For most Philippine business leases, withholding tax on rent is computed at 5% of the gross rental amount. The tenant or lessee deducts the tax from the amount payable to the landlord, remits it to the Bureau of Internal Revenue (BIR), and gives the landlord BIR Form 2307 as proof of the creditable tax withheld. The calculation is simple, but mistakes often happen when VAT, security deposits, advance rent, common-area charges, foreign landlords, or “net-of-tax” lease terms are involved.

Quick Answer: How to Compute the 5% Withholding Tax on Rent

Use this basic formula:

Expanded withholding tax on rent = Gross rental amount × 5%

For a monthly rent of ₱100,000:

Item	Computation	Amount
Gross monthly rent	—	₱100,000
Expanded withholding tax	₱100,000 × 5%	₱5,000
Net amount paid to landlord	₱100,000 − ₱5,000	₱95,000
Amount remitted to the BIR	—	₱5,000

The landlord still reports the full ₱100,000 as rental income. The ₱5,000 is not a discount or expense deducted from the landlord’s income. It is an advance payment of the landlord’s income tax that may be claimed as a credit using BIR Form 2307.

What Is Withholding Tax on Rent?

Withholding tax on rent is generally an expanded withholding tax, also called a creditable withholding tax or EWT.

“Creditable” means the amount withheld is credited against the landlord’s income tax liability. It is normally not the landlord’s final tax.

The parties have different responsibilities:

The tenant or lessee computes, deducts, reports, and remits the tax.
The landlord or lessor declares the gross rental income and claims the withholding tax as a tax credit.
The tenant issues BIR Form 2307, the Certificate of Creditable Tax Withheld at Source, to the landlord.

A lease provision saying that the landlord must receive the rent “without deductions” does not by itself cancel a withholding obligation imposed by tax law. The parties may agree that the tenant will shoulder the tax through a gross-up, but the proper tax must still be withheld and remitted.

Legal Basis for the 5% Rental Withholding Tax

Sections 57 and 58 of the National Internal Revenue Code of 1997, as amended, authorize creditable withholding tax and require withholding agents to file returns, remit withheld taxes, and furnish withholding certificates.

The detailed rental rules appear in Section 2.57.2(B) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 11-2018.

The regulations impose a 5% withholding tax on:

Gross rent for real property used in business;
Qualifying rentals of personal property used in business;
Rentals of poles, satellites, transponders, and transmission facilities;
Rentals of billboard or advertising spaces; and
Payments to resident cinematographic film owners, lessors, or distributors. (BIR)

Republic Act No. 11976, or the Ease of Paying Taxes Act, and Revenue Regulations No. 4-2024 also clarified when withholding must occur. The obligation generally arises when the income becomes payable—meaning due, demandable, or legally enforceable—and at the earlier of:

Accrual or recording as an expense or asset in the tenant’s books; or
Issuance by the landlord of the invoice or other adequate supporting document.

This means a business cannot always postpone withholding simply by delaying the release of a check.

When Does the 5% Rate Apply?

Rent of real property used in business

The 5% rate generally applies to gross rent for the continued use or possession of real property used in business, such as:

Offices;
Retail stores;
Warehouses;
Clinics;
Restaurants;
Factories;
Coworking spaces;
Parking spaces leased for business operations;
Land used for commercial activities; and
Condominium units used as company offices.

It can also apply when a company rents a condominium or house as official staff housing because the company is paying the rent in connection with its business.

Rent of personal property

Personal property includes movable assets such as:

Machinery;
Vehicles;
Computers;
Construction equipment;
Generators;
Furniture; and
Other business equipment.

For personal-property rentals, the regulation refers to gross annual rent exceeding ₱10,000. If the accumulated rent paid to the same lessor exceeds, or is reasonably expected to exceed, ₱10,000 during the year, the lessee should withhold 5% on the entire rental amount—not merely the portion above ₱10,000. (BIR)

For example, equipment rented for ₱2,000 per month will produce annual rent of ₱24,000. Because the expected annual amount exceeds ₱10,000, the lessee should generally begin withholding from the first payment.

Personal residential rent

An individual who rents a house or condominium solely as a personal residence and who is not paying the rent in the course of a business is ordinarily not treated in the same way as a business withholding agent.

For example, an employee personally paying ₱30,000 monthly rent for a family residence does not normally deduct 5% EWT merely because the rent is substantial.

The result may be different when:

The tenant is a corporation;
The lease is recorded as a business expense;
The premises are used as an office or commercial establishment;
The employer directly pays for employee housing; or
The individual tenant is engaged in business and uses the property in that business.

Step-by-Step Guide to Computing Withholding Tax on Rent

1. Confirm whether the tenant is required to withhold

The usual withholding agents include:

Corporations and partnerships;
Sole proprietors;
Self-employed professionals;
Estates and trusts;
Government agencies, local government units, and government-owned or controlled corporations; and
Other persons making rental payments in connection with a registered business.

A tenant should check its BIR Certificate of Registration and tax obligations, but the absence of “withholding tax” from an old registration document does not necessarily eliminate an obligation created by law.

2. Obtain the landlord’s tax information

Before the first payment, obtain and verify:

Registered name;
Taxpayer Identification Number;
Registered address;
BIR Certificate of Registration, when applicable;
VAT or non-VAT status;
Proper invoice;
Individual or corporate classification; and
Tax-exemption certificate or BIR ruling, if the landlord claims exemption.

The name and TIN used in BIR Form 2307 and the Quarterly Alphalist of Payees should match the landlord’s BIR registration. A mismatch can prevent the landlord from successfully claiming the tax credit.

Under the Ease of Paying Taxes changes, an invoice is the principal sales document for services and leasing transactions. Businesses should no longer rely on an old “official receipt” practice without checking whether the landlord’s documents comply with current invoicing rules. (BIR)

3. Determine the taxable rental base

Start with the rent payable under the contract.

Generally include:

Basic rent;
Fixed rent adjustments;
Additional rent that is actually compensation for use of the property;
Rent applied from an advance payment; and
Amounts called by another name that are, in substance, rental income.

Review separately:

VAT;
Refundable security deposits;
Utility reimbursements;
Association dues;
Common-area maintenance charges;
Interest and penalties;
Repairs charged to the tenant; and
Payments to separate service providers.

A label in the contract is not controlling. For example, a “facilities fee” that is really part of the price for occupying the premises may still form part of the rental base.

4. Multiply the taxable base by 5%

If the rental base is ₱80,000:

₱80,000 × 5% = ₱4,000 withholding tax

5. Deduct the tax from the landlord’s payment

For a non-VAT rental:

₱80,000 gross rent − ₱4,000 EWT = ₱76,000 paid to the landlord

The ₱4,000 is held by the tenant for remittance to the BIR.

6. Record the gross amount correctly

The tenant generally records:

Rental expense: ₱80,000;
Cash or amount payable to landlord: ₱76,000; and
Expanded withholding tax payable: ₱4,000.

The landlord records:

Gross rental income: ₱80,000;
Cash or receivable: ₱76,000; and
Creditable withholding tax: ₱4,000.

7. Remit the tax and issue BIR Form 2307

Use the appropriate BIR return, alphanumeric tax code, and filing facility. Retain the filed return, payment confirmation, alphalist submission proof, invoice, lease agreement, and signed Form 2307.

Worked Examples

Example 1: Non-VAT commercial rent

ABC Trading rents a store from an individual landlord for ₱60,000 per month.

Item	Amount
Gross rent	₱60,000
EWT at 5%	₱3,000
Net payment to landlord	₱57,000

ABC Trading remits ₱3,000 to the BIR and issues Form 2307 to the landlord.

The applicable alphanumeric tax code is generally:

WI100 if the landlord is an individual; or
WC100 if the landlord is a corporation or other non-individual entity.

Example 2: VAT-registered landlord

A VAT-registered landlord invoices the following:

Charge	Amount
Rent, exclusive of VAT	₱100,000
12% VAT	₱12,000
Total invoice	₱112,000

Where VAT is separately stated, the 5% EWT is ordinarily computed on the rental income exclusive of VAT:

₱100,000 × 5% = ₱5,000

The tenant pays:

₱112,000 − ₱5,000 = ₱107,000

The breakdown is:

₱100,000 rental expense or rental base;
₱12,000 input VAT, subject to the applicable VAT rules;
₱5,000 expanded withholding tax; and
₱107,000 cash paid to the landlord.

If the contract merely states a VAT-inclusive amount of ₱112,000, separate the base first:

₱112,000 ÷ 1.12 = ₱100,000 rental base

Then compute the 5% EWT on ₱100,000.

VAT and EWT are different taxes. VAT may be passed on to the tenant, while EWT is deducted from the landlord’s income payment and credited against the landlord’s income tax.

Example 3: Advance rent and refundable security deposit

A tenant pays:

One month’s advance rent: ₱50,000;
Two months’ refundable security deposit: ₱100,000.

If the ₱100,000 is a genuine refundable security deposit held to secure the tenant’s obligations and is not yet the landlord’s income, the initial EWT is generally computed only on the ₱50,000 advance rent:

₱50,000 × 5% = ₱2,500

Initial cash paid to the landlord:

₱150,000 − ₱2,500 = ₱147,500

If the deposit is later applied to unpaid rent or becomes the landlord’s property under the lease, withholding should be reviewed at that point.

The BIR has clarified that a true security deposit is initially recorded as an asset by the lessee, while actual rent paid or accrued is the amount subject to the 5% EWT.

Example 4: One year’s rent paid in advance

A business pays ₱600,000 for a one-year lease in advance.

₱600,000 × 5% = ₱30,000 EWT

For a non-VAT landlord:

₱600,000 − ₱30,000 = ₱570,000 paid to the landlord

Because the rent has become payable and has been invoiced or recorded, the tenant generally should not divide the withholding into 12 future monthly amounts merely because the lease covers 12 months.

Example 5: The landlord must receive ₱100,000 “net of withholding tax”

If the parties expressly agree that the landlord must receive ₱100,000 after 5% EWT, the amount must be grossed up.

Use this formula:

Gross rental = Agreed net amount ÷ 95%

Therefore:

₱100,000 ÷ 0.95 = ₱105,263.16 gross rental

The EWT is:

₱105,263.16 × 5% = ₱5,263.16

The landlord receives ₱100,000, while the tenant remits ₱5,263.16 to the BIR.

This arrangement increases the tenant’s rental cost. The lease should state clearly whether the quoted rent is gross, VAT-exclusive, VAT-inclusive, or guaranteed net of withholding tax.

BIR Forms and Filing Deadlines

Requirement	Form	General deadline
Remittance for the first month of the quarter	BIR Form 0619-E	On or before the 10th day of the following month; applicable eFPS deadlines may differ
Remittance for the second month of the quarter	BIR Form 0619-E	On or before the 10th day of the following month; applicable eFPS deadlines may differ
Quarterly consolidation and third-month remittance	BIR Form 1601-EQ with QAP	Last day of the month following the close of the calendar quarter
Certificate given to landlord	BIR Form 2307	Within 20 days after the close of the quarter, or together with payment when requested
Annual information return and alphalist	BIR Form 1604-E	On or before March 1 of the following year

The quarterly deadlines for Form 1601-EQ are ordinarily:

First quarter ending March 31: April 30;
Second quarter ending June 30: July 31;
Third quarter ending September 30: October 31; and
Fourth quarter ending December 31: January 31 of the following year.

Deadlines falling on weekends, holidays, or dates covered by a BIR extension may change. The BIR’s 2026 Interactive Tax Calendar and tax reminders should be checked for the applicable filing period.

BIR Form 0619-E is used for the first two months of the quarter. BIR Form 1601-EQ consolidates the entire quarter, less the amounts already remitted for the first and second months. The Quarterly Alphalist of Payees, or QAP, accompanies the quarterly return. (BIR)

Current forms may be obtained from the official BIR forms page, while taxpayers authorized to use it may prepare returns through eBIRForms.

Documents the Tenant Should Keep

A complete withholding file should contain:

Signed lease agreement and amendments;
Landlord’s BIR Certificate of Registration;
Landlord’s TIN and registered name confirmation;
Invoices;
Payment vouchers and bank records;
Computation worksheets;
Filed Forms 0619-E and 1601-EQ;
Proof of tax payment;
QAP submission validation;
Signed or electronically issued Forms 2307;
Annual Form 1604-E and alphalist confirmation; and
Any exemption certificate, sworn declaration, tax treaty document, or BIR ruling relied upon.

A notarized lease is useful for evidentiary and business-registration purposes, but notarization does not determine whether EWT applies. The tax treatment depends on the law, the parties’ tax status, and the actual substance of the payment.

Common Mistakes to Avoid

Withholding 5% from the VAT-inclusive total

When VAT is separately stated, compute EWT on the rental income exclusive of VAT—not on the combined rent and VAT.

Treating the EWT as a rental discount

The landlord must report the gross rental income. The amount withheld is an income tax credit, not a reduction of the selling price.

Waiting until cash is released

Under the current time-of-withholding rule, withholding may arise when rent becomes payable, is accrued or recorded, or is supported by an invoice, whichever relevant event occurs first.

Withholding on accounting depreciation instead of actual rent

For leases recorded under right-of-use asset accounting, the BIR has clarified that the 5% EWT base is the actual rental paid or accrued—not the depreciation expense on the right-of-use asset.

Automatically withholding on every security deposit

A genuine refundable deposit is ordinarily not rent when received. However, a nonrefundable deposit, an amount automatically applied as the last month’s rent, or a deposit later forfeited or applied to rent may require withholding.

Using the wrong landlord name or TIN

Form 2307 data must match the landlord’s BIR registration. This is particularly important when the property is owned by spouses, co-owners, an estate, or a corporation but the lease or bank account uses a different name.

Failing to issue Form 2307

The landlord generally needs Form 2307 to substantiate the tax credit. The tenant must furnish the certificate within 20 days after the quarter, or simultaneously with payment if requested.

Allowing the landlord to prohibit withholding

The legal duty belongs to the withholding agent. A landlord’s refusal to accept a reduced payment does not automatically excuse the tenant from compliance. The payment voucher, lease, invoice, and Form 2307 should clearly show that the deducted amount was remitted as the landlord’s creditable tax.

Special Situations

Common-area dues and utilities

Common-area maintenance charges, association dues, electricity, and water require a review of the lease and invoice.

A separately documented reimbursement of the exact amount paid to a condominium corporation or utility provider may be treated differently from rent. However, a fixed charge retained by the landlord, a marked-up reimbursement, or a charge that forms part of the consideration for occupancy may be considered rental income.

Keep third-party bills and use separate invoice lines. Combining everything under “monthly rent” makes it more difficult to support a different tax treatment.

Rent paid to several co-owners

When property is co-owned, identify the person or entity legally earning the rental income. The lease should state:

Each owner’s name and TIN;
Each owner’s ownership or income share;
Who is authorized to collect; and
How Forms 2307 should be allocated.

Issuing the entire Form 2307 to a property manager or one co-owner may create difficulties if the income is legally reportable by several owners.

Individual landlord using the 8% income tax option

A landlord’s election of the 8% income tax option does not automatically mean the tenant should stop withholding. EWT may still be deducted and claimed by the landlord as a tax credit.

A narrow exemption from withholding may be available in certain cases involving an individual payee with only one payor and income payments not exceeding the statutory threshold, but it requires strict compliance with sworn-declaration and BIR submission requirements. Without the required documents and timely filings, the tenant should not assume an exemption.

Government tenant

A government office leasing property may have additional withholding obligations involving VAT or percentage tax, depending on the landlord’s status. The 5% rental EWT should not be confused with government withholding of business taxes.

Foreign or nonresident landlord

Nationality alone does not determine the tax rate. The landlord’s Philippine tax residence, registration, business activity, and legal classification must be established.

The regular 5% EWT may apply to a resident or locally registered lessor. However, rent paid to a nonresident alien not engaged in trade or business in the Philippines or a nonresident foreign corporation may instead be subject to final withholding tax, commonly at 25% of gross Philippine-source rent under Sections 25(B) or 28(B)(1) of the Tax Code. The lease or use of property owned by a nonresident may also involve 12% withholding VAT.

A tenant should not automatically use the 5% rate merely because the property is located in the Philippines or the foreign owner has a Philippine bank account. Tax treaty provisions, permanent-establishment issues, and the owner’s registration must be reviewed.

Frequently Asked Questions

Is withholding tax on rent always 5%?

No. The 5% rate generally applies to business rentals paid to resident individual or corporate lessors. Personal residential rent, exempt entities, nonresident landlords, and specialized transactions may have different treatment.

Who pays the withholding tax—the landlord or the tenant?

The tax is credited to the landlord, but the tenant is responsible for deducting and remitting it as the withholding agent. Economically, the deduction normally reduces the cash paid to the landlord unless the contract requires the tenant to gross up the rent.

Is the 5% based on gross or net rent?

It is based on the gross rental income, before deducting the EWT. For a VAT-registered landlord, the base is generally the rent exclusive of separately stated VAT.

Does an ordinary residential tenant need to withhold 5%?

Usually not when an individual rents a residence purely for personal use. The answer changes when the rent is paid or claimed as part of a business, professional practice, or employer arrangement.

Is a security deposit subject to withholding tax?

A genuinely refundable security deposit is generally not subject to EWT when initially paid because it is not yet rental income. If it is applied to rent, forfeited, or becomes the landlord’s property, its tax treatment must be reviewed at that time.

Is advance rent subject to withholding tax?

Yes. Advance rent is rental income paid or payable under the lease. The tenant generally withholds 5% when the advance rent becomes payable, is invoiced, accrued, or paid under the applicable timing rules.

What happens if the landlord refuses the 5% deduction?

The tenant should explain that the deduction is a statutory withholding requirement and provide Form 2307. If the contract guarantees a fixed net amount, the tenant may need to gross up the rent rather than ignore the withholding obligation.

Can the landlord claim the amount withheld as a tax credit?

Yes. The landlord ordinarily claims the EWT against quarterly or annual income tax using Form 2307 and the required Summary Alphalist of Withholding Tax, subject to BIR substantiation and matching requirements.

What are WI100 and WC100?

These are BIR alphanumeric tax codes for rental payments:

WI100 for rent paid to an individual;
WC100 for rent paid to a corporation or other non-individual payee.

What if the tenant forgot to withhold?

The tenant should determine the affected months, compute the unpaid tax, file or amend the relevant returns, remit the deficiency, and correct the QAP, Form 2307, and annual alphalist where necessary. Late filing or payment may result in surcharge, interest, and compromise penalties. The landlord should also be informed so the same tax is not claimed twice or reported under an incorrect period.

Key Takeaways

Business rent paid to a resident landlord is generally subject to 5% expanded withholding tax.
Compute the tax as gross rent × 5%.
Deduct the EWT from the landlord’s payment unless the lease requires a net-of-tax gross-up.
For a VAT-registered landlord, compute EWT on rent exclusive of separately stated VAT.
A genuine refundable security deposit is generally not subject to EWT until applied, forfeited, or converted into rental income.
Advance rent is generally subject to withholding when it becomes payable, accrued, invoiced, or paid.
Use WI100 for an individual landlord and WC100 for a corporate or non-individual landlord.
File Forms 0619-E and 1601-EQ, submit the required alphalists, and issue Form 2307 on time.
Personal residential tenants ordinarily do not withhold unless the rent is connected with a business or employer arrangement.
Do not automatically apply the 5% rate to a nonresident foreign landlord because final withholding tax and withholding VAT may apply instead.