BIR Form 2307 on Progress Billings and Mobilization Fees: Withholding Before a Construction Project Is Finished

A contractor’s progress billing or mobilization fee is withheld as soon as it is paid, becomes payable, or is accrued/recorded as an expense in the client’s books — whichever happens first — not only once the construction project is fully completed. Under Section 2.57.4 of Revenue Regulations (RR) No. 2-98, as amended by RR No. 12-2001, the withholding duty attaches at the earliest of these events, so a mobilization fee advanced before groundbreaking or a milestone billing recorded as a payable mid-project both trigger withholding immediately — waiting until the final billing to withhold on the whole contract is the common, costly mistake this creates.

This guide is part of the BIR Form 2307 series. It covers the accrual-or-payment timing rule, why booking a payable without withholding is already a compliance gap, and a worked three-milestone construction example. For the underlying rate this applies to, see BIR Form 2307 for Contractors and Subcontractors.

When does the withholding duty actually arise? #

Withholding attaches at the earliest of three triggers — actual payment, the payment becoming legally due and demandable, or the payment being recorded as an expense or asset in the payor’s own books — whichever comes first, not simply “whenever the client gets around to paying.” RR No. 2-98’s timing provision, as amended, is explicit on this point:

“…the obligation of the payor to deduct and withhold the tax under this Section arises at the time an income payment is paid or payable, or the income payment is accrued or recorded as an expense or asset, whichever is applicable, in the payor’s books, whichever comes first.”

— Section 2.57.4, Revenue Regulations No. 2-98, as amended by RR No. 12-2001

Revenue Memorandum Circular (RMC) No. 10-2018 — issued to clarify this same “paid, payable, or accrued” timing rule for government agencies, LGUs, and GOCCs specifically, and later reiterated in RMC No. 47-2023 — confirms the practical effect of the “accrued or recorded” branch: the obligation to withhold already exists once an accounting department books the amount as a payable or an expense, whether or not cash has actually left yet. The underlying rule in Section 2.57.4 itself, however, is not limited to government payors — it applies to any withholding agent, government or private. A private construction client that books a ₱2,000,000 progress billing as accounts payable at month-end, intending to pay the contractor the following month, already owes the withholding at the point of booking under Section 2.57.4 — not at the later payment date.

Why this catches mobilization fees and milestone billings specifically #

A mobilization fee — an upfront amount paid to a contractor to cover initial setup, equipment, and labor mobilization before any visible construction work begins — is still an income payment for the contracted construction service, so it is withheld the same way as any other progress billing, not treated as a separate, untaxed advance. Construction contracts commonly structure payment around project milestones rather than a single lump sum at completion:

• A mobilization fee released on contract signing, before site work starts
• A progress billing tied to a percentage-of-completion milestone (e.g., 30%, 60%, 90% complete)
• A retention amount held back until final acceptance, released later

Each of these is a separate income payment event under Section 2.57.4, and each triggers withholding at whichever of payment, payability, or accrual comes first for that specific milestone — a client cannot defer all withholding to a single reconciliation at project completion.

What rate applies, and who withholds #

The rate doesn’t change because a payment is a milestone or an advance rather than a final billing — a general construction contractor’s progress billings are withheld at the same 2% rate that applies to the contractor’s other service invoices, under ATC WI120 (individually owned contractor) or WC120 (contractor organized as a corporation), per Section 2.57.2(E) of RR No. 2-98 as amended by RR No. 11-2018. The property owner or developer paying the contractor is the withholding agent for every milestone payment, regardless of how far along the project is.

Worked example: a three-milestone commercial build-out #

Meridian Retail Holdings contracts BuildRight Construction Corp. for a ₱10,000,000 store build-out, structured as a 20% mobilization fee on signing, a 50% progress billing at substantial completion, and a 30% final billing on acceptance.

Meridian withholds ₱40,000 at signing even though construction hasn’t started, withholds ₱100,000 at the point the progress billing is recorded as a payable (even if actual payment to BuildRight follows a few weeks later), and withholds the remaining ₱60,000 on final acceptance. Meridian issues BuildRight a BIR Form 2307 reflecting the cumulative ₱200,000 withheld across the three milestones, and remits each amount through BIR Form 0619-E and BIR Form 1601-EQ for the period in which each trigger actually occurred — not deferred to a single year-end reconciliation.

Summary #

The withholding duty on a construction contractor’s progress billing or mobilization fee arises at the earliest of payment, payability, or accrual/recording as an expense in the payor’s books, under Section 2.57.4 of RR No. 2-98 as amended by RR No. 12-2001 and clarified by RMC No. 10-2018 — not only once the project is finished. Each milestone payment is withheld at the ordinary 2% general contractor rate (ATC WI120/WC120) as it’s triggered, and the client should withhold on an accrued progress billing even before cash actually changes hands. For the general contractor rate this builds on, see BIR Form 2307 for Contractors and Subcontractors.