Is a PEZA-Registered Enterprise Exempt From Withholding Tax on Its Local Purchases? BIR Form 2307 Explained

A PEZA-registered enterprise’s own income from its registered activity generally isn’t subject to withholding tax when a customer pays it — but that exemption runs one direction only. The same enterprise still acts as an ordinary withholding agent when it pays local suppliers, contractors, or landlords, and must withhold and issue BIR Form 2307 on those payments regardless of its own PEZA incentive. Confirm both sides before assuming “PEZA-registered” means “no withholding” applies everywhere.

This guide is part of the BIR Form 2307 series. For the certificate’s general mechanics, see What Is BIR Form 2307 and When Must You Issue It?; for how PEZA incentives compare with BOI’s under the CREATE Act, see PEZA vs BOI: How BIR Tax Incentives Differ; for the related VAT documentation a PEZA buyer must give its own suppliers, see Selling to a PEZA Company? Why You Need a VAT Zero-Rating Certification.

Why does “PEZA-registered” mean two different withholding questions, not one? #

“Is a PEZA enterprise exempt from withholding tax” is actually two separate legal questions that get conflated: whether the enterprise is withheld from as a payee receiving income, and whether the enterprise itself withholds as a payor buying goods or services. These have different answers, and confusing them is the single most common source of PEZA withholding errors on both sides of a transaction.

Both rules can be true on the same enterprise, in the same month, on different invoices — a PEZA BPO company can correctly go un-withheld on the fee its client pays it, while correctly withholding on the fee it pays its own janitorial contractor the same week.

Why doesn’t a customer withhold from a PEZA enterprise’s registered-activity income? #

Income payments to a PEZA-registered enterprise for its PEZA-registered activity are generally not subject to expanded withholding tax or final withholding tax, whether the enterprise is still in its income tax holiday (ITH) period or already availing of the 5% Gross Income Tax (GIT) incentive. This treatment traces back to BIR Memorandum Circular No. 74-99, which set out the tax treatment of transactions involving PEZA-registered enterprises, and has been carried forward consistently in BIR practice and PEZA guidance since.

The underlying incentive itself — the 5% GIT “in lieu of all taxes” language — comes from the enterprise’s registration law as amended by the CREATE Act (Republic Act No. 11534). A widely cited restatement of the operative provision, also referenced in this site’s PEZA vs BOI comparison, describes the follow-on regime this way:

“Section 294 provides that an Income Tax Holiday (ITH) shall be granted for a period of four (4) to seven (7) years, followed by the Special Corporate Income Tax (SCIT) rate of 5% on the gross income earned, in lieu of all taxes, both national and local, or enhanced deductions (ED) for five (5) or ten (10) years.”

This site relied on a secondary restatement of Section 294 for the passage above, as the full text of Republic Act No. 11534 could not be reached directly to re-verify the exact wording — confirm the precise statutory text before relying on it for a formal filing position. The “in lieu of all taxes” language is the reason a customer generally has no basis to withhold: the withholding tax the customer would otherwise deduct is itself one of the national taxes the 5% GIT replaces on registered-activity income, and the same logic applies during the ITH phase, since income tax simply isn’t due yet.

What must the PEZA enterprise give its customer before withholding stops? #

A customer should not stop withholding from a PEZA-registered supplier just because the supplier says it’s PEZA-registered — it needs current, specific documentation on file, or it should keep withholding as the safer default. PEZA-registered enterprises entitled to ITH or the 5% GIT incentive generally secure, on an annual basis, a certification from PEZA confirming the registered activity and the enterprise’s current incentive status — issued under the Certificate of Entitlement to Tax Incentives (CETI) process PEZA established for CREATE Act registrants, conditioned on the enterprise staying current with its PEZA reportorial requirements (such as its Economic Zone Monthly Performance Report).

In practice, the PEZA enterprise furnishes its customer:

1. A current copy of its BIR Form 2303 (Certificate of Registration), showing it as a PEZA-registered enterprise.
2. The current PEZA certification of its registered activity and ITH/5% GIT status for the applicable year.
3. Often, an annotation on its invoices or official receipts stating the payment is for a PEZA-registered activity not subject to withholding.

Without current copies of these on file, a customer has no documented basis to skip withholding, and the conservative, defensible position is to withhold as it would for any other supplier until the documentation is provided — a practice sometimes called “defensive withholding.” This mirrors a pattern already covered on this site for another exempt-payee category: see how a registered cooperative must furnish a BIR Certificate of Tax Exemption before a payor can stop withholding — a tax-exempt or incentivized status and a documented basis to skip withholding are two different things, and the second doesn’t follow automatically from the first.

Why does the same PEZA enterprise still withhold on its own local purchases? #

A PEZA enterprise’s ITH or 5% GIT incentive is relief from tax on its own registered-activity income — it says nothing about the separate legal role the enterprise plays as a withholding agent when it pays someone else. Withholding tax under BIR Form 2307 is a collection mechanism imposed on the payor, under the general rules in Revenue Regulations (RR) No. 2-98 as amended by RR No. 11-2018. A PEZA-registered enterprise buying goods or services from a local, non-PEZA supplier is a payor like any other business, and its own tax incentive does not extend to relieve it of that role.

So a PEZA-registered IT-BPO company still withholds the standard rates on, among others:

• Professional fees paid to a local accountant, lawyer, or consultant — 5%/10% under RR No. 11-2018.
• Contractor and janitorial fees — 2%, as covered in BIR Form 2307 for Security Agencies and BIR Form 2307 for Contractors and Subcontractors.
• Rent on any office, equipment, or space it leases outside the zone — 5% under RR No. 11-2018.

The only way a specific local supplier goes un-withheld is if that supplier independently qualifies for its own withholding exemption — for example, the supplier is itself a PEZA-registered enterprise furnishing the required documentation for its own registered-activity income, or a BMBE, or a cooperative with a valid Certificate of Tax Exemption. The PEZA-registered payor’s own incentive status is simply not one of the grounds that excuses it from withholding on someone else’s income.

Worked example: the same PEZA company on both sides of a payment #

A PEZA-registered IT-BPO company shows both rules operating in the same month: it is not withheld from by its foreign-linked local client on its registered service fee, while it withholds 2% from the janitorial contractor that services its own office.

As payee — client pays the BPO company ₱2,000,000 for call-center services rendered under its PEZA-registered activity. The BPO company has furnished the client its current BIR Form 2303 and PEZA CETI certification for the year. The client pays the full ₱2,000,000 with no EWT deducted, because the payment is for a registered activity backed by current documentation.

As payor — the same BPO company pays its janitorial contractor ₱150,000 for the month. The contractor is an ordinary local janitorial agency with no incentive status of its own. The BPO company withholds 2% EWT (ATC WC120), remits ₱3,000 to the BIR, pays the contractor ₱147,000 net, and issues the contractor a BIR Form 2307 for the amount withheld — exactly as any non-PEZA company would.

What if the PEZA enterprise earns income outside its registered activity? #

The 5% GIT incentive and the withholding relief that follows it cover only the enterprise’s registered project or activity as approved by PEZA — income outside that scope doesn’t automatically carry the same treatment. A PEZA-registered manufacturer that also earns interest income, rents out excess space to a non-PEZA tenant, or sells scrap outside its registered line of business is generally taxed on that income under ordinary rules, separate from its 5% GIT income. A customer paying for something clearly outside the enterprise’s registered activity should not assume the same non-withholding treatment applies — this is a genuinely fact-specific determination, and where it’s unclear whether a payment relates to the registered activity, both sides should confirm with the enterprise’s PEZA registration documents or their Revenue District Office before deciding not to withhold.

Frequently Asked Questions #

Is a PEZA-registered enterprise exempt from withholding tax under BIR Form 2307? #

It depends on which side of the transaction it’s on. As a payee receiving payment for its PEZA-registered activity, income payments generally are not subject to expanded or final withholding tax, per BIR Memorandum Circular No. 74-99, provided the enterprise furnishes its customer the required PEZA certification. As a payor buying goods or services from local suppliers, contractors, or landlords, the same enterprise generally remains an ordinary withholding agent and must withhold and issue BIR Form 2307 like any other business.

Does a PEZA enterprise still need to withhold tax when it pays its own suppliers? #

Generally, yes. A PEZA enterprise’s income tax holiday or 5% Gross Income Tax incentive relieves it of tax on its own registered-activity income — it does not relieve it of the separate legal obligation to act as a withholding agent on payments it makes. A PEZA-registered IT-BPO company still withholds the applicable expanded withholding tax rate on fees paid to a janitorial contractor, a professional, or a landlord, and issues BIR Form 2307 exactly as a non-PEZA company would.

What proof does a PEZA enterprise give a customer to avoid being withheld from? #

A PEZA enterprise typically furnishes its customer a copy of its BIR Certificate of Registration (BIR Form 2303) together with an annual certification from PEZA confirming its registered activity and its income tax holiday or 5% Gross Income Tax status — issued under the Certificate of Entitlement to Tax Incentives (CETI) process established for CREATE Act registrants. Without current documentation on file, a customer has no basis to skip withholding and should withhold as a defensive default.

Does the 5% Gross Income Tax incentive cover all of a PEZA enterprise’s income? #

No. The 5% Gross Income Tax rate, in lieu of all national and local taxes, applies only to income from the enterprise’s registered project or activity as approved by PEZA. Income outside that registered activity — such as unrelated sideline sales, interest income, or gains not tied to the approved project — does not carry the same incentive and can be subject to ordinary income tax and to withholding in the customer’s hands like any other taxable transaction.

Can a customer just assume a PEZA-registered company doesn’t need to be withheld from? #

No. PEZA registration alone does not tell a customer whether a specific payment is for the registered activity or whether the enterprise’s incentive is currently active and properly documented. A customer should request and keep on file the enterprise’s current BIR Form 2303 and PEZA certification before skipping withholding, and should confirm with the enterprise or, where uncertain, its own Revenue District Office rather than assume based on the PEZA name alone.

Summary #

A PEZA-registered enterprise availing of an income tax holiday or the 5% Gross Income Tax incentive generally is not subject to withholding tax as a payee on income from its registered activity, per BIR Memorandum Circular No. 74-99, once it furnishes its customer a current BIR Form 2303 and PEZA incentive certification. That same enterprise remains an ordinary withholding agent as a payor, however, and must withhold and issue BIR Form 2307 on payments to local suppliers, contractors, and landlords unless the supplier itself independently qualifies for an exemption. Treat these as two separate questions, keep the supporting documentation current on both sides, and confirm with PEZA or the BIR when a specific payment’s registered-activity status isn’t clear.