BIR issues rules on creditable withholding tax

MANILA, Philippines —  The Bureau of Internal Revenue (BIR) has issued a clarification on the application of creditable withholding tax (CWT) to top withholding agents (TWA) amid transactions involving manufacturers and direct importers of covered goods intended for wholesale.

The BIR issued Revenue Memorandum Circular (RMC) 79-2026 answering frequently asked questions on the 0.5-percent CWT for covered wholesale purchases, explains when the preferential rate applies and identifies documentary requirements needed to establish a supplier’s status.

The circular also outlines corrective measures when the wrong withholding tax rate has been used.

“Through these clarifications, the BIR seeks to provide greater certainty for taxpayers while ensuring the proper and consistent application of withholding tax rules,” the agency said in a statement.

Under the circular, the BIR explained that the 0.5-percent CWT rate applies if the supplier is either a manufacturer or a direct importer of the covered goods. It is not required that the supplier be both.

The agency said a local manufacturer that produces and sells the specified goods, even without import activity and a direct importer that brings in such goods for sale in the Philippines are subject to the preferential rate, provided the goods are covered and intended for wholesale.

It also explains how the phrase “intended for wholesale” should be interpreted, as the 0.5-percent CWT is imposed on gross payments to manufacturers and direct importers of certain goods intended for wholesale.

The BIR explains that this phrase refers to the “nature of the sale as ordinarily undertaken by the manufacturer or direct importer in the regular course of its business, where the goods are sold primarily for resale, distribution or further commercial disposition and not for final consumption by the end-user.”

In addition, the RMC said motor vehicles imported or manufactured in completely knocked down (CKD) units are also subject to the 0.5-percent CWT.

BIR said CKD is defined as “completely knocked down parts and components, including sub-parts/parts and sub-assemblies/assemblies of motor vehicles for assembly into a complete unit.”

Purchases of this will be slapped with the 0.5-percent CTW, the BIR said “provided that the sale of such goods is made in the ordinary course of the seller’s trade or business.”

The circular likewise prescribes appropriate corrective measures when taxpayers or withholding agents apply an incorrect withholding tax rate.

These clarifications would help streamline compliance, reduce disputes and support more efficient tax administration, the BIR said.