What is Withholding Tax

Description

There are two main classifications or types of withholding tax. These are:

a) Creditable Withholding Tax

– Withholding Tax on Compensation
– Expanded Withholding Tax
– Withholding of Business Tax (VAT and Percentage)

b) Final Withholding Tax

 

Expanded Withholding Tax is a kind of withholding tax which is prescribed on certain income payments and is creditable against the income tax due of the payee for the taxable quarter/year in which the particular income was earned.

Final Withholding Tax is a kind of withholding tax which is prescribed on certain income payments and is not creditable against the income tax due of the payee on other income subject to regular rates of tax for the taxable year. Income Tax withheld constitutes the full and final payment of the Income Tax due from the payee on the particular income subjected to final withholding tax.

 

What income payments are subject to Expanded Withholding Tax?

a) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or transfer of real property classified as ordinary asset

b) Professional fees / talent fees for services rendered by the following:

– Those individually engaged in the practice of professions or callings such as lawyers; certified public accountants; doctors of medicine; architects; civil, electrical, chemical, mechanical, structural, industrial, mining, sanitary, metallurgical and geodetic engineers; marine surveyors; doctors of veterinary science; dentist; professional appraisers; connoisseurs of tobacco; actuaries; interior decorators, designers, real estate service practitioners (RESPs), (i. e. real estate consultants, real estate appraisers and real estate brokers) requiring government licensure examination given by the Real Estate Service pursuant to Republic Act No. 9646 and all other profession requiring government licensure examinations and/or regulated by the Professional Regulations Commission, Supreme Court, etc.

 

What income payments are subject to Final Withholding Tax?

Income Payments to Citizen or to a Resident Alien Individual and Non-Resident  Alien Engaged in Trade or Business in the Philippines

-Capital Gains presumed to have been realized from the sale, exchange or other disposition of real property

 

Income Payment to a Domestic Corporation

-On capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales based on the gross selling price or fair market value as determined in accordance with Sec. 6(E) of the NIRC, whichever is higher

Source: http://www.bir.gov.ph/index.php/tax-information/withholding-tax.html#wt0013