Law Summary
Exemption from Withholding Tax on Income Payments to GPPs
- Per Section 2.57.5 of Revenue Regulations No. 2-98, as amended, creditable withholding tax does not apply to income payments made to GPPs.
- The exemption arises because GPPs are exempt from income tax, and thus income payments to GPPs are not subject to withholding tax.
Definition and Scope of General Professional Partnership
- Defined in Section 22 (B) of the 1997 Tax Code, as amended, a GPP is a partnership formed solely for the exercise of a common profession.
- It excludes partnerships whose income is derived from trade or business activities.
- GPPs are distinct from other partnership types and certain joint ventures and consortiums.
Tax Treatment of Income Payments to GPPs and Partners
- Income payments made to a GPP for professional services are not subject to income or withholding tax at the partnership level.
- The individual partners are liable for income tax on their distributive shares.
- Partners must report their distributive share of partnership net income as gross income.
Withholding Tax on Payments to Partners
- Payments such as drawings, advances, sharings, allowances, or stipends made by the GPP to partners are subject to creditable withholding tax.
- The withholding tax rate is 15% if annual payments to a partner exceed PHP 720,000.
- A 10% withholding tax applies if payments do not exceed PHP 720,000.
- This is pursuant to Section 2.57.2 (H) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 30-03.
Guidance and Implementation
- The revenue memorandum circular enjoins all concerned parties to adhere to these guidelines.
- Wide dissemination of this circular is encouraged for proper implementation and compliance.