Philippines | Employment Tax | 2024 Year-end reminders on employment taxes


December 4, 2024

Employment Tax

Philippines | 2024 Year-end reminders on employment taxes

Summary

This alert contains general information on the following:

  1. Withholding tax on compensation
  2. Substituted filing of BIR Form 1700
  3. Fringe benefit tax
  4. Tax treatment of equity-based compensation
  5. Other relevant issuances and updates on employment taxation

The detail

Withholding tax on compensation

General rules

Guidelines
CoverageEmployerCompliance
Withholding Tax on Compensation (WTC) covers all employed individuals both citizens and foreign nationals deriving income for services rendered in the Philippines under an employer-employee relationship.The employer (local company) is constituted as the withholding agent of the Bureau of Internal Revenue (BIR).Monthly

 

The employer is required to compute and withhold the correct taxes due on the employees’ compensation using the prescribed tax table and remit the taxes to the BIR and remit the WTC using the Monthly Remittance Return of Income Taxes Withheld on Compensation (BIR Form 1601C) within the prescribed deadlines.

 

Employer also means any person paying compensation on behalf of a non-resident alien individual, foreign partnership, or foreign corporation who is not engaged in trade or business in the Philippines.

 

Annual

 

Every December, employer is required to compute the annualized taxes of the employees for the year and likewise comply with the annual reportorial requirements:

  • In case of over withholding of taxes, the amount shall be refunded to the employees no later than January 25 of the following year.
  • Distribution of Certificate of Compensation Payment / Tax Withheld for Compensation Payment With or Without Tax Withheld (BIR Form 2316) to the employees on or before January 31 of the following year.
  • Submission of Annual Information Return of Income Taxes Withheld on Compensation (BIR Form 1604C) and the related schedule of Alphabetical List of Employees on or before January 31 of the following year.
  • Submission of the required documents to the BIR in relation to employees qualified for substituted filing on or before February 28 of the following year.

Withholding tax table

Withholding tax table – WTC(effective January 1, 2023 onwards)
Daily 123456
Compensation rangePHP685 and belowPHP685 -PHP1,095PHP1,096 – PHP2,191PHP2,192 – PHP5,478PHP5,479 – PHP21,917PHP21,918 and above
Prescribed withholding tax00.00 +15% over P685PHP61.65 +20% over PHP1,096PHP280.85 +25% over PHP2,192PHP1,102.60 +30% over PHP5,479PHP6,034.30 +35% over PHP21,918
Weekly123456
Compensation rangePHP4,808 and belowPHP4,808 – PHP7,691PHP7,692 – PHP15,384PHP15,385 – PHP38,461PHP38,462 – PHP153,845PHP153,846 and above
Prescribed withholding tax00.00 +15% over PHP4,808PHP432.60 +20% over PHP7,692PHP1,971.20 +25% over PHP15,385PHP7,740.45 +30% over PHP38,462PHP42,355.65 +35% over PHP153,846
Semi-monthly123456
Compensation

range

PHP10,417 and belowPHP10,417 – PHP16,666PHP16,667 – PHP33,332PHP33,333 – PHP83,332PHP83,333 – PHP333,332PHP333,333 and above
Prescribed withholding tax00.00 +15% over PHP10,417PHP937.50 +20% over PHP16,667PHP4,270.70 +25% over PHP33,333PHP16,770.70 +30% over PHP83,333PHP91,770.70 +35% over PHP333,333
Monthly123456
Compensation rangePHP20,833 and belowPHP20,833 – PHP33,332PHP33,333 – PHP66,666PHP66,667 – PHP166,666PHP166,667 – PHP666,666PHP666,667 and above
Prescribed withholding tax00.00 +15% over PHP20,833PHP1,875.00 +20% over PHP33,333PHP8,541.80 +25% over PHP66,667PHP33,541.80 +30% over PHP166,667PHP183,541.80 +35% over PHP666,667

Annual reporting requirements

  1. Submission of BIR Form 1601-C for December 2024 is due on the following dates:
    1. 13 January 2025 – for Group E, Group D and Group C under the Electronic Filing and Payment System (EFPS)
    2. 14 January 2025 – for Group B under EFPS
    3. 15 January 2025 – for Group A under EFPS and for manual filers submission and remittance of WTC
    4. 20 January 2025 – remittance of WTC for all EFPS filers
    5. 27 January 2025 – refund of excess taxes withheld on compensation by employer, whether private or government, as a result of the year-end adjustment
  2. Submission of 2024 BIR Form 1604-C/F and Alphabetical list of employees and distribution of 2024 BIR Form 2316/2306 to the employees is due on 31 January 2025.
  3. Submission of scanned copy of the signed 2024 BIR Form 2316 of employees who qualified for substituted filing is due on 28 February 2025.

Substitute filing of BIR Form 1700

Qualification

Employees who meet the following conditions are no longer required to file an Annual Income Tax Return (BIR Form 1700):

  1. Filipinos and resident aliens, including their working spouses, who are receiving purely compensation income from only one employer in the Philippines during the calendar year and whose total tax liability equals the taxes withheld from them.
  2. Non-resident aliens not engaged in trade or business in the Philippines whose entire income have been subjected to final withholding tax.
  3. An individual not engaged in the business or practice of profession, whose taxable income for the year does not exceed PHP250,000.

Exception

Substituted filing does not cover non-resident aliens not engaged in trade or business in the Philippines.

Exempt individuals

Overseas Contract Workers (OCWs) and Overseas Filipino Workers (OFWs) who work and derive income solely outside the Philippines are exempted from filing income tax returns and are subject to tax only on income derived from within the Philippines.

Reporting requirements

Employer requirements in relation to substituted filers
Coverage and deadlineFormatImportant note
Mandatory for all employers, whether large taxpayers or non-large taxpayers.

 

Submission of the BIR Forms 2316 of employees who qualified for substituted filing together with the required attachments shall be made on or before 28 February of the following year.

Mandatory submission of scanned copies of the original signed BIR Forms 2316 stored under prescribed modes in alphabetical order following the required naming convention using:

  • Digital Versatile Disk Recordable (DVD-R); or
  • Universal Storage Bus (USB) memory stick or other similar storage devices; or
  • electronic Audited Financial Statement (eAFS) System.
Submission of BIR Form 2316 without signature of those who qualified for substituted filing is no longer allowed.

 

Penalties for non-compliance

A compromise penalty of PHP1,000 shall be imposed for each failure to make, file, submit or keep any information returns, reports, sworn statements, certifications and other documents as required by the Tax Code. However, the aggregate amount to be imposed for all such failures shall not exceed PHP25,000 during a calendar year.

Fringe Benefit Tax (FBT)

Definition

A fringe benefit is any good, service or other benefit furnished or granted in cash or in kind by an employer to an employee (except rank-and-file employees), such as, but not limited to:

  • Housing
  • Expense account
  • Vehicle
  • Household personnel
  • Interest on loan at less than 12% to the extent of the difference between 12% and the actual rate granted
  • Holiday and vacation expenses
  • Membership fees, dues and other expenses borne by the employer in social and athletic clubs or other similar organizations
  • Life and health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows
  • Expenses of foreign travel
  • Educational assistance

FBT calculation

FBT is a final withholding tax imposed on the grossed-up monetary value of the benefit. The grossed-up monetary value comprises the net value of the benefit received by the employee and the related tax due on the benefit shouldered and paid for by the employer on behalf of the employee. The regular FBT rate is 35% and the grossed-up rate is 65%. For non-resident aliens not engaged in trade or business, the FBT rate is 25% and the grossed-up rate is 75%.

Deadline

FBT is computed on a quarterly basis and remittance should be made on or before the last day of the month following the close of the calendar quarter using Quarterly Remittance Return of Final Income Taxes Withheld on Fringe Benefits Paid to Employees Other than Rank and File (BIR Form 1603Q).

Annual reporting deadline

The following shall be complied with by the employers on or before 31 January 2025:

  1. Submission of 4th quarter BIR Form 1603Q both for manual and EFPS filers.
  2. Filing of the BIR Form 1604-F (Annual Information Return for Final Income Taxes Withheld), together with the supporting alphabetical list of employees.
  3. Distribution of BIR Form 2306 (Certificate of Final Tax Withheld At Source) to all employees, if applicable (may be issued prior to this date upon the payee’s request).

Tax treatment of equity-based compensation income

Existing rules

Based on Revenue Regulations (RR) No. 13-2022 as further clarified by Revenue Memorandum Circular No. 143-2022, all types of employee equity schemes such as stock options, restricted share awards, restricted stock units and stock appreciation rights are treated as compensation income WTC regardless of the position of the employees.

Other relevant guidelines

General tax treatment
GrantSale or transferExerciseSuccessionIssuance
No Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) shall be imposed on the employer-grantor.To be treated as a sale or exchange of shares not listed on the stock exchange. If the transfer is for consideration, the difference between the sales price and the exercise price is subject to CGT. If the transfer is without consideration, it shall be treated as a donation subject to donor’s tax based on the fair market value (FMV) of the option / right at the time of donation.The difference between the FMV and the book value of shares, whichever is higher, at the time of exercise and the exercise price (if any), shall be treated as additional compensation subject to WTC.

 

Where equity awards are transferable to the employee’s successors, and the successors exercised the awards within the prescribed period, the taxable value shall be treated as a donation subject to donor’s tax.The actual issuance of domestic shares on exercise of options or vesting of rights shall be subject to DST.

BIR reportorial requirements

Reportorial requirements of the BIR
Grant of equity-based compensation incomeVest or exercise of equity based-compensation income
Within 30 days from the grant of shares or options, employer shall submit to the concerned Revenue District Office (RDO) a statement under oath indicating the following:

  • Terms and conditions of the plan;
  • Names, Taxpayer Identification Numbers (TINs) and positions of the grantees;
  • Book value, fair market value and par value of the shares on the date of grant;
  • Exercise price, exercise date and/or period;
  • Taxes paid on the grant, if any; and
  • Amount paid for the grant, if any.
On or before the 10th day of the month following the month of exercise, employer shall submit to the RDO a report stating the following:

  • Exercise or vest date;
  • Names, TINs and positions of eligible employees;
  • Book value, fair market value and par value of the shares on the date of exercise
  • Mode of settlement (i.e. cash, equity); and
  • Taxes withheld on the exercise, if any.

Securities and Exchange Commission reportorial requirements

The following are the guidelines and reportorial requirements with the Philippine Securities and Exchange Commission (SEC):

Reportorial requirements of the SEC
Before any grant of equity-based compensation incomeAnnual compliance
Secure Certificate of Exemption, for share grants that are limited only to employees of the Company.On or before the 10th of January of each year following the date of the grant until full issuance, a report containing the necessary details of the grant, such as but not limited to, the names of the actual optionees and their corresponding number of shares.

Tax treatment of equity-based compensation income

Ease of Paying Taxes Act (EOPT)

Key aspects of the EOPT Historical contextWhat does this mean?
1.    Lodge-and-pay anywhere mechanism

Taxpayers shall be able to file tax returns and pay taxes, either electronically or manually, to any district office of the Philippine Tax Authority (Bureau of Internal Revenue or BIR) or any authorized agent bank (AAB) of the BIR or through a tax software provider.

The 25% surcharge would no longer be imposed on account of filing and payment in a wrong venue.

Even with existing electronic filing and payment facilities, taxpayers were still required to file and pay tax returns only to specific BIR office where the taxpayer is registered. If filing/payment is made in the wrong venue, a 25% surcharge would be assessed.

 

Under the Philippine Tax Code, Filipinos working and deriving income from abroad as OCWs/OFWs are subject to tax only on income derived from within the Philippines.

 

This is a welcome development dispensing the requirement to physically lodge returns and remit taxes within a specified location.

We would expect that the BIR will still require taxpayers to indicate the specific BIR office/jurisdiction where they are registered for monitoring/crediting purposes.

 

 

2.   Filing exemption of OCWs/ OFWs

 

Overseas Contract Workers (OCWs) / Overseas Filipino Workers (OFWs) who work and derive income solely outside the Philippines are exempted from filing income tax returns.

 

 

 

Under the Philippine Tax Code, Filipinos working and deriving income from abroad as OCWs/OFWs are subject to tax only on income derived from within the Philippines.This is not entirely new, but the EOPT provides an explicit exemption to OCWs/OFWs from the tax filing obligation.

 

Nonetheless, they may still be taxable if they derive income from within the Philippines.

 

Anticipated increase in Social Security System (SSS) contributions for calendar year 2025

Based on the Social Security Act of 2018, the SSS contribution rate is expected to increase to 15% which will also be shared by the employer and employee at 10% and 5%, respectively. In 2024, the rate of Social Security System is 14%, shared by both the employer (9.5%) and the employee (4.5%) for a maximum salary ceiling of PHP30,000 per month.

The summary of changes are as follows:

YearMaximum monthly salary credit (in PHP)Contribution rateMaximum monthly contribution
EmployerEmployee
202430,00014%9.5%

(PHP2,850)

4.5%

(PHP1,350)

202535,00015%

 

10%

(PHP3,500)

5%

(PHP1,750)

Increase in Pag-Ibig maximum salary ceiling contributions for calendar year 2024

In the absence of any proposed increase in the contribution rates for 2025, we can expect the rates to remain the same as the 2024 rates, as follows:

YearMaximum monthly salary credit (in PHP)Contribution rateMaximum monthly contribution
EmployerEmployee
202410,0004%2%

(PHP200)

2%

(PHP200)

PhilHealth contributions to remain the same for calendar year 2025

PhilHealth’s direct contribution rate for calendar years 2024 to 2025 is set at 5%, with a maximum income ceiling per individual at PHP100,000 per month. Employers are required to match employee contributions. Based on this, the current maximum monthly contribution is PHP2,500.

YearMaximum monthly basic salary (in PHP)Premium rateMaximum monthly premium (in PHP)
EmployerEmployee
2024 to 202510,0005%250250
10,000 – 99,999.99250 – 2,500250 – 2,500
100,0002,5002,500

 

Increase in minimum wage in NCR

The Regional Tripartite Wages and Productivity Board (TRWP) has released Wage Order No. 25, for the PHP35 across-the-board wage increase in the National Capital Region (NCR). The increase was effective 17 July 2024.

The Order has been issued following the petition lodged by labor groups that are anchored to the continued trend of rising costs of living and high inflation rates.

The new daily minimum wage rates in NCR are as follows:

SectorPrevious thresholdAllowance rateNew threshold
Non-agriculturePHP610PHP35PHP645
Agriculture

(Plantation and non-plantation

PHP573PHP35PHP608
Service/ retail establishments employing 15 or workers or less
Manufacturing establishments regularly employing less than 10 workers

Related impact in increase in minimum wage in NCR

The de minimis threshold for daily meal allowance for overtime work and night/graveyard shift is based on the regional basic minimum wage, which effectively remains at 25%, shall be based on the updated minimum wage rate as follows:

SectorPrevious thresholdAllowance rateNew threshold
Non-agriculturePHP152.5025%PHP161.25
Agriculture

(Plantation and non-plantation

PHP143.2525%PHP152.00
Service/ retail establishments employing 15 or workers or less
Manufacturing establishments regularly employing less than 10 workers

Increase in minimum wage in CALABARZON and Central Visayas

Workers in private establishments shall enjoy increases ranging from PHP21 to PHP75 in CALABARZON and PHP33 to PHP43 in Central Visayas. These adjustments took effect on 30 September 2024, in Region IV-A, and 2 October 2024, in Region VII.

The new daily minimum wage rates in CALABARZON and Central Visayas are as follows:

CALABARZON
Sector/ IndustryPrevious minimum wage ratesNew minimum wage rates
Non-agriculture sectorPHP385 – PHP520PHP450 – PHP560
Agriculture sectorPHP385 – PHP479PHP425 – PHP500
Retail and service establishments employing not more than 10 workers upon full implementation of all tranchesPHP385PHP425
Central Visayas
Sector/ IndustryPrevious minimum wage ratesNew minimum wage rates
Class APHP458 – PHP468PHP501
Class BPHP425 – PHP430PHP463
Class CPHP415 – PHP420PHP453

Related impact in increase in minimum wage in CALABARZON and Central Visayas

The de minimis threshold for daily meal allowance for overtime work and night/graveyard shift is based on the regional basic minimum wage, which effectively remains at 25%. The updated wage rate shall be used as the basis for CALABARZON and Central Visayas, as follows:

CALABARZON
Sector/ IndustryNew minimum wage ratesNew allowance threshold (25%)
Non-agriculture sectorPHP450 – PHP560PHP112.50 – PHP140
Agriculture sectorPHP425 – PHP500PHP106.25 – PHP125
Retail and service establishments employing not more than 10 workers upon full implementation of all tranchesPHP425PHP106.25
Central Visayas
Sector/ IndustryNew minimum wage ratesNew allowance threshold (25%)
Class APHP501PHP125.25
Class BPHP463PHP115.75
Class CPHP453PHP113.25

Contact us

For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:

Geraldine Esguerra-Longa
Partner

Kent Lileo Tong
Director

Raymund Gutib
Director

Aniway Asi-Paragas
Senior Manager

Janeth Parcon-Ponce
Senior Manager

Mark Paul Gecha
Senior Manager

Nadine Chan-Sy
Senior Manager

Further information on Vialto Partners can be found here: www.vialtopartners.com

Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.

©2024 Vialto Partners. All Rights Reserved.