Sunday, November 20, 2011

PEZA Registered Entity Exempt from Withholding Tax

Q: May an entity be exempted from the payment of creditable expanded withholding tax prescribed under Revenue Regulations No. 2-98, as amended, on account of registration with the Philippine Economic Zone Authority (PEZA)?
A: Yes. Section 2.57.5.(B) (2) of Revenue Regulations No. 2-98, as amended, is explicit in its provisions that the expanded withholding tax does not apply to income payments to persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special. PEZA-registered enterprises are granted certain preferential tax treatment under Section 24 of Republic Act No. 7916 which provides that "any provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national shall be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the national government.
A PEZA-registered enterprise enjoying a 4-year-ITH, income payments made to it, with respect to its registered activity, shall not be subject to 2% expanded creditable withholding tax prescribed in Revenue Regulations No. 2-98, as amended, for the covered period of four (4) years. It must be emphasized, however, that it is constituted as withholding agent for the government. As such, it is required to withhold the tax on compensation income of its employees or the withholding tax on income payments to persons subject to tax pursuant to Section 57 of the Tax Code of 1997, as amended.
(BIR Ruling No. 142-10, December 9, 2010)

7 comments:

  1. Thanks for the info. One thing to ask we are a PEZA registered enterprise and we receive billings from our supplier. Are we allowed to withheld the EWT for that particular supplier? I mean instead of paying a fee for 20,000.00 php (service invoice billing amount) we only pay 19,600? (less 2% EWT) Appreciate response. Thanks

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  2. Yes, your company is the one exempt from wtax because you do not pay income tax under NIRC. Hence, there is no purpose for wtax/prepaid tax as there will never be any income tax liability. PEZA entities are subject to tax holiday or special tax on gross income like 5%

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  3. Thank you for the info. it helps a lot :)

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  4. Hi Alvin again, would you mind to answer if you just have any idea pertaining to withholding taxes for condominium dues? Are they considered rent (5% EWT)? or service (2%)? I am hesitant and a bit confused of what should be the rate appropriate for them? Appreciate response. Thank you.

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  5. I think it is 5% if the charges are included in the rent or included in just one billing statement or invoice, otherwise if it is separately billed or invoiced, it is subject to 2%.

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  6. Hi Alvin,

    What is the income tax rate on compensation of employees of PEZA-registered entities? Are they subject to special rate?

    Thank you.

    EJ

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  7. Same as the regular compensation taxes except FBT, because the exempt is the peza-registered entity and its exemption does not extend to the employees.

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