Withholding Tax on Credit Card and Digital Payment Settlements to Merchants: The 0.5% Rate Under RR No. 5-2025

A credit card company that settles sales proceeds to a merchant must withhold 0.5% creditable withholding tax (CWT) on the gross amount paid, under Section 2.57.2(H) of Revenue Regulations (RR) No. 2-98 as amended by RR No. 5-2025, effective March 14, 2025. The card company issues BIR Form 2307 to the merchant for the amount withheld, which the merchant then credits against its own income tax due.

This guide is part of the BIR Form 2307 series. It covers who withholds on card settlements, how the rate changed under RR No. 5-2025, and a worked example for a retail merchant settling a batch of card sales. For the broader set of CREATE MORE-driven withholding changes, see BIR Form 2307 for Purchases of Goods: Top Withholding Agent 1% Rate Explained.

Who withholds tax on a credit card settlement? #

The credit card company — not the merchant — is the withholding agent on a card settlement, because it is the party paying gross sales proceeds to the business entity that accepted the card. Under Section 2.57.2(H) of RR No. 2-98, this covers “certain income payments made by credit card companies” on the gross amounts they pay to any business entity, whether a natural or juridical person, representing sales of goods or services made by that entity to its cardholders. A merchant that simply accepts card payments takes no withholding action itself on those proceeds — it receives a net settlement and a BIR Form 2307 already reflecting the tax withheld by the card company.

What changed under RR No. 5-2025? #

RR No. 5-2025, issued February 27, 2025 and effective March 14, 2025, amends RR No. 2-98 to simplify and align the credit card withholding rate with Republic Act No. 12066 (the CREATE MORE Act). Before the amendment, the regulation withheld 1% on a base equal to 50% of the gross amount paid — an effective 0.5% on the full transaction. RR No. 5-2025 restates the provision as a flat rate applied directly to the gross amount:

“Certain income payments made by credit card companies — On the gross amounts paid by any credit card company in the Philippines to any business entity, whether a natural or juridical person, representing the sales of goods/services made by the aforesaid business entity to cardholders — One-half percent (1/2%).”

That is a secondary-source summary quoting Section 2.57.2(H) as revised, reported by Reyes Tacandong & Co.’s coverage of RR No. 5-2025; this site was unable to reach the BIR’s own PDF of the regulation directly to re-verify the exact typeset wording, so treat the bracketed section number as accurate but confirm against the BIR’s published text before relying on it for a formal filing position.

For a standard transaction the effective rate is unchanged at 0.5% — the amendment removes the two-step (50%-of-gross, then 1%) computation in favor of a single 0.5% figure applied directly, reducing room for a bank’s settlement system to compute the base incorrectly.

Worked example: a retail merchant’s card settlement #

A merchant that processes ₱150,000 in card sales for the day has ₱750 withheld by the card company at 0.5%, receiving the balance net of that tax plus any card discount fee.

Cebu Home Goods Co. runs ₱150,000 in card transactions on a given settlement date. The acquiring bank’s settlement report shows:

The bank issues Cebu Home Goods a BIR Form 2307 showing ₱150,000 as the income payment, the applicable ATC, and ₱750 withheld. Cebu Home Goods includes that certificate in its SAWT and credits the ₱750 against its quarterly income tax due — the same mechanics as any other creditable withholding certificate, just generated automatically by the payment processor rather than manually by an accounts-payable clerk.

Frequently Asked Questions #

What withholding tax rate applies to credit card settlements to merchants? #

A credit card company that pays a business entity for sales made to its cardholders withholds 0.5% (one-half percent) creditable withholding tax on the gross amount paid, under Section 2.57.2(H) of Revenue Regulations No. 2-98 as amended by RR No. 5-2025, effective March 14, 2025.

How is this different from the old credit card withholding rule? #

Before RR No. 5-2025, the withholding tax base was 50% of the gross amount paid by the credit card company, taxed at 1%, producing an effective rate of 0.5% on the full amount. RR No. 5-2025 removed the 50%-of-gross basis and applies 0.5% directly to the full gross settlement amount, simplifying the computation without changing the effective rate for standard transactions.

Does this apply to GCash, Maya, and other digital payment platforms too? #

RR No. 5-2025 amends the specific provision on credit card companies. Payment aggregators, e-marketplaces, and digital financial services providers have their own separate withholding rules under later BIR issuances covering remittances to online sellers and merchants, which taxpayers should confirm apply to their specific payment channel rather than assuming the credit card rate carries over automatically.

Which ATC code does a credit card company use when issuing BIR Form 2307? #

Practitioners generally apply the same goods/services ATC framework used for other creditable withholding categories under RR No. 2-98 as amended — confirm the current ATC table in the BIR’s Alphanumeric Tax Code listing before filing, since a rate change under an amending RR does not always carry an identical, separately numbered ATC in every eBIRForms release.

Who is the withholding agent in a credit card settlement — the bank or the merchant? #

The credit card company (the issuing or acquiring bank, or its settlement arm) is the withholding agent. It deducts 0.5% from the gross amount before remitting the merchant’s share of card sales, then issues BIR Form 2307 to the merchant as proof of the tax withheld.

Summary #

RR No. 5-2025 kept the effective creditable withholding rate on credit card settlements at 0.5%, but simplified it from a 1%-of-50%-of-gross computation to a flat 0.5% of the full gross amount, effective March 14, 2025. A merchant reconciling settlement reports against BIR Form 2307 certificates should expect that flat 0.5% figure, not the older two-step math. For the broader TWA and goods/services withholding landscape this sits alongside, start with Who Is a BIR Top Withholding Agent? and What Is BIR Form 2307.