This alert contains general information on the following:
General rules
Guidelines | ||
Coverage | Employer | Compliance |
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.
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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:
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Withholding tax table
Withholding tax table – WTC(effective January 1, 2023 onwards) | ||||||
Daily | 1 | 2 | 3 | 4 | 5 | 6 |
Compensation range | PHP685 and below | PHP685 -PHP1,095 | PHP1,096 – PHP2,191 | PHP2,192 – PHP5,478 | PHP5,479 – PHP21,917 | PHP21,918 and above |
Prescribed withholding tax | 0 | 0.00 +15% over P685 | PHP61.65 +20% over PHP1,096 | PHP280.85 +25% over PHP2,192 | PHP1,102.60 +30% over PHP5,479 | PHP6,034.30 +35% over PHP21,918 |
Weekly | 1 | 2 | 3 | 4 | 5 | 6 |
Compensation range | PHP4,808 and below | PHP4,808 – PHP7,691 | PHP7,692 – PHP15,384 | PHP15,385 – PHP38,461 | PHP38,462 – PHP153,845 | PHP153,846 and above |
Prescribed withholding tax | 0 | 0.00 +15% over PHP4,808 | PHP432.60 +20% over PHP7,692 | PHP1,971.20 +25% over PHP15,385 | PHP7,740.45 +30% over PHP38,462 | PHP42,355.65 +35% over PHP153,846 |
Semi-monthly | 1 | 2 | 3 | 4 | 5 | 6 |
Compensation
range | PHP10,417 and below | PHP10,417 – PHP16,666 | PHP16,667 – PHP33,332 | PHP33,333 – PHP83,332 | PHP83,333 – PHP333,332 | PHP333,333 and above |
Prescribed withholding tax | 0 | 0.00 +15% over PHP10,417 | PHP937.50 +20% over PHP16,667 | PHP4,270.70 +25% over PHP33,333 | PHP16,770.70 +30% over PHP83,333 | PHP91,770.70 +35% over PHP333,333 |
Monthly | 1 | 2 | 3 | 4 | 5 | 6 |
Compensation range | PHP20,833 and below | PHP20,833 – PHP33,332 | PHP33,333 – PHP66,666 | PHP66,667 – PHP166,666 | PHP166,667 – PHP666,666 | PHP666,667 and above |
Prescribed withholding tax | 0 | 0.00 +15% over PHP20,833 | PHP1,875.00 +20% over PHP33,333 | PHP8,541.80 +25% over PHP66,667 | PHP33,541.80 +30% over PHP166,667 | PHP183,541.80 +35% over PHP666,667 |
Annual reporting requirements
Qualification
Employees who meet the following conditions are no longer required to file an Annual Income Tax Return (BIR Form 1700):
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 deadline | Format | Important 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:
| Submission of BIR Form 2316 without signature of those who qualified for substituted filing is no longer allowed.
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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.
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:
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:
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 | ||||
Grant | Sale or transfer | Exercise | Succession | Issuance |
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 income | Vest 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:
| 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:
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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 income | Annual 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. |
Ease of Paying Taxes Act (EOPT)
Key aspects of the EOPT | Historical context | What 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.
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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.
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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:
Year | Maximum monthly salary credit (in PHP) | Contribution rate | Maximum monthly contribution | |
Employer | Employee | |||
2024 | 30,000 | 14% | 9.5%
(PHP2,850) | 4.5%
(PHP1,350) |
2025 | 35,000 | 15%
| 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:
Year | Maximum monthly salary credit (in PHP) | Contribution rate | Maximum monthly contribution | |
Employer | Employee | |||
2024 | 10,000 | 4% | 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.
Year | Maximum monthly basic salary (in PHP) | Premium rate | Maximum monthly premium (in PHP) | |
Employer | Employee | |||
2024 to 2025 | 10,000 | 5% | 250 | 250 |
10,000 – 99,999.99 | 250 – 2,500 | 250 – 2,500 | ||
100,000 | 2,500 | 2,500 |
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:
Sector | Previous threshold | Allowance rate | New threshold |
Non-agriculture | PHP610 | PHP35 | PHP645 |
Agriculture
(Plantation and non-plantation | PHP573 | PHP35 | PHP608 |
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:
Sector | Previous threshold | Allowance rate | New threshold |
Non-agriculture | PHP152.50 | 25% | PHP161.25 |
Agriculture
(Plantation and non-plantation | PHP143.25 | 25% | 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/ Industry | Previous minimum wage rates | New minimum wage rates |
Non-agriculture sector | PHP385 – PHP520 | PHP450 – PHP560 |
Agriculture sector | PHP385 – PHP479 | PHP425 – PHP500 |
Retail and service establishments employing not more than 10 workers upon full implementation of all tranches | PHP385 | PHP425 |
Central Visayas | ||
Sector/ Industry | Previous minimum wage rates | New minimum wage rates |
Class A | PHP458 – PHP468 | PHP501 |
Class B | PHP425 – PHP430 | PHP463 |
Class C | PHP415 – PHP420 | PHP453 |
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/ Industry | New minimum wage rates | New allowance threshold (25%) |
Non-agriculture sector | PHP450 – PHP560 | PHP112.50 – PHP140 |
Agriculture sector | PHP425 – PHP500 | PHP106.25 – PHP125 |
Retail and service establishments employing not more than 10 workers upon full implementation of all tranches | PHP425 | PHP106.25 |
Central Visayas | ||
Sector/ Industry | New minimum wage rates | New allowance threshold (25%) |
Class A | PHP501 | PHP125.25 |
Class B | PHP463 | PHP115.75 |
Class C | PHP453 | PHP113.25 |
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
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