BIR rulings on showing withholding tax on receipts (Philippine context)

Executive summary

In the Philippines, the Bureau of Internal Revenue (BIR) has consistently held—through its rulings, circulars, and long-standing audit practice—that sales invoices/official receipts (SIs/ORs) must show the full gross selling price or professional fee, and that any withholding tax (WHT) is a separate statutory deduction by the payor. You may show WHT on the face of the SI/OR as a memorandum line to reconcile the net cash to be collected, but it must not reduce the gross amount for sales or VAT purposes, and it is never a substitute for the BIR withholding certificate (Form 2306 for final, Form 2307 for creditable).

Below is a practitioner’s guide to “everything you need to know” on the topic—grounded in the National Internal Revenue Code (NIRC) and consistent BIR positions.

Legal framework (what the law requires)

Withholding at source: NIRC Sec. 57–58 require certain payors to withhold tax, file returns, and remit the tax.
Invoicing/receipting:
- Sec. 113 (VAT) sets invoicing rules for VAT-registered taxpayers (what must appear and how VAT is shown).
- Sec. 237 requires the issuance of receipts/invoices and prescribes their mandatory contents (e.g., TIN, business name, date, quantity/description, unit cost/amount, VAT details if applicable).
Documentary proof of withholding:
- BIR Form 2307 — Certificate of Creditable Tax Withheld at Source.
- BIR Form 2306 — Certificate of Final Tax Withheld at Source. These certificates—not the SI/OR—are the legal proof of taxes withheld.

What BIR rulings and practice consistently say about putting WHT on receipts

Gross must be shown; WHT is not a discount. The SI/OR must present the full contract price/fee (and VAT, if any). WHT may be listed below as “to be withheld by customer,” but it does not reduce sales or the VAT base.
It’s allowed to show WHT as a memorandum line. BIR has repeatedly allowed the notation “Less: Creditable Withholding Tax (xx%)” or similar on the SI/OR for collection clarity only. Think of it as a cash reconciliation line, not part of the price computation.
Output VAT is computed on the gross selling price/fee. For VAT-registered sellers, output VAT follows the gross amount (subject to regular zero-rating/exemption rules). The presence of a “less: WHT” line must not alter VAT computation.
The SI/OR is not the evidence of WHT—Form 2306/2307 is. You cannot claim WHT credits (or prove final withholding) using an SI/OR note. The certificate is required for tax crediting or proof of finality.
Net-only receipts are risky. Issuing an SI/OR that shows only the net after WHT (without disclosing the gross and VAT, if any) can result in:
- Invoicing violations and penalties;
- Understatement of sales/output VAT assessments; and
- Disallowance of the buyer’s input VAT (for VAT purchases) due to invalid documentation.
Government payments (special VAT/WHT mechanics). For sales to the government, 5% final VAT is withheld at source and 1%/2% creditable income tax may also be withheld, depending on the transaction. It is common and acceptable to show both deductions on the SI/OR for settlement purposes, but gross sale and 12% VAT must still be displayed; the 5% is final VAT (not a credit), and income tax WHT is creditable via Form 2307.
Non-VAT taxpayers (percentage tax or exempt). WHT, if applicable, is still withheld on the gross amount. Showing a “less: WHT” line is optional and purely informational; it does not change percentage-tax or income-tax computations.
Electronic invoicing/e-receipts (EIS). BIR-mandated e-invoicing requires transmission of gross amounts (and VAT details for VAT-registered taxpayers). Where systems allow, WHT may appear in “other deductions/memo” fields so the net payable matches the client’s remittance, without altering reported gross sale/VAT.

Practical formats you can use (compliant structure)

A. Private-sector sale (VAT-registered seller)

Professional Fee / Contract Price (exclusive of VAT): ₱xxx,xxx.xx
Add: 12% Output VAT: ₱xx,xxx.xx
Total Amount Payable (Gross): ₱xxx,xxx.xx
Memo: Less: Creditable WHT (per Sec. 57–58), to be withheld by customer: ₱x,xxx.xx
Net Cash to be Received: ₱xxx,xxx.xx

Notes:

Books and VAT returns must recognize the gross and full output VAT.
The Form 2307 must be obtained and booked separately as CWT receivable (asset).

B. Government sale (VAT-registered seller)

Selling Price (exclusive of VAT): ₱xxx,xxx.xx
Add: 12% Output VAT: ₱xx,xxx.xx
Total Amount Payable (Gross): ₱xxx,xxx.xx
Memo: Less: 5% Final Withholding VAT (Government): ₱xx,xxx.xx
Memo: Less: Creditable WHT on income (1%/2%, as applicable): ₱x,xxx.xx
Net Cash to be Received: ₱xxx,xxx.xx

Notes:

The 5% FVAT is final; the seller’s VAT on that sale is considered settled via withholding under the special rules for government purchases.
The income-tax WHT is creditable via Form 2307.

Bookkeeping and tax reporting (seller’s perspective)

A. Regular (creditable) WHT on private-sector sale

At billing/issuance of SI/OR
- Dr Accounts Receivable — Gross (incl. VAT if VAT-registered)
- Cr Sales/Service Income — Gross (exclusive of VAT)
- Cr Output VAT — (if VAT-registered)
Upon collection (net of WHT)
- Dr Cash — Net received
- Dr Creditable WHT Receivable — Per 2307
- Cr Accounts Receivable — Gross
At income tax filing
- Apply accumulated CWT (supported by Form 2307 and SAWT listing) against income tax due.

B. Government sale with 5% final withholding VAT

At billing (same as above: recognize gross sale and 12% output VAT).
Upon collection
- Dr Cash — Net received
- Dr Creditable WHT Receivable — for the income-tax WHT
- (The 5% FVAT is not a creditable asset; treat per your VAT control/clearing consistent with final VAT rules.)
- Cr Accounts Receivable — Gross

Tip: Keep a separate subsidiary ledger for CWT Receivable (2307). For VAT on government sales, ensure your VAT relief schedules and returns reflect the special final VAT treatment so you don’t double-pay or misclaim input VAT.

What not to do (common audit findings)

Do not issue receipts showing only net after WHT.
Do not treat WHT like a cash discount or reduce your reported sales/fees or output VAT because of it.
Do not claim a WHT credit without the corresponding Form 2307 (for creditable) or 2306 (for final).
Do not rely on an SI/OR note in lieu of the BIR certificate.
Do not forget to reconcile CWT receivable with A/R and collected certificates each quarter.

Buyer’s perspective (quick notes)

If you are required to withhold, withhold on the gross (exclusive of VAT for income-tax WHT, unless a rule says otherwise), remit on time, and issue Form 2306/2307 to the seller.
For VAT-registered buyers, you may claim input VAT per regular rules if the supplier’s SI/OR is valid (complete required details) and the purchase is VAT-allowable. A net-only SI/OR risks input VAT disallowance.

FAQs

Is it legal to print the withheld amount on the receipt? Yes—as an informational/memo line. The gross must still be presented, and VAT must be computed on the proper base.

Is it required to print the withheld amount? No. What’s required is a proper SI/OR (Sec. 113/237). WHT proof is Form 2306/2307.

Can I claim WHT credits using the receipt alone? No. You need the BIR certificate (2307 for creditable; 2306 for final).

What about top withholding agents and the common 1% (goods)/2% (services) rates? Those are creditable income-tax WHT examples. You may show them on the SI/OR as a memo but report gross sales and full output VAT where applicable.

How does this work for non-VAT sellers? Same idea: show gross, optionally show less: WHT as memo for the net cash, and rely on Form 2307 to claim the credit against income tax.

We sell to government and they insist on seeing both 5% final VAT and 1%/2% WHT on our receipt. Is that okay? Yes. Just ensure the gross and 12% VAT appear and that your VAT reporting follows the special final VAT rules for government sales.

Model language you can add to your SI/OR (optional)

“Less: Creditable Withholding Tax of ₱____ (to be withheld and remitted by the customer under Secs. 57–58, NIRC). This line is for settlement information only and does not reduce the gross sale or VAT.”

For government sales: “Less: 5% Final Withholding VAT ₱____ and Less: Creditable WHT on income ₱____. Gross sale and 12% VAT shown above; deductions are withholdings by the government per applicable rules.”

Compliance checklist

SI/OR shows gross amount, VAT details (if VAT-registered), and all mandatory particulars.
Any WHT is shown only as memo (optional).
2307/2306 on file for every transaction with WHT.
Books record gross, with CWT receivable tracked separately.
E-invoicing system transmits gross and treats WHT as memo/other deduction field.
Regular reconciliation of A/R vs. CWT certificates and quarterly/annual returns.

Final word

Including withholding tax amounts on receipts is permissible as a clarifying memo, not as a reduction of the sale or VAT. Keep your SI/ORs compliant, rely on BIR certificates to evidence WHT, and align your books accordingly. If you have a unique contract structure (e.g., success fees, pass-through costs, or hybrid VAT treatments), get professional tax advice to tailor the wording and the bookkeeping.