Expanded Withholding Tax in the Philippines
Last Updated: June 13, 2026
A mandatory tax withheld by payers on certain payments (professional fees, rent, interest, dividends) before remitting funds to recipients, reducing their net cash received.
What is Expanded Withholding Tax (EWT)?
Expanded Withholding Tax (EWT) is a system under the Philippine tax code where a payer withholds a portion of payment due to a payee and remits it directly to the Bureau of Internal Revenue (BIR). The payee receives the net amount after withholding. EWT applies to specific types of income including professional fees, rental income, interest, dividends, and certain business transactions (NIRC §57A, as amended by RA 10963 TRAIN Law).
Legal Basis and Scope
EWT is governed primarily by NIRC §57A and implemented through various BIR Revenue Regulations. The TRAIN Law (RA 10963, effective 1 January 2018) expanded the scope of EWT to cover more transaction types. The current rates and coverage are detailed in RR 2-2018 and subsequent circulars. EWT is distinct from other withholding taxes like income tax withholding on salaries (NIRC §79) and is mandatory for all covered transactions regardless of the payee's tax status.
EWT Rates by Category
EWT rates vary by type of income and payer status. For professional fees paid by corporations or partnerships, the rate is 1.5% (NIRC §57A(a)). For rental income, the rate is 5% on gross rental receipts (NIRC §57A(b)). Interest income is subject to 20% EWT (NIRC §57A(c)). Dividends from domestic corporations are subject to 10% EWT (NIRC §57A(d)). Royalties and other payments have varying rates depending on the nature of the transaction. Government agencies and certain exempt entities may have different withholding obligations.
Who Must Withhold?
Corporations, partnerships, and individuals engaged in business are required to withhold EWT on covered payments. Government agencies, local government units, and government-owned corporations also have withholding obligations. Financial institutions withhold on interest and dividend payments. The payer's responsibility is non-delegable; failure to withhold and remit results in penalties and interest charges (NIRC §248, RR 2-2018).
Crediting and Remittance
The withheld EWT is credited against the payee's annual income tax liability. If the total withholding exceeds the tax due, the excess may be refunded or carried forward to the next taxable year (NIRC §76). Payers must remit withheld amounts to the BIR within prescribed periods, typically by the 10th of the following month (RR 2-2018). Failure to remit results in surcharge of 25% plus interest at 12% per annum (NIRC §248).
Exemptions and Special Cases
Certain payments are exempt from EWT, including payments to government agencies, international organizations, and specific entities under tax treaties. Payments to individuals for personal services may have different treatment. Non-resident foreign nationals and overseas Filipino workers (OFWs) have special EWT provisions. Withholding is not required on payments below certain thresholds or on transactions specifically exempted by BIR circular (RR 2-2018, BIR Circular 86-2018).
Documentation and Compliance
Payers must issue a Certificate of Withholding Tax Paid (BIR Form 2307) to the payee within 10 days after the end of the month of withholding. The payee uses this certificate to claim the withholding as a tax credit. Both payer and payee must maintain records for audit purposes. Annual EWT returns are filed with the BIR as part of the corporate or individual income tax return (NIRC §119, RR 2-2018).
Why it Matters
EWT directly reduces the cash you receive from professional work, rental income, or business transactions. Understanding EWT rates, exemptions, and how to claim credits ensures you don't overpay taxes and can properly reconcile your income tax liability. For businesses, correct EWT withholding and remittance is mandatory to avoid penalties and maintain BIR compliance.
Examples
01Professional Consultant Receiving Corporate Payment
02Rental Income from Commercial Property
03Interest Income from Bank Deposit
04Dividend Income from Domestic Corporation
05Small Business Below Threshold
Common Misconceptions
Misconception
EWT is an additional tax on top of my annual income tax.
Reality
EWT is a prepayment of your income tax liability. The amount withheld is credited against your final tax due; you only pay the difference (NIRC §76).
Misconception
If I receive a BIR Form 2307, I don't need to report that income on my tax return.
Reality
You must report the full gross income on your return and claim the EWT as a credit. The BIR matches your reported income with the withholding certificates (NIRC §119).
Misconception
All payments to individuals are subject to EWT.
Reality
EWT applies only to specific categories of income (professional fees, rent, interest, dividends, etc.) and only when the payer is a corporation, partnership, or business entity. Payments between individuals are generally not subject to EWT (NIRC §57A).
Misconception
I can claim a refund of EWT immediately after receiving the withholding certificate.
Reality
You claim EWT as a credit on your annual income tax return. Refunds are processed only after the BIR reviews your return and confirms excess withholding (NIRC §76, RR 2-2018).
Frequently Asked Questions
Income tax withholding on salaries (NIRC §79) applies to employee compensation and is based on tax tables. EWT (NIRC §57A) applies to specific non-employment income like professional fees, rent, and interest. EWT rates are fixed percentages; salary withholding varies by income level and exemptions.
If you have no other income and EWT is your only tax paid, you may still file a return to claim a refund of excess withholding. Non-filers cannot claim refunds. Consult your RDO to determine if filing is required (NIRC §76, RR 2-2018).
Report the gross income in the appropriate schedule of your return (Schedule 1A for business income, Schedule 2 for professional fees, etc.). List the BIR Form 2307 and claim the withheld amount as a tax credit in the credits section. The BIR matches your reported income with withholding certificates (NIRC §119).
No. Payments to government agencies, local government units, and certain exempt organizations are not subject to EWT. The payer must verify the payee's exempt status before processing payment without withholding (NIRC §57A, RR 2-2018).
EWT must be remitted to the BIR by the 10th of the month following the month of withholding. Late remittance incurs surcharge of 25% plus interest at 12% per annum (NIRC §248, RR 2-2018).
Generally, EWT is required only when the payer is a corporation, partnership, or business entity. Payments between individuals (sole proprietors) may not trigger EWT unless the payer is VAT-registered or the transaction falls under specific BIR rules. Consult your RDO for your specific situation (NIRC §57A, RR 2-2018).
No. EWT withholding is mandatory for covered transactions and cannot be waived by agreement between payer and payee. The payer's obligation to withhold and remit is non-delegable and enforced by the BIR (NIRC §57A, RR 2-2018).
In Practice
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Corporations and businesses must implement EWT systems in their accounting and payables processes to ensure timely and accurate withholding and remittance to the BIR.
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Freelancers, consultants, and service providers should request BIR Form 2307 from every corporate client to document withholding and claim tax credits.
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Rental property owners must coordinate with tenants to ensure proper 5% EWT withholding and obtain certificates for annual tax filing.
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Banks and financial institutions automatically withhold 20% EWT on interest and 10% on dividends; depositors should verify withholding on their statements.
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Non-compliance with EWT remittance triggers BIR assessments, surcharges of 25%, and interest at 12% per annum, making timely remittance critical for businesses.
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Glossary Terms
Sources & References (2)
Primary sources and the laws, regulations, and official issuances this page relies on. Each citation links directly to the issuing authority’s document.
- Bureau of Internal Revenue. “BIR RR 2-98 as amended (expanded withholding tax) — rates schedule.” bir.gov.ph. Bureau of Internal Revenue, RR 2-98 as amended (EWT). Accessed .