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We’re changing lives. Withholding Taxes. 1. Obligation imposed by law on income payors to withhold or deduct from their income payments certain amount to cover income taxes and directly remit the same to the BIR. Rationale:
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We’re changing lives. Withholding Taxes 1
Obligation imposed by law on income payors to withhold or deduct from their income payments certain amount to cover income taxes and directly remit the same to the BIR. Rationale: To ensure that income recipient pays his taxes or an approximation of the taxes due to the government. Nature of Withholding Tax
Withholding Tax on Wages Withholding Tax on Wages applies when there is a payment of wages or compensation and there is an employer-employee relationship between the payor and the payee. This is a creditable tax in the sense that the employee, in preparing his income tax return, credits the taxes withheld against the taxes due from him.
Revenue Regulations No. 3-2002 dated March 22, 2002 provides that employees receiving compensation income from only one employer for one taxable year whose tax due is equal to tax withheld qualify for substituted filing of Income Tax Return (ITR). This applies for all income earned starting 2002 onwards Substituted Filing of Income Tax Return
In substituted filing of ITR, the employer's annual information return (BIR Form No. 1604-CF) may be considered the "substituted ITR of the employee inasmuch as the information he would have provided the BIR in his own ITR (BIR Form No. 1700) would have been exactly the same information contained in the employer's annual information return. Substituted Filing of Income Tax Return
Substituted filing applies only if all the following circumstances are present: 1. The employee receives purely compensation income (regardless of amount) during the taxable year; 2. The employee receives the income only from one employer during the taxable year; 3. The amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer; and 4. The employee's spouse also complies with all the three (3) conditions stated above. Substituted Filing of Income Tax Return
1. It is constituted as a full and final payment of the income tax due from the payee on a particular type of income subject to FWT (e.g., interest on deposits, royalties, etc.) Finality of withholding tax is limited only to the payee’s income tax liability and does not extend to other taxes that may be imposed on said income. 2. The liability for the payment of the tax rests primarily on the payor as withholding agent. 3. The payee is not required to file an income tax return for the particular income subjected to FWT. Final Withholding Tax
For Domestic and Resident Foreign Corporations Interest income from any currency deposit, yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements derived from Philippine sources - 20% Royalties derived from sources within the Philippines - 20% (except on books, literary works and musical compositions which shall be subject to 10% FWT) Interest income from FCDU deposits - 7.5% Payments Subject to FWT
For Domestic and Resident Foreign Corporations Income of FCDUs or OBUs from foreign transactions with local commercial banks, including branches of foreign banks authorized by the BSP to do business with FCDUs or OBUs including interest income on foreign currency loans granted to residents - 10% Presumed Capital gains on the sale of real property located in the Philippines classified as capital assets based on selling price or fair market value or zonal value whichever is higher – 6% Payments Subject to FWT
For Domestic and Resident Foreign Corporations Branch Profits 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 for PEZA- registered activities) - 15% Gross income derived from contracts by subcontractors from service contractors engaged in petroleum operations – 8% Payments Subject to FWT
For Non-Resident Foreign Corporations In general, all gross income from all sources within the Philippines - 35% Interest on foreign loans - generally, 20% Dividends from a domestic corporation - 15% subject to the condition that country of domicile of the non-resident foreign corporation allows tax credits against foreign tax due on said income equivalent to taxes deemed to have been paid in the Philippines at 17%; or does not impose tax on the dividends Payments Subject to FWT
For Non-Resident Foreign Corporations 4. Gross income from Philippine sources derived by non-resident cinematographic film owners, lessors or distributors- 25% 5. Gross rentals/lease/charter fees derived by non-resident owner or lessor of vessels chartered by Phil. nationals - 4 1/2% 6. Gross rentals or fees of non-resident owner or lessor of aircrafts, machineries and other equipment - 7 1/2% Payments Subject to FWT
For Individuals Cash and Property Dividendsfrom a domestic corporation, joint stock company, insurance or mutual fund companies or on the share of an individual partner in 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 - 10% - beginning January 1, 2000 and thereafter The tax on the dividends shall be imposed on dividends which are declared from profits made after 12/31/97. Payments Subject to FWT
Certificate of Final Taxes Withheld (BIR Form 2306) - to be given to payees on or before January 31 of the succeeding year unless requested by payee Annual Information Return of Taxes Withheld (BIR Form No. 1604 - CF) - to be filed with the revenue district office on or before January 31 of the following year in which payments were made Tax Information Return
Only payments enumerated under the EWT regulations are subject to EWT. However, the EWT shall attach to all purchase of goods and services from its resident suppliers by a Top 10000 corporations (duly notified in writing by the BIR as such) whether or not such payments are enumerated under the existing EWT regulations. The payee and the payor must be residents of the Philippines. The EWT is not a final tax. Basic Principles
1. Any juridical person, whether or not engaged in trade or business; 2. All government offices including government-owned or controlled corporations as well as provincial, city, and municipal governments and barangays; An individual with respect to payments in connection with his trade or business. Withholding Agents
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; Withholding Agents (RR. No. 30-2003)
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 seller-income earner to be subjected to withholding tax shall be a ground for the mandatory audit of his income tax liabilities upon verified complaint of the buyer-payor. Withholding Agents (RR. No. 30-2003)
No withholding is required on income payments to the following: National government and its instrumentalities, including provincial, city or municipal governments and barangays, except government-owned or controlled corporations. Persons enjoying exemption from payments of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following: Exemption from EWT
Sales of real property by a corporation which is registered with and certified by the HLURB or HUDCC as engaged in socialized housing projects where the selling price of the house and lot or only the lot does not exceed P180,000 in Metro Manila and other highly urbanized areas and P150,000 Corporations registered with the Board of Investments, PEZA, SBMA enjoying exemption from the income tax Exempt corporations under Section 30 of the Tax Code including, SSS, GSIS, PHIC, and PCSO. However, income derived from real or personal property, or from any activity conducted for profit by these corporations are withholding tax. Joint ventures or consortia formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the government. Exemption from EWT
The obligation of the payor to deduct and withhold the tax arises at the time an income payment is: paid, or payable (obligation becomes due and demandable or legally enforceable), or accrued or recorded as an expense or asset, whichever is applicable, in the payor’s books Whichever comes first Provided, however that where income is not yet paid or payable but the same has been recorded as an expense or asset in the 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. Time of Withholding
1. Disallowance of expense as a deduction for income tax purposes 2. Fines and Penalties a. Surcharge 25% - if not due to willful neglect 50% - if due to willful neglect or with intent to defraud the government Effects of Failure to Withhold
b. Interest 20% per annum or the prevailing market rate fixed and published by the Central bank on the first Monday of each month, known as the Manila Reference Rate (MRR), whichever is higher. 3. Fines and imprisonment Taxpayer/withholding agent may be subject to criminal liability for non-withholding of the tax. Said liability, however, may be extrajudicially settled through compromise. Effects of Failure to Withhold
4. Other Penalties 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 responsible for the withholding and remittance of the tax is liable to fine of P5,000 to P50,000 or imprisonment of not less than 6 months and 1 day, but not more than 2 years or both. Effects of Failure to Withhold
From the point of view of the recipient of income, the portion of the purchase/contract price which pertains to the VAT is not considered income but the same is treated as a liability. For this reason, since the subject of the EWT covers income payments, only that portion of the purchase/ contract price, exclusive of VAT shall be the basis of withholding.(VAT Ruling No. 067-97) Treatment of VAT
Determining the Applicable Tax Rate (10% or 15%) Submit a notarized, sworn declaration of his gross income for the current year on June 30 of each year, or within fifteen (15) days after the end of the month wherein said gross income for the current year reaches P720,000, whichever comes earlier Copy furnish all current payors with the said declaration duly stamped received by the BIR (Withholding Tax Division, National Office) Special Issues
Determining the Applicable Tax Rate (10% or 15%) (con’t) In case the talent’s gross income as of June 30 is less than P720,000, he/she shall submit a second sworn declaration within fifteen (15) days after the end of the month his/her gross income for the current year-to-date reaches P720,000. In case the payee fails to submit the annual declaration/disclosure to the BIR, the payor shall withhold the tax at 15% Special Issues
What constitutes personal properties ? Payments Subject to EWT • Personal properties includes but not limited to the following: • Land , air and water transport equipments • Industrial, commercial, scientific equipments • Agricultural machinery and equipment • Construction/civil engineering machinery and equipments • Telecommunication Equipments • Office furniture, machines and equipment • Main frame computer and all other computer machines and equipment • Material handling equipment and auxiliary equipment
