Final Withholding Taxes and Withholdiing of Business Taxes On Government Income Payments (Part Iii)

FINAL WITHHOLDING
TAXES AND WITHHOLDIING

OF BUSINESS TAXES ON
GOVERNMENT INCOME
PAYMENTS
(PART III)
SEMINAR OBJECTIVES
 To provide participants with a basic understanding of the
underlying laws, regulations and general principles of the
Final Withholding Tax (FWT) and withholding of business
taxes on government income payments.
 To provide participants with information on the
filing/remittance and other compliance for the FWT, final
withholding VAT and other percentage taxes.
 To provide relevant tax developments and updates
relating to FWT/FWVAT and Other Percentage Taxes.
March 3, 2021 2
DISCUSSION OUTLINE
A. Final Withholding Taxes
I. General Principles
II. Withholding Agents
III. Classification of Payees
IV. Payments Subject to FWT
V. Service Fees vs. Royalties
VI. Time of Withholding
VII. Administrative Requirements
March 3, 2021 3
DISCUSSION OUTLINE
B. Withholding of Business Taxes on Government
Income Payments
I. Withholding Agents
II. Payments Subject to FWVAT
III. Other Percentage Taxes
IV. Administrative Requirements
March 3, 2021 4
A. FINAL
WITHHOLDING TAXES
GENERAL
PRINCIPLES
6
GENERAL PRINCIPLES
 It is constituted as a full and final payment of the income
tax due from the payee on a particular type of income
subject to FWT.
 Finality of withholding tax is limited only to the payee’s
income tax liability and does not extend to other taxes
that may be imposed on said income, eg., VAT or Other
Percentage Taxes, if any.
 The liability for the payment of the tax rests primarily on
the payor as withholding agent.
 The payee is NOT required to file an income tax return
for the particular income subjected to FWT.
7
EWT vs. FWT
EWT FWT
• Creditable against payee’s • Constituted as full and final
income tax liabilities payment of the income tax
due from payee
• Payee must be resident of the • Payee may be domestic,
Philippines (except in case of resident foreign or non-
payments to NRAETB in the resident foreign
Phils.)
• Payee is required to file an • Payee is NOT required to
income tax return for the file an income tax return for
particular income subjected to the particular income
EWT. subjected to FWT.
8
WITHHOLDING
AGENTS
(Please refer to EWT slides)
9
CLASSIFICATION
OF PAYEES
10
INDIVIDUAL PAYEES
A. Filipino Citizen
1. Resident
2. Non-resident
B. Alien
1. Resident alien
2. Non-resident alien engaged in trade or business in the
Philippines (NRAE)
3. Non resident alien not engaged in trade or business in
the Philippines (NRANE)
11
CORPORATE PAYEES /
JURIDICAL PERSONS
A. Domestic Corporation
B. Foreign Corporation
1. Resident foreign corporation
2. Non-resident foreign corporation
12
PAYMENTS
SUBJECT TO
FINAL
WITHHOLDING
TAX
13
GENERAL PRINCIPLES
PRINCIPLES ON
PAYMENTS TO FOREIGN
CORPORATIONS AND
AND ALIEN
ALIEN
INDIVIDUALS
Payments
Tax Treaty No Tax Treaty
Use Tax Treaty Rates Use Tax Code

subject to
Application for Tax
Treaty Relief
14
INCOME PAYMENTS TO
INDIVIDUALS
INCOME PAYMENT CIT. RES. NRAE NRANE
ALIEN
INTEREST from any peso 20% 20% 20% 25%
bank deposit, and yield
or any other monetary
benefit from deposit
substitutes and from
trust funds and similar
arrangements, derived
from sources within the
Philippines
15
INCOME PAYMENTS TO
INDIVIDUALS
INCOME PAYMENT CIT. RES. ALIEN NRAE NRANE
ROYALTIES, in general 20% 20% 20% 25%

(except on books, as
well as other literary
and musical
compositions),
Expanded Withholding Tax 16

INCOME PAYMENTS TO
INDIVIDUALS
INCOME PAYMENT CIT. RES. ALIEN NRAE NRANE
PRIZES (except prizes 20% 20% 20% 25%

amounting to Ten
thousand pesos
[P10,000] or less
which shall be subject
to tax under
Subsection (A) of
Section 24 of the Tax
Code, as amended),
derived from sources
within the Philippines
17
INCOME PAYMENTS TO
INDIVIDUALS
ALIEN
OTHER WINNINGS 20% 20% 20% 25%
(except winnings from
Philippine Charity
Sweepstakes and lotto
amounting to P10,000 or
less which shall be
exempt) derived from
sources within the
Philippines
18
INCOME PAYMENTS TO
INDIVIDUALS
ALIEN
ROYALTIES on books, 10% 10% 10% 25%
as well as other
literary works and
musical compositions
19
INCOME PAYMENTS TO
INDIVIDUALS
ALIEN
INTEREST income 15% 15% 20% 25%
received by an
individual taxpayer
from a depository
bank under the
Foreign Currency
Deposit System —
20
INCOME PAYMENTS TO
INDIVIDUALS
ALIEN
INTEREST income from EXEMPT EXEMPT EXEMPT 25%
long-term deposit or
investment in the form
of savings, common or
individual trust funds,
deposit substitutes,
investment
management accounts
and other investments
evidenced by
certificates in such form
prescribed by the BSP.
21
INCOME PAYMENTS TO
INDIVIDUALS
ALIEN
PRE-TERMINATED by 25%
the holder before the
fifth (5th) year:
Holding Period Rate
1.Four (4) years to less 5% 5%
than five (5) years 5%
2.Three (3) years to less
than four (4) years 12% 12% 12%
3.Less than three (3)
years 20% 20% 20%
22
INCOME PAYMENTS TO
INDIVIDUALS
INCOME PAYMENT CITIZEN RESIDENT NRAE NRANE
ALIEN
Cash and/or property 10% 10% 20% 25%
dividends actually or
constructively
received from a
domestic corporation
(except general
professional
partnership)
23
INCOME PAYMENTS TO
INDIVIDUALS
ALIEN
On capital gains from 6% 6% 6% 6%
the sale, exchange or
other disposition of
real property located
in the Philippines and
classified as capital
assets.
24
INCOME PAYMENTS TO
INDIVIDUALS
Exceptions:
i. Installment of real property classified as capital asset,

follow the same rules on the sale of real property
classified as ordinary asset.
ii. Sales made to government. The tax to be imposed shall
be determined either under Section 24(A) of the Code
for the normal rate of income tax for individual citizens
or residents or under Section 24(D)(1) of the Code for
the final tax on the presumed capital gains from sale of
property at six percent (6%), at the option of the
taxpayer-seller.
25
INCOME PAYMENTS TO
INDIVIDUALS
Exceptions:
iii. In case of sale/transfer of principal residence, the

Buyer/Transferee shall withhold from the seller and shall
deduct from the agreed selling price/consideration the
6% capital gains tax which shall be deposited in cash or
manager's check in interest-bearing account with an
Authorized Agent Bank (AAB) under an Escrow
Agreement between the concerned Revenue District
Officer, the Seller and the Transferee, and the AAB.
26
INCOME PAYMENTS TO
INDIVIDUALS
ALIEN
Gross income derived (8%), in (8%), in 8% NA
from contracts by lieu of lieu of
subcontractors from any and any and
service contractors all all taxes,
engaged in taxes, national
'petroleum national and local
operations' as and
defined under P.D. 87 local
in the Philippines
27
INCOME PAYMENTS TO
INDIVIDUALS
ALIEN
On the net capital 15% 15% 15% 15%
gains realized during
the taxable year from
the sale, barter,
exchange or other
disposition of shares
of stock in a domestic
corporation not
traded in the stock
exchange.
28
INCOME PAYMENTS TO
INDIVIDUALS
ALIEN
Gross income from all N.A. N.A. 25% 25%
sources within the
Philippines derived by
non-resident
cinematographic film
owners, lessors or
distributors
29
INCOME PAYMENTS TO
INDIVIDUALS
Note:
Tax rates for non-resident individuals may be modified by

any applicable tax treaty between the Philippines and the
country of residence of such individual.
30
ALIEN INDIVIDUALS SUBJECT
TO PREFERENTIAL INCOME TAX
RATE –
 Who are these alien individuals:
i. Alien individual employed by regional or area
headquarters and regional operating
headquarters of multinational companies.
ii. Alien Individual Employed by Offshore Banking
Units.
iii. Alien Individual Employed by Petroleum Service
Contractor and Subcontractor.
Section 25 (C)(D)(E)(F) of the NIRC, as amended [Section 6, TRAIN]
31
RATE –
 Under the NIRC, they are entitled to 15% preferential
gross income tax, imposed upon the gross income as
salaries, wages, annuities, compensation,
remuneration and other emoluments, such as
honoraria and allowances, received by every
individual from those specific companies.
Section 25 (C)(D)(E)(F) of the NIRC, as amended [Section 6, TRAIN]
32
RATE –
 Under the TRAIN law, states that:
 Such preferential tax treatment shall not be applicable
to regional headquarters (RHQs,) ROHQs and OBUs or
petroleum service contractors and sub-contractors
registering with SEC after January 1, 2018;
 Provided, however, the existing RHQs, ROHQs OBUS, or
petroleum service contractors and subcontractors
presently availing of preferential tax rates for qualified
employees shall continue to be entitled to avail of the
preferential tax rates for present and future qualified
employees. (Included in the items vetoed by the
President)
33
RATE –
 All employees of RAHQs, ROHQs, of multinational
companies, OBUs, and Petroleum Service Contractors and
Sub-contractors enjoying preferential income treatment
prior to 2018 are NOW SUBJECT TO REGULAR INCOME TAX
RATES.
 Thus, withholding taxes on compensation of these
employees shall be enforced based on withholding tax
table per RMC 1-2018.
(Tax Advisory, January 31, 2018)
34
INCOME PAYMENTS TO
JURIDICAL PERSONS
INCOME PAYMENT DOM. RFC NRFC
Interest from any currency 20% 20% N.A.
bank deposit and yield or any
other monetary benefit from
deposit substitutes and from
trust fund and similar
arrangements derived from
sources within the Philippines
Royalties derived from 20% 20% Whatever is the

sources within the Philippines applicable RCIT
rate at the time
of withholding
35
INCOME PAYMENTS TO
JURIDICAL PERSONS
Interest income derived FROM a 15% 7.5% N.A.
depository bank under the Expanded
Foreign Currency Deposit System,
otherwise known as a Foreign
Currency Deposit Unit (FCDU)
Interest income derived BY a 10% 10% N.A.

depository bank under the Expanded
Foreign Currency Deposit System
(FCDU) from foreign currency loans
granted by such bank to residents
36
INCOME PAYMENTS TO
JURIDICAL PERSONS
Gross income derived from (8%), in lieu (8%), in 8%

contracts by subcontractors of any and all lieu of any
from service contractors taxes, national and all
and local taxes,
engaged in 'petroleum national
operations' as defined under and local
P.D. 87 in the Philippines
37
INCOME PAYMENTS TO
JURIDICAL PERSONS
On the net capital gains 15% 15% 15%

realized during the taxable
year from the sale, barter,
exchange or other
disposition of shares of
stock in a domestic
corporation not traded in
the stock exchange.
38
INCOME PAYMENTS TO
JURIDICAL PERSONS
On capital gains presumed 6% 6% N.A.
to have been realized from
the sale, exchange or other
disposition of lands and/or
buildings classified as capital
assets.
In general, gross income N.A N.A. Whatever is
derived by Non-Resident the applicable
Foreign Corporations from RCIT rate at
all sources within the the time of
Philippines. withholding
39
INCOME PAYMENTS TO
JURIDICAL PERSONS
INCOME PAYMENT DOM RFC NRFC
.
On income derived by offshore N.A. 10% N.A.
banking units from foreign currency
transactions with local commercial
banks and branches of foreign banks
that may be authorized by the BSP to
transact business with offshore
banking units and other OBUs
including interest income derived
from foreign currency loans granted
to resident
40
INCOME PAYMENTS TO
JURIDICAL PERSONS
INCOME PAYMENT DOM RFC NRFC
.
On any profit remitted by the N.A. 15% N.A.
Philippine branch of a foreign
corporation to its head office abroad
based on the total profits applied or
earmarked for remittance without
any deduction for the tax component
thereof except those registered with
the PEZA and other companies
within the special economic zones
such as SBMA and CDA
41
INCOME PAYMENTS TO
JURIDICAL PERSONS
On gross rentals, lease or charter N.A. N.A. 4.5%
fees, derived by non-resident
owner or lessor of vessels from
leases or charters to Filipino
citizens or corporations as
approved by the Maritime Industry
Authority
On rentals, charters and other fees, N.A. N.A. 7.5%
derived by non-resident owner or
lessor of aircraft, machinery and
other equipment
42
INCOME PAYMENTS TO
JURIDICAL PERSONS
Interest on foreign loans N.A. N.A. 20%
contracted on or after August
1, 1986
Cash and/or property Exempt Exempt 15% / RCIT rate
dividends (subject to
certain
conditions)
Gross income from all sources N.A. N.A. 25%
within the Philippines derived
by non-resident
cinematographic film owners,
lessors or distributors
43
INCOME PAYMENTS TO
JURIDICAL PERSONS
Note:
Tax rates for non-resident foreign corporations
may be modified by any applicable tax treaty between
the Philippines and the country of residence of such
foreign corporation.
44
INFORMER’S REWARD
Informer's Reward to Persons Instrumental in the Discovery of
Violations of the National Internal Revenue Code and the
Discovery and Seizure of Smuggled Goods.
Rate: 10% Final withholding tax
Tax Base: Revenues, surcharges or fees recovered and/or
fine or penalty imposed and collected or one million pesos
(P1,000,000.00) per case, whichever is lower.
45
INFORMER’S REWARD
 Income payment to:
(1) Those given to persons, except an internal revenue
official or employee, or other public official or employee
or his relative within the sixth degree of consanguinity,
who voluntarily gives definite and sworn information
not yet in the possession of the BIR, leading to the
discovery of frauds upon the Internal Revenue Laws
or violations of any of the provisions thereof, thereby
resulting in the recovery of revenues, surcharges and
fees and/or the conviction of the guilty party and/or
imposition of any fine or penalty.
46
INFORMER’S REWARD
 Income payment to:
(2) Those given to an informer where the offender has
offered to compromise the violation of law
committed by him and his offer has been accepted by
the Commissioner and collected from the offender.
(3) Those given to persons instrumental in the discovery
and seizure of such smuggled goods.
47
ROYALTIES
VS.
SERVICE FEES
48
TAX TREATMENT IF ACTIVITIES
QUALIFY AS ROYALTIES
20% FWT
Does supplier Yes 12% VAT
Yes have a Phil.
PE?
10% - 25% FWT (treaty-
Is supplier a based)
resident NO 12% withholding VAT
of treaty
country?
Yes 20% FWT

Is supplier 12% VAT
doing business
NO in the Phils?
35% /30%FWT
NO 12% withholding VAT
49
TAX TREATMENT IF ACTIVITIES
QUALIFY AS SERVICES
EWT, as applicable
Yes 12% VAT
Does supplier
have a Phil. Yes ITx Exempt
Yes PE? Rendered in 12% VAT w/held
Phils?
Is supplier a No
No Tax Exempt
resident
of treaty
country? EWT, as applicable
Yes 12% VAT
Is supplier
No doing business Yes 35%/30% FWT
in the Phils? 12% VAT w/held
Rendered in
No Phils? Tax Exempt
No
50
FILING,
PAYMENT AND
VENUE OF FWT
RETURNS
(Refer to EWT Slides)
51
B. WITHHOLDING OF
BUSINESS TAXES
WITHHOLDING
OF VAT
53
VATability OF
TRANSACTIONS
 Gross sales/receipts may be taxed as follows:
1. 12% VAT
2. Zero-rated VAT – “full relief”
3. VAT exempt – “partial relief”
54
NATURE AND CONCEPT
 VAT is a tax on consumption levied on the sale,
barter, exchange or lease of goods or properties
and services in the Philippines and on importation
of goods into the Philippines.
 The seller is the one statutorily liable for the
payment of the tax but the amount of the tax may
be shifted or passed on to the buyer, transferee or
lessee of the goods, properties or services.
 However, in the case of importation, the importer is
the one liable for the VAT.
55
PERSONS LIABLE
 Any person who, in the course of his trade or
business:
i. sells, barters, exchanges or leases goods or
properties, or
ii. renders services, and
iii. any person who imports goods
56
PERSONS LIABLE
 Meaning of "In the Course of Trade or Business". —
 means the regular conduct or pursuit of a
commercial or economic activity, including
transactions incidental thereto, by any person
regardless of whether or not the person engaged
therein is a non-stock, non-profit private
organization (irrespective of the disposition of its
net income and whether or not it sells exclusively
to members or their guests), or government
entity.
57
PERSONS LIABLE
 However, in the case of importation of taxable
goods, the importer, whether an individual or
corporation and whether or not made in the course
of his trade or business, shall be liable to VAT
imposed in Sec. 107 of the Tax Code.
58
TRANSACTIONS
SUBJECT TO VAT
SECTION 4.106-1, RR 16-05, as amended
1)VAT on Sale of Goods or Properties. — VAT is imposed and
collected on every sale, barter or exchange, or transactions
"deemed sale" of taxable goods or properties at:
 Rate - 12%, starting February 1, 2006;
 Tax Base - Gross selling price or gross value in money
of the goods or properties sold, bartered, or
exchanged, or deemed sold in the Philippines.
59
TRANSACTIONS
SUBJECT TO VAT
2)VAT on the Sale of Services and Use or Lease of Properties. —
sale or exchange of services, as well as the use or lease of
properties, as defined in Sec. 108 (A) of the Tax Code shall be
subject to VAT at:
 Rate - 12%, starting February 1, 2006;
 Tax Base - Gross receipts
60
TRANSACTIONS
SUBJECT TO VAT
2) VAT on the Sale of Services and Use or Lease of Properties.
 Meaning of “gross receipts” - refers to the total amount
of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the
amount charged for materials supplied with the services and
deposits applied as payments for services rendered and
advance payments actually or constructively received during
the taxable period for the services performed or to be
performed for another person, excluding VAT except those
amounts earmarked for payment to unrelated third (3rd)
party or received as reimbursement for advance payment on
behalf of another which do not redound to the benefit of the
payor.
61
TRANSACTIONS
SUBJECT TO VAT
1)VAT on Importations — VAT is imposed on goods brought
into the Philippines, whether for use in business or not.
 Rate – 12%
 Tax Base - Total value used by the BOC in determining
tariff and customs duties, plus customs duties, excise
tax, if any, and other charges, such as postage,
commission, and similar charges, prior to the release
of the goods from customs custody, or landed costs.
62
TRANSACTIONS
SUBJECT TO VAT
1)VAT on Importations — VAT is imposed on goods brought
into the Philippines, whether for use in business or not.
 The same rule applies to technical importation of
goods sold by a person located in a Special Economic
Zone to a customer located in a customs territory.
63
DUTY TO WITHHOLD
 In general, VAT due on the sale of goods and services are
NOT subject to withholding since the tax is not
determinable at the time of sale.
 However, gross payments to non-residents by both
government and private entities for services rendered in
the Philippines shall be subject to final withholding tax
at the rate of 12% (starting February 2006).
 Moreover, sale of goods and services subject to VAT to the
government shall be subject to withholding pursuant to
Sec. 114(C) of the National Internal Revenue Code of 1997.
64
DUTY TO WITHHOLD
Section 114-2, RR 16-2005, as amended. Withholding of VAT
The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned
or -controlled corporations (GOCCs) shall, before making
payment on account of each purchase of goods and services
which are subject to the value-added tax imposed in Sections
106 and 108 of this Code, deduct and withhold the value-
added tax imposed in Sections 106 and 108 of the Tax Code,
deduct and withhold a final value-added tax at the rate of five
percent (5%) of the gross payment thereof.
65
DUTY TO WITHHOLD
Cont’n.
Beginning January 1, 2021, the VAT withholding system
under this subsection shall shift from final to a creditable
system (as amended by TRAIN Law)
Payment for lease or use of properties or property rights
to nonresident owners shall be subject to twelve percent
(12%) withholding tax at the time of payment;
66
DUTY TO WITHHOLD
Cont’n.
Payments for purchase of goods and services arising from
projects funded by Official Development Assistance (ODA) as
defined under Republic Act No. 8182, Otherwise known as the
"Official Development Assistance Act of 1996," as amended,
shall not be subject to the Final/Creditable Withholding
Taxes.
67
DUTY TO WITHHOLD
 If the government has regional offices, branches or
units, the withholding and remittance of the VAT
withheld may be done on a decentralized basis.
 Decentralized remittance, however, is not applicable if
the taxpayer-withholding agent is classified as large
taxpayer by the Commissioner of Internal Revenue.
68
NATURE OF 5% FWVAT
 The five percent (5%) final VAT withholding rate shall
represent the net VAT payable of the seller.
 The remaining seven percent (7%) effectively accounts
for the standard input VAT for sales of goods or services
to government or any of its political subdivisions,
instrumentalities or agencies including GOCCs, in lieu of
the actual input VAT directly attributable or ratably
apportioned to such sales.
69
NATURE OF 5% FWVAT
 Treatment of excess/shortage on the 7% Standard Input
Tax:
 Actual input tax > 7% = additional seller’s expense
 Actual input tax < 7% = closed to expense or cost.
70
NATURE OF 5% FWVAT
BIR Ruling No. 306-17, June 14, 2017
Facts:
 MIRDC, an attached agency of DOST conducted a
public bidding for the purchase of certain machinery;
 The contract was awarded to Makino Asia, a non-
resident foreign corporation based in Singapore
 VAT on importation has been paid and the equipment
was delivered to MIRDC.
71
NATURE OF 5% FWVAT
Issue:
 W/N subject to Final Withholding VAT and Final
Withholding Tax.
72
NATURE OF 5% FWVAT
Held:
 Please take note that the sale of the subject equipment
by Makino Asia to MIRDC is subject to the final
withholding tax on income at the rate of 30% of the
gross payment made, pursuant to Section 2.57.1 (I) of
RR No. 2-98, as amended;
 In addition, the aforesaid sale is subject to the final
withholding on VAT at the rate of 5% of the gross
payment thereof. The 5% final VAT withholding rate
shall represent the net VAT payable by Makino Asia.
73
NATURE OF 5% FWVAT
Held:
 The remaining seven percent (7%) effectively accounts for the
standard input VAT for sales of goods to MIRDC in lieu of the
actual input VAT directly attributable or ratably apportioned
to such sales. Should actual input VAT attributable to sale to
MIRDC exceeds seven percent (7%) of gross payments, the
excess may form part of the Makino Asia's expense or cost.
On the other hand, if actual input VAT attributable to sale to
MIRDC is less than seven percent (7%) of gross payment, the
difference must be closed to expense or cost. (RR No. 16-05,
as amended by RR No. 4-2007)
74
TRANSACTIONS EXEMPT
FROM VAT, in general
SECTION 4.116, RR 16-05, as amended.
Any person whose sales or receipts are exempt under Sec.
109 (1) (BB) of the Tax Code from the payment of value-added
tax and who is not a VAT-registered person shall pay a tax
equivalent to three percent (3%) of his gross quarterly sales or
receipts; Provided, however, that the following shall be exempt
from the payment of three percent (3%) percentage tax:
1. Cooperatives; and
2. Self-employed individuals and professionals availing
of the 8% tax regime.
75
AMENDMENTS TO VAT
EXEMPT TRANSACTIONS
P. VAT exempt transactions from January 1, 2018 to December 31,
2020:
 Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or
business;
 Real property utilized for low-cost and socialized housing as
defined by Republic Act No. 7279, otherwise known as the
Urban Development and Housing Act of 1992, and other
related laws;
 Residential lot valued at P1,500,000 and below;
 House and lot, and other residential dwellings valued at
P2,500,000 and below;
AMENDMENTS TO VAT
EXEMPT TRANSACTIONS
P. VAT exempt transactions effective January 1, 2021:
• Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of
trade or business;
• Real property utilized for low-cost and socialized
housing as defined by Republic Act No. 7279, otherwise
known as the Urban Development and Housing Act of
1992, and other related laws:
• House and lot, and other residential dwellings valued at
P2,000,000 and below;
AMENDMENTS TO VAT
EXEMPT TRANSACTIONS
Q. Lease of a residential unit with a monthly rental not
exceeding Fifteen thousand pesos P15,000; (Threshold is
increased from P12,800 but Adjustment every three years is
removed)
W. Sale or lease of goods and services to senior citizens and
persons with disability, as provided under RA Nos. 9994
(Expanded Senior Citizens Act of 2010) and 10754 (An Act
Expanding the Benefits and Privileges of Persons with
Disability) respectively. (Inserted. VAT exemption is based
on special laws);
AMENDMENTS TO VAT
EXEMPT TRANSACTIONS
X. Transfer of property pursuant to Section 40(C)(2) of the
NIRC, as amended.
Y. Association dues, membership fees and other assessments
and charges collected by homeowners associations and
condominium corporations.
Z. Sale of gold to the Banko Sentral ng Pilipinas (BSP)
(formerly zero-rated sale);
AA. Sale of drugs and medicines prescribed for diabetes, high
cholesterol, and hypertension beginning January 1, 2019
WITHHOLDING
OF OTHER
PERCENTAGE
TAXES
80
DUTY TO WITHHOLD
 Bureaus, offices and instrumentalities of the
government, including government-owned or controlled
corporations as well as their subsidiaries, provinces,
cities and municipalities making any money payment to
private individuals, corporations, partnerships and/or
associations are required to deduct and withhold the
percentage taxes due from the payees on account of
such money payments.
81
PAYMENTS SUBJECT TO
CREDITABLE WITHHOLDING
TAX
Section 5.116, RR 2-98, as amended
1.Persons exempt from value-added tax (VAT) - (3%). —
 Sale or lease of goods or properties or the performance
of services of non-VAT-registered persons, other than
the transactions mentioned in paragraphs (A) to (AA) of
Sec. 109(1) of the Tax Code, the gross annual sales and/or
receipts of which does not exceed the amount of Three
Million Pesos (P3,000,000.00); and
 Do not avail of the 8% tax regime for self-employed
individual taxpayers.
82
PAYMENTS SUBJECT TO
TAX
2. Domestic carriers and keepers of garages (3%). —
 On gross payments to operators of cars for rent or
hire driven by the lessee; transportation contractors,
including persons who transport passengers for hire,
and other domestic carriers by land for the transport
of passengers (except owners of bancas and owners
of animal-drawn two wheeled vehicle), and keepers of
garages — (amended by RA 9337)
83
PAYMENTS SUBJECT TO
TAX
3. International carriers (3%) –
 International air carriers doing business in the
Philippines on their gross receipts derived from
transport of cargo from the Philippines to another
country.
 International shipping carriers doing business in the
Philippines on their gross receipts derived from
transport of cargo from the Philippines to another
country.
84
PAYMENTS SUBJECT TO
TAX
4. Franchises (3%)/2% –
 On gross payments to all franchises on radio and/or
television broadcasting companies whose annual
gross receipts of the preceding year does not exceed
P10,000,000.00 - (3%)
 On gross payments to franchises on gas and water
utilities — (2%)
85
PAYMENTS SUBJECT TO
TAX
BIR RULING NO. 1020-18, June 27, 2018
Ruling:
xxx, while a local water district, like Norzagaray Water
District, is exempt from the corporate income tax of 30%, it is
nevertheless subject to the 2% franchise tax as prescribed in
Section 119 of the 1997 Tax Code, as amended, as there is no
express provisions in RA No. 10026 and Revenue Memorandum
Circular No. 28-2010 exempting the local water districts from
the said 2% franchise tax. (BIR Ruling No. 179-2012 dated March
14, 2012)
86
PAYMENTS SUBJECT TO
TAX
BIR RULING NO. 1020-18, June 27, 2018
Ruling:
In sum, this Office holds that Norzagaray Water District is not
subject to income tax, and consequently to the 2% expanded
withholding tax, but it is subject to the 2% franchise tax as
imposed in Section 119 of the Tax Code of 1997, and to the 2%
creditable percentage tax imposed under Section 5.116 (A) (4)
(b) of RR No. 2-98 if payment is made by bureaus, offices and
instrumentalities of the government, including government-
owned or controlled corporations as well as their subsidiaries,
provinces, cities and municipalities.
87
PAYMENTS SUBJECT TO
TAX
5. Tax on Banks and Non-Bank Financial Intermediaries
Performing Quasi-Banking Functions.
a) On interest, commissions and discounts from lending
activities as well as income from financial leasing, on
the basis of remaining maturities of instruments from
which such receipts are derived:
 Maturity period is five years or less (5%)
 Maturity period is more than five years (1%)
b) On dividends and equity shares and net income of

subsidiaries — (0%)
88
PAYMENTS SUBJECT TO
TAX
5. Tax on Banks and Non-Bank Financial Intermediaries
Performing Quasi-Banking Functions.
c) On royalties, rentals of property, real or personal,
profits, from exchange and all other items treated as
gross income under Section 32 of this Code — 7%
d) On net trading gains within the taxable year on foreign
currency, debt securities, derivatives, and other similar
financial instruments — 7%
89
PAYMENTS SUBJECT TO
TAX
6. Tax on Other Non-Bank Financial Intermediaries -
a) On interest, commissions and discounts from lending
activities as well as income from financial leasing, on
the basis of remaining maturities of instruments from
which such receipts are derived:
 Maturity period is five years or less (5%)
 Maturity period is more than five years (1%)
90
PAYMENTS SUBJECT TO
TAX
7. Life Insurance Premiums 2% -
 On the total premiums paid to persons doing life
insurance business of any sort in the Philippines
91
PAYMENTS SUBJECT TO
TAX
8. Agents of foreign insurance companies —
a) On premiums paid to every fire, marine, or
miscellaneous insurance agent legally authorized
under the Insurance Code to procure policies of
insurance on risk located in the Philippines for
companies not authorized to transact business in the
Philippines except on reinsurance premium —4% (or
twice the rate imposed on the life insurance
premiums)
92
PAYMENTS SUBJECT TO
TAX
8. Agents of foreign insurance companies —
b) On premium payments obtained directly with foreign
companies where the owner of the property does not
make use of the services of any agent, company or
corporation residing or doing business in the
Philippines, in which case, it shall be the duty of said
owners to report to the Insurance Commissioner and
to the BIR Commissioner each case where insurance
has been so effected — 5%
93
PAYMENTS SUBJECT TO
TAX
9. Amusement taxes — On gross payments to the proprietor,
lessee, or operator of:
 Cockpits, cabarets, night and day clubs —18%
 Boxing exhibitions except those wherein World or
Oriental Championship in any division is at stake and at
least one of the contenders is a citizen of the Philippines
and promoted by a citizen/s of the Philippines or by a
corporation or association at least 60% of the capital of
which is owned by such citizens – 10%
94
PAYMENTS SUBJECT TO
TAX
9. Amusement taxes — On gross payments to the
proprietor, lessee, or operator of:
 Professional basketball games as envisioned in
Presidential Decree No. 871 — (15%)
 Jai-alai and racetracks irrespective of whether or not
any amount is charged for admission — (30%)
95
PAYMENTS SUBJECT TO
TAX
10. Tax on Sale, Barter or Exchange of Shares of Stock Listed
and Traded through the Local Stock Exchange. —
 On every sale, barter, exchange, or other disposition
of shares of stock listed and traded through the local
stock exchange other than the sale by a dealer in
securities, based on the gross selling price or gross
value in money of the shares of stock sold, bartered,
exchanged or otherwise disposed which shall be paid
by the seller or transferor - (6/10 of 1%) (new rate)
96
PAYMENTS SUBJECT TO
TAX
11. Shares of stock sold or exchanged through initial public
offering. —
 On the gross selling price or gross value in money
derived on every sale, barter, exchange or other
disposition through initial public offering of shares of
stock in closely held corporations in accordance with
the proportion of such shares to the total outstanding
shares of stock after the listing in the local stock
exchange at the rates herein prescribed:
 Not over 25% - (4%);
 Over 25% but not exceeding 33 1/3% - (2%);
 Over 33 1/3% - (1%)
97
FILING AND PAYMENT
 VAT and Percentage Taxes deducted and withheld shall
be covered by the:
 Monthly Remittance Return of VAT and Other
Percentage Taxes Withheld (BIR Form No. 1600) in
triplicate copies;
 Monthly Alphalist of Payees (MAP);
 Filing and payments shall be made within ten (10) days
following the end of the month the withholding was
made or the withholding tax has accrued, except for
EFPS which shall follow the rules and regulations
applicable to EFPS. (RR 04-03)
98
FILING AND PAYMENT
be covered by the:
 Certificate Taxes Withheld (in quadruplicate copies)
BIR Forms No. 2307/2306, not later than the 10th day of
the following month. (RR 28-03)
99
ADMINISTRATIVE
TAX COMPLIANCE
100
FILING AND PAYMENT
be covered by the:
 Certificate of Creditable Tax Withheld at Source (BIR
Form 2307) to be accomplished in triplicate, not later
than the fifth (5th) day of the following month.
 Certificate of Final Tax Withheld at Source (BIR Form
2306) to be accomplished in triplicate, within ten (10)
days following the end of the month the withholding
was made.
101
SUBSTITUTED FILING OF VAT
AND PERCENTAGE TAXES
RR No. 14-2003
Taxpayer-payee with only one payor may opt to remit his
percentage tax/VAT through the withholding and remittance
of the same by the withholding agent-payor;
Option is manifested by filing the following:
 "Waiver of the Privilege to Claim Input Tax Credits"
(Annex D) (for VAT taxpayer only),
 "Notice of Availment on the Option to Pay the Tax
through the Withholding Process" (Annex F); and
102
RR No. 14-2003
 "Notice of Availment on the Substituted Filing of
Percentage Tax/VAT Return" (Annex B/C).
 Waiver and notice shall be submitted to the withholding
agent-payor and the Revenue District Offices of both the
payor and payee.
 The lone payor, upon receipt of the notice, shall
mandatorily withhold the 3% percentage tax or applicable
VAT rate on income payment to the payee and shall remit
the same to the appropriate collection agents of the
Bureau.
103
RR No. 14-2003
The Taxpayer-payee whose gross receipts have already
been subjected to the withholding of 3% percentage tax or 12%
VAT by the lone payor, shall no longer be required to file the
quarterly percentage tax return (BIR Form No. 2551Q) or the
monthly VAT declarations (BIR Form No. 2550M) and
quarterly VAT returns (BIR Form No. 2550Q).
The BIR Form No. 1600 (with BIR Form No. 2306 - Certificate
of Final Tax Withheld at Source) duly filed by the payor serves
as the substituted percentage tax/VAT return of the payee
with lone payor.
104
RR No. 14-2003
The duly filed or stamped "Received" BIR Form 2306 shall
serve the same purpose as the percentage tax/VAT return
(BIR Form 2551Q/2550M/2550Q) of the payee.
If the taxpayer-payee shall have additional clients or
customers within the taxable year, the taxpayer-payee shall
immediately file the "Notice of Cancellation on the Availment
of the Substituted Filing of Returns" (Annex E).
105
RR No. 14-2003
A taxpayer who has more than one (1) payor may also opt to
avail of substituted filing of VAT, following the same rules.
In this instance, the VAT withheld shall be treated as
creditable tax by the payee when he files the quarterly value-
added tax return under BIR Form No. 2550Q. The filing of
2550M shall be dispensed with, since the VAT has already
been withheld. The filing of BIR Form 2550Q shall just serve
as a return consolidating all the transactions with all the
payors which have already been subjected to withholding tax.
106
RR No. 14-2003
Substituted Official Receipt.
 For sellers of services whose gross receipts have been
subjected to the withholding of the 3% percentage tax
or applicable VAT, they shall be exempted from the
obligation of issuing duly registered non-VAT receipts
covering their receipt of payments for services sold.
107
RR No. 14-2003
Substituted Official Receipt.
 In lieu thereof, the issued "Certificate of Final Tax
Withheld at Source" (BIR Form No. 2306), for payee
with just one payor, or "Certificate of Creditable Tax
Withheld at Source" (BIR Form No. 2307), for payee
with several payors, shall be constituted and treated
as the substituted official receipt, pursuant to the
provisions of Section 237 of the Code.
108
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Final Withholding Taxes and Withholdiing of Business Taxes On Government Income Payments (Part Iii)

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Final Withholding Taxes and Withholdiing of Business Taxes On Government Income Payments (Part Iii)

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FINAL WITHHOLDING

TAXES AND WITHHOLDIING

1. Resident foreign corporation

2. Non-resident foreign corporation

Tax Treaty No Tax Treaty

Use Tax Treaty Rates Use Tax Code

ROYALTIES, in general 20% 20% 20% 25%

Expanded Withholding Tax 16

PRIZES (except prizes 20% 20% 20% 25%

i. Installment of real property classified as capital asset,

iii. In case of sale/transfer of principal residence, the

Tax rates for non-resident individuals may be modified by

Section 25 (C)(D)(E)(F) of the NIRC, as amended [Section 6, TRAIN]

Section 25 (C)(D)(E)(F) of the NIRC, as amended [Section 6, TRAIN]

Royalties derived from 20% 20% Whatever is the

Interest income derived BY a 10% 10% N.A.

Gross income derived from (8%), in lieu (8%), in 8%

On the net capital gains 15% 15% 15%

Yes 20% FWT

b) On dividends and equity shares and net income of

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