Withholding Tax on GPP Professional Fees: Is a Law Firm Partnership Subject to BIR Form 2307?

A general professional partnership (GPP) — a law firm, accounting firm, or medical group organized as a partnership rather than a corporation — is not itself subject to withholding tax on the professional fees a client pays it. Under Revenue Memorandum Circular (RMC) No. 3-2012, income payments made to a GPP for professional services are not subject to income tax and, consequently, not subject to withholding tax. The client pays the GPP’s full billed fee with no BIR Form 2307 issued on that payment. Withholding applies one step later, when the GPP distributes income to its own partners.

This guide is part of the BIR Form 2307 series. It covers why a GPP sits outside ordinary income tax and withholding rules, where withholding actually kicks in for a GPP’s partners, the applicable ATC codes, and a worked example for a two-partner law office.

Why is a GPP not subject to income tax in the first place? #

A general professional partnership is not subject to income tax as an entity — only its individual partners are taxed, on their distributive share of partnership net income. NIRC Section 26 provides that “a general professional partnership as such shall not be subject to the income tax,” while “persons engaging in business as partners in a general professional partnership shall be liable for income tax only in their separate and individual capacities.”

A GPP, under Section 26, is a partnership formed by persons for the sole purpose of exercising a common profession, no part of whose income is derived from engaging in any trade or business. For tax purposes, each partner reports as gross income their distributive share of the partnership’s net income — computed in the same manner as a corporation’s net income — whether that share is actually distributed or merely credited to the partner during the year.

Does a client withhold tax when paying professional fees to a GPP? #

No. A client that pays a GPP for professional services does not withhold tax and does not issue BIR Form 2307 on that payment, because the payment itself is not subject to income tax. RMC No. 3-2012 states that income payments made to a general professional partnership in consideration for its professional services “are not subject to income tax and consequently to withholding tax” prescribed under Revenue Regulations (RR) No. 2-98, as amended.

This is the point most often misunderstood: a client paying, say, “Dela Cruz & Santos Law Offices” for legal services does not treat that payment the way it would a fee paid to an individual lawyer or a corporate law practice. There is no ATC code and no certificate for the client to prepare on the GPP’s invoice — the full amount billed is paid over.

So where does withholding actually happen? #

Withholding shifts from the client to the GPP itself at the point the partnership pays out income to its partners. Under Section 2.57.2(H) of RR No. 2-98, as amended by RR No. 30-2003, income payments made periodically or at year-end by a GPP to its partners — drawings, advances, sharings, allowances, stipends, and similar payments — are subject to creditable withholding tax (CWT):

The GPP becomes the withholding agent on these internal distributions, deducting CWT before releasing a partner’s drawing and remitting it to the BIR, just as any other withholding agent would. This 10%/15% test is separate from the ₱3,000,000 individual-professional threshold under RR No. 11-2018 covered in BIR Form 2307 for Professional Fees — a GPP partner’s drawings are measured against the ₱720,000 mark, not the ₱3,000,000 mark used for an individual professional paid directly by a client.

Which ATC codes apply to a GPP’s payments to its partners? #

A GPP’s distributions to partners use their own dedicated ATC codes — WI152 and WI153 — distinct from the ordinary professional-fee codes covered elsewhere in this series.

These sit alongside the codes in the ATC codes guide for BIR Form 2307 — don’t reuse WI010/WI011 (individual professional fee paid directly by a client) or WC010/WC011 (corporate professional fee) for a GPP’s internal payments to its own partners; the payee here is a partner drawing from the partnership, not a third party billing the client.

How does a partner then claim credit for the withheld tax? #

A partner reports their distributive share of GPP net income as their own gross income and credits whatever CWT the GPP withheld on their drawings against their income tax due, using the BIR Form 2307 the GPP itself issues them.

1. The GPP computes its net income for the year in the same manner as a corporation would.
2. Each partner’s distributive share is determined under the partnership agreement (commonly, but not always, an equal or proportional split).
3. As the GPP pays out drawings, advances, or year-end shares to a partner, it withholds 10% (ATC WI152) or 15% (ATC WI153) depending on that partner’s cumulative payments for the year.
4. The GPP remits the withheld amount to the BIR through its own BIR Form 0619-E monthly and BIR Form 1601-EQ quarterly filings.
5. The GPP issues BIR Form 2307 to the partner, showing the amount paid, the ATC, and the tax withheld.
6. The partner reports their full distributive share of GPP net income as gross income and credits the withheld amount shown on the certificate against income tax due when filing BIR Form 1701.

Worked example: a two-partner law office #

Suppose Dela Cruz & Santos Law Offices, a GPP with two equal partners — Atty. Maria Dela Cruz and Atty. Ramon Santos — bills a corporate client ₱500,000 for legal services rendered during the first quarter of the year.

Step 1 — the client pays the GPP. Because the payment is to a GPP for professional services, the client withholds nothing and issues no BIR Form 2307. It pays Dela Cruz & Santos Law Offices the full ₱500,000 (subject to VAT if the firm is VAT-registered, which is a separate matter from income tax withholding).

Step 2 — the GPP distributes to its partners. After deducting the firm’s operating expenses, assume the remaining net income for the quarter is split equally, and each partner’s drawing for this, their first payment of the year, is ₱250,000:

Because each partner’s cumulative drawings for the year (₱250,000) remain below ₱720,000, the GPP withholds at 10% under ATC WI152 and issues a BIR Form 2307 to each partner for ₱25,000. If a partner’s cumulative drawings later in the year push past ₱720,000 — say, a subsequent distribution brings Atty. Dela Cruz’s year-to-date total to ₱800,000 — the GPP would withhold at 15% under ATC WI153 on the portion computed from that point forward, and issue a further certificate reflecting the higher rate.

Each partner then reports their full distributive share of the firm’s net income (not just the cash drawing) as gross income and credits the CWT shown on their BIR Form 2307 against their income tax due when filing BIR Form 1701 — the same certificate mechanics used elsewhere in this series, just issued by the partnership to its own partners instead of by an external client.

Frequently asked questions #

Is a law firm organized as a partnership subject to withholding tax? #

The law firm itself, if organized as a general professional partnership (GPP), is not subject to income tax and a client paying it professional fees does not withhold tax or issue BIR Form 2307, under Revenue Memorandum Circular No. 3-2012. Withholding tax instead applies when the GPP distributes income to its individual partners.

Does a client issue BIR Form 2307 when paying professional fees to a GPP? #

No. Because income payments to a GPP for professional services are not subject to income tax or withholding tax under RMC No. 3-2012, a client pays the GPP’s full billed fee and has no BIR Form 2307 to issue on that payment.

What withholding tax rate applies to a GPP’s payments to its partners? #

Income payments a GPP makes to its partners — drawings, advances, sharings, allowances, stipends, and similar distributions — are subject to 10% creditable withholding tax if the partner’s cumulative payments for the current year do not exceed ₱720,000, or 15% if they do, under Section 2.57.2(H) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 30-2003.

Which ATC codes apply to a GPP’s payments to its partners? #

ATC WI152 applies at 10% when a partner’s cumulative payments for the year do not exceed ₱720,000, and ATC WI153 applies at 15% once they exceed ₱720,000. These are distinct from the WI010/WI011 and WC010/WC011 codes used for ordinary professional fees paid to individuals or corporations.

How does a partner claim credit for tax the GPP withheld on their share? #

The GPP issues BIR Form 2307 to each partner showing the amount withheld on that partner’s drawings or distributive share. The partner reports their distributive share of GPP net income as gross income under NIRC Section 26 and credits the withheld amount shown on the certificate against their own income tax due when filing BIR Form 1701.

Summary #

A GPP such as a law firm or accounting firm sits outside ordinary income tax and withholding rules at the point a client pays it — under NIRC Section 26 and RMC No. 3-2012, that payment carries no withholding and no BIR Form 2307. The certificate mechanics this series otherwise covers for professional fees apply one layer down, when the GPP pays out drawings and shares to its own partners, withholding 10% or 15% under ATC WI152 or WI153 depending on each partner’s cumulative payments for the year. Getting this sequencing right — no withholding on the fee into the GPP, withholding on the distribution out of it — keeps both the firm’s and the partners’ filings consistent with what the BIR expects to see. For the rates and codes that apply when a client pays an individual professional or a corporate practice directly, see BIR Form 2307 for Professional Fees and the ATC codes guide for BIR Form 2307.