Professional Fee Withholding Tax in the Philippines

Professional Fee Withholding Tax

If you’re a professional in the Philippines, you need to know about the Professional Fee Withholding Tax (PFWT). This tax applies to any fees or other payments you receive for your services, and it’s essential to know how to calculate and pay it correctly.

This blog post will give you an overview of the PFWT and show you how to file your taxes correctly. Let’s get started!

What is Professional Fee Withholding Tax?

The Professional Fee Withholding Tax is a tax on payments made for professional services rendered by individuals engaged in a business or profession. The tax is withheld by the payer when the payment is made, and it is remitted to the Bureau of Internal Revenue (BIR) along with the payer’s other tax obligations.

Who is Required to Pay Professional Fee Withholding Tax?

The Professional Fee Withholding Tax applies to any individual who renders professional services and is engaged in a business or profession.

  • Doctors, lawyers, accountants, engineers, and architects.
  • Professional entertainers such as, but not limited to actors and actresses, singers, lyricists, composers, emcees
  • Professional athletes, including basketball players, pelotaris, and jockeys
  • All directors and producers involved in movies, stage, television, and musical productions
  • Management and technical consultants
  • Business and Bookkeeping agents and agencies
  • Insurance agents and insurance adjusters
  • Fees of Director who are not employees of the company

Related: How To Register in BIR as a Freelancer Guide 2021

How is Professional Fee Withholding Tax Calculated?

The Professional Fee Withholding Tax is calculated at a rate of 5%-15% of the gross payment, depending on the type of professional services rendered. The tax is withheld by the payer when the payment is made, and it is remitted to the Bureau of Internal Revenue (BIR) along with the payer’s other tax obligations.

  • Professional fees rendered to individuals are subject to five percent (5%) if the annual gross income is less than three million (3M).
  • Professional fees rendered to an individual are subject to ten percent (10%) if the annual gross income is more than three million (3M) or to a VAT registered person regardless of the amount.
  • Professional fees rendered to a corporation or partnership are subject to fifteen percent (15%) if the gross income exceeds seven hundred twenty thousand (720,000).
  • However, if the professional fees rendered to a corporation are less than seven hundred twenty thousand (720,000) is subject to ten percent (10%) expanded withholding tax. 

The Alphanumeric Tax Code (ATC) for filing professional withholding tax is WI010 to WI091 for services rendered to individuals. On the other hand, ATC for corporations filing professional tax is WC010 to WC081, depending on the professional services rendered. 

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If you want the 5% tax deduction for individuals or 10% for businesses, you need to give a sworn statement to the BIR. It is called Annex “B-1” for individuals or Annex “B-3” for businesses. You also need to provide a Certificate of Registration in the Philippines or BIR Form No. 2303 to withholding agents or payors. If that is sooner, you must do it by January 15 of each year or before the first payment. If your income is more than 3 million pesos, use Annex “B-2”.

What Are The Obligations Of The Withholding Agents For Professional Fee Withholding Tax?

File A Sworn Declaration

You must file a sworn declaration with the BIR by January 30. It is so you can tell the BIR how many people have given them copies of their BIR Certificate of Registration.

The BIR has launched an aggressive campaign to monitor and tax medical fees charged by practitioners. All hospitals, clinics, or similar establishments must keep a sworn declaration that you charged no professional fee for services rendered in their records. They must report this information to the authority within 10 days if they find any such situation during tax assessment proceedings.

File Monthly Withholding Tax

You must file a Monthly List of Withholding Agents of Income Taxes (BIR Form No. 1601-E) and pay the tax withheld on or before the 10th day of each succeeding month.

If your employer is not using an electronic filing system or EFPS, then they must do so within 10 days of the end date for each month’s applicable quarter according to BIR Form No 0619E for their payments not to be late!

Related: New Percentage Tax – FAQs under CREATE Law

File Quarterly Withholding Tax

If your employer is using an electronic filing system or EFPS, they must do so within 10 days of the end date for each month’s applicable quarter according to BIR Form No 0619E for their payments to not be late!

File Annual Withholding Tax

You must file and pay withholding taxes on professional fees every quarter using BIR Form No. 1601EQ. You must also include a list of your payees on this form. The deadline for filing is the last day of the month, following the end of each quarter.

Issue Withholding Tax Statement

You must give a withholding tax statement to income payees in the Philippines or BIR Form No. 2307 within 20 days from the end of each quarter or every time you make a payment and withhold taxes from the request of the income payee.

File Annual Information Return

You need to file a BIR Form 1604E every year by March 1. This tells the government how much you withheld tax from people’s paychecks. You also have to include an annual list of payees on this form.

As a Professional, What Are Your Obligations?

Register with the BIR

You need to get a Certificate of Registration from the BIR, which you can do by filling out BIR Form No. 1901. You only need to register once and use this registration certificate for all future tax filings.

Related: What You Need to Know About the New BIR Form No. 2551Q

File Income Tax Return

You must file an annual income tax return (BIR Form No. 1700) by April 15. This is to report your total income for the year and calculate how much tax you owe. Please ensure you track your income and expenses throughout the year to report them on your tax return accurately.

Pay Taxes Owed

If you owe taxes, you must pay them by the April 15 deadline. You can do this by filing BIR Form No. 0605 and paying the amount owed at any authorized bank or payment center.

As a Professional, What Are The Penalties If You Don’t Comply With Your Tax Obligations?

Failure to file your income tax return

You will be fined PHP 5,000 each year you fail to file your income tax return.

Failure to pay taxes owed

You will be charged interest at a rate of 20% per year on the unpaid amount, plus a penalty of 5% of the due amount for each month it remains unpaid.

Failure to withhold and remit taxes

You will be fined PHP 10,000 each year you fail to withhold and remit taxes. In addition, you will be charged interest at a rate of 20% per year on the unpaid amount, plus a penalty of 5% of the due amount for each month that it remains unpaid.

Failure to file withholding tax returns

You will be fined PHP 1,000 for each return you fail to file. In addition, you will be charged interest at a rate of 20% per year on the unpaid amount, plus a penalty of 5% of the due amount for each month that it remains unpaid.

Failure to give withholding tax statements to payees

You will be fined PHP 1,000 for each piece of information you fail to give to a payee. In addition, you will be charged interest at a rate of 20% per year on the unpaid amount, plus a penalty of 5% of the due amount for each month that it remains unpaid.

Conclusions

As a professional in the Philippines, you must know your tax obligations. Failure to comply with these obligations can result in hefty fines and penalties. Be sure to register with the BIR, file your income tax return, pay any taxes, and withhold and remit taxes from your payees. Give withholding tax statements to your payees every quarter. Lastly, please file your annual information return by March 1.

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