays, or their attached agencies or bodies, and
government-owned or controlled corporations, on their purchases of goods and purchases of services
from local/resident suppliers.
A government-owned or controlled corporation shall withhold the tax in its capacity as a government-
owned or controlled corporation rather than as a corporation stated in Subsection (M) hereof.
(O) Commissions of independent and/or exclusive sales representatives, and marketing agents of
companies. — On gross commissions, rebates, discounts and other similar considerations paid/granted
to independent and/or exclusive sales representatives and marketing agents and sub-agents of
companies, including multi-level marketing companies, on their sale of goods or services by way of
direct selling or similar arrangements where there is no transfer of title over the goods from the seller to
the agent/sales representative. — Ten percent (10%)
'Multi-level marketing' is a system of direct selling in which consumer products are sold by individuals
where consumer products and services are supplied by an established multi-level marketing company
who encourages the distributor to build and manage his own sales force by recruiting, motivating, and
training others to sell the product or service. A percentage on the sales of the distributor's sales force
would be his compensation in addition to his personal sales.
'Multi-level marketing companies' means any entity that is engaged in the sale of its products or services
through individual that directly sell such products or services to the consumers.
(P) Tolling fees paid to refineries. — On the gross processing/tolling fees paid to refineries for the
conversion of molasses to its by-products and raw sugar to refined sugar — Five percent (5%)
(Q) Payments made by pre-need companies to funeral parlors. — On gross payments made by pre-
need companies to funeral parlors for funeral services rendered. — One percent (1%)
(R) Payments made to embalmers. — On gross payments made to embalmers for embalming
services rendered to funeral companies. — One percent (1%)
For purposes of these regulations, all income payments paid to sub-agents or their equivalent, whether
paid directly or indirectly by the agent or the owner of the goods, shall be subject to withholding tax in
the same manner as that of the agent.
(S) Income payments made to suppliers of agricultural products. — Income payments made to
agricultural suppliers such as, but not limited to, payments made by hotels, restaurants, resorts,
caterers, food processors, canneries, supermarkets, livestock, poultry, fish and marine product dealers,
hardwares, factories, furniture shops and all other establishments, in excess of the cumulative amount
of Three Hundred Thousand Pesos (P300,000.00) within the same taxable year. — One percent (1%)
The term "agricultural suppliers" refers to suppliers/sellers of agricultural, forest and marine food and
non-food products, livestock and poultry of a kind generally used as, or yielding or producing foods for
human consumption, and breeding stock and genetic materials therefor. "Livestock" shall include cow,
bull and calf, pig, sheep, goat and other animals similar thereto. "Poultry" shall include fowl, duck,
goose, turkey and other animals similar thereto. "Marine product" shall include fish and crustacean,
such as but not limited to, eel, trout, lobster, shrimp, prawn, oyster, mussel and clam, shell and other
aquatic products.
Meat, fruit, fish, vegetable and other agricultural and marine food products, even if they have
undergone the simple processes of preparation or preservation for the market, such as freezing, drying,
salting, smoking or stripping, including those using advanced technological means of packaging, such as
shrink wrapping in plastics, vacuum packing, tetra-pak and other similar packaging method, shall still be
covered by this subsection.
An agricultural food product shall include, but shall not be limited to the following: corn, coconut, copra,
palay, cassava, coffee, etc. Polished and/or husked rice, corn grits and ordinary salt shall be considered
as agricultural food products.
(T) Income payments on purchases of minerals, mineral products and quarry resources as defined
and discussed in Section 151 of the Code. — Income payments on purchases of minerals, mineral
products and quarry resources, such as but not limited to silver, gold, marble, granite, sand, boulders
and other materials/products — Five percent (5%)
(U) MERALCO Payments on the following:
(1) MERALCO Refund arising from Supreme Court Case G.R. No. 14814 of April 9, 2003 to customers
under Phase IV as approved by ERC — On gross amount of refund given by MERALCO to Customers with
active contracts as classified by MERALCO — Twenty Five Percent (25%); To Customers with terminated
contracts — Thirty Two Percent (32%); and
(2) Interest income on the refund of meter deposits determined, computed and paid in accordance
with the "Rules to Govern Refund of Meter Deposits to Residential and Non-Residential Customers", as
approved by the Energy Regulatory Commission under Resolution No. 8, Series of 2008, dated June 4,
2008 implementing Article 8 of the Magna Carta for Residential Electricity Consumers and ERC
Resolution No. 2005-10 RM (otherwise known as DSOAR) dated January 18, 2006, exempting all
electricity consumers from the payment of meter deposit.
On gross amount of interest whether paid directly to the customers or applied against customer's
billing:
(i) Residential and General Service customers whose monthly electricity consumption exceeds 200
kwh as classified by MERALCO — Ten percent (10%);
(ii) Non-Residential customers — Twenty percent (20%);
(V) Interest income on the refund paid either through direct payment or application against
customers' billings by other electric Distribution Utilities (DUs) in accordance with the rules embodied in
ERC Resolution No. 8, Series of 2008, dated June 4, 2008, governing the refund of meter deposits which
was approved and adopted by ERC in compliance with the mandate of Article 8 of the Magna Carta for
Residential Electricity Consumers and Article 3.4.2 of DSOAR, exempting all electricity consumers,
whether residential or non-residential, from the payment of meter deposit.
On gross amount of interest whether paid directly to the customers or applied against customer's
billing:
(i) Residential and General Service customers whose monthly electricity consumption exceeds 200
kwh as classified by the concerned DU — Ten percent (10%)
(ii) Non-Residential — Twenty percent (20%).
(W) Income payments made by the top five thousand (5,000) individual taxpayers to their
local/resident suppliers of goods and local/resident suppliers of services other than those covered by
other rates of withholding tax. — Income payments made by the Top 5,000 individual taxpayers
engaged in trade or business in the Philippines, as determined by the Commissioner of Internal Revenue,
to their local/resident suppliers of goods and local/resident suppliers of services other than those
covered by other rates of withholding tax, including non-resident aliens engaged in trade or business in
the Philippines. Provided, however, that for purchases involving agricultural products in their original
state, the tax required to be withheld under this sub-section shall only apply to purchases in excess of
the cumulative amount of Three Hundred Thousand Pesos (P300,000) within the same year. For this
purpose, agricultural products in their original state as used in these Regulations, shall include only corn,
coconut, copra, palay, rice, cassava, coffee, fruit, vegetable, marine food product, poultry and livestock.
Question: How do we compute the 1% expanded withholding tax (EWT) on purchases of corn, an
agricultural product, made by Mr. Miguel Andres, included in the BIR's list of Top 5,000 Individual
Taxpayers, from a small supplier/planter and not a regular supplier (less than 6 transactions) based on
the following information:
Number of
Two 2009 P330,000.00
One 2010 420,000.00
One 2011 95,000.00
Answer:
1. In 2009, the amount in excess of P300,000.00 is subject to the 1% EWT; hence, withholding tax
due of P300 shall be withheld and remitted (P30,000 x 1%).
2. In 2010, the amount in excess of P300,000.00 is subject to the 1% EWT, hence, withholding tax
due of P1,200.00 shall be withheld and remitted (P120,000.00 x 1%).
3. In 2011, the transaction is not subject to the 1% EWT since the amount is below the threshold of
P300,000.00.
Question: How do we compute the 1% expanded withholding tax (EWT) on purchases of corn, an
agricultural product, made by Mr. Antonio Panganiban, included in the BIR's list of Top 5,000 Individual
Taxpayers, from a small supplier/planter, a regular supplier of Mr. Panganiban, based on the following
information:
Number of
Seven 2009 P100,000.00
Ten 2010 310,000.00
Two 2011 130,000.00
Answer:
1. In 2009, the total purchases is not subject to 1% EWT since the amount is below the
P300,000.00 threshold.
2. In 2010, the EWT due is P100.00 since only the excess of P10,000 shall be subject to the 1%
EWT.
3. In 2011, again the total purchases is not subject to 1% EWT since the amount is below the
threshold of P300,000.00.
Top 5,000 Individual Taxpayers shall refer to individual taxpayers engaged in trade or business or
exercise of profession who have been determined and notified by the Bureau of Internal Revenue (BIR)
as having satisfied any of the following criteria:
a. VAT payment or payable, whichever is higher, of at least P100,000 for the preceding year;
b. Annual income tax due of at least P200,000 for the preceding year;
c. Total percentage tax paid of at least P100,000 for the preceding year;
d. Gross sales of P10,000,000 and above for the preceding year;
e. Gross purchases of P5,000,000 and above for the preceding year;
f. Total excise tax payment of at least P100,000 for the preceding year.
For individuals classified as resident citizen with multiple lines of business, the tax payments, gross sales
and gross purchases shall be determined by taking into consideration all lines of business inasmuch as
he/she is required by Section 51(A)(4)(a) of the Tax Code to declare in his/her return his/her income
from all sources. In the case of other individuals (resident alien, non-resident alien and non-resident
citizen) engaged in trade or business in the Philippines, only those derived in the Philippines shall be
included in the computation of his/her gross sales and purchases for purposes of determining if he/she
shall qualify as top 5,000 individual taxpayer.
The term "goods" pertains to tangible personal property used in the ordinary course of business and/or
practice of profession. It does not include intangible personal property as well as real property.
The term "local/resident supplier of goods" pertains to a supplier from whom any of the top 5,000
individual taxpayers, as determined by the Commissioner, regularly makes purchase of goods. As a
general rule, this does not include a casual purchase of goods, that is, purchase made from non-regular
suppliers and oftentimes involving single purchase. However, a single purchase of goods other than
agricultural products as defined in these Regulations which involves ten thousand pesos (P10,000.00) or
more shall be subject to withholding tax. The term "regular suppliers" refer to suppliers who are
engaged in business or exercise of profession/calling with whom the taxpayer-buyer has transacted at
least six (6) transactions, regardless of the amount per transaction, either in the previous year or current
year. The same rule applies to local/resident suppliers of services other than those covered by other
rates of withholding tax.
An individual shall not be considered as withholding agent for purposes of these Regulations unless such
individual has been determined and duly notified in writing by the Commissioner that he/she has been
selected as one of the Top 5,000 Individual Taxpayers and shall remain as such unless the Commissioner
notifies such individual in writing that he/she shall cease to be one. A taxpayer shall cease to be a
withholding agent for purposes of these Regulations when the individual submits to the BIR a notice of
closure or cessation of all lines of business or fails to meet all the criteria enumerated herein and a
notice of deletion is issued to him/her in writing by the Commissioner of Internal Revenue.
Top 5,000 Individual Taxpayers shall submit a list of regular suppliers of goods and/or services to the
Revenue District Officer having jurisdiction over their principal place of business on or before July 31 and
January 31 for the first and second semester of each year, respectively, in diskette/CD format or through
e-submission. The technical specifications of the said list is prescribed in a separate revenue issuance.
The initial list, however, shall be submitted within fifteen (15) days from receipt of the notice as one of
the Top 5,000 Individual Taxpayers.
The Commissioner may recommend to the Secretary of Finance the amendment to or modification of
any or all of the criteria in the determination and selection of taxpayers forming part of the top 5,000
individual taxpayers considering such factors as inflation, volume of business and similar factors.
Provided, however, that the Commissioner is empowered to conduct a periodic review as to the number
of taxpayers who ceased to qualify under the category of top five thousand individual taxpayers for
purposes of delisting/excluding them from the list and to identify taxpayers to be included in the list.
(X) Income payments made by political parties and candidates of local and national elections of all
their purchase of goods and services as campaign expenditures, and income payments made by
individuals or juridical persons for their purchases of goods and services intended to be given as
campaign contribution to political parties and candidates — Five percent (5%).
(Y) Interest income derived from any other debt instruments not within the coverage of 'deposit
substitutes' and Revenue Regulations No. ___-2012, unless otherwise provided by law or regulations —
Twenty Percent (20%).
(Z) Income payments to Real Estate Investment Trust (REIT). — Income payments made to
corporate taxpayers duly registered with the Large Taxpayers Regular Audit Division 3 (now Regular LT
Audit Division 3) of the Bureau of Internal Revenue, as REITs for purposes of availing the incentive
provisions of Republic Act No. 9856, otherwise known as "The Real Estate Investment Trust Act of
2009", as implemented by RR No. 13-2011. — One percent (1%);
(AA) Income payments on sugar. — On gross payments on purchases of sugar. — One percent (1%).
1. Proprietors or operators of sugar mills/refineries on their mill share, and buyers of Quedans or
Molasses Storage Certificates from the sugar planters on locally produced raw cane sugar, raw sugar and
molasses shall withhold the creditable income tax and remit the same to the BIR based on the following,
subject, however, to adjustment, when deemed necessary by the Commissioner, depending on the
prevailing market price of raw cane sugar, raw sugar and molasses:
1.1 For locally produced raw cane sugar and raw sugar — the composite price, in metric tons,
governing the specified crop year of raw cane sugar and raw sugar as reflected in one of the reports
(Annex "A") under the weekly Final Sugar Production Bulletin duly issued by the Sugar Regulatory
Administration (SRA) on the date of sale, or actual selling price, whichever is higher.
It shall be ensured that a copy of the weekly Final Sugar Production Bulletin be officially
transmitted by the SRA to the Commissioner of Internal Revenue within twenty four (24) hours from the
date of issuance thereof.
1.2 For Molasses — base price of FOUR THOUSAND PESOS (P4,000.00) per metric ton or actual
selling price, whichever is higher.
2. Buyers of refined sugar, whether locally produced or imported, shall withhold the creditable
income tax based on the actual selling price thereof.
For purposes of this subsection, the following terms shall have the following meaning:
(i) Buyers of Quedan or Molasses Storage Certificates — refer to traders or industry users duly
accredited by the SRA who bid and/or purchase the Quedans or Molasses Storage Certificates from the
sugar planters.
(ii) Mill Share — refers to payment to sugar mill/refinery by the sugar planter for the milling of
sugarcane. As such, it is equivalent to a sale of locally produced raw sugar.
(iii) Molasses Storage Certificate — refers to the warehouse receipt issued by a sugar mill/refinery
to the owner, as stated therein, attesting to the fact that the volume of molasses is stored at the mill's
facilities, with the commitment that it will be delivered to the holder of said document upon demand.
(iv) Sugar Mill/Refinery — refers to a domestic company engaged in the business of milling
sugarcane into raw sugar, or in the refining of raw sugar.
(v) Sugar Planter — refers to the original owner of sugarcane brought to the mill for milling
purposes.
(vi) Sugar Regulatory Administration (SRA) — refers to an agency of the Philippine government
under the Department of Agriculture, responsible for promoting the growth and development of the
sugar industry, through greater participation of the private sector, and for improving the working
conditions of the laborers, created by Executive Order No. 18, Series of 1986.
(vii) Quedan — refers to a warehouse receipt issued by a sugar mill/refinery to the owner as stated
therein, attesting to the fact that the volume and class of sugar is kept at the said sugar mill/refinery,
and with the commitment that it will be delivered to the holder of said document by the sugar
mill's/refinery's warehouseman upon demand. Quedan is issued in the name of the proprietor or
operator of the sugar mill/refinery, for its mill share, and to the sugar planter, as owner of the
sugarcane, as certified by SRA representative at the sugar mill/refinery.
(viii) Trader — refers to a domestic company or person given the authority and license by the SRA to
engage in the business of trading sugar, molasses, or muscovado, as the case may be.
(ix) Sugar — refers to raw cane sugar, raw sugar and refined sugar.
The Regional Director/Revenue District Officer, which has jurisdiction over the physical location of the
sugar mills/refineries, shall issue the Authority to Release Locally Produced Raw Sugar/Raw Cane
Sugar/Molasses (Annexes "A" or "B", or "C" as applicable) or Authority to Release Locally Refined Sugar
(Annexes "D" or "E" as applicable) to the proprietors or operators, for purposes of allowing the
transfer/withdrawal of their mill share, or to the buyers of Quedans or Molasses Storage Certificates on
the locally produced sugar; Provided, however, That, copies of proofs of payment of the creditable
withholding tax due thereon (i.e., duly validated Monthly Remittance Return of Creditable Income Taxes
Withheld (Expanded) [BIR Form No. 1601-E] and Bank Payment/Deposit Slip/Revenue Official Receipt
[BIR Form No. 2524]) shall have been submitted and attached to the written request for said
authorization.
Provided, finally, That, notwithstanding the presentation of proof of exemption from the payment of
income tax (e.g., BIR ruling, special law, etc.), the concerned proprietor, or operator of the sugar
mill/refinery, or any buyer of Quedan or Molasses Storage Certificate is still required to withhold and
remit the creditable withholding tax.
SECTION 2.57.3.Persons Required to Deduct and Withhold. — The following persons are hereby
constituted as withholding agents for purposes of the creditable tax required to be withheld on income
payments enumerated in Section 2.57.2:
(A) In general, any juridical person, whether or not engaged in trade or business;
(B) An individual, with respect to payments made in connection with his trade or business;
However, insofar as taxable sales, exchanges or transfers of real property are concerned, the buyers,
whether or not engaged in trade or business, are constituted as withholding agents. In any case, no
Certificate Authorizing Registration (CAR)/Tax Clearance Certificate (TCL) shall be issued to the buyer
unless the withholding tax due on the sale, transfer or exchange of real property has been duly paid.
Since the tax herein involved and being withheld is income tax, the burden of the tax is really upon the
seller although the mode of payment of the tax is through withholding by the buyer. As such, the tax
withheld is considered a part of the consideration agreed between the seller and buyer resulting,
therefore, to a net take to the seller of only the difference between the agreed consideration/selling
price and the tax withheld.
(C) All government offices including government-owned or controlled corporations, as well as

provincial, city and municipal governments and barangays.
(D) All individuals, juridical persons and political parties, with respect to their income payments
made as campaign expenditures and/or purchase of goods and services intended as campaign
contributions.
Agents, employees or any person purchasing goods or services/paying for and in behalf of the aforesaid
withholding agents shall likewise withhold in their behalf, provided that the official receipts of
payment/sales invoice shall be issued in the name of the person whom the former represents and the
corresponding certificate of taxes withheld (BIR Form No. 2307) shall immediately be issued upon
withholding of the tax.
All income payments which are required to be subjected to withholding tax shall be subject to the
corresponding withholding tax rate to be withheld by the person having control over the payment and
who, at the same time, claims the expenses, [e.g. payments to utility companies which are required to
be subjected to withholding tax shall likewise be subjected to withholding tax even if the meter or billing
statement (e.g. electric or water meter or the telephone bill) is not in the name of the payor, as long as
valid proof that payment of a particular expense is being shouldered by the aforementioned payor (i. e.
contract between the registered user of the meter and the payor); payments made by persons who are
sharing portion of the bill which is in the name of another person as long as he is a duly constituted
withholding agent and shall only withhold on the portion of the expense being shouldered by him].
Income payments made thru brokers or agents or other person authorized to collect/receive payments
for and on behalf of the payee, whether for consideration or otherwise, shall likewise be subject to the
corresponding withholding tax rates to be withheld by the payor/person having control over the
payment with the corresponding issuance of certificate of taxes withheld in the name of the payee
whom the agent represents.
The obligation to withhold is imposed upon the buyer-payor of income although the burden of tax is
really upon the seller-income earner hence, unjustifiable refusal of the latter to be subjected to
withholding shall be a ground for the mandatory audit of his income tax liabilities (including withholding
tax) upon verified complaint of the buyer-payor.
SECTION 2.57.4.Time of Withholding. — The obligation of the payor to deduct and withhold the tax
under Section 2.57 of these Regulations arises at the time an income payment is paid or payable, or the
income payment is accrued or recorded as an expense or asset, whichever is applicable, in the payor's
books, whichever comes first. The term "payable" refers to the date the obligation becomes due,
demandable or legally enforceable.
Provided, however, that where income is not yet paid or payable but the same has been recorded as an
expense or asset, whichever is applicable, in the payor's books, the obligation to withhold shall arise in
the last month of the return period in which the same is claimed as an expense or amortized for tax
purposes.
Example — X Corporation, a domestic corporation which reports income and expenses on a calendar
year basis, issues 2-year bonds with face value of P100,000,000 at a discount amounting to P6,000,000
on January 1, 2002 to twenty five (25) investors. It records in its books the amortized portion of the
discount as expense in the amount of P250,000/month (P6,000,000 divided by 24 months).
Since the discount is not yet paid or payable but the aliquot portion of which has already been recorded
as expense for tax purposes, the withholding of the 20% final tax shall be done on the last month of the
quarter when the same has been claimed as an expense in the quarterly income tax returns/final
adjustments returns filed by X Corporation.
Thus, in the above illustration, the amortized discount to be recorded by X Corporation for the months
of January, February and March 2002 amounting to P750,000 shall be subject to 20% final tax of
P150,000 come March 2002, which tax shall be remitted within 10 days after the quarter ending March
2002 (that is, on or before April 10, 2002). The said withholding tax shall be reported in its Monthly
Remittance Return of Final Income Taxes Withheld required to be filed in April 2002. On the other hand,
for the calendar quarter ending December 2002, the withholding of the final tax for the amortized
discount pertaining to the months of October, November and December shall be done in December
2002 and the remittance thereof shall be on or before January 15, 2003. The said withholding tax shall
be reported in its Monthly Remittance Return of Final Income Taxes Withheld required to be filed in
January 2003.
SECTION 2.57.5.Exemption from Withholding. — The withholding of creditable withholding tax

prescribed in these Regulations shall not apply to income payments made to the following:
(A) National government agencies and its instrumentalities including provincial, city, municipal
governments and barangays except government-owned and controlled corporations.
(B) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any
law, general or special, such as but not limited to the following:
(1) Sales of real property by a corporation which is registered with and certified by the Housing and
Land Use Regulatory Board (HLURB) or HUDCC as engaged in socialized housing project where the selling
price of the house and lot or only the lot does not exceed one hundred eighty thousand pesos
(P180,000) in Metro Manila and other highly urbanized areas and one hundred fifty thousand pesos
(P150,000) in other areas or such adjusted amount of selling price for socialized housing as may later be
determined and adopted by the HLURB, as provided under Republic Act No. 7279 and its implementing
regulations;
(2) Corporations duly registered with the Board of Investments, Philippine Export Processing Zones
and Subic Bay Metropolitan Authority enjoying exemption from income tax pursuant to E.O. 226, as
amended, R.A. 7916, the Omnibus Investment Code of 1987 and R.A. 7227, as amended, respectively;
(3) Corporations which are exempt from the income tax under Sec. 30 of the NIRC, to wit: the
Government Service Insurance System (GSIS), the Social Security System (SSS), the Philippine Health
Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO) and the Philippine
Amusement and Gaming Corporation (PAGCOR); However, the income payments arising from any
activity which is conducted for profit or income derived from real or personal property shall be subject
to a withholding tax as prescribed in these regulations;
(4) General professional partnerships;

(5) Joint ventures or consortium formed for the purpose of undertaking construction projects or
engaging in petroleum, coal, geothermal & other energy operations pursuant to an operating or
consortium agreement under a service contract with the government.
SECTION 2.58. Returns and Payment of Taxes Withheld at Source. —
(A) Monthly return and payment of taxes withheld at source —
(1) WHERE TO FILE — Creditable withholding taxes (Expanded Withholding Tax) deducted and
withheld by the withholding agent shall be remitted by accomplishing the Monthly Remittance Return of
Creditable Income Taxes Withheld (BIR Form No. 1601-E) and for final taxes Monthly Remittance Return
of Final Taxes Withheld (BIR Form No. 1601-F) in triplicate copies with Monthly Alphalist of Payees
(MAP), the tax base and the amount withheld paid upon filing the return with the authorized agent
banks under the jurisdiction of the Revenue District Office (RDO)/Large Taxpayers District Office (LTDO)
where the withholding agent is required to register and file the return. In places where there is no
authorized agent bank, the return shall be filed directly with the Revenue Collection Officer or the duly
authorized Municipal/City treasurer of the Revenue District Office where the withholding agent is
required to register or file the return, except in cases where the Commissioner otherwise permits.
Those not engaged in trade/business or practice of profession for a limited time during the election
period designated as withholding agent pursuant to Section 2.57.3 (D) and required to withhold income
payment under 2.57.2 (X) using only Alphanumeric Tax Code Withholding Tax Individual (WI) 680 or
Withholding Tax Corporation (WC) 680 in the remittance of taxes withheld using Monthly Remittance
Return on Creditable Withholding Taxes at Source (BIR Form No. 1601-E) shall not be required to attach
the Monthly Alphalist of Payees (MAP).
(2) WHEN TO FILE —
(a) For both large and non-large taxpayers, the withholding tax return, whether creditable or final
(including final withholding taxes on interest from any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust funds and similar arrangements) shall be filed
and payments should be made, within ten (10) days after the end of each month, except for taxes
withheld for the month of December of each year, which shall be filed on or before January 15 of the
following year; and except for the final capital gains tax on the sale or other onerous disposition of real
property considered as capital asset which must be taken/withheld from the seller by the buyer and
remitted within thirty (30) days from the date of notarization of the transfer document to the collecting
agent of the RDO having jurisdiction over the place where the property is located.
MERALCO and other Distribution Utilities (DUs) required to withhold taxes pursuant to Sec. 2.57.2 (U)
and (V) above shall submit a Monthly Alphalist of Payees (MAP) (Annex "A") for each calendar quarter,
which shall be electronically attached to the monthly remittance return of the calendar quarter (e.g., BIR
Form 1601-E for the quarter ending March with attached MAP for January, February, March). It shall
contain an alphalist of customers from whom taxes have been withheld for the return period and in
whose behalf, the taxes were remitted under BIR Form No. 1601-E showing the total amount of income
and taxes withheld and remitted.
Nonetheless, in case of disposition of real property classified as capital asset by an individual to the
government, the tax to be imposed shall be determined either under the normal income tax rate
imposed in Sec. 24(A) or under a final capital gains tax of six percent (6%) imposed under Sec. 24(D)(1)
of the Code, at the option of the taxpayer-seller. Thus, if the seller chooses the first option, the buyer
does not have to withhold the six percent (6%) final capital gains tax but no Certificate Authorizing
Registration shall be issued for the transaction until the seller or the buyer shows the seller's filed
income tax return reflecting the result of the subject real estate transaction.
(b) With respect, however, to taxpayers, whether large or non-large, who availed of the electronic
filing and payment system (EFPS), the deadline for electronically filing the applicable withholding tax
returns and paying the taxes due thereon via the EFPS shall be five (5) days later than the deadlines set
above, unless the EFPS regulations provide for different deadline dates and except for the final capital
gains tax on the sale, barter or exchange of real property where the law fixes a definite deadline for the
payment thereof.
(c) The return for final withholding taxes on interest from any currency bank deposit and yield or
any other monetary benefit from deposit substitutes and from trust funds and similar arrangements
shall be filed and the payment made within twenty five (25) days from the close of each calendar
quarter.
(B) Withholding tax statement for taxes withheld — Every payor required to deduct and withhold
taxes under these regulations shall furnish, in triplicate, each payee, whether individual or corporate,
with a withholding tax statement, using the prescribed form (BIR Form No. 2307) showing the income
payments made and the amount of taxes withheld therefrom, for every month of the quarter, within
twenty (20) days following the close of the taxable quarter employed by the payee in filing his/its
quarterly income tax return. The payor, nonetheless, should always retain a copy of duly issued BIR
Form No. 2307. Failure to furnish the same shall be a ground for the mandatory audit of payor's income
tax liabilities (including withholding tax) upon verified complaint of the payee.
For final withholding taxes, the statement should be given to the payee on or before January 31 of the
succeeding year.
Upon request of the payee, however, the payor must furnish such certificate simultaneously with the
income payment.
(C) Annual information return for income tax withheld at source. — The payor is required to file
with the BIR-Large Taxpayers Assistance Division, Large Taxpayer District Office or Excise Taxpayers
Assistance Division, or the Revenue District Office where the payor/employer is registered as
Withholding Agent, on or before March 1 of the following year in which payments were made, an
Annual Information Return of Creditable Taxes Withheld (Expanded)/Income Payments Exempt from
Withholding Tax (BIR Form No. 1604E) except withholding agents for a limited time during the election
period under Sec. 2.57.3(D) who are not engaged in business or practice of profession and using only
Alphanumeric Tax Code Withholding Tax Individual (WI) 680 or Withholding Tax Corporation (WC) 680
whose due date shall be within thirty (30) days after the day of election, and on or before January 31 of
the said year an Annual Information Return on Income Taxes Withheld on Compensation and Final
Withholding Taxes (BIR Form No. 1604-CF), showing among other the following information:
(1) Name, address and taxpayer's, identification number (TIN); and

(2) Nature of income payments, gross amount and amount of tax withheld from each payee and
such other information as may be required by the Commissioner.
If the payor is the Government of the Philippines or any political subdivision or agency thereof, or any
government-owned or controlled corporation, the return shall be made by the officer or employee
having control of the payments or by any designated officer or employee.
An individual whose sole income has been subjected to final withholding tax provided under Section
57(A) shall not be required to file an income tax return pursuant to Section 51(A)(2)(c) of the Tax Code.
For purposes of documentation, as may be required by other agencies in the government (including, but
not limited to, the Bureau of Immigration as well as for purposes of establishing financial capacity for
bank loans or credit card application in private and public entities and other purposes, BIR Form No.
2306 duly signed by the employer and the employee shall suffice. The term "an individual whose
compensation income has been subjected to final withholding tax" shall include aliens or Filipino citizens
occupying the same positions as the alien employees, as the case may be, who are employed by regional
operating headquarters, regional or area headquarters, offshore banking units, petroleum service
contractors and sub-contractors, pursuant to pertinent provisions of Sections 25(C), (D), (E) and 57(A) of
the Tax Code of 1997, Republic Act No. 8756, Presidential Decree No. 1354, and other pertinent laws.
SECTION 2.58.1.Income of Recipient. — Income upon which any creditable tax is required to be withheld
at source shall be included in the return of its recipient. The excess of the withheld tax over the tax due
on his return shall be refunded to him subject to the authority of the Commissioner to refund taxes
under Sec. 204 of the NIRC. 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 Sec. 56 of the Code.
The taxes withheld by the withholding agents shall be maintained in separate accounts and should not
be commingled with any other funds of the withholding agent. They shall be considered as a trust fund
held for government until they are remitted.
SECTION 2.58.2.Registration with the Register of Deeds. — Deeds of conveyances of land or land and
building/improvement thereon arising from sales, barters, or exchanges subject to the creditable
expanded withholding tax shall not be recorded by the Register of Deeds unless the Commissioner or his
duly authorized representative has certified that such transfers and conveyances have been reported
and the expanded withholding tax, inclusive of the documentary stamp tax, due thereon have been fully
paid, pursuant to the provisions of Sections 57 and 196 of the Code, respectively.
The Register of Deeds shall annotate on the Original Certificate of Title, Transfer Certificate of Title or
Condominium Certificate of Title of the said property such information required under Section 58(E) of
the Tax Code. In case of any violation of the said requirement, he shall be liable to the penalties
provided under Section 269 of the said Tax Code.
SECTION 2.58.3.Claim for Tax Credit or Refund. —
(A) The amount of creditable tax withheld shall be allowed as a tax credit against the income tax
liability of the payee in the quarter of the taxable year in which income was earned or received.
(B) Claims for tax credit or refund of any creditable income tax which was deducted and withheld
on income payments shall be given due course only when it is shown that the income payment has been
declared as part of the gross income and the fact of withholding is established by a copy of the
withholding tax statement duly issued by the payor to the payee showing the amount paid and the
amount of tax withheld therefrom.
Proof of remittance is the responsibility of the withholding agent.
(C) Excess Credits — An individual or corporate taxpayer's excess expanded withholding tax credits
for the taxable quarter/year shall automatically be allowed 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, provided he submits 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, and on which
return he has not opted for a cash refund or tax credit certificate. cdtai
(1) If in lieu of the automatic application of his excess credit, the taxpayer wants a cash refund or a
tax credit certificate for use in payment of his other national internal revenue tax liabilities, he shall
make a written request therefor, within two years after the payment of the tax (Ref. Secs. 204(c) and
229 of the Code ), provided however, that if the taxpayer has indicated in his income tax return his
option for either a cash refund or a tax credit certificate, such indication shall be considered sufficient
for the purpose. Upon filing of his request, the taxpayer's income tax return showing the excess
expanded withholding tax credits shall be examined. The excess expanded withholding tax so
determined, shall be refunded/credited to the taxpayer.
(2) Sample computation of application of excess credits-ordinary
Taxable Period
1997 1998-QTR1 1998-QTR2 1998-QTR3
Tax Due1,000 200 200 500
Less: Tax
Withheld (1,500) (500) (300) 0
Net Tax
Payable/
Creditable (500) (300) (100) 500
In the above illustration, there is an excess credit in 1997 that can be applied to the subsequent quarter.
And if the option to apply the excess credit is initiated in the first quarter of 1998, the taxpayer cannot
avail of a refund/tax credit certificate of the excess credit of P500 in 1997.
SECTION 2.58.4.Verification of Returns and Statement. — Any return, statement or other documents
required to be filed under these Regulations shall contain a written declaration that it is made under
penalties of perjury and such declaration shall be under oath.
It shall be the duty of tax officials to accept the income tax return or other documents submitted under
oath.
SECTION 2.58.5.Requirement for Deductibility. — Any income payment which is otherwise deductible
under the Code shall be allowed as a deduction from the payor's gross income only if it is shown that the
income tax required to be withheld has been paid to the Bureau in accordance with Secs. 57 and 58 of
the Code.
A deduction will also be allowed in the following cases where no withholding of tax was made: LexLib
(A) The payee reported the income and pays the tax due thereon and the withholding agent pays
the tax including the interest incident to the failure to withhold the tax, and surcharges, if applicable, at
the time of the audit investigation or reinvestigation/reconsideration.
(B) The recipient/payee failed to report the income on the due date thereof, but the withholding
agent/taxpayer pays the tax, including the interest incident to the failure to withhold the tax, and
surcharges, if applicable, at the time of the audit/investigation or reinvestigation/reconsideration.
(C) The withholding agent erroneously underwithheld the tax but pays the difference between the
correct amount and the amount of tax withheld, including the interest, incident to such error, and
surcharges, if applicable, at the time of the audit/investigation or reinvestigation/reconsideration.
Items of deduction representing return of capital such as those pertaining to purchases of raw materials
forming part of finished product or purchases of goods for resale, shall be allowed as deductions upon
the withholding agent's payment of the basic withholding tax and penalties incident to non-withholding
or underwithholding.
SECTION 2.58.6.Tax Paid by Recipient of Income. — 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. Such liability
stays even if the employee subsequently pays the tax. The payment of the tax by the employee does not
relieve the employer from the liability for penalties and/or additions to the tax for failure to deduct and
withhold within the time prescribed by law or regulations. The employer will not be relieved of his
liability for payment of the tax required to be withheld unless he can show that the tax has been paid by
the employee. The amount of any tax withheld/collected by the employer is a special fund in trust for
the government of the Philippines.
SECTION 2.78. Withholding Tax on Compensation. — The withholding of tax on compensation income
is a method of collecting the income tax at source upon receipt of the income. It applies to all employed
individuals whether citizens or aliens, deriving income from compensation for services rendered in the
Philippines. The employer is constituted as the withholding agent.
SECTION 2.78.1.Withholding of Income Tax on Compensation Income. —
(A) Compensation Income Defined. — In general, the term "compensation" means all remuneration
for services performed by an employee for his employer under an employer-employee relationship,
unless specifically excluded by the Code.
The name by which the remuneration for services is designated is immaterial. Thus, salaries, wages,
emoluments and honoraria, allowances, commissions (e.g., transportation, representation,
entertainment and the like); fees including director's fees, if the director is, at the same time, an
employee of the employer/corporation; taxable bonuses and fringe benefits except those which are
subject to the fringe benefits tax under Sec. 33 of the Code; taxable pensions and retirement pay; and
other income of a similar nature constitute compensation income.
The basis upon which the remuneration is paid is immaterial in determining whether the remuneration
constitutes compensation. Thus, it may be paid on the basis of piece-work, or a percentage of profits;
and may be paid hourly, daily, weekly, monthly or annually. cdrep
Remuneration for services constitutes compensation even if the relationship of employer and employee
does not exist any longer at the time when payment is made between the person in whose employ the
services had been performed and the individual who performed them.
(1) Compensation paid in kind. — Compensation may be paid in money or in some medium other
than money, as for example, stocks, bonds or other forms of property. If services are paid for in a
medium other than money, the fair market value of the thing taken in payment is the amount to be
included as compensation subject to withholding. If the services are rendered at a stipulated price, in
the absence of evidence to the contrary, such price will be presumed to be the fair market value of the
remuneration received. If a corporation transfers to its employees its own stock as remuneration for
services rendered by the employee, the amount of such remuneration is the fair market value of the
stock at the time the services were rendered.
Where compensation is paid in property other than money, the employer shall make necessary
arrangements to ensure that the amount of the tax required to be withheld is available for payment to
the Commissioner.
(2) Living quarters or meals. — If a person receives a salary as remuneration for services rendered,
and in addition thereto, living quarters or meals are provided, the value to such person of the quarters
and meals so furnished shall be added to the remuneration paid for the purpose of determining the
amount of compensation subject to withholding. However, if living quarters or meals are furnished to an
employee for the convenience of the employer, the value thereof need not be included as part of
compensation income.
(3) Facilities and privileges of relatively small value. — Ordinarily, facilities, and privileges (such as
entertainment, medical services, or so-called "courtesy" discounts on purchases), otherwise known as
"de minimis benefits," furnished or offered by an employer to his employees, are not considered as
compensation subject to income tax and consequently to withholding tax, if such facilities or privileges
are of relatively small value and are offered or furnished by the employer merely as means of promoting
the health, goodwill, contentment, or efficiency of his employees.
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 P750 per employee per
semester or P125 per month;
(d) Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not more than
P1,500;
(e) Uniform and Clothing allowance not exceeding P5,000 per annum;
(f) Actual medical assistance, e.g., medical allowance to cover medical and healthcare needs,
annual medical/executive check-up, maternity assistance, and routine consultations, not exceeding
P10,000.00 per annum;
(g) Laundry allowance not exceeding P300 per month;
(h) Employees achievement awards, e.g., for length of service or safety achievement, which must
be in the form of a tangible personal property other than cash or gift certificate, with an annual
monetary value not exceeding P10,000 received by the employee under an established written plan
which does not discriminate in favor of highly paid employees;
(i) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per
employee per annum;
(j) Daily meal allowance for overtime work and night/graveyard shift not exceeding twenty-five
percent (25%) of the basic minimum wage on a per region basis;
(k) Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and
productivity incentive schemes provided that the total annual monetary value received from both CBA
and productivity incentive schemes combined do not exceed ten thousand pesos (Php10,000.00) per
employee per taxable year;
All other benefits given by employers which are not included in the above enumeration shall not be
considered as "de minimis" benefits, and hence, shall be subject to income tax as well as withholding tax
on compensation income.
Any amount given by the employer as benefits to its employees, whether classified as "de minimis"
benefits or fringe benefits, shall constitute as deductible expense upon such employer.
Where compensation is paid in property other than money, the employer shall make necessary
arrangements to ensure that the amount of the tax required to be withheld is available for payment to
the Bureau of Internal Revenue.
(4) Tips and gratuities. — Tips or gratuities paid directly to an employee by a customer of the
employer which are not accounted for by the employee to the employer are considered as taxable
income but not subject to withholding.
(5) Pensions, retirement and separation pay. — Pensions, retirement and separation pay constitute
compensation subject to withholding, except those provided under Subsection B of this section.
(6) Fixed or variable transportation, representation and other allowances —
(a) IN GENERAL, fixed or variable transportation, representation and other allowances which are
received by a public officer or employee of a private entity, in addition to the regular compensation
fixed for his position or office, is compensation subject to withholding. Provided, however, that
Representation and Transportation Allowance (RATA) granted to public officers and employees under
the General Appropriations Act and the Personnel Economic Relief Allowance (PERA) which essentially
constitute reimbursement for expenses incurred in the performance of government personnel's official
duties shall not be subject to income tax and consequently to withholding tax. Provided further, that
pursuant to E.O. 219 which took effect on January 1, 2000, Additional Compensation Allowance (ACA)
given to government personnel shall not be subject to withholding tax pending its formal integration
into the basic pay. Consequently, and effective for the taxable year 2000, ACA shall be classified as part
of the "other benefits" under Section 32(B)(7)(e) of the Code which are excluded from gross
compensation income provided the total amount of such benefits does not exceed P30,000.00.
(b) Any amount paid specifically, either as advances or reimbursements for travelling,
representation and other bonafide ordinary and necessary expenses incurred or reasonably expected to
be incurred by the employee in the performance of his duties are not compensation subject to
withholding, if the following conditions are satisfied:
(i) It is for ordinary and necessary travelling and representation or entertainment expenses paid or
incurred by the employee in the pursuit of the trade, business or profession; and
(ii) The employee is required to account/liquidate for the expenses in accordance with the specific
requirements of substantiation for each category of expenses pursuant to Sec. 34 of the Code. The
excess of advances made over actual expenses shall constitute taxable income if such amount is not
returned to the employer. Reasonable amounts of reimbursements/advances for travelling and
entertainment expenses which are pre-computed on a daily basis and are paid to an employee while he
is on an assignment or duty need not be subject to the requirements of substantiation and to
withholding.
(7) Vacation and sick leave allowances. — Amounts of "vacation allowances or sick leave credits"
which are paid to an employee constitute compensation. Thus, the salary of an employee on vacation or
on sick leave, which is paid notwithstanding his absence from work constitutes compensation.
However, the monetized value of unutilized vacation leave credits of ten (10) days or less which are paid
to private employees during the year and the monetized value of leave credits paid to government
officials and employees shall not be subject to income tax and consequently to withholding tax.
(8) Deductions made by employer from compensation of employee. — Any amount which is
required by law to be deducted by the employer from the compensation of an employee including the
withheld tax is considered as part of the employee's compensation and is deemed to be paid to the
employee as compensation at the time the deduction is made.
(9) Remuneration for services as employee of a nonresident alien individual or foreign entity. —
The term "compensation" includes remuneration for services performed by an employee of a
nonresident alien individual, foreign partnership or foreign corporation, whether or not such alien
individual or foreign entity is engaged in trade or business within the Philippines. Any person paying
compensation on behalf of a non-resident alien individual, foreign partnership, or foreign corporation
which is not engaged in trade or business within the Philippines is subject to all provisions of law and
regulations applicable to an employer.
(10) Compensation for services performed outside the Philippines. — Remuneration for services
performed outside the Philippines by a resident citizen for a domestic or a resident foreign corporation
or partnership, or for a non-resident corporation or partnership, or for a non-resident individual not
engaged in trade or business in the Philippines shall be treated as compensation which is subject to tax.
A non-resident citizen as defined in these regulations is taxable only on income derived from sources
within the Philippines. In general, the situs of the income whether within or without the Philippines, is
determined by the place where the service is rendered.
(B) Exemptions from withholding tax on compensation. — The following income payments are
exempted from the requirement of withholding tax on compensation:
(1) Remunerations received as an incident of employment, as follows:
(a) Retirement benefits received under Republic Act under 7641 and those received by officials and
employees of private firms, whether individual or corporate, under a reasonable private benefit plan
maintained by the employer which meet the following requirements:
(i) The plan must be reasonable;
(ii) The benefit plan must be approved by the Bureau;
(iii) The retiring official or employee 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
(iv) The retiring official or employee should not have previously availed of the privilege under the
retirement benefit plan of the same or another employer.
(b) Any amount received by an official or employee or by his heirs from the employer due to death,
sickness or other physical disability or for any cause beyond the control of the said official or employee,
such as retrenchment, redundancy, or cessation of business. cdrep
The phrase "for any cause beyond the control of the said official or employee" connotes involuntariness
on the part of the official or employee. The separation from the service of the official or employee must
not be asked for or initiated by him. The separation was not of his own making. Whether or not the
separation is beyond the control of the official or employee, being essentially a question of fact, shall be
determined on the basis of prevailing facts and circumstances. It shall be duly established by the
employer by competent evidence which should be attached to the monthly return for the period in
which the amount paid due to the involuntary separation was made.
Amounts received by reason of involuntary separation remain exempt from income tax even if the
official or 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.
Any payment made by an employer to an employee on account of dismissal, constitutes compensation

regardless of whether the employer is legally bound by contract, statute, or otherwise, to make such
payment.
(c) Social security benefits, retirement gratuities, pensions and other similar benefits received by
residents or non-resident citizens of the Philippines or aliens who come to reside permanently in the
Philippines from foreign government agencies and other institutions private or public;
(d) Payments of benefits due or to become due to any person residing in the Philippines under the
law of the United States administered by the United States Veterans Administration;
(e) Payments of benefits made under the Social Security System Act of 1954 as amended ; and
(f) Benefits received from the GSIS Act of 1937, as amended, and the retirement gratuity received
by government officials and employees.
(2) Remuneration paid for agricultural labor —
(a) Remuneration for services which constitute agricultural labor and paid entirely in products of
the farm where the labor is performed is not subject to withholding. In general, however, the term,
"agricultural labor" does not include services performed in connection with forestry, lumbering or
landscaping.
(b) Remuneration paid entirely in products of the farm where the labor is performed by an
employee of any person in connection with any of the following activities is excepted as remuneration
for agricultural labor:
(i) The cultivation of soil;
(ii) The raising, shearing, feeding, caring for, training, or management of livestock, bees, poultry, or
wildlife; or
(iii) The raising or harvesting of any other agricultural or horticultural commodity. The term "farm"
as used in this subsection includes, but is not limited to stock, dairy, poultry, fruits and truck farms,
plantations, ranches, nurseries ranges, orchards, and such greenhouse and other similar structures as
are used primarily for the raising of agricultural or horticultural commodities.
(c) The remuneration paid entirely in products of the farm where labor is performed for the
following services in the employ of the owner or tenant or other operator of one or more farms is not
considered as remuneration for agricultural labor, provided the major part of such services is performed
on a farm:
(i) Services performed in connection with the operation, management, conservation,

improvement, or maintenance of any such farms or its tools or equipments; or
(ii) Services performed in salvaging timber, or clearing land brush and other debris left by a
hurricane or typhoon.
The services described in (i) above may include for example, services performed by carpenters, painters,
mechanics, farm supervisors, irrigation engineers, bookkeepers, and other skilled or semi-skilled
workers, which contribute in any way to the conduct of the farm or farms, as such, operated by the
person employing them, as distinguished from any other enterprise in which such person may be
engaged. Since the services described in this paragraph must be performed in the employ of the owner
or tenant or other operator of the farm, the exception does not extend to remuneration paid for
services performed by employees of a commercial painting concern, for example, which contracts with a
farmer to renovate his farm properties. cdasia
(d) Remuneration paid entirely in products of the farm where labor is performed by an employee in
the employ of any person in connection with any of the following operations is not considered as
remuneration for agricultural labor without regard to the place where such services are performed:
(i) The making of copra, stripping of abaca, etc.;
(ii) The hatching of poultry;
(iii) The raising of fish;
(iv) The operation or maintenance of ditches, canals, reservoirs, or waterways used exclusively for
supplying or storing water for farming purposes; and
(v) The production or harvesting of crude gum from a living tree or the processing of such crude
gum into gum spirits or turpentine and gum resin, provided such processing is carried on by the original
producer of such crude gum.
(e) Remuneration paid entirely in products of the farm where labor is performed by an employee in
the employ of a farmer or a farmer's cooperative, organization or group in the handling, planting, drying,
packing, packaging, processing, freezing, grading, storing or delivering to storage or to market or to
carrier for transportation to market, of any agricultural or horticultural commodity, produced by such
farmer or farmer-members of such organization or group, is excepted as remuneration for agricultural
labor. Services performed by employees of such farmer or farmer's organization or group in handling,
planting, drying, packaging, processing, freezing, grading, storing, or delivering to storage or to market
or to carrier for transportation to market of commodities produced by persons other than such farmer
or members of such farmer's organization or group are not performed "as an incident to ordinary
farming operation".
All payments made in cash or other forms other than products of the farm where labor is performed, for
services constituting agricultural labor as explained above, are not within the exception.
(3) Remuneration for domestic services. — Remuneration paid for services of a household nature
performed by an employee in or about the private home of the person by whom he is employed is not
subject to withholding. However, the services of household personnel furnished to an employee (except
rank and file employees) by an employer shall be subject to the fringe benefits tax pursuant to Sec. 33
of the Code, as amended.
A private home is the fixed place of abode of an individual or family. If the home is utilized primarily for
the purpose of supplying board or lodging to the public as a business enterprise, it ceases to be a private
home and remuneration paid for services performed therein is not exempted.
In general, services of a household nature in or about a private home include services rendered by
cooks, maids, butlers, valets, laundresses, gardeners, chauffeurs of automobiles for family use.
The remuneration paid for the services above enumerated which are performed in or about rooming or
lodging houses, boarding houses, clubs, hotels, hospitals or commercial offices or establishments is
considered as compensation;
Remuneration paid for services performed as a private secretary, even if they are performed in the
employer's home is considered as compensation;
(4) Remuneration for casual labor not in the course of an employer's trade or business. — The term
"casual labor" includes labor which is occasional, incidental or regular. The expression "not in the course
of the employer's trade or business" includes labor that does not promote or advance the trade or
business of the employer.
Thus, any remuneration paid for labor which is occasional, incidental or irregular, and does not promote
or advance the employer's trade or business, is not considered as compensation. cdasia
EXAMPLE: A's business is that of operating a sawmill. He employs B, a carpenter, at an hourly wage to
repair his home. B's work is irregular and he spends, the greater part of two days in completing the
work. Since B's labor is casual and is not in the course of A's business, the remuneration paid for such
services is exempted.
Any remuneration paid for casual labor, that is, labor which is occasional, incidental or irregular, but
which is rendered in the course of the employer's trade or business, is considered as compensation.
EXAMPLE: E is engaged in the business of operating a department store. He employs additional clerks for
a short period. While the services of the clerks may be casual, they are rendered in the course of the
employer's trade or business and therefore the remuneration paid for such services is considered as
compensation.
Any remuneration paid for casual labor performed for a corporation is considered as compensation;
(5) Compensation for services by a citizen or resident of the Philippines for a foreign government or
an international organization. — Remuneration paid for services performed as an employee of a foreign
government or an international organization is exempted. The exemption includes not only
remuneration paid for services performed by ambassadors, ministers and other diplomatic officers and
employees but also remuneration paid for services performed as consular or other officer or employee
of a foreign government or as a non-diplomatic representative of such government.
(6) Damages. — Actual, moral, exemplary and nominal damages received by an employee or his
heirs pursuant to a final judgment or compromise agreement arising out of or related to an employer-
employee relationship.
(7) Life Insurance. — The proceeds of life insurance policies paid to the heirs or beneficiaries upon
the death of the insured, whether in a single sum or otherwise, provided however, that interest
payments agreed under the policy for the amounts which are held by the insured under such an
agreement shall be included in the gross income.
(8) Amount received by the insured as a return of premium. — The amount received by the insured,
as a return of premium or premiums paid by him under life insurance, endowment, or annuity contracts
either during the term or at the maturity of the term mentioned in the contract or upon surrender of
the contract.
(9) Compensation for injuries or sickness. — Amounts received through Accident or Health
Insurance or under Workmen's Compensation Acts, as compensation for personal injuries or sickness,
plus the amount of any damages received whether by suit or agreement on account of such injuries or
sickness.
(10) Income exempt under treaty. — Income of any kind to the extent required by any treaty
obligation binding upon the Government of the Philippines.
(11) Thirteenth (13th ) month pay and other benefits. —
(a) Thirteenth (13th) month pay equivalent to the mandatory one (1) month basic salary of officials
and employees of the government, (whether national or local), including government-owned or
controlled corporations, and or private offices received after the twelfth (12th) month pay; and
(b) Other benefits such as Christmas bonus, productivity incentives, loyalty award, gift in cash or in
kind and other benefits of similar nature actually received by officials and employees of both
government and private offices, including the additional compensation allowance ("ACA") granted and
paid to all officials and employees of the national government agencies (NGAs) including state
universities and colleges (SUCs), government-owned and/or controlled corporations (GOCCs),
government financial institutions (GFIs) and local government units (LGUs).
The above stated exclusions (a) and (b) shall cover benefits paid or accrued during the year provided
that the total amount shall not exceed thirty thousand pesos (P30,000.00) which may be increased
through rules and regulations issued by the Secretary of Finance, upon recommendation of the
Commissioner, after considering, among others, the effect on the same of the inflation rate at the end
of the taxable year.
(12) GSIS, SSS, Medicare and other contributions. — GSIS, SSS, Medicare and Pag-Ibig contributions,
and union dues of individual employees.
(13) Compensation income of MWEs who work in the private sector and being paid the Statutory
Minimum Wage (SMW), as fixed by Regional Tripartite Wage and Productivity Board (RTWPB)/National
Wages and Productivity Commission (NWPC), applicable to the place where he/she is assigned.
The aforesaid income shall likewise be exempted from income tax.
'Statutory Minimum Wage'' (SMW) shall refer to the rate fixed by the Regional Tripartite Wage and
Productivity Board (RTWPB), as defined by the Bureau of Labor and Employment Statistics (BLES) of the
Department of Labor and Employment (DOLE). The RTWPB of each region shall determine the wage
rates in the different regions based on established criteria and shall be the basis of exemption from
income tax for this purpose.
Holiday pay, overtime pay, night shift differential pay and hazard pay earned by the aforementioned
MWE shall likewise be covered by the above exemption. Provided, however, that an employee who
receives/earns additional compensation such as commissions, honoraria, fringe benefits, benefits in
excess of the allowable statutory amount of P30,000.00, taxable allowances and other taxable income
other than the SMW, holiday pay, overtime pay, hazard pay and night shift differential pay shall not
enjoy the privilege of being a MWE and, therefore, his/her entire earnings are not exempt from income
tax, and consequently, from withholding tax.
MWEs receiving other income, such as income from the conduct of trade, business, or practice of
profession, except income subject to final tax, in addition to compensation income are not exempted
from income tax on their entire income earned during the taxable year. This rule, notwithstanding, the
SMW, Holiday pay, overtime pay, night shift differential pay and hazard pay shall still be exempt from
withholding tax.
For purposes of these regulations, hazard pay shall mean the amount paid by the employer to MWEs
who were actually assigned to danger or strife-torn areas, disease-infested places, or in distressed or
isolated stations and camps, which expose them to great danger of contagion or peril to life. Any hazard
pay paid to MWEs which does not satisfy the above criteria is deemed subject to income tax and
consequently, to withholding tax.
In case of hazardous employment, the employer shall attach to the monthly Remittance Return of
Withholding Tax on Compensation (BIR Form No. 1601C) for return periods March, June, September and
December a copy of the list submitted to the nearest DOLE Regional/Provincial Offices — Operations
Division/Unit showing the names of MWEs who received the hazard pay, period of employment, amount
of hazard pay per month; and justification for payment of hazard pay as certified by said DOLE/allied
agency that the hazard pay is justifiable.
The NWPC shall officially submit a Matrix of Wage Order by region (Annex "A"), and any changes
thereto, within ten (10) days after its effectivity to the Assistant Commissioner, Collection Service, for
circularization in the BIR.
Any reduction or diminution of wages for purposes of exemption from income tax shall constitute
misrepresentation and therefore, shall result to the automatic disallowance of expense, i.e.
compensation and benefits account, on the part of the employer. The offenders may be criminally
prosecuted under existing laws.
(14) Compensation income of employees in the public sector with compensation income of not more
than the SMW in the non-agricultural sector, as fixed by RTWPB/NWPC, applicable to the place where
he/she is assigned.
The aforesaid income shall likewise be exempted from income tax.
The basic salary of MWEs in the public sector shall be equated to the SMW in the non-agricultural sector
applicable to the place where he/she is assigned. The determination of the SMW in the public sector
shall likewise adopt the same procedures and consideration as those of the private sector.
Holiday pay, overtime pay, night shift differential pay and hazard pay earned by the aforementioned
MWE in the public sector shall likewise be covered by the above exemption. Provided, however, that a
public sector employee who receives additional compensation such as commissions, honoraria, fringe
benefits, benefits in excess of the allowable statutory amount of P30,000.00, taxable allowances and
other taxable income other than the SMW, holiday pay, overtime pay, night shift differential pay and
hazard pay shall not enjoy the privilege of being a MWE and, therefore, his/her entire earnings are not
exempt from income tax and, consequently, from withholding tax.
MWEs receiving other income, such as income from the conduct of trade, business, or practice of
profession, except income subject to final tax, in addition to compensation income are not exempted
from income tax on their entire income earned during the taxable year. This rule, notwithstanding, the
SMW, Holiday pay, overtime pay, night shift differential pay and hazard pay shall still be exempt from
withholding tax.
For purposes of these regulations, hazard pay shall mean the amount paid by the employer to MWEs
who were actually assigned to danger or strife-torn areas, disease-infested places, or in distressed or
isolated stations and camps, which expose them to great danger of contagion or peril to life. Any hazard
pay paid to MWEs which does not satisfy the above criteria is deemed subject to income tax and
consequently to withholding tax.
In case of hazardous employment, the employer shall attach to the Monthly Remittance Return of
Withholding Tax on Compensation (BIR Form No. 1601C) for return periods March, June, September and
December a copy of Department of Budget and Management (DBM) circular/s, or equivalent, as to who
are allowed to receive hazard pay.
SECTION 2.78.2.Payroll Period. — The term "payroll period" means the period of services for which a
payment of compensation is ordinarily made to an employee by his employer. It is immaterial that the
compensation is not always paid at regular intervals.
EXAMPLE: If an employer ordinarily pays the weekly wages of his employees at the end of the week, but
if for some reason a particular employee receives payment of his salaries for the past week in the middle
of the current week and receives the remainder at the end of the same week, the payroll period is still
the calendar week; or if, instead, the employee is sent on a three (3)-week trip by his employer and
receives at the end of the trip a single compensation payment for three (3)-week services, the payroll
period is still the calendar week, and the compensation payment shall be treated as though it were
three (3) separate weekly compensation payments. LLphil
For the purpose of determining the tax, an employee can have but one payroll period with respect to
the compensation paid by any one employer. Thus, if an employee is paid a regular compensation for
the weekly payroll and in addition thereto is paid supplemental compensation (for example taxable
bonuses) determined with respect to a different period, the payroll period is the weekly payroll period.
SECTION 2.78.3.Employee. — The term "employee" is an individual performing services under an

employer-employee relationship. The term covers all employees, including officers and employees,
whether elected or appointed, of the Government of the Philippines, or any political subdivision thereof
or any agency or instrumentality.
In general, the relationship of the employer and employee exists when the person for whom 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 by the work but also as to the details and means by which the result is
accomplished. An employee is subject to the will and control of the employer not only as to what shall
be done, but how it shall be done. In this connection, it is not necessary that the employer actually
directs or controls the manner in which the services are performed. It is sufficient that he has the right
to do so.
The right to dismiss an employee is also an important factor indicating that the person possessing that
right is an employer. Other factors or characteristics of an employer, which may not be necessarily
present in every case, are furnishing the tools and furnishing of a place to work, to the individual who
performs the services. In general, an individual is not considered an employee if he is subject to the
control or direction of another merely on to the result to be accomplished by the work, and not on to
the means and methods for accomplishing the result.
In general, individuals who follow an independent trade, business, or profession, in which the offer their
services to the public, are not employees.
The measurement, method or designation of compensation is also immaterial if the relationship of

employer and employee in fact exists.
No distinction is made between classes or grades of employees. Thus superintendents, managers, and
others belonging to similar levels are employees. An officer of a corporation is an employee of the
corporation. An individual, performing services for a corporation, both as an officer and director, is an
employee subject to withholding on compensation, including director's fees.
SECTION 2.78.4.Employer. — The term employer means any person for whom an individual performs or
performed any service, of whatever nature, under an employer-employee relationship. It is not
necessary that the services be continuing at the time the wages are paid in order that the status of
employer may exist. Thus for purposes of withholding, a person for whom an individual has performed
past services and from whom he is still receiving compensation is an "employee".
(A) Person for whom the services are or were performed does not have control. — The term
"employer" also refers to the person having control of the payment of the compensation in cases where
the services are or were performed for a person who does not exercise such control. For example,
where compensation, such as certain types of pensions or retirement pay, are paid by a trust and the
person for whom the services were performed has no control over the payment of such compensation,
the trust is deemed to be the "employer".
(B) Person paying compensation on behalf of a nonresident. — The term "employer" also means
any person paying compensation on behalf of a non-resident alien individual, foreign partnership, or
foreign corporation, who is not engaged in trade or business within the Philippines.
It is the responsibility of the employer to withhold, pay, or refund the tax and furnish the statements
required under these Regulations. The term "employer" as defined in (A) and (B) above is intended to
determine who is the withholding agent.
As a matter of business administration, certain mechanical details of the withholding process may be
handled by representatives of the employer. Thus, in the case of a corporate employer with branch
offices, the branch manager or other representative may actually, as a matter of internal administration,
withhold the tax or prepare the statements required under the law. Nevertheless, the legal
responsibility for withholding, paying and returning the tax and furnishing such statements rests with
the corporate employer.
An employer may be an individual, a corporation, a partnership, a trust, an estate, a joint-stock

company, an association, or a syndicate, group, pool, joint venture, or other unincorporated
organization, group or entity. A trust or estate, rather than the fiduciary acting for or on behalf of the
trust or estate, is generally the employer.
The term "employer" embraces not only an individual and an organization engaged in trade or business,
but it also includes an organization exempt from income tax, such as charitable and religious
organizations, clubs, social organizations and societes, as well as the Government of the Philippines,
including its agencies, instrumentalities, and political subdivisions.
(C) Compensation paid on behalf of two or more employers. — If a payment of compensation is
made to an employee by an employer through an agent, fiduciary, or other person who has the control,
receipt, custody, or disposal of, or pays the compensation payable by another employer to such
employee, the amount of tax required to be withheld on each compensation payment made through
such agent, fiduciary, or person shall, whether the compensation is paid separately on behalf of each
employer or paid in lump-sum on behalf of all such employers, be determined based on the aggregate
amount of such compensation payment or payments in the same manner as if such aggregate amount
had been paid by one employer. Hence, the tax shall be determined based on the aggregate amount of
the compensation paid. prcd
In any such case, each employer shall be liable for the return and payment of a pro-rata portion of the
tax so determined in accordance with the ratio of the amount contributed by each employer relative to
the aggregate of such compensation.
A fiduciary, agent, or other person acting for two or more employers may be authorized to withhold the
tax under these regulations with respect to the wages of the employees of such employers. Such
fiduciary, agent, or other person may also be authorized to make and file returns of the tax withheld at
source on such compensation and to furnish the receipts required under these Regulations. Application
for the authorization to perform such act should be addressed to the Commissioner or his duly
authorized representative. If such authority is granted by the Commissioner, all provisions of the law
(including penalties) and regulations prescribed in pursuance of the law applicable in respect of an
employer for whom such fiduciary, agent or other person acts shall remain subject to all provisions of
law (including penalties) and regulations prescribed in pursuance of the law applicable in respect of
employers.
SECTION 2.78.5 Computation of Wages. —
The basis of the computation of the minimum wage rates prescribed by law shall be the normal working
time of eight (8) hours a day.
The computation of wages shall be in accordance with the Collective Bargaining Agreement (CBA), if any,
or the provisions of the Labor Code as implemented. Unless otherwise amended or repealed by
subsequent pertinent laws, rules and regulations, the holiday pay, overtime pay, night shift differential
and hazard pay shall be understood to be computed based on such agreement or labor law provisions.
In the determination of the minimum wage on a monthly basis, the withholding agent shall be guided by
the prevailing minimum wage as reflected in the latest Matrix of Wage Order and its own policy on
whether employees are (a) not considered paid on Saturdays and Sundays or rest days, (b) not
considered paid on Sundays or rest days, (c) considered paid on rest days, special days and regular
holidays, or (d) required to work everyday including Sundays or rest days, special days and regular
holidays. The resulting number of days in the above enumerated categories are referred to as the factor
or number of working/paid days in a year. (Annex "B")
On the first classification, the monthly SMW is computed by multiplying the applicable daily wage rate
by the factor of 261 days and divide the same by twelve; the semi-monthly at one-half (1/2) of the
monthly rate and the weekly SMW is arrived at by spreading the annual minimum basic wage over fifty-
two (52) weeks. Thus, on a P382.00 minimum daily wage in Metro Manila, the monthly SMW is
P8,308.00, the semi-monthly at P4,154.00 and weekly P1,917.00.
On the second category, the monthly SMW is computed by multiplying the applicable daily wage rate by
the factor of 313 days and divide the product by twelve. Hence, on a P382.00 minimum daily wage, the
monthly SMW is P9,964.00, the semi-monthly at P4,982.00 and weekly at P2,300.00.
On the third classification, the monthly SMW is computed by multiplying the applicable daily wage rate
by the factor of 365 days, divided by twelve. Thus, on a 382 minimum daily wage, the monthly SMW is
P11,619.00, the semi-monthly at P5,810.00 and weekly at P2,681.00.
On the fourth classification, the monthly SMW is computed by multiplying the applicable daily wage rate
by the factor of 392.5 days, divided by twelve. Hence, on a 382 minimum daily wage, the monthly SMW
is P12,495.00, the semi-monthly at P6,247.00 and weekly at P2,883.00.
SECTION 2.79. Income Tax Collected at Source on Compensation Income.
(A) Requirement of Withholding. — Every employer must withhold from compensation paid an
amount computed in accordance with these Regulations. Provided, that no withholding of tax shall be
required on the SMW, including holiday pay, overtime pay, night shift differential and hazard pay of
MWEs in the private/public sectors as defined in these Regulations. Provided, further, that an employee
who receives additional compensation such as commissions, honoraria, fringe benefits, benefits in
excess of the allowable statutory amount of P30,000.00, taxable allowances and other taxable income
other than the SMW, holiday pay, overtime pay, hazard pay and night shift differential pay shall not
enjoy the privilege of being a MWE and, therefore, his/her entire earnings are not exempt from income
tax and, consequently, shall be subject to withholding tax.
(B) Computation of Withholding Tax on Compensation Income in General. — The procedures

provided herein below shall govern the computation of withholding tax on the taxable compensation
income of the employees. Provided, however, that taxable fringe benefits received by employees other
than the rank and file, as defined in the Labor Code of the Philippines, as amended, shall be subject to a
Fringe Benefits Tax, instead of the rates prescribed in the Revised Withholding Tax Tables pursuant to
Sec. 24 (A) of the Code, as amended.
(1) Use of Withholding Tax Tables. — In general, every employer making payment of compensation
shall deduct and withhold from such compensation a tax determined in accordance with the prescribed
Revised Withholding Tax Tables (Annex "C") which shall be used starting January 1, 2009.
There are four (4) withholding tables prescribed in these regulations, as follows:
(a) Monthly Tax Table — to be used by employers using the monthly payroll period;
(b) Semi-Monthly Tax Table — to be used by employers using the semi-monthly payroll period;
(c) Weekly Tax Table — to be used by employers using the weekly payroll period;
(d) Daily Tax Table — to be used by employers using the daily payroll period.
If the compensation is paid other than daily, weekly, semi-monthly or monthly, the tax to be withheld
shall be computed as follows:
(a) Annually — use the annualized computation referred to in Sec. 2.79 (B)(5)(b) of these
Regulations;
(b) Quarterly and semi-annually — divide the compensation by three (3) or six (6), respectively, to
determine the average monthly compensation. Use the monthly withholding tax table to compute the
tax, and the tax so computed shall be multiplied by three (3) or six (6) accordingly.
For the year 2008, however, being the initial year of implementation of R.A. 9504, there shall be a
transitory withholding tax table for the period from July 6 to December 31, 2008 (Annex "D")
determined by prorating the annual personal and additional exemptions under R.A. 9504 over a period
of six months. Thus, for individuals, regardless of personal status, the prorated personal exemption is
P25,000, and for each qualified dependent child (QDC), P12,500.
(2) Components of the Withholding Tax Table. —
(a) Each tax table is grouped into Tables A and B.
A — Table for employees with no QDC
B — Table for employees with QDC
(b) The columns in the Tables reflect the following:
1st column — reflects the exemption status of employee represented by letter symbols. (refer to the
explanation of the legend of symbols in letter (d) below)
2nd column — reflects the total amount of personal and additional exemption, in pesos, to which an
employee is entitled.
(c) Column numbers 1 to 8 reflect the portion of the amount of taxes to be withheld on the amount
of compensation of the employees. Every amount in all the columns within Tables A and B represent the
compensation level.
(d) Legend of symbols — The symbols used in the new withholding tax table represent the
following:
Z — Zero exemption
(a) Employee with multiple employers simultaneously, with respect to second, third, etc.,
employer; and
(b) Employee who fails to file Application for Registration (BIR Form No. 1902);
S — Single, legally separated spouses/widow/widower;
ME — Married employee who is not legally separated;
The numerals (1-4) affixed to the status symbols "ME" and "S" represent the number of qualified
legitimate, illegitimate, or legally adopted children.
Exemption — means the amount of exemption in thousand pesos an employee is entitled to claim as a
deduction from gross compensation income in accordance with the status and number of qualified
dependent children.
(3) Steps to determine the amount of tax to be withheld:
Step 1. Determine the total monetary and non-monetary compensation paid to an employee for the
payroll period, segregating gross benefits which include thirteenth (13th) month pay, productivity
incentives, Christmas bonus, other benefits, received by the employee per payroll period, and
employees' contributions to SSS, GSIS, HDMF, PHIC, and union dues. Gross benefits which are received
by officials and employees of both public and private entities in the amount of thirty thousand pesos
(P30,000.00) or less shall be exempted from income and withholding taxes. The 13th Month Pay is
equivalent to the total basic salary earned during the year divided by 12 months.
Step 2. Segregate the taxable from the non-taxable compensation 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 and consequently from withholding tax. The non-taxable income are
those which are specifically exempted from income tax by the Code or by other special laws as listed in
Sec. 2.78.1 (B) hereof (e.g. benefits not exceeding P30,000, non-taxable retirement benefits and
separation pay).
Step 3. Segregate the taxable compensation income as determined in Step 2 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 such as commission, overtime pay, taxable retirement pay, taxable bonus and
other taxable benefits, with or without regard to a payroll period.
Representation & Transportation Allowance (RATA) granted to public officers and employees under the
General Appropriations Act and the Personnel Economic Relief Allowance (PERA) which essentially
constitute reimbursement for expenses incurred in the performance of government personnel's official
duties shall not be subject to income tax and consequently to withholding tax.
Step 4. Use the appropriate tables mentioned under Section 2.79 (B) (1) for the payroll period: monthly,
semi-monthly, weekly or daily, as the case may be.
Step 5. 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.
(ii) 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.
Step 6. 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 same column/compensation level.
(4) Sample Computations on the use of the Withholding Tax Tables:
EXAMPLE I: Mr. A, single with no dependent, receives P12,000.00 (net of SSS/GSIS, PHIC, HDMF
employee share only) as monthly regular compensation and P5,000,00 as supplementary compensation
for January 2009 or a total of P17,000.00.
COMPUTATION: Using the monthly withholding tax table (Revised Withholding Tax Tables beginning
January 1, 2009), the withholding tax for January 2009 is computed by referring to Table A line 2 S of
column 5 (fix compensation level taking into account only the regular compensation income of
P12,000.00 which shows a tax of P708.33 on P10,000.00 plus 20% of the excess of P2,000.00
(P12,000.00 less P10,000.00) plus P5,000.00 supplementary compensation.
Regular compensation P12,000.00
Less: compensation level
(line A-2 Column 5) 10,000.00
–––––––––
Excess P2,000.00
Add: Supplementary compensation 5,000.00
–––––––––
Total P7,000.00
–––––––––
Tax on P10,000.00 P708.33
Tax on excess (P7,000 x 20%) 1,400.00
–––––––––
Withholding tax for January 2009 P2,108.33
========
MONTHLY 1 2 3 4 5 6 7 8
Exemption 0.00 0.00 41.67 208.33 708.33 1,875.00

4,166.67 10,416.67
Status (000P +0% over +5% over +10% over +15% over +20% over
+25% over +30% over +32% over
A. Table for employees without qualified dependent.
1. Z 0.0 1 0 833 2,500 5,833 11,667 20,833 41,667

2. S/ME 50.0 1 4,167 5,000 6,667 10,000 15,833 25,000 45,833
EXAMPLE II: Mr. B, married with three (3) qualified dependent children receives P12,000.00 (net of
SSS/GSIS, PHIC, HDMF employee share only) as regular semi-monthly compensation. Mrs. B, his wife, is
also employed. Mr. B did not waive his right in favor of the wife to claim for the additional exemptions.
COMPUTATION: Using the semi-monthly withholding tax tables (Revised Withholding Tax Tables
beginning January 1, 2009), the withholding tax due is computed by referring to Table B line 3 ME3 of
column 6 which shows a tax of P937.50 on P11,042 plus 25% of the excess (P12,000 – 11,042 = P958.00)
Total taxable compensation P12,000.00
Less: compensation level
(line B-3 Column 6) 11,042.00
Excess P958.00
––––––––––
Tax on P11,042 P937.50
Tax on excess (P958 x 25%) 239.50
––––––––––
Semi-monthly withholding tax P1,177.00
=========
SEMI-MONTHLY 1 2 3 4 5 6 7 8
Exemption 0.00 0.00 20.83 104.17 354.17 937.50 2,083.33

5,208.33
A. Table for employees without qualified dependent
1. Z 0.0 1 0 417 1,250 2,917 5,833 10,417 20,833
2. S/ME 50.0 1 2,083 2,500 3,333 5,000 7,917 12,500 22,917
B. Table for employees with qualified dependent child(ren)
1. ME 1/S1 75.0 1 3,125 3,542 4,375 6,042 8,958 13,542 23,958
2. ME 2/S2 100.0 1 4,167 4,583 5,417 7,083 10,000 14,583 25,000
3. ME 3/S3 125.0 1 5,208 5,625 6,458 8,125 11,042 15,625 26,042
4. ME 4/S4 150.0 1 6,250 6,667 7,500 9,167 12,083 16,667 27,083

EXAMPLE III: For the month of August 2008, Mrs. C, married with three qualified dependent children,
with a basic salary equivalent to the SMW, receives P9,964.00 (P382/day x 313 days ÷ 12) as statutory
monthly minimum wage plus other compensation such as commission of P10,000, transportation
allowance of P2,000, hazard pay of P1,000, overtime pay of P5,000 and night shift differential pay of
P2,000.00. Compute the withholding tax of Mrs. C for the month of August 2008 using the Revised
Transitional Withholding Tax Table for the period July 6 to December 31, 2008.
COMPUTATION:
Statutory Minimum Wage P9,964.00
Gross Benefits
Hazard pay 1,000.00
Overtime Pay 5,000.00
Night Shift Differential 2,000.00 8,000.00
––––––––– –––––––––
Sub-total P17,964.00
========
Taxable compensation
Commission * 10,000.00
Transportation allowance * 2,000.00 12,000.00
–––––––– –––––––––
Total Taxable Compensation Income P29,964.00
========
Regular compensation P9,964.00
Less: Compensation level (line B-3 column 4) 7,708.00
–––––––––
Excess P2,256.00
Add: Supplementary compensation (8,000 + 12,000) 20,000.00
–––––––––
Total P22,256.00
–––––––––
Tax on P9,964.00 (Line B3, col. 4) P208.33

Tax on excess (P22,256.00 x 15%) 3,338.40
–––––––––
Withholding tax for the month of August 2008 P3,546.73
========
MONTHLY 1 2 3 4 5 6 7 8
Exemption 0.00 0.00 41.67 208.33 708.33 1,875.00

4,166.67 10,416.67
A. Table for employees without qualified dependent
1. Z 0.0 1 0 833 2,500 5,833 11,667 20,833 41,667
2. S/ME 25.0 1 2,083 2,917 4,583 7,917 13,750 22,917 43,750
B. Table for employees with qualified dependent child(ren)
1. ME1/S1 37.5 1 3,125 3,958 5,625 8,958 14,792 23,958 44,792
2. ME2/S2 50.0 1 4,167 5,000 6,667 10,000 15,833 25,000 45,833
3. ME3/S3 62.5 1 5,208 6,042 7,708 11,042 16,875 26,042 46,875
4. ME4/S4 75.0 1 6,250 7,083 8,750 12,083 17,917 27,083 47,917
* An employee who receives compensation other than the SMW, holiday, overtime, night shift
differential and hazard pay shall not enjoy the privilege of being a minimum wage earner, and his entire
earnings are no longer considered exempt.
(5) Use of Exceptional Computations
(a) Cumulative average method. — If in respect of a particular employee, the regular compensation
is exempt from withholding tax because the amount thereof is below the compensation level, but
supplementary compensation is paid during the calendar year; or the supplementary compensation is
equal to or more than the regular compensation to be paid; or the employee was newly hired and had a
previous employer/s within the calendar year, other than the present employer doing this cumulative
computation, the present employer shall determine the tax to be deducted and withheld in accordance
with the cumulative average method provided hereunder:
Step 1. Add the amount of taxable regular and supplementary compensation to be paid to an employee
for the payroll period subject of computation to the sum of the taxable regular and supplementary
compensation since the beginning of the current calendar year including the compensation paid by the
previous employers within the same calendar year, if any;
Step 2. Divide the aggregate amount of compensation computed in step 1 by the number of payroll
period to which the amount relates;
Step 3. Compute the tax to be deducted and withheld on the cumulative average compensation
determined in Step No. (2) in accordance with the withholding tax table; cdphil
Step 4. Multiply the tax computed in Step No. (3) by the number of payroll period to which it relates;
Step 5. Determine the excess, if any, of the amount of tax computed in Step No. (4) over the total
amount of tax already deducted and withheld from the beginning payroll period to the last payroll
period, including that withheld by the previous employer/s within the calendar year, if any. The excess,
as computed, shall be deducted and withheld from the compensation to be paid for the last payroll
period of the current calendar year.
The cumulative average method, once applicable to a particular employee at any time during the
calendar year, shall be the same method to be consistently used for the remaining payroll period/s of
the same calendar year.
EXAMPLE IV: The regular compensation is exempt from withholding tax but supplementary
compensation (commission) is paid during the calendar year.
Employee A, married, with three (3) qualified dependents (ME3), received the following compensation
beginning January, 2009.
Month Regular Supplementary Total
Compensation Compensation Compensation
January P8,500.00 P15,000.00 P23,500.00
February P8,500.00 P15,000.00 P23,500.00
March P8,400.00 P15,500.00 P23,900.00
COMPUTATION:
1. For Jan. P23,500.00 + 0 = P23,500.00
For Feb. P23,500.00 + 23,500.00 = P47,000.00
For Mar. P23,500.00 + 23,500.00 + 23,900.00 = P70,900.00
2. For Jan. P23,500.00/1 = P23,500.00
For Feb. P47,000.00/2 = P23,500.00
For Mar. P70,900.00/3 = P23,633.33
3. For January
Tax on P22,083.00 (Line B.3, Col. 6) = P1,875.00
Tax on excess (P1,417.00 x 25%) = P354.25
–––––––––
Tax on P23,500.00 P2,229.25

========
For February
Tax on excess (P1,417.00 x 25%) = 354.25
–––––––––
Tax on P23,500.00 = P2,229.25
========
For March
Tax on excess (P1,550.33 x 25%) = 387.58
––––––––
Tax on P23,633.33 = P2,262.58
=======
4. For Jan. P2,229.25 x 1 = P2,229.25
For Feb. P2,229.25 x 2 = P4,458.50
For Mar. P2,262.58 x 3 = P6,787.74
5. For Jan. P2,229.25 – 0 = P2,229.25
For Feb. P4,458.50 – 2,229.25 = P2,229.25
For Mar. P6,787.74 – 4,458.50 = P2,329.24
EXAMPLE V: Supplementary compensation is equal to or more than the regular compensation received:
Employee B, married with three (3) qualified dependents (M3) whose spouse is also employed, received
the following compensation beginning January, 2009.
Month Regular Supplementary Total
Compensation Compensation Compensation
January P11,000.00 P11,000.00 P22,000.00
February P11,000.00 P11,500.00 P22,500.00
March P11,000.00 P12,000.00 P23,000.00
COMPUTATION:
1. For Jan. P22,000.00 + 0 = P22,000.00

For Feb. P22,000.00 + 22,500.00 = P44,500.00
For Mar. P22,000.00 + 22,500.00 + 23,000.00 = P67,500.00
2. For Jan. P22,000.00/1 = P22,000.00
For Feb. P44,500.00/2 = P22,250.00
For Mar. P67,500.00/3 = P22,500.00
3. For January
Tax on P16,250.00 (Line B.3, Col. 5) = P708.33
Tax on excess (P5,750.00 x 20%) = P1,150.00
–––––––––
Tax on P22,000.00 P1,858.33
========
For February
Tax on excess (P167 x 25%) = P41.75
–––––––––
Tax on P22,250.00 = P1,916.75
========
For March
Tax on excess (P417 x 25%) = P104.25
––––––––
Tax on P22,500.00 = P1,979.25
=======
4. For Jan. P1,858.33 x 1 = P1,858.33
For Feb. P1,916.75 x 2 = P3,833.50
For Mar. P1,979.25 x 3 = P5,937.75
5. For Jan. P1,858.33 – 0 = P1,858.33
For Feb. P3,833.50 – 1,858.33 = P1,975.17
For Mar. P5,937.75 – 3,833.50 = P2,104.25

EXAMPLE VI: A newly hired employee with previous employer within the calendar year 2009.
Employee C, single, was hired by Z Company on July 6, 2009. Her total taxable income per month is
P15,000.00. She was previously employed by X Company from January to June 30, 2009 with a monthly
taxable income of P13,000.00 or P13,000.00 x 6 months = P78,000 for 6 months. Per BIR Form No. 2316
(Certificate of Compensation Payment/Tax Withheld) issued by the previous employer, which was
presented by Employee C to her present employer, the total tax withheld is P7,849.98. In computing for
the tax withheld on the compensation of Employee C starting the month of July 6, 2000, Z Company
shall use the cumulative average method.
Month Present Total Total
Compensation Previous Taxable
Income Income Income
July 6 P15,000.00 P78,000.00 P93,000.00
August 15,000.00 15,000.00
September 15,000.00 15,000.00
October 15,000,00 15,000.00
November 15,000.00 15,000.00
December 15,000.00 15,000.00
––––––––– –––––––––– –––––––––––
P90,000.00 P78,000.00 P168,000.00
========= ========= =========
COMPUTATION:
STEP 1 —
For July 6 P15,000.00 + P78,000.00 = P93,000.00
For Aug. P93,000.00 + P15,000.00 = P108,000.00
For Sep. P93,000.00 + P15,000.00 + P15,000.00 = P123,000.00
For Oct. P93,000.00 + P15,000.00 + P15,000.00 + P15,000.00 = P138,000.00
For Nov. P93,000.00 + P15,000.00 + P15,000.00 + P15,000.00 + P15,000.00 =

P153,000.00
STEP 2 —
For July 6 P93,000.00/7 = P13,285.71
For Aug. P108,000.00/8 = P13,500.00

For Sep. P123,000.00/9 = P13,666.67
For Oct. P138,000.00/10 = P13,800.00
For Nov. P153,000.00/11 = P13,909.09
STEP 3 —
For July 6 P13,285.71
Tax On P10,000.00 = P708.33
Tax On Excess (P3,285.71 x 20%) 657.14
––––––––
Tax On P13,285.71 = P1,365.47
========
For August P13,500.00
Tax On P10,000.00 = P708.33
Tax On Excess (P3,500.00 x 20%) 700.00
––––––––
Tax On P13,500.00 = P1,408.33
========
For Sept. P13,666.67
Tax On P10,000.00 = P708.33
Tax On Excess (P3,666.67 x 20%) 733.33
––––––––
Tax On P13,666.67 = P1,441.66
========
For October P13,800.00
Tax On P10,000.00 = P708.33
Tax On Excess (P3,800.00 x 20%) = 760.00
––––––––
Tax On P13,800.00 = P1,468.33
========
For November P13,909.09

Tax On P10,000.00 = P708.33
Tax On Excess (P3,909.09 x 20%) = 781.82
––––––––
Tax On P13,818.18 = P1,490.15
========
STEP 4 —
For July 6 P1,365.47 x 7 = P9,558.29
For August 1,408.33 x 8 = P11,266.64
For September 1,441.66 x 9 = P12,974.94
For October 1,468.33 x 10 = P14,683.30
For November 1,490.15 x 11 = P16,391.65
Step 5 —
For July 6 P9,558.29 - P7,849.98 = P1,708.31
For August 11,266.64 - P9,558.29 = P1,708.35
For September 12,974.94 - P11,266.64 = P1,708.30
For October 14,683.30 - P12,974.94 = P1,708.36
For November 16,391.65 - P14,683.30 = P1,708.35
(b) Annualized withholding tax method. — (1) When the employer-employee relationship is
terminated before the end of the calendar year; and (2) when computing for the year-end adjustment,
the employer shall determine the amount to be withheld from the compensation on the last month of
employment or in December of the current calendar year in accordance with the following procedures:
Step 1. Determine the taxable regular and supplementary compensation paid to the employee for the
entire calendar year. Refer to steps 1 to 3 of Sec. 2.79 (B) (3), as amended, using as basis the
compensation received for the calendar year.
Step 2. 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 present employer doing the annualized
computation to the taxable compensation income received from previous employer/s during the
calendar year:
(i) When the employer-employee relationship is terminated before December — The taxable
regular and supplementary compensation income shall be the amount paid since the beginning of the
current calendar year to the termination of employment.
(ii) Year-end adjustment — The taxable regular and supplementary compensation income shall be
the amount paid since the beginning of the current calendar year to December.
(iii) Taxable fringe benefits received by employees holding managerial or supervisory positions shall
be subject to a final fringe benefit tax as prescribed in Section 2.79 (D) of RR 2-98, as amended. Hence,
the same shall not form part of the taxable supplementary compensation, of managers and supervisors,
subject to the withholding tax tables
Step 3. Deduct from the aggregate amount of compensation computed in Step No. (2) the amount of
the total personal and additional exemptions of the employee.
Step 4. 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 purposes of
substantiating the claim of insurance expense and determining the aggregate family income, the policy
contract shall be presented to the employer together with the original official receipt of the premium
payment for the current year, BIR Form No. 2316 for the current year or Certificate of Gross Income for
the Current Year (Annex "E") issued by the employer/s of the nuclear family.
Total family income includes primary income and other income from sources received by all members of
the nuclear family, i.e., father, mother, unmarried children living together as one household, or a single
parent with children. A single person living alone is considered as a nuclear family.
The spouse claiming the additional exemptions for the QDC shall be the same spouse to claim the
deductions for premium payments.
Step 5. Compute the amount of tax on the difference arrived at in Step 4, in accordance with the
schedule provided in Sec. 24 (A) of the Code, as follows:
OVER BUT NOT AMOUNT/RATE OF
OVER EXCESS
OVER
Not over 10,000 5%
10,000 30,000 500 + 10% 10,000
30,000 70,000 2,500 + 15% 30,000
70,000 140,000 8,500 + 20% 70,000
140,000 250,000 22,500 + 25% 140,000
250,000 500,000 50,000 + 30% 250,000
500,000 over 125,000 + 32% 500,000
Step 6. Determine the deficiency or excess, if any, of the tax computed in Step 5 over the cumulative tax
already deducted and withheld since the beginning of the current calendar year. The deficiency tax
(when the amount of tax computed in Step 5 is greater than the amount of cumulative tax already
deducted and withheld or when no tax has been withheld from the beginning of the calendar year) shall
be deducted from the last payment of compensation for the calendar year. If the deficiency tax is more
than the amount of last compensation to be paid to an employee, the employer shall be liable to pay the
amount of tax which cannot be collected from the employee. The obligation of the employee to the
employer arising from the payment by the latter of the amount of tax which cannot be collected from
the compensation of the employee is a matter of settlement between the employee and employer.
The excess tax (when the amount of cumulative tax already deducted and withheld is greater than the
tax computed in Step 5) shall be credited or refunded to the employee not later than January 25 of the
following year. However, in case of termination of employment before December, the refund shall be
given to the employee at the payment of the last compensation during the year. In return, the employer
is entitled to deduct the amount refunded from the remittable amount of taxes withheld from
compensation income in the current month in which the refund was made, and in the succeeding
months thereafter until the amount refunded by the employer is fully repaid.
EXAMPLE VII: (Use of annualized computation when employer-employee relationship was terminated
before December) —
a) Mr. D, single with a qualified dependent brother receives P18,000 as monthly regular
compensation starting January 1, 2008. On June 1, 2008, he filed his resignation effective June 30, 2008
and was not reemployed for the rest of the year. The tax withheld from January to May was P15,208.75.
COMPUTATION:
Total compensation received from
January 1 to May 31, 2008 P90,000.00
Add: Compensation to be received on June 18,000.00
––––––––––
Gross compensation Jan-June 108,000.00
Less: Personal Exemption (HF old exemption) 25,000.00
––––––––––
Net Taxable Compensation P83,000.00
––––––––––
Tax DueP11,100.00 *
Less: Tax Withheld from Jan to May P15,208.75
–––––––––––
To be refunded to Mr. D (P4,108.75)
––––––––––
* Tax on P70,000.00 8,500.00
Tax on excess (P13,000 x 20%) 2,600.00
–––––––––––
Tax on P83,000.00 P11,100.00
==========
b) Mr. Z, single with a qualified dependent brother receives P18,000 as monthly regular
compensation starting January 1, 2008. On June 1, 2008, he filed his resignation effective June 30, 2008
and was subsequently reemployed on July 6, 2008. The BIR Form 2316 he gave to his new employer
showed that the amount he received from his previous employer was P108,000 and a tax withheld of
P11,100. His withholding tax from the new employer amounted to P15,000.
COMPUTATION:
Previous employer P108,000.00
Add: Compensation from new employer 115,000.00
–––––––––––
Gross compensation 223,000.00
Less: Personal Exemption (HF) 37,500.00
–––––––––––
Tax DueP33,875.00*
Less: Tax Withheld (11,100 + 15,000) 26,100.00
–––––––––––
To be deducted from Mr. Z P7,775.00
––––––––––
* Tax on P140,000.00 P22,500.00
Tax on excess (P45,500 x 25%) 11,375.00
–––––––––––
Tax on P185,500.00 P33,875.00
==========
c) Mr. Y, single with a qualified dependent brother, had his first job on July 2008. He receives
P18,000 as monthly regular compensation. The tax withheld was P12,083.75.
COMPUTATION:
July to November 2008 P90,000.00
Add: Compensation to be received in December 18,000.00
––––––––––
Gross compensation 108,000.00
Less: Personal Exemption (pro-rated) 37,500.00
––––––––––
Tax DueP8,600.00 *
Less: Tax Withheld 12,083.75
–––––––––––
To be refunded to Mr. Y (P3,483.75)
*Tax on P70,000.00 P8,500.00
Tax on excess (P500 x 20%) 100.00
––––––––––
Tax on P83,000.00 P8,600.00
=========
EXAMPLE VIII: (Year-end adjustments computation) — For taxable year 2009, WTD Corporation (Full
exemption per R.A. 9504 shall be used for calendar year 2009) has the following employees:
1. Mr. E, married with two qualified dependent children who received the following compensation
for the year:
Basic Monthly Salary P45,000.00
Overtime Pay for November P5,000.00
Thirteenth Month Pay P45,000.00
Other Benefits P12,000.00
Withholding tax (Jan.-Nov.) P98,082.00

2. Mr. F, married, whose wife is also employed, with two qualified dependent children, received
for the year:
Withholding tax (Jan.-Nov.) P12,924.23
3. Mr. G, single, who was hired on July 6, 2009 received the following:
Monthly Salary from Previous
Employer (Jan.-June) P6,000.00
Withholding tax — Previous employer P2,899.68
Present employer 17,500.50
He paid for the year an annual premium on health and hospitalization insurance amounting to
P2,400.00.
4. Mrs. H, married, whose husband is also working received the following:
Thirteenth Month Pay (8/12 x 35,000.00) P23,333.33
Withholding tax (Jan.-August) 57,333.36
She resigned effective August 31, 2009.
COMPUTATION OF WITHHOLDING TAX FOR DECEMBER 2009:
1. Mr. E
Compensation Received
For the Year Non-Taxable Taxable
Basic Salary (45,000 x 12mos.) P540,000 P540,000
Overtime (Nov.)5,000 5,000
13th month pay 45,000 P30,000 15,000

Other benefits 12,000 12,000
––––––––– –––––––– ––––––––
Totals P602,000 P30,000 P572,000
–––––––– –––––––– =========
Total Gross Compensation P572,000.00
Less: Personal exemption P50,000.00
Additional exemption (2 x P25,000) 50,000.00 100,000.00
––––––––– –––––––––––
Net Taxable compensation P472,000.00
–––––––––––
Tax Due *
250,000 P50,000.00
222,000 x 30% 66,600.00
––––––––––
116,600.00
Less: Tax withheld from previous months (Jan.-Nov.) 98,082.27
––––––––––
Tax to be collected in December 2009 P18,517.73
=========
* Tax Due is computed by using the rates prescribed in Sec. 24 (A), NIRC.
2. Mr. F
Basic Salary P198,000 P198,000
13th month pay 16,500 P16,500
Other benefits 16,500 13,500 3,000 *
–––––––– –––––––– ––––––––
Totals P231,000 P30,000* P201,000

======= ======= =======
* Excess of 13th month pay and other benefits over the P30,000.00 ceiling under Sec. 32 (b) (7)
(e). SCIacA
Total Compensation P201,000.00
Less: Personal and additional exemptions (ME2) 100,000.00
–––––––––––
Net taxable compensation income P101,000.00
Tax DueP14,700.00
––––––––––
Amount to be withheld in December 2009 P1,775.77
=========
3. Mr. G, Single — Computation of withholding tax for December
Compensation from previous employer (Jan. to June) P36,000.00
Compensation from present employer (July 6 to Dec.) 120,000.00
––––––––––
Total taxable compensation (Jan. to Dec.) 156,000.00
Less: Personal exemptions 50,000.00
Premium payments on health &
hospitalization insurance * 2,400.00 52,400.00
–––––––– –––––––––
Net taxable compensation P103,600.00
––––––––––
Tax Due P15,220.00
Less: Taxes Withheld —
** Previous employer P2,899.68
*** Present employer 17,500.50 20,400.18
––––––––– –––––––––
Amount to be refunded in December (P5,180.18)

========
* Premium payment on health and/or hospitalization shall be allowed considering that gross
compensation amounted to P156,000 only and did not exceed P250,000.00. aCHDAE
** Refer to Certificate of Compensation Payment/Tax Withheld (BIR Form No. 2316) issued by previous
employer.
*** Taxes withheld from July 6 to December 31, 2008 computed by the present employer using the
cumulative computation. aHECST
4. Mrs. H, married (computation of tax upon resignation):
Thirteenth Month Pay 8/12 x 35,000 P23,333.33
She resigned effective August 31, 2009.
Basic Salary P280,000.00 P280,000.00
13th month pay 23,333.33 P23,333.33
Other benefits 20,000.00 6,666.67 13,333.33
––––––––––– –––––––––– –––––––––––
Totals P323,333.33 30,000.00 P293,333.33
==========
Total Compensation P293,333.00
Less: Personal and additional exemptions 50,000.00
–––––––––––
Net taxable compensation income P243,333.33
Tax Due (Jan. to August 31, 2009) P48,333.33
Less: Tax withheld (Jan.-August 31, 2009) 57,333.36
–––––––––––
Excess tax withheld, to be refunded in August (P9,000.03)
==========
EXAMPLE IX: (Year-end adjustments computation) — For taxable year 2008, WTD Service Company
employed Mr. J, married with two qualified dependent children. He received the following
compensation for the year:
Basic Monthly Salary
(excluding SSS/HDMF/PHIC employee's share) P45,000.00
Overtime Pay per month P5,000.00
Hazard Pay per month P2,000.00
Thirteenth Month Pay given Dec. 2008 P45,000.00
Other Benefits given Dec. 2008 P12,000.00
COMPUTATION:
Total Compensation
(681,000 - 30,000 non-taxable benefits)* P651,000.00
Less: Personal 41,000.00
Additional exemptions 33,000.00 74,000.00
–––––––––– ––––––––––
Net taxable compensation income 577,000.00
––––––––––
Tax Due *
500,000 125,000.00
77,000 x 32% 24,640.00
––––––––––
149,640.00
––––––––––
Tax to be collected in December 2008 P13,030.07
=========
* Exempt from taxation per Sec. 32 (B) (7) (e) of the Tax Code, as amended re: 13th month pay
and other benefits not exceeding P30,000. HTCESI
The annualized computation done for each employee shall be reflected by the employer at the
alphabetical list attached to BIR Form No. 1604-CF.
(c) If the compensation is paid other than daily, weekly, semi-monthly or monthly, compute the tax
to be deducted and withheld as follows:
a) Annually — refers to computation on annualized income;
b) Quarterly and semi-annually — divide the compensation by three (3) or six (6), respectively, to
determine the average monthly compensation. Use the monthly withholding tax table to compute the
tax, and the tax so computed shall be multiplied by three (3) or six (6), accordingly; LLjur
c) Bi-weekly — divide the compensation by two (2) to determine the average weekly
compensation. Use the weekly withholding tax table to compute the tax, and the tax so computed shall
be multiplied by two (2);
d) Miscellaneous — if compensation is paid irregularly, or for a period other than those mentioned
above, divide the compensation by the number of days from last payment to date of payment (excluding
Sundays and holidays). Use the daily tax table, the tax so computed shall be multiplied by the number of
days.
(C) Computation of Withholding Tax on Salaries and Benefits Received by Employees other than
rank and file. — The procedures provided herein below shall govern the computation of withholding tax
on the taxable compensation income of employees other than the rank and file pursuant to Sec. 2.79 (B)
of these regulations.
(1) Determine the total monetary and non-monetary compensation, segregating gross benefits
which includes thirteenth (13th) month pay, productivity incentives, Christmas bonus and fringe benefits
received by the employee per payroll period. When computing under the annualized computation, the
total monetary and non-monetary compensation shall be that received for the calendar year. Gross
benefits received by officials and employees of public and private entities shall be exempted from
income tax and from withholding tax; provided that the amount of exemption shall not exceed thirty
thousand pesos (P30,000); llcd
(2) Segregate the taxable from the non-taxable compensation (excluding the fringe benefits ) paid
to the employee. The taxable income refers to all remuneration paid to an employee not otherwise
exempted by law from income tax and consequently from withholding tax. The non-taxable income are
those which are specifically exempted from income tax by the Code or other special laws as listed in Sec.
2.78.1 (B) of these Regulations (e.g., benefits not exceeding P30,000, non-taxable retirement benefits
and separation pay);
(3) Segregate the taxable fringe benefit and subject the same to withholding pursuant to
Subsection D of these section of the Regulations;
(4) Compute withholding tax on the taxable regular and supplementary compensation in
accordance with the procedures prescribed in Sec. 2.79(B)(1)(b) of these regulations, for purposes of
withholding per payroll period; and Sec. 2.79(B)(2) for purposes of computing under the cumulative
average method or for the year-end adjustment.
(D) Computation of Withholding Tax on Fringe Benefit. —

(1) Final withholding tax on Fringe Benefits paid to employees other than rank and file. — There
shall be imposed a final tax of 34% beginning January 1, 1998, 33% beginning January 1, 1999 and 32%
beginning January 1, 2000 and thereafter, on the grossed-up monetary value of fringe benefits pursuant
to Sec. 33 of the Code and its implementing regulations, granted or furnished by the employer to his
employees (except rank and file employees) unless the fringe benefit is required by the nature of or
necessary to the trade, business or profession of the employer, and when the fringe benefit is for the
convenience and advantage of the employer.
The fringe benefit tax shall be paid by the employer in the same manner as provided in Sec. 2.58 of
these Regulations. It shall not form part of the gross income of the employee. The imposition of the
fringe benefits tax should be the subject of a separate set of rules and regulations which shall be issued
for the purpose.
(2) Grossed-up monetary value of Fringe Benefit. —
(a) In general the grossed-up monetary value of the fringe benefit shall be determined by dividing
the monetary value of the fringe benefit by sixty six percent (66%) in 1998; sixty seven percent (67%) in
1999; and sixty eight percent (68%) in 2000 and thereafter.
(b) The grossed-up monetary value of fringe benefits furnished to employees and which are taxable
under subsections B, C, D, and E of Section 25 of the Code shall be determined by dividing the monetary
value of the fringe benefit by the difference between one hundred percent (100%) and the applicable
rates of income tax prescribed on the aforesaid sub-sections of Section 25, to wit: cdasia
Subsection (B) — Twenty-five percent on income derived from sources within the Philippines by a non-
resident alien individual not engaged in trade or business in the Philippines.
Subsection (C) — Fifteen percent (15%) on income of an alien individual employed by regional or area
headquarters of a multinational company or regional operating headquarters of a multinational
company, including any of its Filipino employees employed and occupying the same position as those of
its aforesaid alien employees.
Subsection (D) — Fifteen percent (15%) on income of an alien individual employed by an offshore
banking unit of a foreign bank established in the Philippines, including any of its Filipino employees
employed and occupying the same position as those of its aforesaid alien employees.
Subsection (E) — Fifteen percent (15%) on the income of an alien individual employed by a foreign
service subcontractor engaged in petroleum operations in the Philippines, including any of its Filipino
employees employed and occupying the same position as those of its aforesaid alien employees.
(3) Non-taxable Fringe Benefits. — The following fringe benefits are not subject to the fringe
benefits tax.
(a) Fringe benefits paid to rank and file employees. — Fringe benefits furnished or granted to rank
and file employees shall form part of the employees gross compensation income subject to the
withholding tax table on compensation under Section 2.79 (B) of these Regulations.
(b) Fringe benefits which are authorized and exempted from income tax and consequently from
withholding tax under the Code, as amended, or under any special law.
(c) Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefit plans.
(d) De minimis benefits. For purposes of determining whether the fringe benefit shall be considered
payments of de minimis benefits, the employer shall submit a written representation to the
Commissioner for the issuance of a ruling taking into account the peculiar nature and special need of the
said employer's trade, business or profession.
The term "de minimis benefits" which is exempt from the fringe benefit tax shall, in general, be limited
to facilities or privileges (such as entertainment, Christmas party and other cases similar thereto;
medical and dental services; or the so-called courtesy discount on purchases), furnished or offered by an
employer to his employees, provided such facilities or privileges are of relatively small value and are
offered or furnished by the employer merely as a means of promoting the health, goodwill,
contentment, or efficiency of his employees. LLpr
(E) Computation of Withholding Tax on Compensation Paid to Alien Employees of Certain

Employers. — There shall be imposed a final withholding tax of fifteen percent (15%) on the salaries,
annuities, compensation, remuneration and other emoluments such as honoraria and allowances paid
to its alien employees occupying managerial and technical positions and Filipino employees occupying
similar positions by the following employers:
(1) Area or regional headquarters of multinational corporations and regional operating

headquarters under Sec. 25 (C);
(2) Offshore banking units under Sec. 25 (D) and FCDU;
(3) Petroleum service contractors and sub-contractors under Sec. 25 (E) of the Code.
(F) Requirement for Deductibility. — The provisions of Sec. 2.58.5 of RR 2-98, as amended, shall
apply. Provided, that compensation income where no income taxes were withheld pursuant to Section
2.79 (A) of these regulations, shall be allowed as deduction from an employer's gross income when the
required employees withholding statement (BIR Form No. 2316) have been issued to subject employees
in accordance with Sec. 2.83.1 of RR 2-98, as amended. Provided, further, that the Alphabetical List of
the subject employees, including MWEs, shall be submitted under BIR Form No. 1604-CF in accordance
with Sec. 2.83.2 of RR 2-98, as amended.
(G) Tax Paid by Recipient. — The provisions of Sec. 2.58.6 of these Regulations shall apply.
(H) Non-deductibility of Tax and Credit for Tax Withheld. — The tax deducted and withheld at
source on compensation income shall neither be allowed as a deduction from the employer's gross
income nor from the recipient's gross compensation income. The entire amount of the compensation
from which the tax is withheld shall be included in gross income to be reported in the return required to
be made by the recipient of the income without deduction for such tax. The creditable tax withheld at
source, however, is allowable as a credit against the tax imposed by the NIRC to the recipient of the
income. Any excess of the tax withheld at source, over the tax ascertained to be due on the income tax
return shall be refunded or automatically credited, at the taxpayer's option, to the recipient of the
income. Such refund or credit shall be without prejudice to whatever adjustments may be proper after
field investigation or upon information relative to the taxpayer's income tax liability under the main
provisions of the Code, as amended. If the tax has actually been withheld at source, a credit or a refund
shall be made to the recipient of the income even though such withheld tax has not been paid to the
government by the employer. For the purpose of the credit, the recipient of the income is the person
subject to tax, on whose compensation the tax was withheld. cdtai
Any excess of the tax which was withheld on compensation over the tax due from the taxpayer shall be
returned not later than July 15 of the following year. Refunds 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 up to the date
when the refund is made.
Refunds shall be made upon warrants drawn by the Commissioner or by his authorized representative
without the necessity of counter-signature by the Chairman, Commission on Audit or the latter's duly
authorized representative as an exception to the requirement prescribed by Section 49, Chapter 8,
Subtitle B, Title I of Book V of Executive Order No. 292, otherwise known as the Administrative Code of
1987.
(I) Right to Claim Withholding Exemptions. — An employee receiving compensation shall be

entitled to withholding exemptions as provided in the Code, as amended. In order to receive the benefit
of such exemptions, the employee must file the Application for Registration (BIR Form No. 1902), upon
employment, or a Certificate of Update of Exemption and of Employer's and Employee's Information
(BIR Form No. 2305), in case of updates on changes in his exemption. The withholding exemption to
which an employee is entitled depends upon his status and the number of dependents qualified for
additional exemptions. Each employee shall be allowed to claim the following amount of exemptions,
with respect to compensation paid on or after July 6, 2008.
(1) Personal and additional exemptions. —
(a) Basic personal exemptions. — Individual taxpayers regardless of status are entitled to P50,000
personal exemption.
(b) Additional exemptions for taxpayers with dependents. — An individual whether single or
married, shall be allowed an additional exemption of Twenty Five Thousand Pesos (P25,000) for each
qualified dependent child, provided that the total number of dependents for which additional
exemptions may be claimed shall not exceed four (4) dependents. The additional exemptions for QDC
shall be claimed by only one of the spouses in the case of married individuals.
A dependent means a legitimate, illegitimate or legally adopted child chiefly dependent upon and living
with the taxpayer if such dependent is not more than twenty-one (21) years of age, unmarried and not
gainfully employed or if such dependent, regardless of age, is incapable of self-support because of
mental or physical defect.
The husband shall be the proper claimant of the additional exemption for qualified dependent children
unless he explicitly waives his right in favor of his wife in the Application for Registration (BIR Form No.
1902) or in the Certificate of Update of Exemption and of Employer's and Employee's Information (BIR
Form No. 2305), whichever is applicable: Provided, however, that where the spouse of the employee is
unemployed or is a non-resident citizen deriving income from foreign sources, the employed spouse
within the Philippines shall be automatically entitled to claim the additional exemptions for children.
Every employer should ascertain whether or not a child being claimed is a qualified dependent under
the provisions of these Regulations. If the employee should have additional dependent(s), as defined
above, during the taxable year, he may claim the corresponding additional exemption, as the case may
be, in full for such year.
If the taxpayer dies during the taxable year, his estate may still claim the personal and additional
exemptions for himself and his dependent(s) as if he died at the close of such year. If the spouse or any
of the dependents dies or if any of such dependents marries, becomes twenty-one (21) years old or
becomes gainfully employed during the taxable year, the taxpayer may still claim the same exemptions
as if the spouse or any of the dependents died, or as if such dependents married, became twenty-one
(21) years old or became gainfully employed at the close of such year. Provided, that in 2008, the pro-
rated personal and additional exemptions shall apply as stated in the regulations.
The personal and additional exemptions herein above stated shall apply after the transitory period.
EXAMPLE X: Mr. M got married on July 20, 2008, when his girlfriend was four (4) months pregnant. On
December 26, 2008, the wife gave birth to twins. Earnings from January 1 to July 5, 2008 is P150,000.00
and for the rest of 2008, he earned P200,000.00 more. The tax due for 2008 is computed as follows:
Compensation Income (January 1-July 5, 2008) P150,000.00
Compensation Income (July 6 to December 31, 2008) 200,000.00
––––––––––
Total Compensation for 2008 350,000.00
=========
Less: Personal Exemption P41,000.00
Additional Exemption (16,500 x 2) 33,000.00 74,000.00
Taxable Compensation Income P276,000.00
–––––––––––
Tax Due: 250,000.00 P50,000.00
266,000.00 x 30% 7,800.00
–––––––––––
Total P57,800.00
==========
SECTION 2.79.1.Application for Registration for Individuals Earning Compensation Income (BIR Form No.
1902). — The application for registration of employees shall be accomplished by both employer and
employee relating to the following information and other requirements:
(A) Employee. —
(1) Name/Taxpayer's Identification Number (TIN)/Address of employee/other information required
as stated in BIR Form No. 1902;
(2) Status of employee whether SINGLE/legally separated/widow or widower with no dependent

child or married;
(3) Status of spouse of the employee. — If the employee is legally married, the Name/TIN, if any, of
the spouse and whether said spouse is employed, unemployed, employed abroad, or is engaged in trade
or business should be indicated on the application;
(4) Qualified dependents. — Name and date of birth of qualified dependent/s child(ren);
(5) Claimant of exemption for children. — The husband is the proper claimant of additional
exemptions for qualified dependent children. However, the wife shall claim full additional exemption for
children in the following cases:
(a) Husband is unemployed;
(b) Husband is a non-resident citizen deriving income from foreign sources;
(c) The husband waives his right to claim the exemptions of children (waiver should be for all
children) in a sworn statement to be attached to his Application for Registration (BIR Form No. 1902)
and that of his wife's, in accordance with the procedures prescribed in this Section;
(6) Required forms and attachments. — Upon filing the Application for Registration (BIR Form No.
1902) or Certificate of Update of Exemption and of Employer's and Employee's Information (BIR Form
No. 2305), whichever is applicable, the taxpayer is required to attach any of the following documents to
establish the status of the taxpayer, if applicable, to the application:
(a) Marriage Contract;
(b) Birth Certificate of each qualified dependent child(ren), certified by the Local Civil Registry
Office/National Statistics Office (NSO)/equivalent document issued by a government office previously
requiring certified copy showing the name of parents/and the name of the QDC with birth date (e.g.
passport of QDC as certified by company's Human Resource Officer);
(c) Certificate of employment of the husband if he is working abroad;
(d) Sworn Declaration and Waiver of Right to Claim Exemptions of Qualified Dependent Child(ren)
by the Husband (Annex "F") in case wife is claiming the additional exemptions of the children;
(e) Medical Certificate of qualified dependent child, if physically/mentally incapacitated;
(f) Court decision of legal adoption of children;
(g) Death Certificate; and
(h) Other documentary evidence, where the above documents are not available.
(7) Concurrent multiple employments. — An employee who is employed concurrently by two or

more employers within the same period of time during the taxable year shall file the Application for
Registration (BIR Form No. 1902) with his main employer (employer to whom the said employee renders
his services for most of his time during the taxable year) and shall furnish a copy of the duly received
Application with his secondary employers (2nd, 3rd, etc. employers). The employed husband and wife
shall each file a separate application with their respective employers;
(8) Successive multiple employment — An employee who transferred to another employer during
the taxable year, shall furnish his new Employer with a Certificate of Update of Exemption and of
Employer's and Employee's Information (BIR Form No. 2305) indicating therein his previous
employments during the taxable year (name of employer/s, address/es, TIN/s and the date/s of his
separation) and attach to the said certificate, a copy of the Certificate of Compensation Payment/Tax
Withheld (BIR Form No. 2316) for compensation payment with or without withholding tax for the
calendar year issued by previous employer/s.
For an employee with successive employment beginning July 6, 2008 to December 31, 2008, the
employer/s for the second semester shall apply the pro-rated exemption prevailing for the first
semester ending July 5, 2008 based on BIR Form No. 2316 issued by the previous employer which was
submitted by the employee and the pro-rated exemption prevailing for the second semester ending
December 31, 2008 in the computation of year-end adjustment;
(9) Mixed Income — An individual receiving a combination of compensation and

business/professional income shall first deduct the allowable personal and additional exemptions from
compensation income, only the excess therefrom can be deducted from business or professional
income. In the case of husband and wife, the husband shall be the proper claimant of the additional
exemptions unless he waives it in favor of his wife.
(B) Employer. — The employer with whom the Application for Registration (BIR Form No. 1902) is
filed, must indicate the date of receipt thereon and accomplish Part V of the said Application pertaining
to Employer's Information such as TIN, Employer's Registered Name, and other relevant information.
(C) Procedures for the filing of the Application for Registration (BIR Form No. 1902) —
(1) All employers shall require their employees to accomplish in triplicate the Application for
Registration BIR Form 1902 (Original copy - RDO; Duplicate - employer; Triplicate - employee) described
above as follows:
(a) New employee/s shall accomplish and file the Application for Registration for Individuals Earning
Compensation Income (BIR Form No. 1902) within ten (10) days from the date of employment;
(b) In case of changes in the information data in the Application for Registration (BIR Form No.
1902) previously submitted by the employee, consisting of changes in status and personal and additional
exemptions, employment/working status of the spouse of the employee, multiple employment status
and amount of compensation income, a Certificate of Update of Exemption and of Employer's and
Employee's Information (BIR Form No. 2305) reflecting the changes, together with the required
documents/evidence of changes must be submitted to the employer within ten (10) days after such
change. The employer shall then make the necessary adjustments on the withholding tax of the
employee based on the new information;
(2) The employer shall transmit all copies of the Application for Registration (BIR Form No. 1902) or
Certificate of Update of Exemption and of Employer's and Employee's Information (BIR Form No. 2305),
whichever is applicable, (after accomplishing the portion of Employer's information of either forms) to
the RDO where the employer is registered within thirty (30) days following its receipt from the
employee. The RDO or his duly authorized representative, where the employer is registered, shall
receive and stamp the three copies. The triplicate copy duly stamped received by the BIR shall be given
to the employee.
(3) The employer shall review the exemptions of the employees and shall, in the computation of
taxes required to be withheld on the compensation of employees, apply the correct and applicable
exemptions as provided in these regulations.
(4) In case the husband waives his right to claim the additional exemptions of children in favor of
his wife, he shall accomplish a Sworn Declaration and Waiver of Right to Claim Exemptions of Qualified
Dependent Child(ren) by the Husband (Annex "F") in accordance with the following procedures:
(a) Fill up three (3) copies of the prescribed waiver form.
(b) Submit the waiver form together with the BIR Form No. 1902 to his employer within ten (10)
days from employment, for acknowledgment in the space provided for that purpose.
The employer of the husband shall:
(i) After filling up the acknowledgment portion of the waiver form, retain the duplicate copy of the
form and furnish the employee the original and triplicate copies for submission to the employer of the
wife and for file of the employee, respectively.
(ii) Stop deductions of additional exemptions for qualified dependent children from the husband's
compensation income starting the following month.
The employer of the wife shall, upon receipt of copy of the waiver form duly acknowledged by the
employer of the husband, start deducting additional exemptions for children from the wife's income on
the month when the employer of the husband stopped deducting the exemptions of children from the
husband's income.
(c) The employed husband and wife shall apply the waiver in the computation of their respective
taxable income in the income tax return required to be filed by them following the procedure for filing
the waiver under Section 2.79.1 (C)(4) of these regulations, that is, the husband shall not deduct
exemptions of children from his compensation income because he has waived the same (exemptions of
children) in favor of his wife who will now deduct said exemptions from her income in computing her tax
due.
Waiver exercised during the calendar year shall be made only once in a calendar year and shall take
effect for the present calendar year and succeeding year/s until revoked by the husband. Any
waiver/revocation of such waiver shall take effect only starting the succeeding calendar year. In no case
should an employer of the wife deduct exemptions of children from the wife's income unless the waiver
by the husband has been duly acknowledged by the employer of the husband.
Registration of employees receiving purely compensation income shall be at the RDO having jurisdiction
over the employee's place of assignment considering that the employee submits application for
registration/exemption updates to their employer. In cases of multiple employment, it shall be at the
RDO where the main employer is registered.
SECTION 2.79.2.Failure to file Application for Registration (BIR Form No. 1902) or Certificate of Update
of Exemption and of Employer's and Employee's Information (BIR Form No. 2305). — Where an
employee, in violation of these regulations either fails or refuses to file an Application for Registration
(BIR Form No. 1902) together with the required attachments, the employer shall withhold the taxes
prescribed under the Schedule for Zero Exemption of the Revised Withholding Tax Table. In case of
failure to file the Certificate of Update of Exemption and of Employer's and Employee's Information (BIR
Form No. 2305) together with the attachments, the employer shall withhold the taxes based on the
reported personal exemptions existing prior to the change of status and without reflecting any change.
Any refund or underwithholding that shall arise due to the violations shall be covered by the penalties
prescribed in Section 80 of the NIRC, as amended.
SECTION 2.79.3.Withholding on the Basis of Average Compensation. — The employer may withhold the
tax under the NIRC, as amended, on the basis of the employee's average estimated compensation, with
the necessary adjustments, for any month/quarter/year.
SECTION 2.79.4.Husband and Wife. —Where both husband and wife are each recipients of
compensation either from the same or different employers, taxes to be withheld shall be determined on
the following basis:
(A) The husband shall be deemed the proper claimant of the additional exemption in respect to any
dependent children, unless he explicitly waives his right in favor of his wife in the application for
registration or in the withholding exemption certificate. The waiver may be done any time during the
year.
(B) In general, taxes shall be withheld from the wages of the wife in accordance with the schedule
for a married person without any qualified dependent.
SECTION 2.79.5.Non-Resident Aliens. — Compensation for services rendered in the Philippines paid to
non-resident aliens engaged in trade or business shall be subject to withholding under these
Regulations.
SECTION 2.79.6.Year-End Adjustment. — On or before the end of the calendar year, and prior to the
payment of the compensation for the last payroll period, the employer shall determine the sum of the
taxable regular and supplementary compensation paid to each employee for the entire year, including
the last compensation to be paid and compute for the amount of income tax on the annualized gross
compensation income; Provided however, that the taxable fringe benefits received by employees except
those given to the rank and file shall be subject to a final fringe benefits tax.
SECTION 2.80. Liability for Tax. —
(A) Employer. —
(1) In general, the employer shall be responsible for the withholding and remittance of the correct
amount of tax required by deducting and withholding from the compensation income of his employees.
If the employer fails to withhold and remit the correct amount of tax, such tax shall be collected from
the employer together with the penalties or additions to the tax otherwise applicable.
(2) The employer who is required to collect, account for and remit any tax imposed by the NIRC, as
amended, who willfully fails to collect such tax, or account for and remit such tax or willfully assist in any
manner to evade any payment thereof, shall in addition to other penalties, provided for in the Code, as
amended, be liable, upon conviction, to a penalty equal to the amount of the tax not collected nor
accounted for or remitted. Cdpr
(3) Any employer/withholding agent who fails, or refuses to refund excess withholding tax not later
than January 25 of the succeeding year shall, in addition to any penalties provided in Title X of the Code,
as amended, be liable to a penalty equal to the total amount of refund which was not refunded to the
employee resulting from any excess of the amount withheld over the tax actually due on their return.
(B) Employee. — Where an employee fails or refuses to file the Application of Registration or
Certificate of Update of Exemption and of Employer's and Employee's Information (BIR Form No. 2305)
together with the attachments or willfully supplies false or inaccurate information thereunder after due
written notice by the employer, the tax otherwise 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. On the other hand, where the employee, after due written notice from the employer, willfully
fails or refuses to file the Application for Registration or the Certificate of Update of Exemption and of
Employer's and Employee's Information, whichever is applicable, or willfully supplies false and
inaccurate information, the excess taxes withheld by the employer shall not be refunded to the
employee but shall be forfeited in favor of the government.
(C) Additions to Tax. —
(1) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to
twenty five percent (25%) of the amount due, in the following cases:
(a) Failure to file any return and pay the tax due thereon as required under the provisions of the
Code or these regulations on the date prescribed; or
(b) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue
officer other than those with whom the return is required to be files; or
(c) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment; or
(d) Failure to pay the full or part of the amount of tax shown on any return required to be filed
under the provisions of the Code or these regulations, 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 by the Code or
regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be
fifty percent (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.
(f) The penalties imposed hereunder shall apply in the case of a deficiency tax assessment which
has become final and executory but which is not paid within the time prescribed for payment. The
interest shall be imposed on the total amount due, inclusive of the deficiency increments.
(2) Interest — There shall be assessed and collected on any unpaid amount of tax, an interest at the
rate of twenty percent (20%) per annum, or such higher rate as may be prescribed for payment until the
amount is fully paid.
(3) Deficiency Interest — Any deficiency in the basic tax due, as the term is defined in the Code,
shall be subject to the interest prescribed in paragraph (a) hereof, which interest shall be assessed and
collected from the date prescribed for its payment until the full payment thereof. Cdpr
If the withholding agent is the government or any of its agencies, political subdivisions, or
instrumentalities or a government-owned or controlled corporation, the employee thereof responsible
for the withholding and remittance of tax shall be personally liable for the surcharge and interest
imposed herein.
(D) Failure to File Certain Information Returns (Sec. 250 of the Code). — In the case of each failure
to file an information return, statement or list, or keep any record, or supply any information required
by this Code or by the Commissioner on the date prescribed therefor, unless it is shown that such failure
is due to reasonable cause and not to willful neglect, there shall, upon notice and demand by the
Commissioner, be paid by the person failing to file, keep or supply the same, one thousand pesos
(P1,000) for each such failure: Provided, however, That the aggregate amount to be imposed for all such
failures during a calendar year shall not exceed twenty-five thousand pesos (P25,000).
(E) Specific Penalties. — Notwithstanding the penalties hereunder provided, the following
violations may be extrajudicially settled through compromise pursuant to Sec. 204 of the Code.
(1) Failure to file return, supply correct and accurate information, pay tax, withhold and remit tax
and refund excess tax withheld on compensation (Sec. 255 of the Code). — Any person required under
the Code, as amended, or by regulations to pay any tax, make a return, keep any record/s, or supply
correct and accurate information, who willfully fails to pay such tax, make such return, keep any
record/s, or supply correct and accurate information, or withhold or remit taxes withheld, or refund
excess taxes withheld on compensation, at the time or times required by law, shall in addition to the
other penalties provided by law, upon conviction thereof, be fined not less than ten thousand pesos
(P10,000) and imprisonment of not less than one (1) year but not more than the (10) years.
(2) Declarations under penalties of perjury (Sec. 267 of the Code). — Any declaration, return and
other statements required under the Code, as amended, shall, in lieu of an oath, contain a written
statement that they are made under the penalties of perjury. Any person who willfully files a
declaration, return or statement containing information which is not true and correct as to every
material matter shall, upon conviction, be subject to the penalties prescribed for perjury under the
Revised Penal Code.
(3) Violation of withholding tax provision by a government officer (Sec. 272 of the Code). — Every
officer or employee of the government of the Republic of the Philippines or any of its agencies and
instrumentalities, its political subdivisions, as well as government-owned or controlled corporation
including the Central Bank who, under the provisions of the Code, as amended, or regulations
promulgated thereunder, is charged with the duty to deduct and withhold any internal revenue tax and
to remit the same in accordance with the provisions of the Code as amended, and other laws shall be
guilty of any offense herein below specified and upon conviction of each act or omission, be fined in a
sum not less than five thousand pesos (P5,000) but not more than fifty thousand pesos (P50,000) or
imprisoned for a term of not less than six months and one day but not more than two years, or both:
(a) Those who fail or cause the failure to deduct and withhold any internal revenue tax under any of
the withholding tax laws and implementing regulations;
(b) Those who fail or cause the failure to remit taxes deducted and withheld within the time
prescribed by law, and implementing regulations; and
(c) Those who fail or cause the failure to file a return or statement within the time prescribed, or
render or furnish a false or fraudulent return or statement required under the withholding tax laws and
regulations.
(4) Violation of other provisions of the Code or regulations in general (Sec. 275 of the Code). — A
person who violates any provision of the Code, as amended, or any regulation, for which no specific
penalty is provided by law shall, upon conviction for its act or omission, be fined in a sum of not more
than one thousand pesos or imprisoned for a term of not more than six months, or both.
The specific schedule of penalties shall be provided in a separate regulation.
SECTION 2.81. Filing of Return and Payment of Income Tax Withheld on Compensation (Form No.
1601). — Every person required to deduct and withhold the tax on compensation, including large
taxpayers as determined by the Commissioner, shall make a return and pay such tax on or before the
10th day of the month following the month in which withholding was made to any authorized agent
bank within the Revenue District Office (RDO) or in places where there are no agent banks, to the
Revenue District Officer of the City or Municipality where the withholding agent/employer's legal
residence or place of business or office is located; provided, however, that taxes withheld from the last
compensation (December) for the calendar year shall be paid not later than January 15 of the
succeeding year; Provided, however, that with respect to taxpayers, whether large or non-large, who
availed of the EFPS, the deadline for electronically filing the aforesaid withholding tax return and paying
the tax due thereon via the EFPS shall be five (5) days later than the deadlines set above.
If the person required to withhold and pay the tax is a corporation, the return shall be made in the name
of the corporation and shall be signed and verified by the president, vice-president, or authorized
officers.
With respect to any tax required to be withheld by a fiduciary, the returns shall be made in the name of
the individual, estate, or trust for which such fiduciary acts, and shall be signed and verified by such
fiduciary. In the case of two or more joint fiduciaries the return shall be signed and verified by one of
such fiduciaries.
SECTION 2.82. Return and Payment in Case Where the Government is the Employer. — If the
Government of the Philippines, its political subdivision or any agency or instrumentality, as well as
government-owned or controlled corporation is the employer, the returns of the tax may be made by
the officer or employee having control of payment of compensation or other officer or employee
appropriately designated for the purpose.
SECTION 2.83. Statement and Returns.

SECTION 2.83.1.Employees Withholding Statements (BIR Form No. 2316). — In general, every employer
or other person who is required to deduct and withhold the tax on compensation including fringe
benefits given to rank and file employees, shall furnish every employee from whose compensation taxes
have been withheld the Certificate of Compensation Payment/Tax Withheld (BIR Form No. 2316) on or
before January 31 of the succeeding calendar year, or if employment is terminated before the close of
such calendar year, on the day on which the last payment of compensation is made. Failure to furnish
the same shall be a ground for the mandatory audit of payor's income tax liabilities (including
withholding tax) upon verified complaint of the payee.
Employers of MWEs are still required to issue BIR Form No. 2316 (June 2008 Encs version) to the MWEs
on or before January 31 of the following year.
The employer shall furnish each employee with the original and duplicate copies of BIR Form No. 2316
showing the name and address of the employer; employer's TIN; name and address of the employee;
employee's TIN; amount of exemptions claimed amount of premium payments on health and/or
hospitalization insurance not exceeding P2,400.00, if any; the sum of compensation paid including the
non-taxable benefits; the amount of statutory minimum wage received by MWEs; Overtime pay, holiday
pay, night shift differential pay and hazard pay received by MWEs; the amount of tax due; the amount of
tax withheld during the calendar year and such other information as may be required. The statement
must be signed by both the employer or other authorized officer and the employee, and shall contain a
written declaration that it is made under the penalties of perjury. If the employer is the Government of
the Philippines, its political subdivision, agency or instrumentality or government-owned or controlled
corporation, the statement shall be signed by the duly designated officer or employee.
The Certificate of Compensation Payment/Tax Withheld (BIR Form No. 2316) shall contain a certification
to the effect that the employer's filing of BIR Form No. 1604-CF shall be considered as a substituted filing
of the employee's income tax return to the extent that the amount of compensation and tax withheld
appearing in BIR Form No. 1604CF as filed with the BIR is consistent with the corresponding amounts
indicated in BIR Form No. 2316. It shall be signed by both the employee and employer attesting to the
fact that the information stated therein has been verified and is true and correct to the best of their
knowledge. However, the withholding agents/employers are required to retain copies of the duly signed
BIR Form No. 2316 for a period of three (3) years as required under the NIRC.
Where the employee is a MWE defined under RA 9504 whose income is exempt from income tax and,
consequently, from withholding tax, BIR Form No. 2316 shall show the sum of non-taxable SMW paid
including the non-taxable benefits such as holiday pay, overtime pay, night shift differential pay and
hazard pay earned during the calendar year and such other information as may be required. Provided,
that the applicable box for MWEs under BIR Form No. 2316 (June 2008 Encs. version) are sufficiently
filled-up. This serves as proof of financial capacity for purposes of loans, and for other purposes with
various government agencies.
Separated/terminated employees within the period from January 1 to July 5, 2008, where the total
exemptions (e.g. married-P32,000) used in the annualized computation were likewise shown in the
issued BIR Form 2316, shall be reported by the employer under the alphalist of terminated employees
with date of termination/separation.
For those with changes in exemptions, such as that of having an additional dependent child, or for those
with successive employment for taxable year 2008, the applicable apportioned exemption for January 1
to July 5, 2008 shall be applied for the first semester and the applicable apportioned exemption for July
6 to December 31, 2008 shall be applied for the second semester.
The employee who is qualified for substituted filing of income tax return under these regulations shall
no longer be required to file income tax return (BIR Form No. 1700) since BIR Form No. 1604-CF with
alphalists of employees shall be considered a substituted return filed by the employer. BIR Form No.
2316, duly certified by both employee and employer, shall serve the same purpose as if a BIR Form No.
1700 had been filed, such as proof of financial capacity for purposes of loan, credit card, or other
applications, or for the purpose of availing tax credit in the employee's home country and for other
purposes with various government agencies. This may be used for purposes of securing travel tax
exemption, when necessary.
However, information referring to the certification, appearing at the bottom of BIR Form No. 2316, shall
not be signed by both the employer and the employee if the latter is not qualified for substituted filing.
In which case, BIR Form No. 2316 furnished by the employer to the employee shall be attached to the
employee's Income Tax Return (BIR Form Nos. 1700 or 1701 in the case of mixed income earners) to be
filed on or before April 15 of the following year.
In case of successive employments during the taxable year, an extra copy of BIR Form No. 2316 shall be
furnished by the employee, duly certified by his previous employer/s and by him, to his new employer.
SECTION 2.83.2.Annual Information Return of Income Taxes Withheld on Compensation and Final
Withholding Taxes (BIR Form No. 1604-CF). — Every employer or other persons required to deduct and
withhold the tax is required to file with the Large Taxpayers Assistance Division (LTAD)/Large Taxpayers
District Office (LTDO)/RDO where the payor/employer is registered as Withholding Agent on or before
January 31 of the following year an Annual Information Return of Income Taxes Withheld on
Compensation and Final Withholding Taxes (BIR Form No. 1604-CF), to be submitted with the
alphabetical list of employees/payees.
(A) The Annual Information Return of Income Taxes Withheld on Compensation must show among
others, the following:
(1) Withholding Agent's registered name, address and Taxpayer's Identification Number (TIN);
(B) The alphabetical list of employees must show the following:
(1) Name and TIN of employees;
(2) Gross compensation paid by present and previous employers for the calendar year;
(3) (a) Taxable 13th month pay/other benefits for the rank and file employees
(b) Taxable fringe benefits for managerial employees;
(4) Non-taxable 13th month pay/other benefits (Present employer)
(5) Non-taxable statutory minimum wage;

(6) Non-taxable holiday pay, overtime pay, night shift differential pay and hazard pay (minimum
wage earners only);
(7) (a) For 2008, Amount of Exemptions (January 1 to July 5, 2008) and Amount of Exemptions (July
6 to December 31, 2008);
(b) For 2009 and thereafter, Amount of Exemptions;
(8) Amount of premium payments on health and/or hospitalization insurance not exceeding
P2,400.00, if any;
(9) Tax required to be withheld computed in accordance with Sec. 24 (A) of the Code;
(10) Tax withheld by all present employers for the calendar year; and
(11) Adjustment, if any.
(C) The alphabetical list of employees shall be prepared indicating, among others, separate listings
of the following:
(1) Employees Separated/Terminated before December 31 of the taxable year (indicate date of
separation/termination);
(2) Employees whose compensation income are exempt from withholding tax BUT subject to
income tax;
(3) Employees whose total compensation income are exempt from withholding tax and not subject
to income tax (indicate if MWE);
(4) Employees as of December 31 of the taxable year with no previous employment within the year;
(5) Employees as of December 31 of the taxable year with previous employment within the year;
(6) Employees who received Fringe Benefits subjected to Fringe Benefit Tax;
(7) Alien employees subject to withholding tax.
Employers with centralized accounting system, or those mandated to consolidate remittances (e.g. large
taxpayers), shall prepare alphalists on a regional basis or per branch office, due to the identification of
SMW per region where the employee is assigned, which shall be submitted to the BIR where the head
office is located.
In cases where no information was provided by a previous employer, such fact shall be stated in BIR
Form No. 1604-CF and the present employer shall not be liable to any penalties.
SECTION 2.83.3.Requirement for List of Payees. — All withholding agents shall, regardless of the
number of employees and payees, whether the employees/payees are exempt or not, submit an
alphabetical list of employees and list of payees on income payments subject to creditable and final
withholding taxes which are required to be attached as integral part of the Annual Information Returns
(BIR Form No. 1604CF/1604E) and Monthly Remittance Returns (BIR Form No. 1601C, etc.), under the
following modes:
(1) As attachment in the Electronic Filing and Payment System (eFPS);
(2) Through Electronic Submission using the BIR's website address at esubmission@bir.gov.ph; and
(3) Through Electronic Mail (email) at dedicated BIR addresses using the prescribed CSV data file
format, the details of which shall be issued in a separate revenue issuance.
In cases where any withholding agent does not have its own internet facility or unavailability of
commercial establishments with internet connection within the location of the withholding agent, the
alphalist prescribed herein may be electronically mailed (e-mail) thru the e-lounge facility of the nearest
revenue district office or revenue region of the BIR.
The submission of the herein prescribed alphalist where the income payments and taxes withheld are
lumped into one single amount (e.g., "Various employees", "Various payees", "PCD nominees",
"Others", etc.) shall not be allowed. The submission thereof, including any alphalist that that does not
conform with the prescribed format thereby resulting to the unsuccessful uploading into the BIR system
shall be deemed not as received and shall not qualify as a deductible expense for income tax purposes.
Accordingly, the manual submission of the alphabetical lists containing less than ten (10)
employees/payees by withholding agents under Annual Information Returns BIR Form No. 1604CF and
BIR No. 1604E shall be immediately discontinued beginning January 31, 2014 and March 1, 2014,
respectively, and every year thereafter.
SECTION 2.83.4.Substituted Filing of Income Tax Returns by Employees Receiving Purely Compensation
Income. — Individual taxpayers receiving purely compensation income, regardless of amount, from only
one employer in the Philippines for the calendar year, the income tax of which has been withheld
correctly by the said employer (tax due equals tax withheld) shall not be required to file BIR Form No.
1700. In lieu of BIR Form No. 1700, the Annual Information Return of Income Taxes Withheld on
Compensation and Final Withholding Taxes (BIR Form No. 1604-CF) (hard copy) filed by their respective
employers, duly stamped "received" by the BIR, shall be tantamount to the substituted filing of income
tax returns by said employees.
The following individuals, however, are not qualified for substituted filing and therefore, still required to
file BIR Form No. 1700 in accordance with existing regulations:
(A) Individuals deriving compensation from two or more employers concurrently or successively at
anytime during the taxable year.
(B) Employees deriving compensation income, regardless of the amount, whether from a single or
several employers during the calendar year, the income tax of which has not been withheld correctly
(i.e. tax due is not equal to the tax withheld) resulting to collectible or refundable return.
(C) Minimum wage earners including employees of the government of the Philippines, or any
political subdivisions, agencies or instrumentalities, with Salary Grades 1 to 3 whose income were not
subjected to withholding tax but subject to income tax from January 1 to July 5, 2008.
(D) Individuals deriving other non-business, non-profession-related income in addition to

compensation income not otherwise subject to a final tax.
(E) Individuals receiving purely compensation income from a single employer, although the income
tax of which has been correctly withheld, but whose spouse falls under Section 2.83A(A), (B), (C) and (D)
of these Regulations.
(F) Non-resident aliens engaged in trade or business in the Philippines deriving purely
compensation income, or compensation income and other non-business, non-profession-related
income.
In case of married individuals who are still required to file returns under existing provisions of the law,
i.e., in those instances not covered by the substituted filing of returns, only one return for the taxable
year shall be filed by either spouse to cover the income of the spouses, which return shall be signed by
the husband and wife unless it is physically impossible to do so, in which case signature of one of the
spouses would suffice.
Employees not qualified for substituted filing but are required to file the Income Tax Return shall file the
same not later than April 15 of the year immediately following the taxable year. Provided, that
employees with previous/successive employer/s within the taxable year shall furnish their new
employer with BIR Form No. 2316 issued by the previous employer/s.
SECTION 2.83.5.Registration as Withholding Agent. — Any person who makes payment or expects to
make payment of compensation in the amount exceeding the statutory minimum wage, to any single
employee shall register by filing in duplicate, with the Revenue District Office (RDO) of the city or
municipality where his legal residence or place of business is located, an Application for Registration as a
withholding agent using the form prescribed by the Bureau not later than ten (10) days after becoming
an employer.
SECTION 2.83.6.Applicability of Constructive Receipt of Compensation. — The withholding tax on

compensation shall apply to compensation actually or constructively paid. Compensation is
constructively paid within the meaning of these Regulations when it is credited to the account of or set
apart for an employee so that it may be drawn upon by him at any time although not then actually
reduced to possession. To constitute payment in such a case, the compensation must be credited or set
apart for the employee without any substantial limitation or restriction as to time or manner of payment
or condition upon which payment is to be made, and must be made available to him so that it may be
drawn upon at any time, and its payment brought with his control and disposition. A book entry, if
made, should indicate an absolute transfer from one account to another. If the income is not credited,
but it is set apart, such income must be unqualifiedly subject to the demand of the taxpayer. Where a
corporation contingently credits its employees with a bonus stock, which is not available to such
employees until some future date, the mere crediting on the books of the corporation does not
constitute payment. LexLib
SECTION 2.83.7.Extension of Time for Furnishing Statements to Employee. — An extension of time, not
exceeding thirty (30) days, within which to furnish the Certificate of Income Tax Withheld on
Compensation (Form No. 2316) required by Sec. 2.83 of these Regulations upon termination of
employment is hereby granted to any employer with respect to any employee whose employment is
terminated during the calendar year. In the case of intermittent or interrupted employment where
there is a reasonable expectation on the part of both employer and employee or further employment,
there is no requirement that an employee's withholding statement be immediately furnished the
employee; but when such expectation cease to exist, the statement must be furnished within thirty (30)
days from the date of termination of employment. The extension mentioned under this Section refers to
extension of time for furnishing the Certificate of Income Tax Withheld on Compensation (Form No.
2316) upon termination of employment.
SECTION 4.114. Withholding of Value-Added Tax. —
In general, value-added tax due on the sale of goods and services are not subject to withholding since
the tax is not determinable at the time of sale. However, gross payments to non-residents by both
government and private entities for services rendered in the Philippines shall be subject to final
withholding tax at the rate of 10% to be filed and paid using BIR Form No. 1600 — Monthly Remittance
Return of Value-Added Tax and Other Percentage Taxes Withheld.
Moreover, sale of goods and services subject to VAT to the government shall be subject to withholding
pursuant to Sec. 114(C) of the National Internal Revenue Code of 1997.
(A) Rates and basis of value-added tax to be withheld. — The gross payments made by the
government to sellers of goods and services shall be subject to withholding tax at the rates herein
prescribed:
(1) In general, payments by the government or any of its political subdivisions, instrumentalities or
agencies including government-owned or controlled corporations (GOCCs) on account of its purchase of
goods from sellers and services rendered by contractors/service providers who are subject to the value-
added tax —
On gross selling price for the purchase of goods (creditable) 3%
On gross payment for services rendered (creditable) 6%
(2) Payments made to government public works contractors (creditable) 8.5%
(3) Payments for services rendered in the Phils. by non-residents —
For lease or use of property or property rights
owned by non-residents in the Phils. (final) 10%
Services rendered to local insurance companies,
with respect to reinsurance premiums payable
to non-resident insurance or reinsurance
companies (final) 10%
Other services rendered in the Phil.
by non-residents (final) 10%
(B) Persons required to deduct and withhold. — All local government units, represented by the
Provincial Treasurer in the provinces, the City Treasurer in the cities, the Municipal Treasurer in the
municipalities, and Barangay Treasurer in the barangays, Treasurers of GOCCs and the Chief Accountants
or any person holding similar position and performing similar function in government offices and GOCCs,
as withholding agents, shall deduct and withhold the value-added tax before making any payment to the
seller of goods and services.
Where the government as herein defined has regional offices, branches or units, the withholding and
remittance of the VAT withheld may be done on a decentralized basis. As such the treasurer or the chief
accountant or any person holding similar function in said regional office, branch or unit shall deduct and
withhold the VAT before making any payment to the seller of goods and services. Decentralized
remittance, however, is not applicable if the taxpayer-withholding agent is classified as large taxpayer by
the Commissioner of Internal Revenue.
Private entities are likewise considered as withholding agents on gross payments made to non-residents,
applying the final withholding tax rate of ten (10%) percent.
(C) Returns and payment of taxes withheld. — The withholding agents shall accomplish the
Monthly Remittance Return of Value Added tax and Other Percentage Taxes Withheld (BIR Form No.
1600) in triplicate copies with Monthly Alphalist of Payees (MAP), the tax base and the amount withheld
paid upon filing the return with the authorized agent banks under the jurisdiction of the Revenue
District Office (RDO)/Large Taxpayers District Office (LTDO) where the withholding agent is required to
register and file the return. In places where there is no authorized agent bank, the return shall be filed
directly with the Revenue Collection Officer or the duly authorized Municipal/City treasurer of the
Revenue District Office where the withholding agent is required to register or file the return, except in
cases where the Commissioner otherwise permits.
(D) Certificate of Value-Added Tax Withheld At Source. — Every government agent, whether a large
or non-large taxpayer, shall furnish each seller of goods and services from whom value-added taxes
(VAT) have been deducted and withheld, the Certificate of Creditable Tax Withheld at Source (BIR Form
No. 2307) to be accomplished in quadruplicate, the first three copies of which shall be given to the
seller/payee not later than the 10th day of the following month. The rule stated herein shall also apply
to private payors/persons in control of the payment, whether large or non large taxpayers, for: a) the
lease or use of properties or property rights owned by non-residents; b) services rendered to local
insurance companies, whether large or non-large taxpayers, with respect to reinsurance premiums
payable to non-resident insurance or reinsurance companies; and c) services rendered in the Philippines
by non-residents; but the certificate or statement to be issued in this case is the Certificate of Final Tax
Withheld at Source (BIR Form No. 2306) which should be issued upon request of the payee. Provided,
however, that for income (interest/discount/trading gain) earned by financial institutions (FI) on
Treasury Bills/Bonds, the Bureau of Treasury (BTR) may be allowed to issue one consolidated Certificate
of Value-Added Tax Withheld at Source (BIR Form No. 2307) covering the total income payment and the
corresponding value-added tax withheld during the month. The Certificate of Value-Added Tax Withheld
at Source (BIR Form No. 2307) shall have as its attachment a summary list reflecting the following: (1)
Name of the financial institution; (2) TIN (Taxpayer Identification Number; (3) Period covered; (4)
Amount of Income (interest/discount/trading gain earned on Treasury Bills/Bonds); and (5) VAT
Remitted to the account of the Bureau of Internal Revenue. Such Certificate of Creditable Tax Withheld
at Source (BIR Form No. 2307) and Attachment shall bear the signature of the Treasurer of the
Philippines or his duly authorized representative and shall be submitted directly to the Bureau of
Internal Revenue (BIR), Attention: ISOS DC Head. Provided, further, that the Revenue District Officer
having jurisdiction over the principal place of business of the Bureau of Treasury shall be responsible for
the issuance of individual certificates/certification to the financial institutions reflecting exactly on a per
FI/payee basis, the information/data in the Certificate of Creditable Tax Withheld at Source (BIR Form
No. 2307) and the Attachment issued by the BTR. Said certification is required to be attached to the VAT
return in lieu of BIR Form No. 2307 as proof of the creditable value-added tax withheld claimed as
deduction thereof.
(E) Liability of designated officers. —
(1) Additions to the tax. — The designated Treasurers, Chief Accountants and other persons holding
similar positions, who have the duty to withhold and remit the value added tax in their respective offices
shall be personally liable for the additions to the tax prescribed in Sec. 247 of the Code.
(2) Punishable acts or omissions. — Every officer or employee of the government of the Republic to
the Philippines or any of its agencies and instrumentalities, its political subdivisions, as well as
government owned or controlled corporations charged with the duty to deduct and withhold any
internal revenue tax and to remit the same in accordance with these regulations shall, upon conviction
for each act or omission herein-below specified, be fined in a sum of not less than five thousand pesos
(P5,000.00) but not more than fifty thousand pesos (P50,000.00) or imprisoned for a term of not less
than six months and one day but not more than two years, or both.
(a) Fails or causes the failure to deduct and withhold any internal revenue tax covered by these
regulations;
(b) Fails or causes the failure to remit the taxes deducted and withheld within the time prescribed
therein;
(c) Fails or causes the failure to file the return or issue certificate required.
SECTION 5.116. Withholding of Percentage Tax. —
Bureaus, offices and instrumentalities of the government, including government-owned or controlled

corporations as well as their subsidiaries, provinces, cities and municipalities making any money
payment to private individuals, corporations, partnerships and/or associations are required to deduct
and withhold the percentage taxes due from the payees on account of such money payments.
(A) Internal revenue taxes required to be withheld. — Percentage taxes on gross money payments,
to the following shall be subjected to withholding at the rates herein prescribed:
(1) Persons exempt from value-added tax (VAT). — On gross payments to persons who are exempt
under Sec. 109 (z) of the Code from payment of value-added tax and who is not a VAT registered person
except payment to cooperatives — Three percent (3%) Cdpr
(2) Domestic carriers and keepers of garages. — On gross payments to operators of cars for rent or
hire driven by the lessee, transportation contractors, including those who transports passengers for hire,
and other domestic carriers by land, air or water, for transport of passengers, except owner of bancas
and owners of animal-drawn two wheeled vehicle, and keepers of garages — Three percent (3%)
(3) International carriers —

(a) On gross payments to international air carriers doing business in the Philippines — Three
percent (3%)
(b) On gross payments to international shipping carriers doing business in the Philippines — Three
percent (3%)
(4) Franchises —
(a) On gross payments to all franchises on radio and/or television broadcasting companies whose
annual gross receipts of the preceding year does not exceed P10,000.00 — Three percent (3%)
(b) On gross payments to franchises on electric, gas and water utilities — Two percent (2%)
(5) Banks and non-bank financial intermediaries —
(a) On interest, commissions and discounts paid or given to banks and non-bank financial
intermediaries arising out of lending activities as well as financial leasing, on the basis of the remaining
maturities of the instrument —
Short-term maturity (not exceeding 2 years) 5%
Medium-term maturity (over 2 year but not exceeding 4 years) 3%
Long-term maturity
(i) over 4 years but not exceeding 7 years 1%
(ii) over 7 years 0%
(b) On dividends 0%
(c) On royalties, rentals of property, real or personal, profits from exchange and all other gross
income — Five percent (5%)
(6) Finance companies —
(a) On interest, discounts and other items of gross income paid to finance companies and other
financial intermediaries not performing quasi-banking functions — Five percent (5%)
(b) On interests, commissions and discounts paid from their loan transactions from finance
companies as well as financial leasing based on the remaining maturities of the instruments:
Short-term maturity (not exceeding 2 years) 5%
Medium-term maturity (over 2 years but not exceeding 4 years) 3%
Long-term maturity
(i) over 4 years but not exceeding 7 years 1%
(ii) over 7 years 0%
(7) Life insurance premiums — On the total premiums paid to persons doing life insurance business
of any sort in the Philippines — Five percent (5%)
However the following shall not be included in the taxable receipts and consequently not subject to
withholding tax:
(a) Premiums refunded within six (6) months after payment on account of rejection of risk or
returned for other reasons to the insured;
(b) reinsurance premiums where the tax has previously been paid;
(c) premiums collected or received by any branch of a domestic corporation, firm or association
doing business outside the Philippines on account of any life insurance of a non-resident insured, if any
tax on such premium is imposed by a foreign country where the branch is established;
(d) premiums collected or received on account of any reinsurance, if the insured, in case of personal
insurance resides outside the Philippines, if any tax on such premiums is imposed by a foreign country
where the original insurance has been issued or perfected; LLphil
(e) portion of the premiums collected or received by the insurance companies on variable contracts
in excess of the amounts necessary to insure the lives of the variable contract workers.
(8) Agents of foreign insurance companies —
(a) On premiums paid to every fire, marine, or miscellaneous insurance agent legally authorized
under the Insurance Code to procure policies of insurance on risk located in the Philippines for
companies not authorized to transact business in the Philippines except on reinsurance premium — Ten
percent (10%)
(b) On premium payments obtained directly with foreign companies where the owner of the
property does not make use of the services of any agent, company or corporation residing or doing
business in the Philippines, in which case, it shall be the duty of said owners to report to the Insurance
Commissioner and to the BIR Commissioner each case where insurance has been so effected — Five
percent (5%)
(9) Amusements — On gross payments to the proprietor, lessee, or operator of cockpits, cabarets,
night or day clubs, boxing exhibitions, professional basketball games, jai-alai and racetracks at the rates
herein prescribed:
(a) cockpits — Eighteen percent (18%)
(b) Cabarets, night and day clubs — Eighteen percent (18%)
(c) Boxing exhibitions except those wherein World or Oriental Championship in any division is at
stake and at least one of the contenders is a citizen of the Philippines and promoted by a citizen/s of the
Philippines or by a corporation or association at least 60% of the capital of which is owned by such
citizens — Ten percent (10%)
(d) Professional basketball games as envisioned in Presidential Decree No. 871 — Fifteen percent
(15%)
(e) Jai-alai and racetracks irrespective of whether or not any amount is charged for admission —
Thirty percent (30%)
(10) Sale, barter or exchange of shares of stock listed and traded through the local stock exchange.
— On the gross selling price or gross value in money derived on every sale, barter or other disposition of
shares of stock listed and traded through the local stock exchange other than the sale by a dealer in
securities — One-half of one percent (1/2 of 1%)
(11) Shares of stock sold or exchanged through initial public offering. — On the gross selling price or
gross value in money derived on every sale, barter, exchange or other disposition through initial public
offering of shares of stock in closely held corporations in accordance with the proportion of such shares
to the total outstanding shares of stock after the listing in the local stock exchange at the rates herein
prescribed:
Not over 25% 4%
Over 25% but not exceeding 33 1/3% 2%
Over 33 1/3% 1%
(B) Returns and payments of taxes withheld. — No money payments shall be made by any
government office or agency unless the taxes due thereon shall have been deducted and withheld.
Taxes deducted and withheld shall be covered by the Monthly Remittance Return of VAT and Other
Percentage Taxes Withheld (BIR Form No. 1600) in triplicate copies with Monthly Alphalist of Payees
(MAP), that likewise presents the tax base and tax withheld to be filed and the tax to be paid to the
authorized agent bank under the jurisdiction of the Large Taxpayer Service including the Large
Taxpayer's District Office, in case of large taxpayer, or the Authorized Agent Bank under the jurisdiction
of the Revenue District Office were the withholding agent is located, for non-large taxpayer. In places
where there are no authorized agent bank, the return shall be filed directly with the Revenue Collection
Officer or the duly authorized Treasurer of the City or Municipality where the withholding agent is
required to register except in cases where the Commissioner otherwise permits. The required return
shall be filed and payments made within ten (10) days following the end of the month the withholding
was made or the withholding tax has accrued.
(C) Certificate of percentage tax withheld at source. — Every withholding agent shall furnish each
proprietor, operator, common carrier, franchise holder, bank and non-bank financial intermediaries,
finance company, insurance company or agent from whom taxes under these regulations had been
deducted and withheld the Certificate of Creditable Tax Withheld at Source (BIR Form 2307) to be
accomplished in triplicate, two copies to be given to the payee simultaneously with the money
payments not later than the fifth (5th) day of the following month. The third copy of the certificate shall
be the file copy of the withholding agent.
(D) Liability of designated officers —
(1) Additions to the tax — The designated Treasurers, Chief Accountants and other persons holding
similar positions, who have the duty to withhold and remit the value added tax in their respective offices
shall be personally liable for the additions to the tax prescribed in Sec. 247 of the Code.
(2) Punishable acts or omissions — Every officer or employee of the government of the Republic of
the Philippines or any of its agencies and instrumentalities, its political subdivisions, as well as
government owned or controlled corporations charged with the duty to deduct and withhold any
internal revenue tax and to remit the same in accordance with these regulations shall, upon conviction
for each act or omission herein-below specified, be fined in a sum of not less than five thousand pesos
(P5,000.00) but not more than fifty thousand pesos (P50,000.00) or imprisoned for a term of not less
than six months and one day but not more than two years, or both.
(a) Fails or causes the failure to deduct and withhold any internal revenue tax covered by these
regulations;
(b) Fails or causes the failure to remit the taxes deducted and withheld within the time prescribed
therein;
(c) Fails or causes the failure to file the return or issue certificate required.
SECTION 5.128. Withholding of Percentage Tax on Purchases of Goods and/or Payments for Services
Acquired in the Course of Trade or Business and Rendered by Persons Subject to the 3% Percentage Tax
Pursuant to Section 116 of the Code. —
(A) Persons Required to Withhold the Percentage Tax. — In general, any person, natural or juridical,
with respect to his/its purchase of goods or payments for purchase of services not arising from or
incident to an employer-employee relationship but made in the course of trade or business (including
exercise of profession or calling), from Non-VAT registered persons subject to the 3% percentage tax
under Section 116 of the Code [i.e., those whose gross annual sales, for sale of goods, or gross annual
receipts, for sale of services, do not exceed five hundred fifty thousand pesos (P550,000.00), and who
do not opt to be registered as VAT taxpayers and, therefore, chose to be registered as non-VAT persons
pursuant to Section 236(I) of the Code], shall be subject to a percentage tax withholding at source at the
rate of three percent (3%), based on the payee's gross sales/receipts, pursuant to Section 116, in
relation to Sections 128 and 245(g), (i) and (j) of the Code if the taxpayer-payee opts to remit his
percentage tax through the withholding and remittance of the same by the withholding agent-payor
which option is manifested by filing the "Notice of Availment of the Option to Pay the Tax through the
Withholding Process" (Annex E), copy-furnished the withholding agent-payor and the Revenue District
Offices of both the payor and payee.
The percentage tax withheld shall be remitted by the withholding agent using BIR Form No. 1600
(Monthly Remittance Return of Value-added Tax and Other Percentage Taxes Withheld) to the
appropriate collection agents [Accredited Agent Bank (AAB) or Revenue Collection Officer (RCO),
whichever is applicable] of the Bureau of Internal Revenue (BIR). Such return serves as the withholding
tax return of the payor-withholding agent and, likewise, serves as the substituted percentage tax return
of the payee if the said income recipient-payee has only one payor from whom he generates his income
and provided, further, that a "Notice of Availment of the Substituted Filing of Percentage Tax Return"
(Annex "A") is filed with the Revenue District Office (RDO) where the income-recipient is registered or
required to register (Home RDO). Such Notice of Availment shall state that the income recipient is a non-
VAT taxpayer, having not opted to be covered by the VAT system, with actual annual gross sales (for sale
of goods) or gross receipts (for sale of service), or expected annual gross sales/receipts (for new
taxpayer) of not more than P550,000 from just one payor and that he is opting to file under the
substituted filing of percentage tax return. A copy of the said Notice shall be furnished the lone payor of
the income. Moreover, BIR Form No. 2306 (Certificate of Final Tax Withheld at Source-March 2003
version), duly signed by both the payor and the payee, shall be attached to the duly filed BIR Form No.
1600 and shall constitute as the authority given by the payee to the payor to file and consider the
payor's duly filed BIR Form 1600 as the substituted percentage tax return of the payee. The duly filed or
stamped "Received" BIR Form 2306 shall serve the same purpose as the percentage tax return (BIR Form
2551M) of the payee. Accordingly, a taxpayer availing of the Substituted Filing of Percentage Tax Return
shall update his registration data with his Home RDO.
On the other hand, if the payee has more than one payor, the percentage tax withheld and remitted by
the payor under BIR Form No. 1600 shall be treated as creditable tax by the payee when he files the
monthly percentage tax return under BIR Form No. 2551M. The claimed tax credit shall be evidenced by
BIR Form No. 2307 (Certificate of Creditable Tax Withheld at Source-March 2003 version) duly executed
and signed by both the payor and the payee attesting to the correctness of the figures reflected therein.
Since the percentage tax has already been withheld at source based on gross amount and remitted by
the payors under BIR Form No. 1600, the Percentage Tax Return (BIR Form No. 2551M) to be filed by the
payee which will not be reflecting any amount payable, shall just serve as a return consolidating all the
transactions with all the payors which have already been subjected to withholding tax and which return
(BIR Form No. 2551M) shall be filed directly with the appropriate BIR office without the need of passing
through an Accredited Agent Bank (AAB) or Revenue Collection Officer (RCO). Nonetheless, in case the
total amount of tax withheld by the payors who are engaged in business is incorrect or the payee has
transactions with payors who are not engaged in business and therefore not obliged to withhold, the
percentage tax return (BIR Form No. 2551M) of the payee which will be reflecting an amount payable
shall be filed with the AAB or the RCO, in the absence of an AAB, of the Revenue District Office that has
jurisdiction over the taxpayer-payee.
Provided, further that, if at any time of the year, the accumulated gross sales or gross receipts exceed
P550,000, the income recipient-payee shall change its/his registration with the BIR from Non-VAT to
VAT within one month from the close of the month when the threshold amount was reached. Such
payee shall become VAT-registered taxpayer starting the first day of the month following the month of
his VAT registration. Accordingly, notification to the payors of income shall be made with respect to such
change in "taxpayer classification" of the payee. Change in the tax type and rate of withholding shall
correspondingly be made by the income payor.
(B) Returns and Payments of Taxes Withheld. — Except in cases where the Commissioner otherwise
permits, taxes deducted and withheld pursuant to this Section shall be remitted using the Monthly
Remittance Return of VAT and Other Percentage Taxes Withheld (BIR Form 1600) in triplicate which
return to be filed and the tax to be paid to the Authorized Agent Banks (AABs) under the jurisdiction of
the Large Taxpayer's Service including Large Taxpayer's District Offices, in case of large taxpayer, or the
AAB under the jurisdiction of the Revenue District Office (RDO) where the withholding agent is located,
in case of non-large taxpayer. In places where there is no AAB, the return shall be filed with and the tax
paid directly to the Revenue Collection Officer (RCO) or the duly authorized Treasurer of the City or
Municipality where the withholding agent is required to register. The required return shall be filed and
payments made within ten (10) days following the end of the month the withholding was made or the
withholding has accrued. If the withholding agent is enrolled in Electronic Filing and Payment System
(EFPS), the filing of returns and payment of withholding taxes shall be in accordance with the rules and
regulations governing EFPS.
(C) Certificate of Percentage Taxes Withheld. — The payor-withholding tax agent shall issue to the
payee a "Certificate of Final Tax Withheld at Source" (BIR Form No. 2306) for the 3% final percentage tax
withheld, to be accomplished in quadruplicate, two copies of which shall be given to the Payee within
ten (10) days following the end of the month the withholding was made, one copy of the Certificate shall
be the file copy of the withholding agent and the last copy shall be attached to the filed BIR Form No.
1600. The Certificate (BIR Form No. 2306) to be issued by the withholding agent shall be signed by both
the withholding agent and the payee attesting to the correctness and accuracy of the information
contained therein and likewise stating that it serves as the authority given by the payee to the payor to
file and consider the payor's duly filed BIR Form 1600 as the substituted percentage tax return of the
payee for a payee with only one payor. BIR Form No. 2307 (Certificate of Creditable Tax Withheld at
Source) is the certificate that should be issued to the payee by the payor if the payee has several other
payors as signified by such payee. Such Certificate shall be issued in quadruplicate, two copies to be
issued to the payee for attachment to the Percentage Tax Return (BIR Form No. 2551M) to be filed by
the payee consolidating all its/his taxable transactions for the month, one copy to be attached by the
payor to the filed BIR Form No. 1600 and one copy serves as the file copy of the payor.
(D) Substituted Percentage Tax Return. — In the case of sale of goods or services by persons subject
to 3% percentage tax under Section 116 of the Code, whose gross sales or receipts have already been
subjected to the withholding of the 3% percentage tax by the lone payor, the payee shall no longer be
required to file the monthly percentage tax return (BIR Form No. 2551M) with respect to such receipts.
The BIR Form No. 1600 duly filed by the payor serves as the substituted return of the payee with lone
payor provided that the BIR Form No. 2306 duly executed and signed by both the payor and the payee is
attached to the filed BIR Form No. 1600.
(E) Regular Percentage Tax Return. — Payees with several payors are still required to file the
regular percentage tax return reflecting therein the consolidated total of all the taxable transactions for
the taxable period and applying as tax credit the taxes withheld by several payors evidenced by the duly
issued BIR Form No. 2307 which must be attached to the Percentage Tax Return (BIR Form No. 2551M).
If all the transactions reflected/consolidated in the Percentage Tax Return (BIR Form No. 2551M) are
with several payors who are engaged in business and therefore have been subjected to the 3%
withholding tax, the Percentage Tax Return will no longer reflect any tax payable but will just be a
simple consolidation of all the taxable transactions for a given taxable period which may be filed directly
with the appropriate BIR office and thus need not pass through any AAB or collecting RCO. Nonetheless,
in case the total amount of tax withheld by the payors who are engaged in business is incorrect or the
payee has transactions with payors who are not engaged in business and therefore not obliged to
withhold the tax, the percentage tax return (BIR Form No. 2551M) of the payee which will be reflecting
an amount payable shall be filed with the AAB or the RCO, in the absence of an AAB, of the Revenue
District Office that has jurisdiction over the taxpayer-payee.
(F) Substituted Official Receipt. — For sellers of services whose gross receipts have been subjected
to the withholding of the 3% percentage tax, they shall be exempted from the obligation of issuing duly
registered non-VAT receipts covering their receipt of payments for services sold. In lieu thereof, the
issued "Certificate of Final Tax Withheld at Source" (BIR Form No. 2306), for payee with just one payor,
or "Certificate of Creditable Tax Withheld at Source" (BIR Form No. 2307), for payee with several payors,
shall be constituted and treated as the substituted official receipt, pursuant to the provisions of Section
237 of the Code, the pertinent portion of which provides:
"SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. — . . . .
"The Commissioner may, in meritorious cases, exempt any person subject to an internal revenue tax
from compliance with the provisions of this Section."
(G) The Option to Remit the Tax under the Withholding Tax System and the Option to Avail of the
Substituted Filing of the Percentage Tax Return. — The option to remit the Percentage Tax under the
withholding system once chosen remains as the manner of remitting the tax unless said option is
cancelled by the payee (Annex F). Meanwhile, the option to file under the Substituted Filing of the
Percentage Tax Return allowed to a payee with just one payor in a given taxable year shall continue to
apply to subsequent taxable years until such time that the taxpayer-payee files the "Notice of
Cancellation of Availment of the Substituted Filing of Return" (Annex D) not later than the 10th day of
the month following the close of taxpayer's taxable year which shall automatically revert said taxpayer
to the status of taxpayers filing the returns under the regular filing procedures. If within the taxable
year, an additional client or customer comes in, the taxpayer-payee shall immediately file the 'Notice of
Cancellation of Availment of the Substituted Filing of Returns'.
SECTION 9.245. Withholding of VAT on Purchase of Goods and/or on Payments for Services Acquired in
the Course of Trade or Business and Rendered by Persons Subject to VAT Pursuant to Sections 106 and
108 of the Code. —
(A) Persons Required to Withhold the Value-Added Tax. — In general, any person, natural or
juridical, with respect to his/its purchase of goods or payments for purchase of services not arising from
or incident to an employer-employee relationship but made in the course of trade or business (including
exercise of profession or calling), from VAT registered persons subject to value-added tax under Sections
106 and 108 of the Code, shall be subject to VAT withholding at source at the rate of ten percent (10%),
based on the payee's gross sales/receipts, pursuant to Sections 106 and 108 in relation to Section
245(g), (i) and (j) of the Code, provided that the payee has executed the "Waiver of the Privilege to
Claim Input Tax Credits" (Annex C) and opted to remit the VAT through the withholding and remittance
of the same by the withholding agent-payor by likewise executing the "Notice of Availment of the
Option to Pay the Tax through the Withholding Process" (Annex E), which waiver and notice are copy-
furnished the payor-withholding agent and the RDOs of both the payors and the payee.
The VAT withheld shall be remitted by the withholding agent using BIR Form 1600 (Monthly Remittance
Return of Value-added Tax and Other Percentage Taxes Withheld) to the appropriate collection agents
[Accredited Agent Bank (AAB) or Revenue Collection Officer (RCO), whichever is applicable] of the
Bureau of Internal Revenue (BIR). Such return serves as the withholding tax return of the payor-
withholding agent and at the same time, likewise, serves as the substituted VAT return of the payee if
the said income recipient-payee has only one payor from whom he generates his income and provided,
further, that a "Notice of Availment of the Substituted Filing of VAT Return" (Annex "B") is filed with the
RDO where the income-recipient is registered or required to register (Home RDO). Such Notice of
Availment shall state that the income recipient is a VAT-registered taxpayer with gross sales (for sale of
goods) or gross receipts (for sale of service) for the whole year coming from just one payor and that he
is opting to file under the substituted filing of VAT return having waived the privilege to claim VAT input
credits. Copy of the said Notice must be furnished the lone payor of the income and the RDOs of both
the payors and the payee. Upon receipt of the said Notice, the payor is mandatorily required to withhold
the 10% VAT on the income payment to the payee and shall remit the same to the appropriate
collection agents (AAB or RCO, whichever is applicable) of the BIR. Moreover, BIR Form No. 2306
(Certificate of Final Tax Withheld at Source-March 2003 version) duly signed by both the payor and the
payee attesting to the accuracy of the figures stated therein shall be attached to BIR Form No. 1600 filed
with the BIR and shall constitute as the authority given by the payee to the payor to file and consider the
payor's duly filed BIR Form 1600 as the substituted VAT return of the payee. The duly filed and stamped
"Received" BIR Form 2306 shall serve the same purpose as the VAT return (BIR Form 2550Q) of the
payee. Moreover, taxpayer availing of the Substituted Filing of VAT Return shall update his registration
data with his Home RDO.
On the other hand, even if the payee has more than one payor but has executed the "Waiver of the
Privilege to Claim VAT Input Tax Credits" (Annex C), and the "Notice of Availment of the Option to Pay
the Tax through the Withholding Process" (Annex E), copy-furnished the payors, the RDOs of both the
payors and the payee, said payors are mandatorily required to withhold the 10% VAT which value-added
tax shall be withheld and remitted by the payor using BIR Form No. 1600. Under this instance, the VAT
withheld shall be treated as creditable tax by the payee when he files the quarterly value-added tax
return under BIR Form No. 2550Q. The claimed tax credit shall be evidenced by BIR Form No. 2307
(Certificate of Creditable Tax Withheld at Source-March 2003 version) duly executed and signed by both
the payor and the payee attesting to the correctness of the figures reflected therein. Since the value-
added tax has already been withheld at source based on gross amount in pursuance of the waiver of the
right to claim input VAT (Annex C) executed by the payee and remitted by the payors under BIR Form
No. 1600, the Value-added Tax Return (BIR Form No. 2550Q) to be filed by the payee which will not be
reflecting any amount payable shall just serve as a return consolidating all the transactions with all the
payors which have already been subjected to withholding tax and which return shall be filed directly
with the appropriate BIR office without the need of passing through an Accredited Agent Bank (AAB) or
Revenue Collection Officer (RCO). Considering that under an instance where all the payors who are
engaged in business have already withheld and remitted the 10% VAT as withholding agents of the
payee the latter will no longer be remitting any single amount of tax, the requirement of filing the
monthly VAT Declaration (BIR Form No. 2550M) by the payee shall be dispensed with. Nonetheless, in
case the total amount of tax withheld by the payors who are engaged in business is incorrect or the
payee has transactions with payors who are not engaged in business and therefore not obliged to
withhold the tax, the monthly VAT Declaration (BIR Form No. 2550M) and the quarterly VAT Return (BIR
Form No. 2550Q) of the payee which will be reflecting an amount payable shall still be filed with the AAB
or the RCO, in the absence of an AAB, of the Revenue District Office that has jurisdiction over the
taxpayer-payee.
(B) Returns and Payments of Taxes Withheld. — Except in cases where the Commissioner otherwise
permits, taxes deducted and withheld pursuant to this Section shall be remitted using the Monthly
Remittance Return of VAT and Other Percentage Taxes Withheld (BIR Form 1600) in triplicate which
return to be filed and the tax to be paid to Authorized Agent Banks (AABs) under the jurisdiction of the
Large Taxpayer's Service including Large Taxpayer's District Office, in case of large taxpayer, or the AAB
under the jurisdiction of the Revenue District Office (RDO) where the withholding agent is located, in
case of non-large taxpayer. In places where there is no AAB, the return shall be filed with and the tax
paid directly to the Revenue Collection Officer (RCO) or the duly authorized Treasurer of the City or
Municipality where the withholding agent is required to register. The required return shall be filed and
payments made within ten (10) days following the end of the month the withholding was made or the
withholding has accrued. If the withholding agent is enrolled in Electronic Filing and Payment System
(EFPS), the filing of returns and payment of withholding taxes shall be in accordance with the rules and
regulations governing EFPS.
(C) Certificate of VAT Withheld. — The payor-withholding agent shall issue to the payee a
"Certificate of Final Tax Withheld at Source" (BIR Form No. 2306) for the 10% final VAT withheld, for
payee with just one payor, or the "Certificate of Creditable Tax Withheld at Source" (BIR Form No. 2307),
for payee with several payors, to be accomplished in quadruplicate, two copies of which shall be given
to the Payee within ten (10) days following the end of the month the withholding was made, one copy
shall be attached to BIR Form No. 1600 duly filed by the payor and the fourth copy of the Certificate
shall be the file copy of the withholding agent. The Certificate (BIR Form No. 2306) to be issued by the
withholding agent shall be signed by both the withholding agent and the payee attesting to the
correctness and accuracy of the information contained therein and likewise stating that it serves as the
authority given by the payee to the payor to file and consider the payor's duly filed BIR Form 1600 as the
substituted VAT return of the payee for payee with only one payor. BIR Form No. 2307 (Certificate of
Creditable Tax Withheld at Source) is the certificate that should be issued to the payee by the payor if
payee has several other payors as signified by such payee. Such Certificate shall be signed by both the
withholding agent and the payee attesting to the correctness and accuracy of the information contained
therein and shall be issued in quadruplicate, two copies to be given to the payee for attachment to the
Value-added Tax Return (BIR Form No. 2550Q) to be filed by the payee consolidating all its/his taxable
transactions for the quarter, one copy to be attached to the filed BIR Form No. 1600 of the payor and
one copy serves as the payor's file copy.
(D) Substituted VAT Return. — In the case of sale of goods or services by persons subject to 10%
VAT under Sections 106 and 108 of the Code, whose gross sales or receipts have already been subjected
to the 10% final VAT by the lone payor, the payee shall no longer be required to file the monthly VAT
declarations (BIR Form No. 2550 M) and quarterly VAT returns (BIR Form No. 2550 Q) with respect to
such receipts. The BIR Form No. 1600 duly filed by the payor serves as the substituted return of the
payee with lone payor provided that the BIR Form No. 2306 duly executed and signed by both the payor
and the payee is attached to the filed BIR Form No. 1600.
(E) Regular Value-added Tax Return. — Payees with several payors are still required to file the
regular value-added tax return reflecting therein the consolidated total of all the taxable transactions for
the taxable period and applying as tax credit the taxes withheld by several payors evidenced by the duly
issued BIR Form No. 2307 which must be attached to the Value-added Tax Return (BIR Form No. 2550Q).
If all the transactions are with several payors who are engaged in business and therefore have been
subjected to the 10% withholding tax, the Value-added Tax Return will no longer reflect any tax payable
but will just be a simple consolidation of all the taxable transactions for a given taxable period which
may be filed directly with the appropriate BIR office and thus need not pass through any AAB or
collecting RCO.
In case of a payee whose all transactions are with payors who are engaged in business and who have
subjected the transactions to the withholding of the 10% VAT, the payee is no longer required to file the
monthly VAT Declaration (BIR Form No. 2550M).
Nonetheless, in case the total amount of tax withheld by the payors who are engaged in business is
incorrect or the payee has transactions with payors who are not engaged in business and therefore not
obliged to withhold the tax, the Monthly Value-added Tax Declaration (BIR Form No. 2550M) and the
Quarterly Value-added Tax Return (BIR Form No. 2550Q) of the payee which will be reflecting an
amount payable shall be filed with the AAB or the RCO, in the absence of an AAB, of the Revenue District
Office that has jurisdiction over the taxpayer-payee.
(F) Substituted Official Receipt. — For sellers of services whose gross receipts have been subjected
to 10% final VAT, they shall be exempted from the obligation of issuing duly registered VAT official
receipts covering their receipt of payments for services sold. In lieu thereof, the issued "Certificate of
Final Tax Withheld at Source" (BIR Form No. 2306), for payee with one payor, or the "Certificate of
Creditable Tax Withheld at Source" (BIR Form No. 2307), for payee with several payors, shall be
constituted and treated as the substituted official receipt, pursuant to the provisions of Section 237 of
the Code, the pertinent portion of which provides:
"SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. — . . . .
"The Commissioner may, in meritorious cases, exempt any person subject to an internal revenue tax
from compliance with the provisions of this Section."
(G) The Option to Remit the Tax under the Withholding Tax System and the Option to Avail of the
Substituted Filing of the VAT Return. — The option to remit the VAT under the withholding system once
chosen remains as the manner of remitting the tax unless said option is cancelled by the payee (Annex
F). Meanwhile, the option to file under the Substituted Filing of the VAT Return allowed to payee with
just one payor in a given taxable year shall continue to apply to subsequent taxable years until such time
that the taxpayer-payee files the "Notice of Cancellation of Availment of the Substituted Filing of
Return" (Annex D) not later than the 10th day of the month following the close of taxpayer's taxable
year which shall automatically revert said taxpayer to the status of taxpayers filing the returns under the
regular filing procedures. If within the taxable year, an additional client or customer comes in, the
taxpayer-payee shall immediately file the 'Notice of Cancellation of Availment of the Substituted filing of
Returns'.
REPEALING CLAUSE. — All existing rules and regulations or parts thereof which are inconsistent with the
provisions of these regulations are hereby revoked.
EFFECTIVITY. — These regulations shall take effect on compensation income paid beginning January 1,
1998. No penalties shall apply until May 15, 1998 for non-compliance with the new features of the Code
as implemented in these regulations. cdasia
(SGD.) MILWIDA M. GUEVARA
Acting Secretary of Finance
Recommending Approval:
(SGD.) LIWAYWAY VINZONS-CHATO
Commissioner of Internal Revenue

RR 2-98 - Withholding Taxes

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RR 2-98 - Withholding Taxes

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REVENUE REGULATIONS NO.

TO : All Internal Revenue Officers and Others Concerned

SECTION 2.57. Withholding of Tax at Source. —

(A) Income payments to a citizen or to a resident alien individual;

Holding Period Rate

Four (4) years to less than five (5) years 5%

Three (3) years to less than four (4) years 12%

Less than three (3) years 20%

6% - beginning January 1, 1998

8% - beginning January 1, 1999 and

10% - beginning January 1, 2000 and thereafter

Holding Period Rate

Four (4) years to less than five (5) years 5%

Three (3) years to less than four (4) years 12%

Less than three (3) years 20%

34% - beginning January 1, 1998

33% - beginning January 1, 1999 and

32% - beginning January 1, 2000 and thereafter

(2) Expense account;

(3) Vehicle of any kind;

(4) Household personnel, such as maid, driver and others;

(7) Expenses for foreign travel;

(8) Holiday and vacation expenses;

(9) Educational assistance to the employee or his dependents; and

(3) Professional athletes, including basketball players, pelotaris and jockeys;

(5) Insurance agents and insurance adjusters;

(6) Management and technical consultants;

(7) Bookkeeping agents and agencies;

(8) Other recipients of talent fees;

Notwithstanding the foregoing, if an individual recipient receives professional fees/talent fees/directors

(a) Reclamation works;

(c) Highways, streets and roads;

(e) Airports and airways;

(f) Waste reduction plants;

(g) Bridges, overpasses, underpasses and other similar works;

(i) Land leveling;

(l) Paving; and

(m) Surfacing work.

(4) Other contractors —

(b) Operators of dockyards;

(d) Operators of stevedoring, warehousing or forwarding establishments;

(h) Advertising agencies, exclusive of gross payments to media;

(i) Independent producers of television, radio and stage performances or shows;

(j) Independent producers of "jingles";

(n) Persons engaged in landscaping services;

(o) Persons engaged in the collection and disposal of garbage;

(q) TV and radio blocktimers on sale of TV and radio commercial spots.

A. Where the seller/transferor is exempt from

creditable withholding tax in accordance with

Sec. 2.57.5 of these regulations Exempt

With a selling price of Five Hundred Thousand Pesos

(P500,000.00) or less 1.5%

With a selling price of more than Five Hundred

Thousand Pesos (P500,000.00) but not more than

Two Million Pesos (P2,000,000.00) 3.0%

With a selling price of more than Two Million Pesos

C. Where the seller/transferor is not habitually engaged

in the real estate business 6.0%

However, if the buyer is engaged in trade or business, whether a corporation or

Supplier of goods — One percent (1%)

Supplier of services — Two percent (2%)

Illustrative example for agricultural products:

Transactions Year Purchase Amount

One 2009 P90,000.00