You could say our country’s tax system is an ongoing work in progress—but that’s because the government is always looking for ways to make the tax system easier, fairer, and more efficient.
That’s why the government came up with the Tax Reform for Acceleration and Inclusion or TRAIN Law, which comes with something called Expanded Withholding Tax or EWT.
Not everybody is required to file and pay EWT, but depending on what you do as a freelancer or solopreneur, there’s a chance you might be included in the list of those who have to. If you are on that list, you become what the BIR calls a Withholding Agent. Read on to find out whether EWT applies to you.
Who has to pay EWT?
Here’s a summary of the items that are covered by EWT, and who has to file and pay EWT based on the TRAIN Law.
- Payment for services rendered, such as Gross Professional Fees, Talent Fees, Promotional Fees
- Individual payee: 5% of your gross income for the current year provided it did not exceed ₱3 Million
- Non-individual payee (like if you have a business partner): 10% of the gross income if the income for the current year did not exceed ₱720,000; 15% if it exceeded ₱720,000
- Who are covered?
- Individuals engaged in the practice of profession or calling including lawyers, architects, engineers, CPAs, medical practitioners, and all other professions that require government licensure examination regulated by the Philippine Regulations Commission, Supreme Court, etc.
- Professional entertainers
- Professional athletes
- Directors and producers,
- Insurance agents and adjusters
- Corporate directors
- Selected brokers and agents
- Company sales representatives or marketing agents.
Take note: If you’re one of the above, you’ll need to submit to the BIR a sworn declaration of your gross receipts/sales along with a copy of your BIR Certificate of Registration not later than January 15 of the year before you received your professional fees or payment for your services.
- Real properties: 5% of the gross rental
- Personal properties: 5% of the gross rental/lease in excess of ₱10,000 annually
- Poles, satellites, transmission facilities: 5% of the gross rental
- Billboards: 5% of the gross rental
- Cinematographic film rentals and other payments: 5% of the gross payments
- Payments to certain contractors: 2% of the gross payments to the following contractors, whether individual or not:
- General engineering contractors
- General building contractors
- Specialty contractors
- Other contractors
Take note: You may refer to RR 11-2018 for the description and complete list of contractors.
- Income distribution to the beneficiaries of estates and trusts: 15% of the income, which basically applies to income earned by heirs or beneficiaries of someone who has passed away
- Payments to partners of general professional partnerships:15% of the income payments made by a general professional partnership to each of the partners if the gross income for current year exceeds ₱720,000. If the income is less than ₱720,000, a 10% rate will apply.
- The sale, exchange, or transfer of real property classified as an ordinary asset: A creditable withholding tax based on the gross selling price/total amount or the fair market value shall be imposed based on the following:
- If seller/transferor is exempted from creditable withholding tax based on Sec. 2.57.5 (e.g. HLURB socialized housing)
- If seller/transferor is habitually engaged in the real estate business, tax will be imposed upon the following values:
– With a selling price of ₱500,000 or less: 1.5%
– With a selling price of more than ₱500,000 but not more than ₱2,000,000: 3%
– With a selling price of more than ₱2,000,000: 5%
- If the seller/transferor is NOT habitually engaged in the real estate business: 6%
- Certain income payments made by credit card companies: One-half of 1% of the gross amounts paid by a credit card company to you for the sales of goods or services made by the company to a cardholder
- Payment made by top withholding agents as classified and identified by the BIR.
- For supplier of goods: 1%
- For supplier of services: 2%
Take note: Top withholding agents include large taxpayers and the top 5,000 individuals. If you’re a Medium Taxpayer or someone identified under the Taxpayer Account Management Program (TAMP), you’ll have to pay EWT, too.
- Payments made by government offices, agencies, instrumentalities, and GOCCs to local suppliers of goods and/or services.
- For supplier of goods: 1%
- For supplier of services: 2%
- Gross processing/tolling fees paid to sugar refineries for the conversion of molasses to its by-products, and conversion of raw sugar to refined: 5%
- Gross payments to funeral parlors made by pre-need companies :1% tax for funeral services rendered.
- Gross payments made to embalmers: 1% tax for embalming services rendered to funeral companies.
- Payments made by an establishment to suppliers of agricultural products: 1% of the amount in excess of the cumulative amount of ₱300,000 within the same taxable year.
- Agricultural suppliers include sellers of agricultural, forest and marine food and non-food products, livestock and general poultry, breeding stock, and the like.
- Establishments shall include hotels, restaurants, caterers, resorts, canneries, food processors, supermarkets, agricultural product dealers, and the like.
- Payments made for the purchase of minerals, mineral products, and quarry resources, including silver, gold, marble, gravel, granite, sand, boulders, and other products: 5%, but take note that the BSP is required to withhold 1% of gross payments made and remit this to the government
- MERALCO interest payments or refunds
- For refunds
– With active contracts:25%
– Without active contracts: 32%
- For interest income on meter deposits
– Residential/General service customers: 10%
– Non-resident service customers: 20 %
- Refunds by other electric distribution utilities: 10% / 20%.
- Payments for goods or services related to campaign expenditures by political parties and candidates of local and national elections, as well as payments made by individuals/juridical entities on the purchase of goods/services intended to be given as campaign contributions: 5% of gross contribution
- Interest income derived from other debt instruments that are not within the coverage of “deposit substitutes” under tax laws: 20%
- Payments made by proprietors or operators of sugar mills or refineries, and direct buyers from sugar planters on locally produced raw sugar or molasses: 1%
What forms do I need to file for EWT?
If you find yourself or your services as a solopreneur or freelancer on the list above, here’s a list of the BIR forms that you’ll need to file every quarter:
- Monthly Remittance Form of Creditable Income Taxes Withheld (Form No. 0619E) – 1st month of the quarter
- Monthly Remittance Form of Creditable Income Taxes Withheld (Form No. 0619E) – 2nd month of the quarter
- Quarterly Remittance Form of Creditable Income Taxes Withheld and Quarterly Alphalist of Payees – (Form No. 1601EQ and QAP) – 3rd month of the quarter
- Annual Information Return of Creditable Income Taxes Withheld (Form No. 1604E) – on or before March 1 after the taxable year
You can file these forms using eBIRForms or eFPS, and pay using eFPS or at an Authorized Agent Bank (AAB) of your RDO.
Do you need help figuring out whether EWT applies to you? Ask an accountant from one of our Partner Firms, today.