Does a Non-VAT (Percentage Tax) Business Still Have to Withhold Tax and Issue BIR Form 2307?
Yes — a business’s Non-VAT or percentage-tax registration status has no bearing on its duty to withhold expanded withholding tax (EWT) and issue BIR Form 2307. Revenue Regulations (RR) No. 2-98, as amended, makes any juridical person a withholding agent regardless of its own VAT status, and makes any individual a withholding agent the moment a payment connects to their trade or business. A Non-VAT shop, clinic, or sole proprietorship that pays a professional fee, rent, or a contractor’s bill withholds exactly as a VAT-registered payor would.
This guide covers the payor’s side of a confusion already addressed from the payee’s side in Does a Non-VAT Registered Supplier Still Get a BIR Form 2307? — that post explains why a Non-VAT payee still receives a certificate; this one explains why a Non-VAT payor still has to issue one.
Generate BIR Form 2307 as a Non-VAT Business FREE →Why VAT registration isn’t the test for who withholds #
Whether a business withholds tax on a payment is governed by RR No. 2-98’s definition of a withholding agent, which turns on legal form and trade-or-business activity — not on the payor’s own VAT or percentage-tax registration. Section 2.57.3 of RR No. 2-98 states the test directly:
“(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.”
Notice what’s absent from that text: nothing conditions withholding-agent status on whether the payor is VAT-registered, Non-VAT, or below any sales threshold at all. A corporation, partnership, or cooperative is covered under (A) simply by existing as a juridical person. An individual sole proprietor, professional, or freelancer is covered under (B) the moment a payment is connected to their trade, business, or profession. Both tests are satisfied long before the separate question of VAT registration ever comes up — VAT and percentage tax are business-tax rules under a different part of the Tax Code (NIRC Sections 106–116), while withholding-agent status is an income-tax mechanism under Sections 57–58.
What actually decides when a Non-VAT business must withhold #
A Non-VAT business becomes obligated to withhold the moment it makes a payment that RR No. 2-98’s enumerated list covers — professional fees, rent, contractor fees, commissions, and similar items — and that obligation carries no minimum revenue floor. The same point applies on the payee side in Does a Client Still Withhold Tax on Your Fee If You Chose the 8% Income Tax Rate? and, on the payor side, in You’re on the 8% Rate and You Hired a Subcontractor: Do You Withhold Tax? — a self-employed individual’s own 8% income tax election doesn’t touch the separate withholding duty either, for exactly the same reason a VAT election doesn’t: both are rules about how the payor’s own income or sales are taxed, and neither rule is the one that creates withholding-agent status.
Two things matter in practice:
- Ordinary withholding items have no size threshold. A one-person Non-VAT boutique hiring a graphic designer for a single logo withholds exactly as a hundred-branch VAT-registered chain hiring the same designer would, because Section 2.57.3(B) covers the payment the moment it connects to trade or business.
- Top Withholding Agent (TWA) status is a separate, additional layer — not a prerequisite. RR No. 7-2019 sets a ₱12,000,000 gross-sales threshold (among other criteria) for TWA classification, which adds withholding on ordinary purchases of goods (1%) and services (2%) that wouldn’t otherwise be covered. A Non-VAT business that isn’t a TWA still withholds on the standard enumerated items — it just doesn’t additionally withhold on ordinary supply purchases the way a BIR-classified TWA does.
Worked example: a Non-VAT restaurant hiring a graphic designer #
A sole proprietor running a single Non-VAT, percentage-tax registered restaurant — well under the ₱3,000,000 VAT registration threshold — hires a freelance graphic designer to redesign the menu and signage for a flat ₱20,000 fee. The designer is an individual, non-VAT herself, and has a valid sworn declaration on file confirming her gross income for the year won’t exceed ₱3,000,000.
| Item | Amount |
|---|---|
| Gross design fee | ₱20,000.00 |
| EWT withheld (5%, ATC WI010, sworn declaration on file) | ₱1,000.00 |
| Net amount paid to the designer | ₱19,000.00 |
The restaurant withholds ₱1,000 and issues BIR Form 2307 to the designer for the quarter, exactly as a VAT-registered restaurant chain would on the same ₱20,000 fee — see BIR Form 2307 for Professional Fees for the full rate table. Separately, the restaurant still files its own 3% percentage tax on its dining sales via BIR Form 2551Q — that return taxes the restaurant’s own receipts and has nothing to do with the ₱1,000 it withheld from the designer’s unrelated fee. The two obligations run side by side without offsetting each other.
Does this change for a BMBE, a cooperative, or a business that later registers for VAT? #
No — BMBE registration, cooperative status, and a later shift to VAT registration are each governed by their own separate rules, none of which substitute for the trade-or-business test that creates withholding-agent status. A Barangay Micro Business Enterprise (BMBE) keeps its own separate withholding duty as covered in Does a BMBE Still Have to Withhold Tax and Issue BIR Form 2307? — its Republic Act No. 9178 income tax exemption protects the BMBE only as a taxpayer on its own income, not as a payor making covered payments to others. If a Non-VAT business later crosses the VAT threshold and registers for VAT, nothing about its withholding duty changes either — it was already a withholding agent under Section 2.57.3 before crossing that threshold, and remains one after, on the identical set of covered payments.
Frequently Asked Questions #
Does a Non-VAT registered business still have to withhold tax and issue BIR Form 2307? #
Yes. Revenue Regulations (RR) No. 2-98, Section 2.57.3, makes any juridical person a withholding agent whether or not it is engaged in trade or business, and makes any individual a withholding agent with respect to payments connected to their trade or business or practice of a profession. Neither test mentions VAT registration, so a Non-VAT or percentage-tax registered business withholds and issues BIR Form 2307 on the same covered payments as a VAT-registered one.
Is there a revenue threshold below which a Non-VAT business doesn’t have to withhold at all? #
No minimum applies to the basic withholding duty. RR No. 2-98 Section 2.57.3(B) covers an individual’s trade-or-business payments with no revenue floor, and Section 2.57.3(A) covers any juridical person regardless of size. The separate ₱12,000,000 gross-sales threshold under RR No. 7-2019 only determines Top Withholding Agent (TWA) status, which adds withholding on ordinary goods and services purchases — it does not gate the baseline duty to withhold on items already enumerated under RR No. 2-98, such as professional fees, rent, or contractor payments.
Does becoming a Top Withholding Agent depend on being VAT-registered? #
No. TWA classification under RR No. 7-2019, as amended by RR No. 11-2018 and later issuances, is based on the BIR’s own criteria — gross sales/receipts, number of employees, or a specific taxpayer classification such as a top corporate taxpayer — and is communicated through a BIR-issued notice. VAT registration status is not itself one of the criteria, and a Non-VAT business can, in principle, still be classified as a TWA if it otherwise qualifies.
Does a Non-VAT business withhold a different rate than a VAT-registered one on the same payment? #
No. The expanded withholding tax rate attaches to the category of payment and, where relevant, the payee’s own classification — such as whether the payee is an individual with a valid sworn declaration — not to the payor’s VAT or percentage-tax status. A Non-VAT restaurant and a VAT-registered restaurant withhold at the same 5%/10% rate on the same graphic design fee.
If my business only files percentage tax (BIR Form 2551Q), do I file a separate return for the tax I withhold? #
Yes. Percentage tax under NIRC Section 116 taxes a Non-VAT business’s own gross sales or receipts and is reported on BIR Form 2551Q. Expanded withholding tax taxes someone else’s income and is reported separately, through BIR Form 0619-E (monthly) and BIR Form 1601-EQ (quarterly), with BIR Form 2307 issued to each payee. The two returns cover different tax bases and don’t offset each other.
Summary #
A business’s VAT or percentage-tax registration answers a question about how its own sales are taxed — it says nothing about its separate duty, as a withholding agent under RR No. 2-98 Section 2.57.3, to withhold expanded withholding tax on payments it makes to others. A Non-VAT restaurant, boutique, or sole proprietorship withholds on a professional fee, rental payment, or contractor’s bill at the same rate, under the same ATC, and with the same BIR Form 2307 obligation as a VAT-registered payor making the identical payment. The only thing that changes the analysis is the category of payment itself and, separately, whether the BIR has classified the payor as a Top Withholding Agent under RR No. 7-2019 — never the payor’s own VAT status. For the mirror question from the payee’s side, see Does a Non-VAT Registered Supplier Still Get a BIR Form 2307?, and for the complete series, start at the BIR Form 2307 hub.