Are you a professional in the Philippines? If so, you need to understand and know about the PFWT or the Professional Fee Withholding Tax. This tax is applied to your service fees or other payments. You must know how to compute and pay for it. If you don’t know how to file your taxes properly, this article will help you.
What is PFWT and who is required to pay it?
Professional Fee Withholding Tax is a tax for professional service fees or payments. It will be withheld by you when receiving payments, and you will remit the money to the BIR or the Bureau of Internal Revenue together with your other tax obligations.
According to tax services in Manila, the PFWT or Professional Fee Withholding Tax will be applied to the following:
- Lawyers, accountants, doctors, architects, and engineers
- Professional Entertainers (actors, actresses, composers, singers, emcees, influencers etc.)
- Business and bookkeeping agencies plus agents
- Insurance adjusters and agents, along with professional athletes
- Directors and producers who produce movies, television shows, stage, and musical shows
- Technical and management consultants not employed full-time
- Director fees of an individual who is not an employee of the company
Noteworthy, accounting services in the Philippines reiterate that those who earn income not exceeding P250,000 a year are not subject to withholding tax.
How do you compute the PFWT of Professional Fee Withholding Tax?
The calculation will depend on the type of professional service you render. The PFWT is computed at a rate of 5% to 15% of your gross payment. It will be withheld by you, the payer when you make the payment. It will then be remitted to the BIR or Bureau of Internal Revenue together with your other tax obligations.
Professional Fees Rendered to Individuals:
- 5% Tax Rate – annual gross income is less than PHP 3 million
- 10% Tax Rate – annual gross exceeding PHP 3 million
Professional Fees Rendered to Corporations or Partnerships:
- 15% Tax Rate – annual gross exceeding PHP 720,000
- 10% Tax Rate – annual gross income is less than PHP 720,000
Tax and audit services in the Philippines share that there is an ATC or Alphanumeric Code when you file your professional fee withholding tax. The ATC for services to individuals is W1010 to W1091. The ATC for corporations is from WC010 to WC081.
Obligations of Withholding Agents for PFWT
- File Sworn Declaration
Do this on or before the 30th of January to let BIR be aware of how many individuals have given you copies of your BIR Certificate of Registration.
- File Withholding Tax Monthly
File BIR Form 1601-E and pay it on or before the 10th day of each succeeding month. If you are not using EFPS, you need to do it within 10 days of the end date of applicable quarter.
- File Withholding Tax Quarterly
If you are using EFPS, file it within 10 days of the end date for each month’s applicable quarter for your payments to not be late.
- File Withholding Tax Annually
Using BIR Form 1601EQ, file and pay your withholding tax on or before the last day of the month following the end of each quarter.
- Issue Withholding Tax Statement
Issue BIR Form 2307 within 20 days from the end of each quarter of when you pay and withhold your taxes.
- File Annual Information Return
File BIR Form 1604E annually every March 1 to let the government be aware of how much you withheld tax from your employees.
Penalties of Non-Compliance with Tax Obligations
If you are remiss in your PFWT, you may face the following:
- Not Filing Income Tax Return
PHP 5,000 Fine for every year that you don’t file your income tax return.
- Not Paying Tax Owed
Interest rate of 20% for every year that you do not pay and 5% penalty of the due amount for every unpaid month.
- Not withholding and remitting tax
PHP 10,000 fine per year, an interest rate of 20% per year on unpaid amount, and 5% penalty of the due amount for every unpaid month.
- Not withholding returns
PHP 1,000 fine every time you fail to file, interest rate of 20% per year on the unpaid amount, and 5% penalty of the due amount for every month it remains unpaid.
- Not giving withholding tax statements to payees
PHP 1,000 fine for every piece of information you fail to provide to the payee, 20% charged interest rate per year on the unpaid amount, and 5% penalty of the due amount for every month it remains unpaid.
If you’re a professional in the Philippines and need assistance with understanding and complying with the Professional Fee Withholding Tax (PFWT), our accounting services in Pasig are here to help. The PFWT is an important tax that applies to professional service fees or payments, and it’s crucial to compute and remit it correctly.
Our team of experts can guide you through the process, ensuring compliance and avoiding penalties. Whether you have questions about tax calculations, filing obligations, or any other related matters, don’t hesitate to reach out to our accounting services in Pasig for professional assistance. Let us simplify the complexities of PFWT and help you navigate your tax obligations with ease.