A Philippine legal article for taxpayers, withholding agents, and professionals

1. Overview

In the Philippines, payments for professional services are generally subject to Creditable Withholding Tax (CWT)—also called Expanded Withholding Tax (EWT)—regardless of the amount paid per transaction. A common misconception is that professional fees below PHP 10,000 are exempt from withholding. As a rule, they are not. The obligation to withhold arises from the nature of the payment (professional fee) and the status of the payor as a withholding agent, not from a minimum peso threshold per invoice.

Thus, even if a professional charges PHP 9,999, withholding tax ordinarily applies unless a specific statutory or regulatory exemption is proven.

2. Legal Basis

The withholding tax system on professional fees rests mainly on:

National Internal Revenue Code (NIRC), as amended
- Section 57 – Authorizes creditable withholding tax on certain income payments.
- Section 58 – Requires withholding agents to deduct and remit taxes.
- Related sections on withholding and tax administration.
Revenue Regulations (RR) No. 2-98, as amended
- Sets the schedule of income payments subject to EWT and corresponding rates.
- Classifies “professional fees” and identifies who must withhold.
TRAIN Law implementing regulations
- Adjusted thresholds and clarified the 5% vs 10% rates for individual professionals.

These rules are implemented through various BIR Circulars and memoranda that clarify procedures, forms, and documentary requirements.

3. What Counts as “Professional Fees”?

“Professional fees” broadly include payments for services rendered in the exercise of a profession or calling, such as:

Legal services (lawyers, notaries)
Medical and dental services
Accounting, auditing, bookkeeping
Engineering, architecture, surveying
Management and IT consulting
Brokerage, agency, talent fees
Creatives, freelancers, and independent contractors
Lecturers, trainers, coaches, speakers (if not employees)

The label on an invoice is not controlling; what matters is the substance of the service relationship.

4. Who Must Withhold?

A withholding agent is any person or entity required by law to deduct withholding tax when making covered payments, including:

Corporations and partnerships
Single proprietors engaged in trade or business
Government offices, GOCCs, LGUs
Top withholding agents designated by the BIR
Certain professionals who pay other professionals in business

Individuals paying in purely personal capacity (not engaged in business) are generally not required to withhold, unless they are specifically treated as withholding agents (e.g., government payors).

5. Applicable Withholding Tax Rates on Professional Fees

A. Professional Fees Paid to Individuals (Resident Citizens / Resident Aliens)

Professional fees to individual professionals are subject to:

5% if the professional’s total gross income for the year does not exceed PHP 3,000,000, and the professional submits a Sworn Declaration to the payor stating eligibility for the 5% rate.
10% if:
- gross income exceeds PHP 3,000,000, or
- the professional fails to submit the sworn declaration, or
- the professional is otherwise not qualified.

Key: The payor applies the 5% rate only if a valid sworn declaration is on file.

B. Professional Fees Paid to Juridical Persons (Domestic Corporations / Resident Foreign Corporations)

As a general rule, professional fees to corporations are subject to 10% CWT, unless the payee is:

explicitly exempt (e.g., certain tax-exempt entities with proof), or
under a specific preferential regime that exempts the income from regular income tax.

C. Professional Fees Paid to Non-Residents

Non-resident professionals are generally subject to Final Withholding Tax (FWT) at higher treaty or statutory rates, depending on classification:

Non-resident alien engaged in trade/business
Non-resident alien not engaged in trade/business
Non-resident foreign corporation

Rates vary and often depend on tax treaties and source rules. These are not “expanded withholding,” but final taxes.

6. The PHP 10,000 Question: Is There a Threshold Exemption?

General Rule: No threshold exemption for professional fees.

There is no blanket rule in the EWT regulations saying that professional fees below PHP 10,000 are exempt. Withholding applies even to small or incidental professional payments.

Why the Myth Exists

Confusion often comes from other withholding categories where thresholds do exist, such as:

certain government withholding rules,
withholding on purchases of goods vs services,
VAT withholding thresholds or procurement rules.

But for professional fees under EWT, the law focuses on classification and rate, not peso minimums per payment.

7. How to Compute Withholding on Fees Below PHP 10,000

Step-by-step

Identify if the payee is an individual professional or a corporation.
Check if there is a sworn declaration for 5%.
Apply the correct rate to the gross professional fee (before any deduction).

Example 1: Individual professional, no sworn declaration

Professional fee: PHP 9,000
Rate: 10%
Withholding tax: PHP 900
Net paid: PHP 8,100

Example 2: Individual professional, with sworn declaration

Professional fee: PHP 9,000
Rate: 5%
Withholding tax: PHP 450
Net paid: PHP 8,550

Example 3: Corporate consultant

Professional fee: PHP 9,000
Rate: 10%
Withholding tax: PHP 900
Net paid: PHP 8,100

8. Documentation Requirements

For the Withholding Agent (Payor)

BIR Form 2307 (Certificate of Creditable Tax Withheld at Source)
- Must be issued to the professional per payment or per period.
- This is the professional’s proof of tax credit.
Monthly and Quarterly Returns
- BIR Form 0619-E (monthly remittance)
- BIR Form 1601-EQ (quarterly return)
Books and Records
- Invoices/ORs
- Contracts or engagement letters
- Sworn declarations (if applicable)

For the Professional (Payee)

Official Receipt (OR) / Invoice
Sworn Declaration (for 5% eligibility)
Use BIR Form 2307 as tax credit
Report gross income in ITR, net of credits

9. Deadlines and Compliance

Remittance

Taxes withheld must be remitted monthly via Form 0619-E, generally on or before the 10th day of the following month (or as adjusted by eFPS/eBIR rules).

Quarterly reporting

Form 1601-EQ is filed after each quarter within the prescribed deadline.

Issuance of 2307

Must be issued not later than the 20th day following the close of the quarter in which withholding was made, or earlier if contractually agreed.

Failure to withhold or remit can make the payor liable for the tax, plus:

surcharge,
interest,
compromise penalties,
possible disallowance of the expense as deduction.

10. Common Special Situations

A. Reimbursements

If a professional is reimbursed for expenses:

Pure reimbursements supported by official receipts in the client’s name may be excluded from withholding base.
If reimbursed amount is lump-sum or with markup, it is treated as part of professional fee and is subject to withholding.

B. Employer–Employee Relationship

If the person is actually an employee, then:

payments are compensation income, not professional fees,
subject to withholding tax on compensation instead of EWT, and
the PHP 10,000 idea becomes irrelevant.

C. Tax-Exempt Professionals or Entities

Withholding is not required only if the payee proves valid exemption (e.g., certain cooperatives, or entities with BIR-issued tax exemption). The payor should keep documentary proof.

11. Practical Takeaways

Professional fees below PHP 10,000 are still subject to withholding tax.
No per-invoice PHP 10,000 exemption exists for professional fees under EWT.
The key determinants are:
- type of income (professional service),
- payee classification (individual vs corporation),
- sworn declaration (5% vs 10% for individuals),
- status of payor as withholding agent.
Proper documentation (2307, sworn declarations, remittances) protects both parties.
Non-compliance shifts liability to the payor and risks penalties and expense disallowance.

12. Conclusion

In Philippine tax law, the withholding tax on professional fees is designed to ensure early collection of income tax and improve compliance. The system does not excuse small professional payments. Unless a clear exemption applies and is properly documented, all professional fees—even below PHP 10,000—must be subjected to the correct withholding rate and remitted to the BIR.

If you want, tell me your exact scenario (who paid whom, nature of service, and whether a sworn declaration was provided), and I’ll map the specific rate and compliance steps to it.