Our country’s tax system continually evolves as the government seeks to simplify, enhance fairness, and increase efficiency.
To this end, the government introduced the Tax Reform for Acceleration and Inclusion (TRAIN) Law, which includes the concept of Expanded Withholding Tax (EWT).
Only some people are obligated to report and pay EWT. However, if you are a freelancer or a solopreneur, you might fall into the category of those who must comply. In such a case, the Bureau of Internal Revenue (BIR) designates you as a Withholding Agent. Continue reading to determine if EWT is relevant to your situation.
Who is required to pay EWT?
Below is an overview of the transactions covered by EWT and who is responsible for reporting and paying EWT under the TRAIN Law:
- Payment for services rendered, such as Gross Professional Fees, Talent Fees, and Promotional Fees:
- Individual payee: 5% of your gross income for the current year, provided it does not exceed ₱3 million.
- Non-individual payee (e.g., business partner): 10% of the gross income if it does not exceed ₱720,000; 15% if it exceeds ₱720,000.
- Individuals engaged in various professions, including lawyers, architects, engineers, CPAs, medical practitioners, professional entertainers, athletes, directors, producers, insurance agents, adjusters, consultants, bookkeepers, corporate directors, selected brokers and agents, company sales representatives, and marketing agents are covered by EWT.
Take note: If you’re one of the above, you’ll need to submit to the BIR a sworn declaration of your gross receipts/sales along with a copy of your BIR Certificate of Registration not later than January 15 of the year before you receive your professional fees or payment for your services.
- For rental income:
- Real properties: 5% of the gross rental.
- Personal properties: 5% of the gross rental/lease exceeding ₱10,000 annually.
- Poles, satellites, and transmission facilities: 5% of the gross rental.
- Billboards: 5% of the gross rental.
- Cinematographic film rentals and other payments: 5% of the gross payments.
- Payments to certain contractors:
- General engineering contractors
- General building contractors
- Specialty contractors
- Other contractors
Note: You may refer to RR 11-2018 for the description and complete list of contractors.
- Income distribution to beneficiaries of estates and trusts: 15% of the income.
- Payments to partners of general professional partnerships: 15% of the income payments if the gross income for the current year exceeds ₱720,000, or 10% if the income is less than ₱720,000.
- Sale, exchange, or transfer of real property classified as an ordinary asset: subject to creditable withholding tax based on the selling price or fair market value.
- If the seller/transferor is exempted from creditable withholding tax based on Sec. 2.57.5 (e.g. HLURB socialized housing)
– EXEMPT - If the seller/transferor is habitually engaged in the real estate business, tax will be imposed upon the following values:
– With a selling price of ₱500,000 or less: 1.5%
– With a selling price of more than ₱500,000 but not more than ₱2,000,000: 3%
– With a selling price of more than ₱2,000,000: 5% - If the seller/transferor is NOT habitually engaged in the real estate business: 6%
- Certain income payments made by credit card companies: are based on a percentage of gross amounts paid to you for goods or services.
- Payments are made by top withholding agents: which include large taxpayers and the top 5,000 individuals.
- For a supplier of goods: 1%
- For a supplier of services: 2%
Note: Top withholding agents include large taxpayers and the top 5,000 individuals. If you’re a Medium Taxpayer or someone identified under the Taxpayer Account Management Program (TAMP), you’ll have to pay EWT, too.
- Payments made by government offices, agencies, instrumentalities, and government-owned and controlled corporations (GOCCs): to local suppliers of goods and/or services.
- For a supplier of goods: 1%
- For a supplier of services: 2%
- Gross processing/tolling fees paid to sugar refineries: for the conversion of molasses to its by-products and raw sugar to refined: 5%.
- Gross payments to funeral parlors made by pre-need companies: 1% tax for funeral services rendered.
- Gross payments to embalmers: 1% tax for embalming services rendered to funeral companies.
- Payments made by establishments to suppliers of agricultural products, exceeding ₱300,000 within the same taxable year: Agricultural suppliers include sellers of agricultural, forest, and marine food and non-food products, livestock, poultry, and more.
- Payments for the purchase of minerals, mineral products, and quarry resources.
- MERALCO interest payments or refunds.
- For refunds
– With active contracts:25%
– Without active contracts: 32% - For interest income on meter deposits
– Residential/General service customers: 10%
– Non-resident service customers: 20 %
- Refunds by other electric distribution utilities.
- Payments for goods or services related to campaign expenditures by political parties, candidates of elections, and individuals/entities: on goods/services intended for campaign contributions.
- Interest income derived from debt instruments is not classified as “deposit substitutes” under tax laws.
- Payments by proprietors or operators of sugar mills or refineries and direct buyers from sugar planters on locally produced raw sugar or molasses.
To determine whether EWT applies to you, consult a trusted accountant. If you are required to pay EWT, you will need to submit specific BIR forms at regular intervals throughout the year, as outlined in the article.