If you are renting out property in the Philippines, or your business is paying rent to a landlord, the usual question is simple: how much withholding tax should be deducted from the rent? For most business rentals paid to a resident landlord, the answer is 5% expanded withholding tax, also called creditable withholding tax. The difficult part is knowing the correct tax base, who must withhold, when to remit it to the BIR, and how this affects the amount actually received by the lessor.
The short answer: rental withholding tax is usually 5%
For ordinary Philippine rental payments covered by the expanded withholding tax rules, the basic formula is:
Withholding tax on rent = gross rental base × 5%
Under BIR rules, rentals of real property used in business are subject to 5% expanded withholding tax. The same 5% rate also applies to rentals of certain personal properties, poles, satellites, transmission facilities, billboards, and cinematographic film rentals.
In practical terms:
| Situation | Usual withholding treatment |
|---|---|
| Company rents an office from a resident landlord | 5% EWT on rent |
| Business owner rents a commercial space for a shop | 5% EWT on rent |
| Corporation rents a condo as staff housing and books it as business rent | Usually 5% EWT |
| Private employee rents a condo for personal residence | Usually no EWT withholding by the tenant |
| Payment to a nonresident foreign landlord | Different final withholding tax and possible treaty rules may apply |
The 5% withholding tax is not an extra tax paid on top of rent by the tenant unless the contract says the rent is “net of withholding tax.” In the usual setup, the tenant deducts the withholding tax from the rental payment, remits it to the BIR, and gives the landlord BIR Form 2307 so the landlord can claim the withheld amount as a tax credit.
What expanded withholding tax means in rental payments
Expanded withholding tax, or EWT, is a system where the payor deducts part of the income tax in advance. For rent, the lessee or tenant withholds the tax from the rental payment and remits it to the BIR for the account of the lessor or landlord.
It is called creditable because the tax withheld is generally credited against the landlord’s income tax due. It is not automatically the landlord’s final tax, unless the landlord falls under a special final withholding tax category such as a nonresident taxpayer.
For example, if a landlord earns ₱1,200,000 in annual rental income and ₱60,000 was withheld during the year, the ₱60,000 is normally credited in the landlord’s annual income tax return, provided the landlord has the proper BIR Form 2307 certificates.
Legal basis for withholding tax on rental income
A lease is a civil law contract. Under the Civil Code, a lease may involve things, work, or service; in a lease of things, one party gives another the enjoyment or use of a thing for a certain price and for a definite or indefinite period. (Lawphil) The Civil Code also states the basic lease obligations: the lessor must deliver and maintain the property for the intended use, while the lessee must pay rent according to the agreed terms. (Lawphil)
For tax purposes, the main legal basis is the National Internal Revenue Code, especially Sections 57 and 58. Section 57 authorizes withholding of creditable tax at source on income payable to persons residing in the Philippines, while Section 58 provides rules on returns, payments, withholding statements, annual information returns, and the rule that creditable withholding tax is included in the recipient’s income tax return. (ChanRobles)
The specific 5% rental withholding rate comes from Revenue Regulations No. 2-98, as amended, including Revenue Regulations No. 11-2018, which lists rentals under income payments subject to expanded withholding tax.
Who is required to withhold tax on rent?
The withholding obligation is usually on the tenant or lessee, but not every tenant is automatically a withholding agent.
In ordinary practice, withholding applies when the payor is a taxpayer engaged in business, trade, or profession, or is otherwise required by BIR rules to withhold. Examples include:
- corporations renting office, warehouse, retail, clinic, or staff housing space;
- sole proprietors renting a shop, office, or storage space for business;
- professionals renting a clinic, studio, or office;
- government offices and GOCCs paying rentals;
- taxpayers classified by the BIR as withholding agents.
A private person renting a house or condo for personal living usually does not withhold 5% EWT from the landlord. That does not mean the landlord’s rent is tax-free. It only means the private tenant is usually not the one remitting withholding tax to the BIR.
Resident landlord vs. nonresident landlord
The standard 5% EWT discussion usually assumes the landlord is a resident individual, domestic corporation, resident foreign corporation, or other Philippine-registered taxpayer receiving rent in the ordinary course.
If the landlord is a nonresident alien not engaged in trade or business or a nonresident foreign corporation, the payment may be subject to final withholding tax, commonly 25% unless a tax treaty or special rule applies. Current tax references also treat rents and similar fixed or determinable Philippine-source income of nonresident aliens not engaged in trade or business as subject to 25% or an applicable treaty rate. (PwC) Payments to nonresident foreign corporations are also generally subject to withholding on Philippine-source income, commonly at 25%, subject to treaty rules. (PwC Tax Summaries)
For foreigners who own condominium units or other leaseable property in the Philippines, the important point is this: Philippine-source rental income remains taxable in the Philippines, even if the owner lives abroad.
How to compute withholding tax on rental income
Basic formula
Use this formula:
- Determine the correct rental base.
- Multiply by 5%.
- Deduct the withholding tax from the amount payable to the landlord.
- Remit the withheld tax to the BIR.
- Issue BIR Form 2307 to the landlord.
Example 1: non-VAT rental
A company rents an office for ₱80,000 per month from a non-VAT resident landlord.
| Item | Amount |
|---|---|
| Monthly rent | ₱80,000 |
| EWT rate | 5% |
| Withholding tax | ₱4,000 |
| Net cash paid to landlord | ₱76,000 |
The tenant remits ₱4,000 to the BIR and gives the landlord BIR Form 2307. The landlord still reports the full ₱80,000 as rental income, then claims the ₱4,000 as creditable tax withheld.
Example 2: VAT-registered landlord, rent exclusive of VAT
A VAT-registered landlord charges ₱100,000 monthly rent plus 12% VAT.
| Item | Amount |
|---|---|
| Rent exclusive of VAT | ₱100,000 |
| 12% VAT | ₱12,000 |
| Total billing | ₱112,000 |
| 5% EWT on rent base | ₱5,000 |
| Net cash paid to landlord | ₱107,000 |
The tenant pays ₱107,000 to the landlord and remits ₱5,000 to the BIR as EWT. The landlord accounts for output VAT separately under VAT rules.
Example 3: VAT-inclusive rent
If the lease says the monthly rent is ₱112,000 VAT-inclusive, first remove the VAT portion:
| Item | Amount |
|---|---|
| VAT-inclusive rent | ₱112,000 |
| VAT-exclusive base | ₱100,000 |
| Output VAT portion | ₱12,000 |
| 5% EWT | ₱5,000 |
| Net cash paid to landlord | ₱107,000 |
This assumes the landlord is VAT-registered and the invoice properly shows VAT. If the landlord is not VAT-registered, do not simply divide by 1.12.
Example 4: rent “net of withholding tax”
Some contracts say the landlord must receive a fixed amount net of withholding tax. This is different from the usual setup.
If the landlord must receive exactly ₱100,000 after EWT, the computation is:
Gross rental base = ₱100,000 ÷ 95% = ₱105,263.16
| Item | Amount |
|---|---|
| Grossed-up rental base | ₱105,263.16 |
| 5% EWT | ₱5,263.16 |
| Net received by landlord | ₱100,000 |
This should be written clearly in the lease contract because it changes the real economic cost of the rent.
Should withholding tax be computed on VAT, deposits, CUSA, or advance rent?
This is where many rental disputes and BIR audit issues start.
VAT
For VAT-registered rentals, EWT is usually computed on the rental income base, not on the VAT separately billed. VAT is a business tax passed on to the buyer or lessee; the rental income base is the amount representing rent.
Advance rentals
Advance rent is generally subject to withholding when it becomes paid, accrued, or payable. Under the current timing rule, the obligation to deduct and withhold arises when the income becomes payable, including when the income payment is accrued or recorded as an expense or asset in the payor’s books, or when the seller issues the sales invoice or other adequate supporting document, whichever comes first. (Bir CDN)
So if a tenant pays three months’ advance rent at the start of the lease, the tenant should normally withhold on the advance rent.
Security deposits
A genuine refundable security deposit is different from rent. If it is merely held to secure unpaid bills, damage, or other obligations, it is generally not treated as rent at the time of deposit.
But once the deposit is applied to rent, forfeited as income, or used to settle a rental obligation, withholding and other tax consequences may arise at that point.
CUSA, association dues, and reimbursements
Common Use Service Area charges, association dues, utilities, and reimbursements should be checked against the lease contract and invoice.
As a practical guide:
| Charge | Practical treatment |
|---|---|
| Rent for the unit or space | Usually subject to 5% EWT |
| VAT separately billed by VAT landlord | Not part of EWT base |
| Security deposit, refundable and not applied to rent | Usually not EWT at collection |
| Advance rent | Usually subject to EWT |
| CUSA billed as part of rent package | Often treated as part of rental/payment base |
| Utilities paid directly by tenant to utility provider | Usually not landlord rental income |
| Reimbursement with markup or service fee | The markup/service portion may be taxable income |
For lease accounting, BIR guidance has clarified that for contracts considered leases, only the actual rental paid or accrued is subject to the 5% EWT, not accounting depreciation on right-of-use assets. (Bir CDN)
VAT and percentage tax are separate from withholding tax
A common mistake is to mix up withholding tax with VAT or percentage tax. They are different taxes.
Withholding tax is an advance income tax collected at source. VAT is a business tax on taxable sales, services, and leases. Percentage tax may apply to certain non-VAT taxpayers.
Under the Tax Code as amended, lease or use of properties may be subject to 12% VAT if the lessor is VAT-registered or required to register, and the property is leased or used in the Philippines. (Lawphil)
For residential leases, there is an important VAT exemption: lease of residential units with monthly rental per unit not exceeding ₱15,000 is VAT-exempt. If residential rent exceeds ₱15,000 per unit but the lessor’s aggregate annual gross receipts from those units do not exceed ₱3,000,000, the lease is still VAT-exempt but subject to 3% percentage tax under Section 116. If the relevant gross receipts exceed ₱3,000,000, VAT may apply.
This VAT exemption does not automatically answer the EWT question. A residential unit leased by a business may still have withholding tax implications even if the lease is VAT-exempt.
Step-by-step process for tenants withholding tax on rent
1. Confirm the landlord’s tax status
Ask for:
- Certificate of Registration or BIR Form 2303;
- registered name and TIN;
- registered address;
- VAT or non-VAT status;
- official invoice details;
- whether the payee is an individual, corporation, estate, or other entity;
- whether the landlord is resident or nonresident.
For foreign landlords, also check if a tax treaty relief position is being claimed and what documents support it.
2. Review the lease contract
Look for clauses on:
- monthly rent;
- VAT-inclusive or VAT-exclusive pricing;
- withholding tax clause;
- advance rent;
- security deposit;
- CUSA or association dues;
- reimbursement of real property tax, insurance, or utilities;
- invoice timing;
- whether the rent is “gross” or “net of withholding tax.”
The lease should not simply say “tenant shall shoulder all taxes” without explaining how withholding tax affects cash payments and BIR forms.
3. Compute the EWT every month
For a standard resident landlord rental:
Monthly EWT = monthly rent base × 5%
Use ATC WI100 for individual payees and WC100 for corporate payees when applicable to rental payments. BIR forms and systems commonly identify rental EWT under these rental ATCs. (Bureau of Internal Revenue)
4. Pay the landlord net of withholding tax
Give the landlord the net amount after EWT deduction, unless the contract clearly provides a gross-up or net-of-tax arrangement.
5. Remit monthly withholding tax using BIR Form 0619-E
Withholding agents file the monthly remittance form BIR Form 0619-E for expanded withholding tax. Under RR No. 11-2018, withholding agents file the monthly remittance form every 10th day of the following month when withholding is made; eFPS users have a 15th-day due date under that regulation.
Always check current BIR tax deadline advisories because deadlines may move when the due date falls on a weekend, holiday, or when the BIR grants extensions for calamities or system issues.
6. File the quarterly return using BIR Form 1601-EQ
The quarterly return for creditable withholding tax is BIR Form 1601-EQ. RR No. 11-2018 states that BIR Form 1601-EQ and payment are due not later than the last day of the month following the close of the quarter, with the Quarterly Alphabetical List of Payees.
For calendar-year taxpayers, the usual quarters are:
| 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 |
7. Issue BIR Form 2307 to the landlord
The tenant must issue BIR Form 2307, the Certificate of Creditable Tax Withheld at Source. Under RR No. 11-2018, the withholding agent must furnish the payee a withholding tax statement within 20 days from the close of the quarter, and upon request, simultaneously with the income payment.
Landlords should keep every Form 2307 because it supports the tax credit claimed in quarterly or annual income tax returns.
8. File BIR Form 1604-E annually
The annual information return is BIR Form 1604-E, including the annual alphabetical list of payees. RR No. 11-2018 sets the deadline on or before March 1 of the following year for payments made.
Common mistakes in rental withholding tax
Mistake 1: The landlord demands full rent and refuses withholding
A resident landlord cannot usually avoid EWT just by saying “I do not want withholding.” If the tenant is required to withhold, the tenant can be exposed to BIR penalties for failure to withhold and remit.
A practical solution is to write the clause clearly:
“Lessee shall deduct and withhold the applicable expanded withholding tax from rental payments and shall remit the same to the BIR. Lessee shall furnish Lessor the corresponding BIR Form 2307.”
Mistake 2: Tenant withholds but never gives Form 2307
From the landlord’s perspective, this is a serious problem. Without Form 2307, the landlord may have difficulty claiming the withholding tax credit. The tenant should issue the certificate on time and ensure the landlord’s TIN, registered name, and income amount are correct.
Mistake 3: Withholding on the wrong base
Common base errors include:
- withholding on VAT-inclusive rent without backing out VAT;
- failing to withhold on advance rent;
- treating a forfeited deposit as non-taxable;
- ignoring rent escalation;
- using the net cash payment instead of gross rental base;
- applying 5% to personal residential rent paid by a private individual who is not a withholding agent.
Mistake 4: Confusing EWT with income tax return filing
The landlord still needs to report rental income in the proper tax return. EWT is only a credit. If the landlord’s final income tax due is higher than the EWT, the landlord pays the difference. If the credit exceeds the tax due, the landlord may carry over or claim refund subject to BIR rules.
Mistake 5: Not checking foreign landlord rules
If the landlord is abroad, do not automatically apply 5% EWT. A foreign landlord’s tax treatment depends on residence status, entity classification, Philippine-source income rules, final withholding tax, VAT withholding if applicable, and treaty documentation.
Practical documents to keep
Both landlord and tenant should keep a clean tax file for the lease.
| Document | Who usually keeps it | Why it matters |
|---|---|---|
| Signed lease contract | Both | Establishes rent, VAT, deposit, and withholding clauses |
| BIR Form 2303 / COR of landlord | Tenant | Confirms registered name, TIN, VAT status |
| Official invoices | Both | Supports rent expense and income recognition |
| Proof of rent payment | Both | Bank transfer, check voucher, receipts |
| BIR Form 0619-E payment confirmation | Tenant | Shows monthly remittance |
| BIR Form 1601-EQ and QAP | Tenant | Quarterly reporting support |
| BIR Form 2307 | Landlord and tenant | Tax credit proof for landlord |
| BIR Form 1604-E and annual alphalist | Tenant | Annual withholding compliance |
| Board authorization or SPA, if representative signs | Both | Useful for corporate or overseas landlords |
| Apostilled documents, if signed abroad | Usually foreign party | Supports authority of overseas signatory when needed |
For foreigners or Filipinos abroad signing lease documents, Philippine counterparties often ask for notarization and, if executed abroad, an apostille or consular authentication depending on the country and document use.
Frequently Asked Questions
How much is withholding tax on rental income in the Philippines?
For most rental payments to resident landlords covered by expanded withholding tax, the rate is 5% of the gross rental base. This commonly applies when a business tenant rents real property used in business.
Who pays the 5% withholding tax on rent?
The tenant withholds it from the rent and remits it to the BIR. Economically, it is a tax credit of the landlord because it is deducted from the landlord’s rental income payment and credited against the landlord’s income tax.
Is withholding tax on rent computed before or after VAT?
For VAT-registered rentals where VAT is separately billed, the 5% EWT is generally computed on the rental base exclusive of VAT. If the rent is VAT-inclusive, first determine the VAT-exclusive base before computing EWT.
Does a private tenant renting a condo need to withhold 5%?
Usually, no. A private individual renting a condo or house for personal residence is generally not acting as a business withholding agent. The landlord, however, must still handle the correct tax reporting of rental income.
Is residential rent subject to withholding tax?
It can be, depending on who the tenant is and how the property is used. A company renting a residential condo for staff housing may have withholding obligations. A private person renting for personal living usually does not withhold EWT.
Is rent below ₱15,000 exempt from withholding tax?
The ₱15,000 threshold is mainly a VAT exemption rule for residential units, not a blanket EWT exemption. A residential unit leased for ₱15,000 or less per month may be VAT-exempt, but withholding tax analysis is separate.
What happens if the tenant fails to withhold rent tax?
The tenant may be liable to the BIR for the tax that should have been withheld, plus penalties, surcharge, interest, and compromise penalties depending on the case. The BIR treats withheld taxes as funds held in trust for the government. (ChanRobles)
Can the landlord claim the withheld rent tax?
Yes. For creditable withholding tax, the landlord uses BIR Form 2307 to claim the withheld amount as a tax credit in the applicable income tax return. The details in Form 2307 should match the landlord’s registered name, TIN, income amount, and tax withheld.
Are advance rentals subject to withholding tax?
Generally, yes. If the amount is advance rent or prepaid rent, it is treated as actual rental paid or accrued and is subject to withholding. A genuine refundable security deposit is treated differently unless later applied to rent or forfeited.
What BIR forms are used for rental withholding tax?
The common forms are BIR Form 0619-E for monthly remittance, BIR Form 1601-EQ for quarterly expanded withholding tax return, BIR Form 2307 as the certificate given to the landlord, and BIR Form 1604-E for annual information reporting.
Key Takeaways
- The usual withholding tax on covered rental income in the Philippines is 5% expanded withholding tax.
- The 5% is usually computed on the gross rental base, not on VAT separately billed.
- The tenant or lessee withholds, remits to the BIR, and issues BIR Form 2307 to the landlord.
- Private residential tenants usually do not withhold, but business tenants generally must check their withholding obligations.
- VAT, percentage tax, and withholding tax are separate issues.
- Advance rent is generally subject to withholding; genuine refundable security deposits are usually not, unless applied to rent or forfeited.
- Foreign landlords may be subject to different final withholding tax and treaty rules.
- Clear lease wording on VAT, withholding tax, deposits, and net-of-tax arrangements prevents most rent payment disputes.