Withholding Taxes is a corporate tax obligation paid by taxpayers engaged in trade or business activities in the Philippines. Employers withhold from the salary of their employees every month and each amount withheld serves as an advanced payment for the employer’s Income Taxes during the business year.

There are different types of withholding taxes for corporations and individuals in the Philippines — namely, the Expanded Withholding Tax, Withholding Tax on Compensation, and Final Withholding Tax.

An Expanded Withholding Tax is a tax prescribed on income payments and is creditable against the payor’s income tax due. Withholding Tax on Compensation deducts and withholds taxes from employees receiving compensation income while Final Withholding Tax is the final payment of the employer’s tax income. It is prescribed for certain payors and is non-creditable towards the payee’s income tax due for the taxable year.

According to BIR’s guidelines, each withholding tax return must be filed in three copies by the withholding agent or payor. They are required to “deduct and withhold taxes on income payments” subject to Expanded Withholding Tax, Withholding Tax on Compensation, and Final Withholding Tax.

Taxpayers in the Philippines who engage in trade or business are required to withhold their income payments, unless the government imposes exemptions. There are specifically two entities required to withhold creditable income taxes: