BIR Form 2307 for Debt Collection and Receivables Management Agencies

A bank, lending company, or other creditor that hires a debt collection or receivables management agency to recover overdue accounts withholds 2% expanded withholding tax (EWT) under RR No. 2-98, Section 2.57.2(E), and issues BIR Form 2307 — but the withholding applies only to the agency’s own commission or contingency fee, not to the debtor payments the agency collects and passes through to the creditor.

This guide is part of the BIR Form 2307 series. It covers who withholds on a collection agency payment, why recovered debtor payments sit outside the withholding base, the applicable ATC codes, and a worked contingency-fee example for a bank’s overdue-receivables portfolio.

Who withholds on a debt collection agency payment? #

The obligation follows the same payor-status test this series applies to every business-service supplier: a corporation or business-connected individual withholds, a private individual generally does not. RR No. 2-98 sets the test this way:

“(A) In general, any juridical person, whether or not engaged in trade or business; (B) An individual, with respect to payments made in connection with his trade or business…”

— RR No. 2-98, Section 2.57.3(A)–(B)

A bank or financing company engaging a receivables management agency to pursue past-due loan accounts, or a retailer hiring a collection firm to chase unpaid installment sales, is a withholding agent under clause (A) or (B). A private individual asking a friend to help collect a personal debt falls outside the rule entirely.

What EWT rate applies, and what’s the withholding base? #

Debt collection and receivables management services are not named as their own line item in RR No. 2-98 — they fall under the same flat 2% general contractor/business-services catch-all covered in BIR Form 2307 for Contractors and Subcontractors, the bracket this series applies to manpower, security, and similar recurring business-service suppliers.

The debtor payments a collection agency recovers and remits to the creditor are not the agency’s income, so they never enter the withholding base. The same pass-through principle applies here as when a courier collects cash-on-delivery amounts on a merchant’s behalf — see BIR Form 2307 for Courier and Last-Mile Delivery Providers: Delivery Fee vs COD Remittance. Only the agency’s own fee for performing the recovery service — its commission, contingency percentage, or retainer — is withholdable income subject to the 2% rate.

Worked example: a bank’s contingency-fee collection contract #

Metro Savings Bank Inc. engages RecoverWell Collections Corp. on a 15% contingency basis to pursue a portfolio of overdue consumer loans. During the quarter, RecoverWell recovers ₱1,200,000 from delinquent borrowers on the bank’s behalf.

Metro Savings Bank withholds ₱3,600 only on RecoverWell’s ₱180,000 contingency fee — not on the full ₱1,200,000 recovered from borrowers, which belongs to the bank and simply flows back to it through the agency. The bank remits the EWT through BIR Form 0619-E monthly and BIR Form 1601-EQ quarterly, and issues RecoverWell a BIR Form 2307 for the quarter’s contingency fees, ATC WC120.

Frequently asked questions #

Does a business have to withhold tax when paying a debt collection agency? #

Yes, if the payor is a corporation or a business-registered individual. A creditor engaging a debt collection or receivables management agency to recover overdue accounts is a withholding agent under RR No. 2-98, Section 2.57.3(A)-(B), and must withhold expanded withholding tax on the agency’s fee and issue BIR Form 2307.

What withholding tax rate applies to a debt collection agency’s fee? #

A debt collection or receivables management agency’s commission or contingency fee generally falls under the 2% general contractor/business-services bracket under RR No. 2-98, Section 2.57.2(E), as amended by RR No. 11-2018 — ATC WI120 for an individually run agency or WC120 for one organized as a corporation.

Is withholding computed on the full amount the agency collects from debtors, or only on its fee? #

Only on the agency’s own fee. The amounts a collection agency recovers from debtors and remits back to the creditor belong to the creditor, not to the agency — the agency’s income, and the base for the 2% withholding, is limited to the commission or contingency fee it charges for its recovery service.

Does a collection agency working on a contingency basis still get a BIR Form 2307? #

Yes. Whether the agency charges a flat retainer or a contingency percentage of amounts actually recovered, the fee it earns is a withholdable service payment. The creditor withholds 2% on whatever contingency fee becomes due each period and issues BIR Form 2307 reflecting that fee.

Does a collection agency’s own withholding obligation to its field collectors change the creditor’s 2307? #

No. A collection agency that subcontracts field collectors or a law firm for demand letters has its own, separate withholding obligation on those payments. The creditor’s BIR Form 2307 to the collection agency only reflects what the creditor itself pays the agency for its collection service.

Summary #

A debt collection or receivables management agency’s fee sits in the flat 2% general business-services bracket (ATC WI120/WC120) under RR No. 2-98, Section 2.57.2(E) — but the withholding base is the agency’s commission or contingency fee alone, never the debtor payments it recovers and passes through to the creditor. See BIR Form 2307 for Contractors and Subcontractors for the general 2% bracket this rate draws from, and BIR Form 2307 for Courier and Last-Mile Delivery Providers for the same pass-through-versus-fee distinction applied to collected cash.