Expanded withholding tax on manpower agency services is a common source of confusion in the Philippines because many invoices include several moving parts: agency fee, salaries of deployed workers, SSS, PhilHealth, Pag-IBIG contributions, VAT, and sometimes reimbursable costs. For most manpower, janitorial, clerical, messengerial, general maintenance, and similar service contractors, the practical rule is this: the client usually withholds 2% expanded withholding tax (EWT) on the taxable gross service payment to the manpower agency, remits it to the BIR, and issues BIR Form 2307 so the agency can claim the amount as a tax credit.

What expanded withholding tax means in simple terms

Expanded withholding tax, also called creditable withholding tax or EWT, is not a separate tax added on top of the invoice. It is an advance income tax collected at source.

In a manpower service transaction:

The manpower agency bills the client.
The client deducts the applicable withholding tax from the amount payable.
The client remits the withheld tax to the Bureau of Internal Revenue.
The client issues BIR Form 2307 to the agency.
The manpower agency uses the withheld amount as a tax credit when it files its income tax return.

So if the agency’s taxable service billing is ₱100,000 and the applicable EWT is 2%, the client withholds ₱2,000. The agency receives the net cash payment, but the ₱2,000 is not “lost”; it is evidence of tax already paid on its behalf, supported by BIR Form 2307.

Legal basis for EWT on manpower agency services

The main legal authority is Section 57(B) of the National Internal Revenue Code (NIRC), as amended, which allows the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, to require creditable withholding tax on income payments to persons residing in the Philippines, at a rate not exceeding 15%. Republic Act No. 12066, or the CREATE MORE Act, further updated the creditable withholding tax language in Section 57. (Lawphil)

The timing rule is also important. Under Section 58(C) of the NIRC, as amended by Republic Act No. 11976, or the Ease of Paying Taxes Act, the obligation to deduct and withhold arises when the income has become payable. The same law states that taxes withheld under the Tax Code and implementing rules are treated as trust funds and should not be mixed with the withholding agent’s own funds. (Lawphil)

For the rate, the current BIR Form 1601-EQ schedule lists “Income payments to certain contractors” at 2%, with ATC WI120 for individual payees and WC120 for corporate payees. In ordinary manpower agency arrangements, the agency is usually a corporation, so the commonly used ATC is WC120, but the correct code should still be checked against the agency’s registration, invoice, and the nature of the payment.

Is the EWT rate on manpower agency services 2%?

Yes, in the usual case, payments to manpower agencies are subject to 2% creditable withholding tax as payments to certain contractors.

This usually covers service providers such as:

manpower agencies;
janitorial service agencies;
messengerial service providers;
clerical support agencies;
general maintenance service providers;
outsourced personnel service contractors; and
other similar contractors supplying labor-related services.

The BIR has specifically addressed this issue in the manpower context. In Revenue Memorandum Circular No. 26-2009, the BIR revoked a regional ruling that allowed a manpower service provider to exclude salaries and benefits from the 2% withholding tax base. The circular emphasized that the basis of withholding tax is gross income “without any qualification” and revoked inconsistent rulings. (Supreme Court E-Library)

What amount should be subject to 2% EWT?

For many practical invoice computations, the 2% EWT is applied to the VAT-exclusive taxable service amount. If the manpower agency is VAT-registered, the 12% VAT line is generally not treated as income of the agency for EWT computation. If the agency is non-VAT, the full non-VAT service billing is usually the starting base.

The harder issue is whether salaries, mandatory government contributions, and worker benefits included in the manpower agency’s billing should be excluded. For ordinary manpower agencies, the conservative and commonly enforced BIR position is that these amounts form part of the gross payment to the agency when the agency is the employer of the deployed workers and the billing forms part of the service contract price.

Practical example: VAT-registered manpower agency

Item	Amount
Salaries, benefits, agency fee, and other taxable service charges	₱500,000
12% VAT	₱60,000
Total invoice amount	₱560,000
2% EWT on ₱500,000	₱10,000
Net cash payable to agency	₱550,000

In this example, the client pays ₱550,000 to the manpower agency and remits ₱10,000 to the BIR as EWT. The agency should receive BIR Form 2307 showing the income payment and the ₱10,000 tax withheld.

Agency fee only vs. full manpower billing

A common mistake is to withhold 2% only on the agency fee, while ignoring the salary and benefit components. This is risky for ordinary manpower service arrangements.

The BIR’s RMC No. 26-2009 was issued precisely because a manpower agency sought to exclude amounts “segregated or earmarked” for salaries and other benefits. The BIR rejected that approach and revoked the ruling that allowed it. (Supreme Court E-Library)

In practice, a client should be careful before accepting the argument that only the “management fee” or “agency fee” is subject to EWT. The safer approach is to check:

Who is the legal employer of the deployed workers?
Who has the primary obligation to pay wages and benefits?
Is the amount a true reimbursement paid on behalf of the client, or part of the contractor’s service price?
Does the contract clearly segregate VAT, EWT, payroll costs, and pass-through amounts?
Is there a specific BIR ruling or issuance that applies to the exact arrangement?

Are security agencies treated the same way?

Not always. Security agencies have a special history under BIR issuances because of the legal framework governing private security services. Revenue Memorandum Circular No. 39-2007 has been discussed as applying specifically to security agencies, not automatically to janitorial, clerical, messengerial, or general manpower service providers.

That distinction matters because some taxpayers try to apply security-agency treatment to all manpower contractors. BIR and tax practitioners have repeatedly treated ordinary manpower service contractors differently from security agencies, especially where the service contractor remains the employer and has the primary obligation to pay the workers.

For ordinary manpower agencies, do not assume that a security agency rule applies unless the facts and the governing BIR issuance clearly support it.

Who must withhold the EWT?

The withholding agent is usually the Philippine client or payor that is required to deduct and remit withholding tax.

Typical withholding agents include:

Philippine corporations;
partnerships and other juridical entities;
government offices and GOCCs;
branches or resident foreign corporations doing business in the Philippines;
sole proprietors or individuals making payments in connection with trade or business; and
top withholding agents designated under BIR rules.

Under the BIR Form 1604-E instructions, the annual return is filed by withholding agents required to deduct and withhold taxes on income payments subject to expanded withholding taxes. This includes individuals, corporations, government agencies, GOCCs, LGUs, and other juridical entities.

Step-by-step guide for clients hiring a manpower agency

1. Check the manpower agency’s BIR and business documents

Before payment, ask for:

BIR Certificate of Registration, usually BIR Form 2303;
official TIN and registered name;
VAT or non-VAT status;
SEC or DTI registration, depending on entity type;
mayor’s permit or business permit;
sample BIR-registered invoice;
DOLE registration or proof of compliance if the agency is a contractor/subcontractor; and
contract, service agreement, purchase order, or statement of work.

This is not just paperwork. It helps you determine the correct tax treatment, ATC code, invoice format, and compliance risk.

2. Review the contract and invoice breakdown

A good manpower service invoice should clearly show:

taxable service amount;
VAT, if applicable;
EWT rate;
amount withheld;
net amount payable;
billing period;
nature of service;
registered name and TIN of both parties; and
invoice number and date.

Avoid vague descriptions like “manpower billing” without a supporting schedule. During a BIR audit, the examiner may ask the client to reconcile the invoices, accounting entries, 0619-E, 1601-EQ, QAP, 2307, and 1604-E.

3. Compute the 2% EWT

Use this basic formula:

EWT = VAT-exclusive taxable service amount × 2%

For a VAT-registered agency:

Description	Amount
VAT-exclusive service amount	₱250,000
VAT	₱30,000
Gross invoice	₱280,000
2% EWT	₱5,000
Net payment to agency	₱275,000

For a non-VAT agency:

Description	Amount
Total non-VAT service billing	₱250,000
2% EWT	₱5,000
Net payment to agency	₱245,000

4. Remit monthly using BIR Form 0619-E

BIR Form 0619-E is the Monthly Remittance Form of Creditable Income Taxes Withheld (Expanded). The BIR’s own form guidelines state that it is filed by every withholding agent required to deduct and withhold taxes on income payments subject to expanded or creditable withholding taxes. The same guidelines state that it is filed and paid on or before the 10th day following the month in which withholding was made, for the first two months of each calendar quarter, subject to eFPS rules for covered taxpayers. (Bir Cdn)

5. File quarterly using BIR Form 1601-EQ

BIR Form 1601-EQ is the Quarterly Remittance Return of Creditable Income Taxes Withheld (Expanded). The form itself is used to report the consolidated tax base, tax rate, and tax withheld for the quarter.

Regular quarterly deadlines are generally:

Quarter	Months covered	Usual deadline
1st quarter	January to March	April 30
2nd quarter	April to June	July 31
3rd quarter	July to September	October 31
4th quarter	October to December	January 31 of the following year

If a deadline falls on a weekend, holiday, or officially declared non-working day, check the latest BIR tax calendar or advisory.

6. Issue BIR Form 2307 to the manpower agency

BIR Form 2307 is the Certificate of Creditable Tax Withheld at Source. The form shows the payee, payor, income payment subject to EWT, ATC, amount of income payment, and tax withheld.

For manpower agencies, this document is very important. Without the 2307, the agency may have difficulty claiming the withheld amount as a tax credit in its income tax return.

7. File BIR Form 1604-E annually

BIR Form 1604-E is the Annual Information Return of Creditable Income Taxes Withheld (Expanded)/Income Payments Exempt from Withholding Tax. The BIR form instructions state that it must be filed on or before March 1 of the year following the calendar year in which the income payments subject to EWT or exempt from withholding tax were paid or accrued, whichever comes first.

The annual filing must reconcile with the monthly and quarterly filings, the alphalist, and the 2307 certificates issued.

Compliance table for manpower agency EWT

Compliance item	Who usually handles it	Purpose	Usual timing
Invoice review	Client and agency	Confirm VAT status, taxable base, and EWT	Before payment
EWT deduction	Client/payor	Deduct 2% from taxable service payment	When income becomes payable
BIR Form 0619-E	Client/payor	Monthly remittance of EWT	Usually 10th day after month of withholding for non-eFPS filers
BIR Form 1601-EQ	Client/payor	Quarterly EWT return and reconciliation	Last day of month after quarter
BIR Form 2307	Client/payor	Certificate given to agency for tax credit	Quarterly or upon request, depending on applicable rules
BIR Form 1604-E and alphalist	Client/payor	Annual summary of EWT and payees	March 1 of following year
Income tax return	Manpower agency	Claim 2307 as tax credit	Quarterly/annual income tax filing

Common mistakes that create BIR problems

Withholding only on the agency fee

This is the most common manpower agency EWT issue. Unless a special rule clearly applies, withholding only on the management fee can result in underwithholding. The BIR may assess deficiency withholding tax, surcharge, interest, and penalties against the client.

Using the wrong ATC

For manpower agencies classified as certain contractors, the usual ATC is WC120 for corporations or WI120 for individuals. Using a supplier-service ATC for a payment that is more specifically classified as a contractor payment can create reconciliation problems in 1601-EQ, QAP, 2307, and 1604-E.

Forgetting to issue Form 2307

The manpower agency needs the 2307 to claim the withheld tax. Clients sometimes remit the EWT but fail to issue the certificate on time. This causes disputes because the agency’s books show tax withheld, but it lacks the certificate needed for substantiation.

Treating EWT as an extra charge to the client

EWT is generally deducted from the amount payable to the agency. It is not usually added on top of the invoice like VAT. Contract language should make this clear.

Confusing VAT withholding with income tax withholding

Expanded withholding tax is an income tax withholding mechanism. VAT is a different tax. Government payments may involve additional VAT withholding rules, so government procurement teams should separately check the applicable VAT withholding treatment.

Ignoring labor compliance risks

Tax compliance does not make an illegal labor arrangement valid. Article 106 of the Labor Code recognizes contracting and subcontracting but regulates the relationship between the principal, contractor, and workers. DOLE Department Order No. 174-17 implements Articles 106 to 109 and prohibits labor-only contracting. (Department of Labor and Employment)

If a manpower agency is merely supplying workers without substantial capital, tools, supervision, or control over the work, the issue may go beyond tax. The principal may face labor claims, DOLE inspection findings, and possible solidary liability for unpaid wages and benefits.

Practical notes for foreign-owned companies and expats

Foreigners who own, manage, or invest in Philippine companies are often surprised by withholding tax rules. The important point is that the obligation usually follows the Philippine payor.

If a foreigner owns a Philippine domestic corporation that hires a manpower agency in Manila, Cebu, Clark, Davao, or another Philippine location, the corporation must follow Philippine withholding tax rules like any other local company.

If a foreign company has a Philippine branch, permanent establishment, or registered local entity paying a resident manpower agency, withholding obligations may also arise.

If a foreign client outside the Philippines directly contracts a Philippine manpower agency and has no Philippine tax registration or local withholding obligation, the EWT mechanics may be different. However, the Philippine agency still has its own income tax, VAT or percentage tax, invoicing, and labor compliance obligations. Cross-border service arrangements should be reviewed carefully because VAT, permanent establishment, and labor deployment issues may arise depending on the facts.

Documents clients should keep for audit protection

Keep a clean digital and physical folder for each manpower agency. At minimum, retain:

signed service contract or purchase order;
BIR Form 2303 of the agency;
agency’s SEC/DTI registration and business permit;
DOLE registration or contractor compliance documents, when applicable;
invoices and billing statements;
payroll and contribution schedules attached to billings;
proof of payment to the agency;
EWT computation worksheet;
filed BIR Forms 0619-E;
filed BIR Forms 1601-EQ;
QAP or quarterly alphalist;
issued BIR Forms 2307;
filed BIR Form 1604-E and annual alphalist; and
email transmittals showing the 2307 was sent to the agency.

The most common audit issue is mismatch. The BIR may compare your expense accounts, payables, invoices, 2307s, monthly remittances, quarterly returns, and annual alphalist. If the totals do not reconcile, expect questions.

Frequently Asked Questions

What is the withholding tax rate for manpower agency services in the Philippines?

The usual expanded withholding tax rate is 2% on income payments to certain contractors. BIR Form 1601-EQ lists “Income payments to certain contractors” at 2%, with ATC WI120 for individuals and WC120 for corporations.

Is EWT computed on the agency fee only?

Usually, no. For ordinary manpower agencies, the conservative BIR position is that the withholding base includes the gross service payment to the agency, not merely the agency fee. RMC No. 26-2009 revoked a ruling that excluded salaries and benefits from the 2% withholding base for manpower services. (Supreme Court E-Library)

Should EWT be computed before or after VAT?

For ordinary invoice computation, EWT is commonly computed on the VAT-exclusive taxable service amount. VAT is separately shown on the invoice and is not treated as the supplier’s income for EWT computation.

What BIR form is used to remit expanded withholding tax?

For monthly remittance, withholding agents generally use BIR Form 0619-E. For quarterly reporting, they use BIR Form 1601-EQ. The BIR’s 0619-E guidelines state that the form is used by withholding agents required to deduct and withhold expanded or creditable withholding taxes. (Bir Cdn)

When is BIR Form 0619-E due?

For non-eFPS filers, BIR Form 0619-E is generally filed and paid on or before the 10th day following the month in which withholding was made, for the first two months of each calendar quarter. eFPS taxpayers follow the applicable eFPS schedule. (Bir Cdn)

When is BIR Form 1601-EQ due?

BIR Form 1601-EQ is generally due on the last day of the month following the close of the quarter: April 30, July 31, October 31, and January 31, subject to weekend, holiday, and BIR advisory adjustments.

What is BIR Form 2307 for?

BIR Form 2307 is the certificate showing that creditable withholding tax was withheld from the agency’s income payment. The agency uses it as proof of tax credit when filing its income tax return. The BIR form itself identifies it as a Certificate of Creditable Tax Withheld at Source.

What happens if the client fails to withhold EWT?

The BIR may assess the client for deficiency withholding tax, surcharge, interest, and compromise penalties. Section 248 of the NIRC imposes a 25% civil penalty in certain cases, including failure to file a return and pay tax due on time. (Bureau of Internal Revenue)

Is a manpower agency’s DOLE compliance relevant to EWT?

Yes, indirectly. EWT is a tax issue, but the legal characterization of the manpower arrangement also affects labor risk. DOLE rules prohibit labor-only contracting, and a non-compliant arrangement may expose the principal to labor claims even if taxes were properly withheld. (www.foi.gov.ph)

Can the manpower agency refuse EWT deduction?

Generally, no. If the client is a withholding agent and the payment is subject to EWT, the client has a legal duty to withhold. The agency’s remedy is to obtain BIR Form 2307 and claim the withheld amount as a tax credit.

Key Takeaways

Manpower agency services are usually subject to 2% expanded withholding tax as income payments to certain contractors.
The usual ATC is WC120 for a corporate manpower agency and WI120 for an individual contractor.
For ordinary manpower agencies, withholding only on the agency fee is risky; the BIR has rejected exclusion of salaries and benefits from the withholding base in the manpower context.
Compute EWT carefully, usually on the VAT-exclusive taxable service amount.
The client/payor withholds, remits to the BIR, and issues BIR Form 2307 to the agency.
Current compliance commonly involves BIR Form 0619-E monthly, BIR Form 1601-EQ quarterly, and BIR Form 1604-E annually.
Keep contracts, invoices, EWT schedules, 2307s, QAP, and proof of remittance because BIR audits often focus on reconciliation.
Tax compliance does not cure labor-only contracting; manpower agencies should also be checked for DOLE compliance and legitimate contracting arrangements.