The Secretary of Finance has issued Revenue Regulations (RR) No. 11-2018, amending RR No. 2-98, and implementing the income tax provisions of Republic Act (RA) No. 10963, the “Tax Reform for Acceleration and Inclusion” (TRAIN) Law. RR No. 11-2018 is effective beginning January 1, 2018, the effectivity date of the TRAIN Law.

For those who are familiar, RR No. 2-98, as amended, was the go-to regulation particularly if one had issues concerning withholding tax rates on income payments made to individual/corporate citizens, resident aliens, and non-resident aliens. Considering that RR No. 2-98 came out in 1998, most of its provisions have been amended over the years by regulations issued by the Secretary of Finance. This proved to be tedious for taxpayers, as one had to constantly refer to the newer regulations to be abreast with the current withholding tax rates. With the issuance of RR No. 11-2018, we now have a consolidated guide on the withholding tax rates on income payments.

With that, we discuss below the salient features of RR No. 11-2018:

Amendments have been made on final withholding tax (FWT) rates on income payments made to individual/corporate citizens, resident aliens, and non-resident aliens. Notably, capital gains realized from the sale of domestic shares of stock not traded in the stock exchange is now subject to a 15 percent FWT.

For individual citizens and resident aliens, interest from any peso bank deposit; royalties (except books and literary and musical compositions); prizes (except prizes amounting to P10,000 or less); and other winnings (except winnings from Philippine Charity Sweepstakes and lotto amounting to P10,000 or less which shall be exempt) derived from Philippine sources is now subject to a 20 percent FWT. As for interest income received from foreign currency deposits, it is now subject to FWT of 15 percent (also applies to domestic corporations).Also, a 10 percent FWT is imposed on cash or property dividends received from a domestic corporation; or on the share in the distributable net income after tax of a partnership (except general professional partnerships); or on the share in the net income after tax of a joint venture taxable as a corporation.

Likewise, amendments have been made on the creditable withholding tax (CWT) rates, particularly on the fees paid to professionals (i.e., lawyers, certified public accountants, doctors of medicine, architects, engineers). Professionals whose gross income for the current year does not exceed P3,000,000 are subject to CWT at 5 percent, while those who have breached the P3,000,000 threshold shall be subject to a 10 percent CWT. For corporate payees, a 10 percent CWT shall be imposed if the gross income for the current year does not exceed P720,000; the rate is increased to 15 percent if the gross income exceeds P720,000.

To avail of the 5 percent CWT rate, professionals whose gross receipts do not exceed P3,000,000 are required to submit a sworn declaration together with a copy of the BIR Certificate of Registration (COR) to all withholding agents not later than January 15 of each year, or prior to the initial payment of the professional fees, otherwise, the 10 percent CWT rate shall be applicable. Similarly, corporate payees whose gross income does not exceed P720,000 are required to provide all of its withholding agents a notarized sworn statement, together with a copy of the BIR COR, otherwise, the 15 percent CWT shall apply.

Consequently, withholding agents shall submit to their corresponding BIR Revenue District Offices (RDOs) a sworn declaration on the number of payees who have submitted their sworn declarations with the accompanying copies of their BIR COR. Such declaration is due on or before January 31 of each year or 15 days following the month when a new income recipient has submitted the payee’s sworn declaration.

Special rules have been provided for professional fees paid to medical practitioners by hospitals, clinics, or health maintenance organizations (HMOs), considering that it shall be the responsibility of such establishments to withhold and remit the CWT due on the professional fees of their accredited medical practitioners. There may be a possible exemption from the payment of the CWT, if it is shown that no professional fee was charged by the medical practitioner. For this purpose, the medical practitioner and the concerned patient shall issue a sworn declaration to be submitted and shall form part of the records of the hospital, clinic, or HMO.

Every 15th day after the end of each calendar quarter, these hospitals and clinics shall submit to their corresponding BIR RDOs a list containing the names and addresses of the medical practitioners whose professional fee was paid by patients directly to the hospital or clinic, as well as those who did not charge any professional fee from their patients.

Manila Times Source

ATTY. PEACHES ARANAS

Managing Partner LMA LAW