Creditable withholding tax in the Philippines is an advance income tax that a payor deducts from certain payments — professional fees, rent, contractor billings, and similar income — and remits directly to the Bureau of Internal Revenue. The amount withheld is not a separate tax. It counts as a credit against the payee’s annual income tax liability, provided the payee holds a valid BIR Form 2307 to prove it. Rates run from 1% to 15% depending on the type of payment and, in some cases, the payee’s gross income, under Revenue Regulations No. 2-98 as amended by RR No. 11-2018.
Creditable vs. Final Withholding Tax
These two systems look alike on a payslip and behave nothing alike on a return. Creditable withholding tax, often called expanded withholding tax or EWT, is a prepayment. At year-end you total your Form 2307 certificates, subtract them from the tax you actually owe, and settle the difference.
Final withholding tax is the full and final tax on that income. You don’t report the income again on your annual return, you don’t claim a credit for the tax taken, and the income stays out of your taxable gross. Bank deposit interest and royalties paid to non-residents are common examples.
Mix them up and you either double-count a tax that was already final, or you throw away money the government already collected in your name. The rest of this guide is about the creditable side.
Rates by Type of Payment
RR No. 11-2018 reshaped the rate table originally set by RR 2-98. What you withhold depends on what you’re paying for and, for professionals, how much the payee earns.
Professional Fees
For individual practitioners — lawyers, CPAs, engineers, doctors, and similar — the rate turns on annual gross income. Withhold 5% if the professional’s gross income for the current year does not exceed ₱3 million. Withhold 10% if it exceeds ₱3 million, or if the professional is VAT-registered regardless of the amount.
For corporate payees, the threshold is different: 10% if gross income does not exceed ₱720,000, and 15% above that.
An individual professional earning under ₱250,000 from a single payor can be exempt from withholding entirely by filing a sworn declaration (Annex B-2 of RR 11-2018) together with a copy of the BIR Certificate of Registration. Without that sworn declaration, the payor defaults to 10%.1Bureau of Internal Revenue. Revenue Memorandum Circular No. 50-2018
Rentals
Rentals on real property, personal property, billboards, poles, satellites, and transmission facilities all fall under a flat 5% EWT. For personal property, withholding applies only when the gross annual rental exceeds ₱10,000.
Contractors
Payments to general engineering, building, and specialty contractors, as well as a broad range of service contractors (janitorial, security, transportation, printing, advertising, warehousing, and others) are withheld at 2%.
Other Common Categories
- Credit card company payments to merchants: 1%
- Income distributions to trust beneficiaries: 15%
- Payments to partners of general professional partnerships: 10% if gross income is ₱720,000 or less, 15% above that
Top Withholding Agents
Businesses with gross sales, gross purchases, or claimed deductible expenses of at least ₱12 million in the prior taxable year may be designated by the BIR as Top Withholding Agents. TWAs carry extra obligations: 1% withholding on purchases of goods and 2% on purchases of services, covering both regular suppliers and one-time purchases of at least ₱10,000.1Bureau of Internal Revenue. Revenue Memorandum Circular No. 50-2018
The obligation begins on the first day of the month after the BIR issues the designation notice. Once classified, a business stays a TWA until it falls below the ₱12 million criteria and the BIR publishes its removal from the list.
Payor Duties: Remittance and Certificates
Withholding agents must remit collected taxes by the 10th day of the month following the month of withholding, using BIR Form 0619-E.2Bureau of Internal Revenue. Guidelines and Instructions for BIR Form No. 0619-E A quarterly summary return on BIR Form 1601-EQ, with a Quarterly Alphalist of Payees attached, is due by the last day of the month following the close of each taxable quarter.1Bureau of Internal Revenue. Revenue Memorandum Circular No. 50-2018
Each payee must be furnished a BIR Form 2307 (Certificate of Creditable Tax Withheld at Source) within 20 days after the close of the taxable quarter. Payees can also request the certificate at the time of payment, and the agent must comply.3Bureau of Internal Revenue. BIR Forms – Certificate of Creditable Tax Withheld at Source
BIR Form 2307 and What to Check
Form 2307 is the document that makes your credit real. It shows the monthly breakdown of income payments made to you and the tax withheld during the quarter. The form must carry the full legal names and Taxpayer Identification Numbers of both payor and payee, the nature of the payment, the period covered, and the gross amount alongside the exact tax withheld.
Cross-check every certificate against your own sales invoices and books before you file. Discrepancies between the certificate and your records are one of the most common reasons the BIR disallows a credit claim.3Bureau of Internal Revenue. BIR Forms – Certificate of Creditable Tax Withheld at Source Collect the certificates promptly after each quarter. Chasing them down months later, especially from payors who have since changed accountants, only gets harder.
If the Payor Won’t Issue One
The BIR’s default position is that a credit claim without a supporting certificate gets denied. The Supreme Court has, in GR No. 206019, accepted alternative documentation where a copy of the withholding tax return filed by the agent contained the same key information — amount withheld, date of remittance, names of both parties, and the applicable rate. That is a fallback, not a plan. Demand the certificate within the 20-day window and escalate if it doesn’t arrive.
Claiming the Credit on Your Return
On the annual income tax return — BIR Form 1701 for individuals, BIR Form 1702 for non-individuals — the total creditable withholding from all your Form 2307 certificates goes into the Tax Credits/Payments section, and the certificates must be attached. The same process applies quarterly using BIR Forms 1701Q and 1702Q with the certificates received during that quarter.3Bureau of Internal Revenue. BIR Forms – Certificate of Creditable Tax Withheld at Source
The total is subtracted directly from your calculated tax due.4Bureau of Internal Revenue. BIR Form 1701 – Annual Income Tax Return The annual return reconciles everything: total income, total tax due, all credits applied through the year, and any remaining balance.
When Credits Exceed the Tax Due
If your creditable withholding is larger than your actual liability, the return offers three options:
- Carry the excess over as a credit for the next year or quarter
- Apply for a cash refund of the overpayment
- Request a Tax Credit Certificate to apply against other internal revenue taxes
Choose carefully. Once you elect to carry over, the choice is irrevocable for that taxable period. You cannot later switch to a refund or a TCC. The only exception is permanent cessation of business operations.4Bureau of Internal Revenue. BIR Form 1701 – Annual Income Tax Return
Penalties for Non-Compliance
A withholding agent who fails to withhold, remit, or file correctly faces a 25% surcharge on the unpaid amount and interest at 20% per annum running from the original due date until full payment.5Bureau of Internal Revenue. Penalties for Late Filing of Tax Returns The interest rate is the current statutory figure under NIRC Section 249. Older references sometimes cite 12%; that figure is outdated.
Willful failure carries criminal exposure. Under Section 255 of the NIRC, willful failure to withhold or remit is punishable by a fine of at least ₱10,000 and imprisonment of one to ten years. These penalties reach the responsible individual, not just the entity, so corporate officers and accountants can be held personally liable.5Bureau of Internal Revenue. Penalties for Late Filing of Tax Returns
How Long to Keep the Records
Under Revenue Regulations No. 17-2013, taxpayers must preserve books of accounts and other accounting records for 10 years. “Other accounting records” expressly includes invoices, receipts, vouchers, returns, and source documents supporting the books, so your Form 2307 certificates fall within the requirement.6Supreme Court E-Library. BIR Revenue Regulations No. 17-2013 – Preservation of Books of Accounts and Other Accounting Records
The 10-year clock starts the day after the filing deadline for the return covering the taxable year of the last entry, or from the actual filing date if you filed late. If a protest or a claim for tax credit refund is pending, keep the related records until the case is fully resolved, even if that runs beyond 10 years.6Supreme Court E-Library. BIR Revenue Regulations No. 17-2013 – Preservation of Books of Accounts and Other Accounting Records