What Expanded Withholding Tax Is and Who Must Withhold
Expanded withholding tax (EWT) is a creditable withholding tax that certain buyers of goods and services are required to deduct in advance from payments to their suppliers, and remit directly to the Bureau of Internal Revenue (BIR). It is "creditable" because the amount withheld is not a final tax — the supplier (payee) later uses it as a tax credit against their own income tax due for the year.
Under Revenue Regulations (RR) No. 2-98, as amended, the following are generally required to act as withholding agents: all juridical persons (corporations, partnerships, cooperatives), individuals engaged in business or the practice of a profession who meet certain criteria, government offices, and top withholding agents specifically identified by the BIR through published lists. If your business falls under any of these categories and you pay for services such as professional fees, rent, contractor work, or certain purchases, you are legally obligated to withhold, even if your supplier does not ask you to.
Failing to withhold has a cost beyond the tax itself: under Section 34(K) of the Tax Code, an expense on which the required withholding was not made cannot be claimed as a deductible expense for income tax purposes. This alone should convince most business owners to treat EWT as a routine part of accounts payable, not an afterthought.
Common ATC Codes and Rates Businesses Actually Encounter
The BIR assigns an Alphanumeric Tax Code (ATC) to each type of income payment subject to EWT, and each ATC carries its own rate. You do not need to memorize the full table in RR 2-98, but these are the rates most small and mid-sized businesses in the Philippines deal with regularly:
- Professional or talent fees paid to individuals (consultants, freelancers, doctors, lawyers, contractors of services): 5% if the payee's gross income for the current year does not exceed ₱3,000,000; 10% if it exceeds ₱3,000,000.
- Professional fees paid to corporations or partnerships (e.g., a consulting firm, an accounting firm): 10% if gross income does not exceed ₱720,000; 15% if it exceeds ₱720,000.
- Rentals of real property, personal property, and equipment: 5%.
- Payments to general contractors for construction, security, janitorial, and similar services: 2%.
- Commissions of agents and brokers (real estate, insurance): 10% or 15%, following the same ₱720,000 gross income threshold as professional fees to individuals.
- Income payments to regular suppliers of goods made by top withholding agents: 1%.
- Income payments to regular suppliers of services made by top withholding agents: 2%.
Because the payee's gross income threshold (₱720,000 for professionals who are corporations, or ₱3,000,000 for individual professionals) determines which of the two rates applies, it is common practice for the payee to submit a sworn declaration at the start of the year indicating which bracket they expect to fall under. Rates and thresholds are set by regulation and can change, so always confirm the current figures on the BIR website or with your accountant before finalizing a return.
How to Compute, Withhold, and Remit EWT
The mechanics are straightforward once you have the correct ATC and rate. Multiply the gross amount of the income payment (before value-added tax, if applicable) by the applicable EWT rate, deduct that amount from what you pay your supplier, and remit it to the BIR on their behalf.
Worked example: Your company engages an independent marketing consultant (an individual whose gross income this year has not exceeded ₱3,000,000) for a project fee of ₱100,000, plus 12% VAT of ₱12,000, for a total invoice of ₱112,000. EWT is computed on the ₱100,000 service fee only, not on the VAT component. At 5%, you withhold ₱5,000. You pay the consultant ₱107,000 (₱112,000 less ₱5,000), and the ₱5,000 is set aside for remittance to the BIR.
Remittance follows two forms. First, BIR Form 0619-E (Monthly Remittance Form for Creditable Income Taxes Withheld – Expanded) is filed and paid for the first two months of each quarter, generally on or before the 10th day of the following month (eFPS filers follow a staggered schedule based on industry grouping). Second, BIR Form 1601-EQ (Quarterly Remittance Return of Creditable Income Taxes Withheld – Expanded) consolidates all three months of the quarter and is due on or before the last day of the month following the close of the quarter — April 30, July 31, October 31, and January 31. The Quarterly Alphalist of Payees (QAP) is submitted together with the 1601-EQ.
In Kontabler, when you record a supplier bill and tag it with the correct ATC, the EWT is computed and posted to your books automatically, and the withholding tax payable account is updated so your 0619-E and 1601-EQ figures reconcile directly with your accounting records instead of a separate spreadsheet.
Issuing BIR Form 2307 to Your Suppliers
BIR Form 2307, the Certificate of Creditable Tax Withheld at Source, is the document that proves to your supplier — and eventually to the BIR — that tax was withheld and remitted on their behalf. Without it, your supplier cannot credit the withheld amount against their own income tax liability when they file their annual or quarterly income tax return.
As the withholding agent, you should furnish each payee a 2307 not later than the 20th day following the close of the taxable quarter, or immediately upon the payee's request, whichever comes first. Many businesses find it more practical to issue the certificate at the time of each payment or transaction, especially for suppliers who invoice frequently, since this avoids a backlog of certificates to prepare at quarter-end. The form must reflect the correct ATC, the tax base, the rate applied, and the exact amount withheld — errors here are a common source of mismatches between your remittance and what your supplier claims as a credit.
Keep signed copies (or their digital equivalent) of every 2307 you issue, since these support the deductibility of the related expense during a BIR audit.
Common Mistakes and Penalties to Avoid
The most frequent errors business owners make with EWT are using the wrong ATC or rate, forgetting to withhold on non-recurring or one-off transactions such as a single rental payment, and late remittance. Late or non-remittance exposes the business to a 25% surcharge on the basic tax due, 12% annual interest computed from the deadline until full payment, and applicable compromise penalties — on top of the disallowed expense deduction mentioned earlier.
Another common oversight is failing to distinguish EWT from other withholding tax regimes: EWT applies to the specific income payments enumerated under RR 2-98, while withholding tax on compensation applies to employee salaries and is governed by a different set of rules and forms (1601-C, 2316). Mixing these up leads to incorrect filings and, potentially, penalties for both underwithholding on one form and overwithholding on the other.
Because ATC lists, thresholds, and filing schedules are set by BIR regulation and are occasionally revised, always reconcile the specific rates and deadlines you use against the current issuances on the BIR website (bir.gov.ph) or your Revenue District Office before filing.
Building EWT compliance into your regular bookkeeping routine — rather than treating it as a quarter-end scramble — is the single most effective way to avoid these penalties and keep your supplier relationships smooth, since timely 2307s help your suppliers manage their own tax filings as well.
Frequently asked questions
Who is required to withhold EWT?
Corporations, partnerships, government offices, and individuals engaged in business who are designated withholding agents (including those on the BIR's top withholding agent list) must withhold EWT on covered income payments such as professional fees, rent, and contractor services.
What happens if I forget to withhold EWT on a supplier payment?
Aside from surcharges and interest on the unremitted tax, the related expense may be disallowed as a deduction for income tax purposes under Section 34(K) of the Tax Code, increasing your taxable income.
Is EWT computed before or after VAT?
EWT is computed on the gross amount of the income payment exclusive of VAT; the 12% VAT component is not subject to withholding.
When should I give my supplier their BIR Form 2307?
Not later than the 20th day after the close of the taxable quarter, or immediately upon the supplier's request — many businesses issue it per transaction to avoid a quarter-end backlog.
