System where the payor withholds a portion of income payments (at rates from 1% to 15% depending on ATC code) and remits it to the BIR on behalf of the payee.
Expanded Withholding Tax is the specific withholding tax regime covering business payments — professional fees, commissions, rentals, contractor payments, and other non-compensation income. The "expanded" label distinguishes it from withholding tax on compensation (which covers salaries) and final withholding tax (which covers passive income like dividends).
The payor is required to withhold EWT only if they are classified as a Top Withholding Agent (TWA) by the BIR, or if the payment falls under certain categories regardless of payor classification. Under Revenue Regulations 11-2018 and subsequent issuances, large businesses and those designated as TWAs must withhold from almost all their payments to suppliers and service providers.
In practice: Dagat-dagatan Aquaculture pays monthly rent of ₱80,000 for its processing facility. Under ATC code WR (rental), the EWT rate is 5%. Dagat-dagatan withholds ₱4,000, pays the landlord ₱76,000, remits the ₱4,000 to BIR, and issues the landlord a BIR Form 2307 for ₱4,000.
Why it matters: If you are a Top Withholding Agent and fail to withhold EWT from payments, you become liable for the tax plus penalties — not the payee. The BIR can assess the payor for non-withholding. Ensure your accounts payable process automatically applies the correct EWT rate (based on ATC code) to every applicable payment.
Common EWT rates: 5% on rentals, 10–15% on professional fees (depending on gross income level), 2% on contractors and sub-contractors, 1% on goods purchases by Top Withholding Agents. Always verify current rates against the BIR's EWT table as these are updated by Revenue Regulations.