Your Guide to Doing It Right—Because Ignorance Isn’t an Excuse
If you’re a business owner in the Philippines, withholding tax isn’t just something you might have to deal with—it’s something the BIR requires. And if you fail to understand or apply it correctly, you could face penalties, interest charges, or even an audit.
But don’t worry—this guide will walk you through what withholding tax is, why it matters, when you need to withhold, and how to file it properly.
💡 What Is Withholding Tax?
Withholding tax is the amount withheld by a business or individual from payments made to others, such as employees, suppliers, freelancers, or professionals, and remitted directly to the BIR.
In simpler terms:
You hold back a portion of the payment, send it to the BIR, and give your payee a certificate (Form 2307) showing that taxes were already paid on their behalf.
🔎 Why Is Withholding Tax Important?
It helps the government collect taxes at the source and ensures more accurate reporting of income.
For you, the business owner, it’s:
A legal responsibility
A major part of BIR compliance
A requirement to avoid tax assessments or penalties
👥 Who Needs to Withhold?
You must withhold tax if you are:
A corporation or partnership
A self-employed individual earning over ₱3M and subject to 12% VAT
Hiring freelancers, professionals, or suppliers
Paying employees
Leasing a property or paying rent
Paying for services that are subject to withholding (e.g., legal, accounting, marketing)
Basically, if you’re issuing Official Receipts (ORs) or Sales Invoices for BIR-registered transactions—you likely need to withhold.
🧾 Common Types of Withholding Tax
Expanded Withholding Tax (EWT)
For payments to suppliers, professionals, subcontractors, etc.
Examples:
1% or 2% on services/goods
5% or 10% on professional fees
Withholding Tax on Compensation
For salaries and wages of your employees
Rates vary based on tax table (TRAIN law)Final Withholding Tax
For payments where tax withheld is final (e.g., bank interest, royalties, dividends)
📋 When and How to File Withholding Taxes
You must:
Withhold and record the proper tax amount from each payment
File the appropriate BIR form (e.g., 0619E for EWT, 1601C for compensation)
Pay monthly (usually due on the 10th of the following month)
File quarterly and annual returns (1604E/1604CF)
Issue BIR Form 2307 (Certificate of Creditable Tax Withheld) to payees
📌 Don’t skip this! The BIR checks these filings against your income tax returns.
🚨 What Happens if You Don’t Comply?
Failure to file or remit withholding taxes can lead to:
25% surcharge
12% interest per year
Compromise penalties
BIR audits
Denial of deductible expenses on your ITR
You could end up paying more than the tax itself!
✅ Pro Tips for Withholding Tax Compliance
Always ask if your payee is VAT or non-VAT registered
Know the withholding tax rates applicable to different services
Use BIR eFPS or eBIRForms for accurate filing
Keep copies of Form 2307 issued and received
Work with a bookkeeper or tax professional if you’re unsure
✨ Final Thoughts
Withholding taxes can seem intimidating, but with the right understanding and system in place, they’re completely manageable. Remember: compliance protects your business and builds your reputation as a trustworthy enterprise.
💬 Need Help with Withholding Taxes?
We help Filipino businesses stay on top of their monthly filings, 2307 issuance, and BIR compliance—so you can focus on growing your business without tax headaches.
✅ Expanded Withholding Tax
✅ Compensation Withholding Tax
✅ Filing, Payment & 2307 Generation
📞 Message us now or book a FREE consultation to get started!
Navigating the business landscape in the Philippines can be both rewarding and intricate. Whether you’re embarking on a new venture or scaling up, ensuring that your corporate endeavors are in line with local regulations is paramount.
At CBOS Business Solutions Inc., we pride ourselves on simplifying these processes for our clients. As a seasoned professional services company, we offer comprehensive assistance with SEC Registration, Visa processing, and a myriad of other essential business requirements. Our team of experts is dedicated to ensuring that your business is compliant, well-established, and ready to thrive in the Philippine market.
Why venture into the complexities of business registration and compliance alone? Allow our team to guide you every step of the way. After all, your success is our commitment.
Get in touch today and let us be your partner in achieving your business goals in the Philippines.
Email Address: gerald.bernardo@cbos.com.ph
Mobile No.: +639270032851
You can also click this link to schedule a meeting.
Leave a Reply