1. Introduction

Whether you are a local startup founder or a foreign entrepreneur doing business in the Philippines, probably the most complicated and misunderstood tax type you will encounter in the country is withholding tax. This is why we make sure to update this article regularly so you have clear and updated information. 

This article provides general information about withholding taxes in the Philippines and answers common questions, such as:

• What are the different withholding tax types?

• Am I a withholding agent?

• How (and when) should I file and remit my withholding taxes?

In 2026, withholding tax remains an important compliance area because it affects payroll, supplier payments, and tax remittances. When withholding taxes are not handled correctly, businesses may face penalties and assessments coming from mismatches between transactions where withholding tax is applicable, and the related accounting records and tax filings.

2. What is Withholding Tax?

Withholding taxes (WHT) are amounts withheld from payments for services or goods and remitted directly to the government on behalf of your suppliers and/or employees.

Since the changes brought in 2018 by Republic Act No. 10963 (TRAIN Law), withholding taxes are now governed by a set of different rulings that we will consider and summarise in this article.

With the withholding tax system, the government shifts part of the responsibility of tax collection from the Bureau of Internal Revenue (BIR) to individuals or businesses, the Withholding Agents.

A Withholding Agent is a person or entity who is in control of the payment that is subject to withholding tax (i.e., the tax amount deducted from the payment made and remitted by the withholding agent directly to the government).

In this system, businesses are expected to identify when withholding applies and to deduct and remit the correct amounts on time.

The three withholding tax types businesses deal with

There are three kinds of withholding taxes that are vital to businesses:

1. Withholding Tax on Compensation (WTC)

2. Expanded Withholding Tax (EWT)

3. Final Withholding Tax (FWT)

   
   

3. Withholding Tax on Compensation (WTC)

Withholding Tax on Compensation (WTC) is a tax withheld from an employee’s compensation. Compensation covers all remuneration arising from services rendered by an individual in an employer–employee relationship.

Some parts of compensation are exempt by law (e.g., de minimis allowances, the Php 90,000 threshold for 13th month and bonuses, etc.).

As an employer, the business is a withholding agent with the responsibility of withholding and remitting taxes to the BIR based on the Withholding on Compensation Tax table.

Updated de minimis ceilings

Recent updates on de minimis allowances ceilings with RR 29-2025 have increased the non-taxable portion of compensation.

Key ceilings now include:

• Rice subsidy:  Php 2,500/month

• Uniform/clothing: Php 8,000/year

• Medical cash allowance for dependents: Php 2,000/semester (or Php 333/month)

• Actual medical assistance: Php 12,000/year

• Laundry: Php 400/month

• Achievement awards: Php 12,000/year

• Christmas/anniversary gifts: Php 6,000/year

• Overtime/night shift meal allowance: ≤ 30% of basic minimum wage (per region)

• Monetised unused vacation leave (private employees): ≤ 12 days/year

Monthly withholding tax on compensation table (effective 1 Jan 2023 onwards)

Example (Php 50,000 monthly taxable compensation):
Bracket: Php 33,333–Php 66,666
WTC = Php 1,875.00 + 20% × (Php 50,000 − Php 33,333)
WTC = Php 1,875.00 + 20% × Php 16,667 = Php 1,875.00 + Php 3,333.40 = Php 5,208.40

4. Expanded Withholding Tax (EWT)

Expanded Withholding Tax (EWT) is the tax withheld on certain income payments to suppliers. For the suppliers, the amounts withheld are creditable against the income tax due for the taxable year.

The rules on EWT do not require all businesses to withhold from all their suppliers. This is only applicable to some businesses that have been specifically identified by the BIR as Top Withholding Agents (TWA).

Income payments made by top withholding agents to their local/resident suppliers:

• Suppliers of goods: 1% EWT

• Suppliers of services: 2% EWT

Example: A Top Withholding Agent receives an invoice amounting to Php 10,000 (Php 8,800 + Php 1,200 VAT) for an inventory item. The invoice and related payment can be broken down as follows:

• Php 8,800 → Inventory

• Php 1,200 → Input VAT

• (Php 88) → EWT [1% × Php 8,800]

• Php 9,912 → Payment to supplier

For particular transactions and suppliers, all businesses (not only TWAs) are required to withhold EWT. Here are a few examples:

Professional fees (company)

• 10% EWT if yearly gross income (of supplier) < Php 720k

• 15% EWT if yearly gross income (of supplier) > Php 720k

Director’s fees

• 5% EWT if yearly gross income (of director) < Php 3M

• 10% EWT if yearly gross income (of director) > Php 3M

Gross rental or lease

• 5% EWT

All applicable tax rates can be viewed on the Expanded Withholding Tax table.

2026 updates to note

• RR 24-2025: Introduced a 0.5% creditable withholding tax rate for specific covered purchases of goods (this is scope-based and not a universal replacement of the 1% goods rate).

• RR 5-2025: Imposed 0.5% withholding on the gross remittances by e-marketplace operators to the sellers/merchants for the goods or services sold/paid through their platform/facility (this can affect how sellers record collections and creditable withholding taxes).

Timing of withholding under Republic Act No. 11976 (Ease of Paying Taxes Act)

Republic Act No. 11976 (Ease of Paying Taxes Act or “EOPT”) now states: “The obligation to deduct and withhold the tax arises at the time the income has become payable.” This focuses on when the income becomes payable, rather than when the obligation becomes due, demandable, or legally enforceable.

How to know if you are classified as a Top Withholding Agent (TWA)

Revenue Memorandum Circular No. 70-2023 informs taxpayers about changes made in the list of Top Withholding Agents from the previous memorandum released in 2018.

To know if you are a TWA, you have to check the BIR website’s publications regularly. The website has the list of top withholding agents for both individual and non-individual agents. You will sometimes receive a notice letter from the BIR, but this is not always the case.

5. Final Withholding Tax (FWT)

Final Withholding Tax (FWT) is the tax withheld on certain income payments and is considered full and final payment of income tax due from the payee of the said income.

The tax rates can be viewed in the Final Withholding Tax Table. Below are a few examples:

• Interest from currency deposits, trust funds, and deposit substitutes (passive income): 20% FWT

• Cash dividend payment by a domestic corporation to citizens and resident aliens (individual): 10% FWT

• Cash dividend payment by a domestic corporation to a Non-Resident Foreign Corporation: 15% FWT

RR 21-2025 (CMEPA implementation) standardises several passive income rates effective 1 July 2025.

Cross-border services paid to foreign suppliers (RMC No. 5-2024)

Revenue Memorandum Circular No. 5-2024 explains that for the BIR, the “source” of income is not where the payment is made or received, but where the income-producing business activity actually took place. With this, more services are treated as Philippine-sourced and subject to Philippine income tax. For payments to a non-resident foreign corporation (NRFC), generally 25% final withholding tax applies, unless a treaty benefit or exemption applies. 

Digital services consumed in the Philippines are also subject to 12% VAT, so some cross-border services can trigger both withholding tax and VAT.

Impact of tax treaties on final withholding taxes

Tax treaties can change the final withholding tax (FWT) applied to payments to non-residents by reducing the rate or, in some cases, removing Philippine tax for certain types of income. Treaty benefits depend on the payee being a resident of the treaty partner country and the payment meeting the treaty’s conditions. If treaty relief does not apply (or is not used), the domestic withholding rules remain the default.

6. Forms and submission of withholding taxes

Now that you have a better understanding of the different withholding tax types, here are the forms you must know and their remittance schedule:

Filing the forms is only one part of compliance. It is also important to ensure that your tax filings match your accounting records and that certificates issued (e.g., 2307/2316) align with what was filed.

7. Common challenges & solutions

Challenges businesses commonly face

• Uncertainty on whether a transaction is subject to withholding tax in the first place (determining if withholding applies)

• Misclassification of payments (applying WTC vs EWT vs FWT incorrectly)

• Incorrect computation (wrong tax base or wrong rate)

• Delays in filing or remittance (missed deadlines or incorrect form used)

Solutions

• Confirm the correct withholding tax type and rate for common payments

• Use a payroll and accounting process that consistently applies the same tax mapping

• Keep track of filing deadlines and required forms (monthly, quarterly, and annual)

8. Best practices (to help keep compliance consistent)

• Keep updated employee and supplier records (name, TIN, registration details)

• Use a consistent computation format for invoices and payments (gross, VAT, withholding, net)

• Monitor withholding tax certificates issuance and keep them organised

• Review tax filings regularly to ensure they match accounting records

9. Conclusion

Managing your tax obligations end-to-end yourself in the Philippines is not always a good idea, considering the complexity of the tax system in the country. For most growing companies, it often makes more sense to focus on your core business and outsource finance and tax requirements to qualified modern finance professionals.

This blog article does not constitute professional or legal advice. It is only intended to provide general information on a subject.