Tax withheld at source by the payor from income payments, which the payee can use as a credit against their income tax liability. Evidenced by BIR Form 2307.
Creditable Withholding Tax is a pre-payment mechanism — the payor withholds a portion of the payment and remits it to the BIR on behalf of the payee. The payee receives less cash upfront, but gets to credit the withheld amount against their annual income tax when filing their tax return. It is "creditable" precisely because it can be credited (subtracted) from the final tax due.
The most common form of CWT in Philippine business is the Expanded Withholding Tax (EWT), applied to professional fees, rentals, commissions, and other income types at rates ranging from 1% to 15%. Withholding Tax on Compensation (for employees) is also a form of CWT.
In practice: Kaya Logistics hires an independent consultant, Engr. Ramon Vda. de Guia, for ₱50,000. Kaya is required to withhold 10% EWT (₱5,000) and remit it to the BIR. Kaya pays Engr. de Guia ₱45,000 net and issues BIR Form 2307 for ₱5,000 withheld. When Engr. de Guia files his annual ITR (1701), he credits the ₱5,000 against his computed income tax.
Why it matters: If you receive payments subject to CWT, always collect your BIR Form 2307s from clients. These are worth money — each peso of CWT withheld reduces your April tax bill by one peso. Missing 2307s means you overpay the BIR for no reason. Keep a tracker of all clients who should be issuing 2307s and follow up quarterly.
Creditable Withholding Tax must be distinguished from Final Withholding Tax (FWT). CWT is a partial pre-payment — you still file an ITR and reconcile. FWT is full and final — no ITR is needed for those specific income types.