What counts as final withholding income
- Section 2 amends Section 2.57.1 of Revenue Regulations No. 2-98 by revising the list of income payments subject to final withholding tax and their rates.
- Section 2(B)(3) imposes final withholding tax at 6% on capital gains presumed realized from the sale, exchange or other disposition of real property located in the Philippines, classified as capital assets, by a non-resident alien individual engaged in trade or business within the Philippines.
- The 6% base is the gross selling price or fair market value determined in accordance with Section 6(E) of the Tax Code of 1997, whichever is higher, and applies to pacto de retro sales and other forms of conditional sales.
- Section 2(B) further provides rules for sales on installment and dispositions to government or government-owned entities:
- For installment sales of real property classified as capital assets, the procedures under Section 2.57.2(J) on the sale of real property classified as ordinary assets apply, except that the withholding tax on the capital asset sale is final, while the withholding tax on the ordinary asset sale is creditable.
- For dispositions by individuals of capital asset real property to the government, its political subdivisions/agencies, or government-owned or controlled corporations, the tax imposed is determined either under Section 24(A) (normal rate) or under Section 24(D)(1) (final tax on presumed capital gains at 6%) at the option of the taxpayer-seller.
- Section 2(C)(2) imposes final withholding tax at 6% on capital gains presumed realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, by a non-resident alien individual not engaged in trade or business within the Philippines, based on prescribed amounts/rates for this category.
- Under Section 2(C), installment-sale and government-disposition treatments follow the same installment procedure rule and the same government-disposition tax-option rule at 6% under Sections 24(A) and 24(D)(1) as described for individuals.
Creditible withholding income rates
- Section 3 amends Section 2.57.2 of Revenue Regulations No. 2-98 on income payments subject to creditable withholding tax and rates.
- Section 3(A) sets withholding on gross professional, promotional and talent fees and other remuneration for enumerated individual recipients at:
- 15%, if the gross income for the current year exceeds P720,000; and
- 10%, if otherwise.
- Section 3(A) lists covered individuals, including professionals requiring government licensure examinations and/or regulated by the Professional Regulations Commission and others, as well as specific categories such as:
- professional entertainers (actors/actresses, singers, lyricists, composers, emcees),
- professional athletes (basketball players, pelotaris, jockeys),
- directors and producers involved in movies, stage, radio, television, and musical productions,
- insurance agents and insurance adjusters,
- management and technical consultants,
- bookkeeping agents and agencies,
- directors whose duties are confined to attendance at and participation in board meetings (when not employees of the paying company),
- and other listed recipients of talent fees and professional services.
- Section 3(A) requires each covered individual to periodically disclose gross income to the Bureau of Internal Revenue (BIR) through a notarized sworn declaration using Annex “A” in three (3) copies (two (2) for the BIR and one (1) for the taxpayer), including rules on stamping and distribution to payors through the Collection Division of the Regional Office, Large Taxpayers Collection Division (for Metro Manila), or LTDO (for large taxpayers outside Metro-Manila).
- Section 3(A) fixes disclosure timing rules:
- The filing is due on June 30 of each year or within fifteen (15) days after the end of the month when the income reaches P720,000, whichever comes earlier.
- If total gross income is less than P720,000 as of June 30, a second disclosure is due within fifteen (15) days after the end of the month when the income-to-date reaches P720,000.
- Section 3(A) provides payee-to-payor and consequences for non-compliance:
- The payee must furnish each payor a BIR duly stamped copy not later than five (5) days from BIR receipt.
- If the payee fails to submit the June 30 annual disclosure to the BIR and furnish the payor/s a copy, the payor must withhold at 15%.
- Section 3(A) provides transmission and monitoring rules:
- The Collection Division/Large Taxpayers Collection Division/LTDO transmits one (1) copy to the Withholding Tax Division within five (5) days from receipt.
- The remaining copy is kept as the file copy for monitoring purposes by the concerned Regional Office/Large Taxpayer Service/LTDO.
- Section 3(A) extends the same disclosure requirements to taxable juridical persons (sworn declaration executed by the president/managing partner), partners of general professional partnerships, and medical practitioners covered under the cited subsections.
- Section 3(A) treats additional professional/talent/directors’ fees received in addition to salaries from the same payor as supplemental compensation, making the fees subject to the withholding tax on compensation.
Creditible withholding for taxable juridical persons and partners
- Section 3(B) applies the same 15% / 10% rate structure (based on P720,000) to gross professional, promotional, and talent fees or other remuneration paid for services of taxable juridical persons, using the same enumerated remuneration categories in the preceding subparagraph.
- Section 3(H) imposes withholding on income payments by a general professional partnership to its partners (drawings, advances, sharings, allowances, stipends, etc.) at:
- 15%, if income payments to the partner for the current year exceed P720,000; and
- 10%, if otherwise.
Medical practitioners and hospital/clinic/HMO duties
- Section 3(I) imposes creditible withholding on amounts collected for and paid to medical practitioners by hospitals and clinics, by patients admitted and confined to such hospitals/clinics, or paid directly by HMOs and/or similar establishments, at:
- 15%, if income payments for the current year exceed P720,000; and
- 10%, if otherwise.
- Section 3(I)(a) makes the hospital, clinic, or HMO responsible for remitting taxes withheld from professional fees paid to medical practitioners in the following payment flows:
- professional fees paid by HMOs to medical practitioners,
- professional fees paid by patients to medical practitioners through hospitals/clinics, and
- professional fees paid directly by patients to medical practitioners, where the withheld amount is later given by medical practitioners to the Accounting Office of the hospitals or clinics.
- Section 3(I)(e) requires hospitals and clinics to compute withholding taxes accurately on professional fees paid by patients through hospitals/clinics, and requires HMOs to compute withholding taxes accurately on professional fees paid by them to medical practitioners, and to ensure timely remittance of the applicable 10% or 15% expanded withholding tax.
- Section 3(I) requires hospitals/clinics/HMOs to include the list of all income recipients-payees for the subsection in the Alphalist of Payees Subject to Expanded Withholding Tax attached to BIR Form No. 1604-E.
- Section 3(I) mandates issuance of Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307) to medical practitioners subjected to withholding every 20th day following the close of the taxable quarter or upon request of the payee.
Government procurement withholding thresholds and rates
- Section 3(N) imposes withholding on government income payments to local/resident suppliers of goods and services, except casual or single purchases of P10,000.00 and below.
- For government purchases of goods from local/resident suppliers, the rate is 1%.
- For government purchases of services from local/resident suppliers, the rate is 2%.
Withholding for suppliers of agricultural products
- Section 3(S) imposes withholding at 1% on income payments made to regular agricultural suppliers by establishments including hotels, restaurants, resorts, caterers, food processors, canneries, supermarkets, livestock/poultry/fish and marine products dealers, hardwares, factories, furniture shops, and similar establishments.
- Section 3(S) excludes withholding coverage for casual agricultural suppliers whose annual gross purchases from such payors do not exceed P20,000.
- Section 3(S) defines “agricultural suppliers” as 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.
- Section 3(S) defines “livestock” to include cows, bulls and calves, pigs, sheep, goats and other animals similar thereto, and defines “poultry” to include fowls, ducks, geese, turkey and others similar thereto.
- Section 3(S) defines “marine products” to include fish and crustaceans such as eels, trout, lobsters, shrimps, prawns, oysters, mussels and clams, shells and other aquatic products.
Contractors and persons required to withhold
- Section 4 corrects and amends Section 2.57.2(E) to impose 2% creditable withholding on gross payments to certain contractors, whether individual or corporate.
- Section 4 provides that the 2% rate applies to general engineering contractors, general building contractors, specialty contractors, and other contractors as covered under the amended arrangement.
- Section 5 amends Section 2.57.3 on “Persons required to deduct and withhold” by requiring:
- agents, employees, or any person purchasing goods or services or paying in behalf of the withholding agents to likewise withhold in their behalf, provided receipts and certificates reflect the proper person.
- Section 5 mandates that official receipts/sales invoices are issued in the name of the person whom the a