Online transactions and withholding tax in the “new normal”

How to do the withholding and how to compute the withholding tax?

By withholding, it means that you will hold off payment of certain percentage of the amount to them, and remit it to the BIR. Example, assuming you are top withholding agent, and you purchase P20,000 (VAT exempt) worth of merchandise online, on a cash-on-delivery basis. You need to withhold 1% or P200 on your payment to the vendor.

You also need to include it in the amount for remittance to the BIR on a monthly basis, and include it to your quarterly filing of expanded withholding tax return, with and in the alphabetical list (alphalist).

Here’s how you compute for the withholding tax in different scenarios:

  • Invoice is includes VAT: Tax = (Invoice Amount /1.12) x Tax %
  • Invoice includes bill or other deposits: Tax = (Invoice Amount – Deposit) x Tax %
  • Invoice includes bill or other deposits and VAT: Tax = [(Invoice Amount – Deposit)/1.12] x Tax %
  • Invoice includes bill or other deposits, non-taxable service charge, local tax and VAT: Tax = [(Invoice Amount – Deposit – SC – LT)/1.12] x Tax %

There actually many more scenarios but the context is the same – remove the VAT and other non-taxable components before subjecting the “income payment” component to withholding tax.

For loan payments with interest, only interest payment is subject to withholding tax. However, of gross receipt (GRT) tax is passed on to the borrower, such GRT should be subjected to withholding tax as well.

For security agencies, only the admin fee is subject to withholding tax, by virtue of a special law favoring them. Manpower and other agencies are not subject to the same privilege.

Are there exemptions to withholding?

Glad you ask! Yes, there are exemption to withholding but are mostly related to the exemption your vendor, and not you as withholding agent. For example, even if you are not a top withholding agent, you are required to withhold on payment to contractors, etc.

But what if the contractor you engaged is not subject to tax under the Barangay Micro Business Enterprise (BMBE)? Businesses under the BMBE program of the Department of Trade and Industry enjoy tax exemption in the first three (3) years and are, therefore, exempt from withholding tax during that period, which can be extended.

Other exemption from withholding taxes are:

  • Marginal income earners (earning less than P100,000 annually)
  • Individual payees whose total income is less than P250,000 from lone income payor
  • General professional partnerships
  • Those exempt from income tax under special laws (e.g. BMBE, PEZA, BOI, CDA, etc.)
  • Those subject to preferential tax rates under special laws (e.g. PEZA, BOI)

There are other exemptions set out in various laws and regulations but the key here is that – when a business is exempt from income tax, they are consequently exempt from withholding tax.

Filing of monthly, quarterly and annual withholding tax returns

The obligation to withhold is, of course, coupled with the obligation to file tax returns and remit the taxes withheld. Consequently, following are the filing and payments required for withholding tax agents:

TimingBIR FormMode of SubmissionDeadline
Monthly (except 3rd month of the quarter)0619-E– EFPS
– Electronic and Manual
– EFPS – 11th to 15th of the ff month (depending on category)
– Electronic & manual – 10th of the ff month
Quaterly1601-EQ– EFPS
– Electronic and Manual
– EFPS – last day of the month ff the quarter
– Electronic & manual – last day of the month ff the quarter
Alphalist of payees (1601-EQ)e-SubmissionSame with 1601-EQ
Annually1604-E– EFPS
– Electronic and Manual
March 1 of the succedding year
Alphalist of payees (1604-E)e-SubmissionSame with 1601-EQ

Filing and payment deadlines vary depending on the mode of submission. The BIR also allows different mode of payments. Following are the payment deadlines for the above returns:

BIR FormPayment DeadlineMode of Payment
0619-E15th of the ff month
– Electronic & manual – 10th of the ff month
– EFPS – Bank transfer
– Electronic & manual – thru AAB, Gcash, Paymaya, ebanking & credit card
1601-EQ– EFPS – last day of the month ff the quarter
– Electronic & manual – last day of the month ff the quarter
– EFPS – Bank transfer
– Electronic & manual – thru AAB, Gcash, Paymaya, ebanking & credit card
Alphalist of payees (1601-EQ)N/AN/A
Alphalist of payees (1604-E)N/AN/A

We’ll provide more insights on the ways to pay taxes including step-by-step procedures, so stay tuned!

Tips, other matters and questions

We’ll be publishing more articles related to withholding taxes to help online and other business understand their obligations related to this and help them comply. Well also discuss extensively some tips in filing, paying withholding tax returns, as well as the issuance of the BIR Form 2307 in the next articles.

Meanwhile, if you have questions, feel free to write them down in the comments section and we’ll pick them up for the next article/s.

Withholding tax is actually simple in the sense that it is only computed as a percentage of an income payment. However, due to the varying rates applicable to different transactions, other taxes related to the transactions and different laws subjecting or exempting companies from tax, it’s not convenient to comply with.

We suggest that you seek professional or expert help if you are not sure or have questions on the matter. It may not always be cost-effective, but isn’t compliance still better than sorry?

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