Introduction
Withholding taxes play a crucial role in the Philippine taxation system. They ensure that the government collects taxes efficiently by requiring payers—usually employers or businesses—to deduct and remit taxes on behalf of employees or suppliers.
For companies, staying compliant with the Bureau of Internal Revenue (BIR) withholding requirements is both a legal and operational necessity. In this guide, we explain everything you need to know about withholding taxes in the Philippines—their types, rates, and processes—and how GreatDayHR can help streamline your payroll and tax management system.
What Is Withholding Tax?
Withholding tax refers to the portion of income deducted at source before payment is made to the recipient. It ensures early collection of income taxes and minimizes tax evasion. The payer, such as an employer or company, withholds the tax and remits it directly to the BIR.
Why It Matters
- Ensures tax compliance and transparency
- Reduces administrative burden for employees and suppliers
- Provides steady revenue collection for the government
Failure to properly withhold, report, or remit taxes may result in penalties, surcharges, or even legal action from the BIR.
Types of Withholding Taxes in the Philippines
There are several categories of withholding taxes that every employer or business owner should understand:
| Type | Applies To | Common Rate | Form Issued |
| Withholding Tax on Compensation (WTC) | Salaries and wages of employees | Based on BIR tax table | BIR Form 2316 |
| Expanded Withholding Tax (EWT) | Payments to suppliers, professionals, or contractors | 1%, 2%, 5%, or 10% depending on payment type | BIR Form 2307 |
| Final Withholding Tax (FWT) | Certain income such as interest, dividends, and royalties | 10%–20% | BIR Form 2307 |
| Withholding VAT (WVAT) | Payments subject to Value-Added Tax | 5% | BIR Form 2307 |
Each type has different filing requirements, deadlines, and corresponding forms.
Withholding Tax on Compensation
Employers are required to withhold income tax from employee compensation based on the BIR’s prescribed tax tables. This tax is considered a prepayment of the employee’s annual income tax.
Steps to Compute:
- Determine the employee’s gross income.
- Deduct allowable exemptions and mandatory contributions (SSS, PhilHealth, Pag-IBIG).
- Use the BIR withholding tax table to calculate the correct tax amount.
- Deduct the tax and remit it to the BIR on or before the due date.
Employers must issue BIR Form 2316 at the end of each year to summarize income and taxes withheld for each employee.
Expanded Withholding Tax (EWT)
The Expanded Withholding Tax applies to payments made to professionals, suppliers, and service providers. This tax is creditable, meaning it can be deducted from the payee’s total income tax due at year-end.
Common Examples of Payments Subject to EWT:
- Professional fees for accountants, lawyers, or consultants
- Rent for office space or equipment
- Commissions and subcontractor payments
- Payments to suppliers or vendors
The applicable rate depends on the nature of the transaction and the payee’s registration type.
Final Withholding Tax (FWT)
The Final Withholding Tax is applied to specific types of income, where the tax withheld represents the payee’s full and final tax liability.
Examples include:
- Bank interest income
- Dividends and royalties
- Prizes or winnings
- Certain payments to non-residents
Once withheld, no further tax is due from the payee on the same income.
Withholding VAT (WVAT)
In certain cases, the payer (especially government agencies and large corporations) must withhold a percentage of Value-Added Tax (VAT) from payments to VAT-registered suppliers. The standard rate is 5%, which is credited against the supplier’s VAT liability.
Filing, Remittance, and Reporting
Employers and businesses must remit withheld taxes and file the corresponding BIR forms regularly.
Common Forms Used:
- BIR Form 1601C – Withholding Tax on Compensation
- BIR Form 1601E – Creditable Income Taxes Withheld (EWT)
- BIR Form 1601F – Final Withholding Taxes
- BIR Form 2307/2316 – Certificates issued to payees or employees
Remittance Schedule
| Type | Frequency | Due Date |
| WTC | Monthly | 10th day of the following month |
| EWT / FWT | Monthly | 10th day of the following month |
| Annual Reports | Yearly | January 31 or March 1 depending on form |
Failure to file or remit on time may result in penalties equivalent to 25% of the tax due, plus interest.
Common Mistakes to Avoid
- Applying incorrect withholding rates
- Failing to issue BIR certificates (2307, 2316)
- Late remittance or non-filing of returns
- Misclassification of payment types
- Using outdated BIR withholding tables
To maintain compliance, ensure regular staff training, system audits, and documentation of all withholding activities.
Simplify Withholding Tax Compliance with GreatDayHR
Managing tax deductions and compliance manually can be overwhelming — especially for businesses handling numerous employees and vendors. With GreatDayHR, you can automate tax computations, generate accurate reports, and eliminate the risks of manual errors.
Benefits of Using GreatDayHR Managed Payroll Service:
- Automatic withholding tax computation for employees and suppliers
- Integrated BIR reporting and form generation
- Real-time data tracking for contributions and deductions
- Cloud-based platform for accessibility and security
- Compliance with Philippine labor and tax laws
Save time, reduce risk, and ensure compliance with GreatDayHR’s reliable payroll and tax automation system. Visit https://greatdayhr.ph/ and https://greatdayhr.ph/managed-payroll-service/ to streamline your payroll and withholding tax management today.
