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Creditable Withholding Tax

When a realty developer or seller habitually engaged in the realty business sells property, one of the taxes that has to be paid to the BIR is the Creditable Withholding Tax (CWT). Here’s how to compute for it…

The source of this information is the BIR’s Revenue Regulations No. 6-2001 (PDF) as listed in the 2001 Regulations of the BIR.

Section 3. Revised Rates of Withholding Tax. – Section 2.57.2 of Revenue Regulations No. 2-98, as amended, is hereby further amended to read as follows:

And then we skip directly to Section 2.57.2 (J): “A creditable withholding tax based on the gross selling price/total amount of consideration or the fair market value determined in accordance with Secion 6(E) of the Code, whichever is higher, paid to the seller/owner for the sale, transfer or exchange of real property, other than capital asset, shall be imposed upon the withholding agent/buyer, in accordance with the following schedule:”

Quick Notes

  • Where the seller/transfer is exempt from creditable withholding tax in accordance with Sec 2.57.5 of these regulations – Exempt
  • Selling price of P500,000 or less – 1.5%
  • Selling price of more than P500,000 but not more than P2 million – 3%
  • Selling price of more than P2 million – 5%
  • Where seller/transfer is not habitually engaged in the real estate business (such as banks, for example) – 6%

To-do: Clarify what “selling price” means in the table above, because RR No. 6-2001 states that “Gross selling price shall mean the consideration stated in the sales document or the fair market value… whichever is higher…”

In other words, if a realty developer trying to encourage sales lowers the P2.1 million price of a house and lot to P2.0 million, do you use the P2.1 million or P2.0 million figure when determining if the CWT tax rate is 3% or 5%? In this example, we will assume that the BIR’s estimate of the fair market value is P2.1 million.

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2 Responses to “Creditable Withholding Tax”

  1. on 03 Dec 2009 at 6:18 pm gio

    I appreciate your presentation on what should be the basis in computing the withholding tax. My next question is when are we going to pay the tax if the the sale qualified under deferred sale or installment sale?

  2. […] » See Creditable Withholding Tax. […]

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