8% reduced EWT rate for self-employed individuals and professionals

(Revenue Memorandum Circular No. 1-2018)

This Tax Alert is issued to inform all concerned on the change of Expanded Withholding Tax (EWT) rate for self-employed individuals or professionals to 8%, from 10%/15%, and procedures on the use of the new withholding tax table for compensation income.

The required withholding tax rate on the following income payments to individuals was lowered to 8%, from 10%/15%, regardless of the amount of income payment.

1. Professional fees, talent fees, commissions, etc. for services rendered by individuals
2. Income distribution to beneficiaries of Estates and Trusts
3. Income payment to certain brokers and agents
4. Income payment to partners of GPP
5. Professional fees paid to medical practitioners
6. Commission of independent and/or exclusive sales representatives, and marketing agents of companies

If paid to taxable juridical persons, above income payments remain to be subject to 10%/15% expanded withholding tax rate.

Under the TRAIN Law (RA No. 10963), self-employed individuals and professionals have the option to be subject to 8% income tax based on gross sales/receipts and other non-operating income. The graduated income tax rates for individuals have also been reduced specially for income below P8 M.

It is seen that the reduction in the withholding tax rate on these self-employed individuals/professional was implemented to align with the 8% optional tax on gross sales/receipts and to consider the lower individual income tax rates.

RMC No. 01-2018 also circularizes the updated withholding tax table on compensation to be used by employers for payments effective Jan. 1, 2018, and the steps on how to use such revised withholding tax table.

We note that withholding tax rates are prescribed under Revenue Regulations No. 02-98. Hence, we expect that the BIR shall reiterate the new withholding tax rate on income payments to self-employed and professionals in a revenue regulation.