BIR Form 2307 for Security Agencies: Why EWT Applies Only to the Agency Fee, Not Guards' Salaries

Under Revenue Memorandum Circular (RMC) No. 39-2007, a client that hires a security agency withholds 2% expanded withholding tax (EWT) only on the agency’s fee — not on the pass-through amount that funds the guards’ salaries. This is because Republic Act (RA) No. 5487 makes the client primarily liable for guards’ wages and requires that portion of the contract price to be earmarked and segregated by the agency, so it never becomes part of the agency’s gross income and falls outside the withholdable “income payment” on BIR Form 2307.

This guide is part of the BIR Form 2307 series. It covers who must withhold, why the agency-fee carve-out exists, which ATC codes apply, how this differs from the general 2% contractor rule, and a worked billing example — plus why janitorial and other manpower agencies do not get the same treatment.

Who must withhold on a security agency payment? #

A client that engages a private security agency for guard services must withhold 2% EWT and issue BIR Form 2307 — but only on the agency-fee component of the billing, not the full amount paid. The withholding obligation still sits with the payor, exactly as it does for contractors generally; what changes under RMC No. 39-2007 is the peso base the 2% rate is applied to.

This narrower base is a documented exception, not a general rule for every category of manpower or outsourced-labor supplier. Before applying it, confirm the payee is genuinely a private security agency licensed under RA 5487 — not a janitorial contractor, messengerial agency, or other manpower supplier that happens to also employ and deploy workers to a client’s site.

Why does the agency-fee carve-out exist? #

The carve-out exists because RA 5487 — the law governing private security agencies — makes the client, not the agency, primarily responsible for paying guards at least the legally prescribed minimum wage, and requires that portion of the contract price to be earmarked and set aside by the agency rather than treated as its own funds. Because the security agency never has beneficial use of that segregated amount, it does not meet the definition of gross income to the agency, and BIR Form 2307 withholding — which taxes the payee’s income — has no base to apply against for that portion.

The 1994 Revised Rules and Regulations Implementing RA 5487 describe this earmarking obligation directly. As commonly cited in tax-advisory summaries of RMC No. 39-2007 and its underlying RA 5487 basis:

“The amount prescribed shall be earmarked and set aside, segregated from the monies received by the agency from its clients as an amount reserved for the remuneration of the guard or detective.”

Building on that segregation duty, tax-practitioner commentary on RMC No. 39-2007 describes the accounting result this way:

“The amount received by the Security Agency which is segregated, earmarked or set aside for the salaries of the security guards will not form part of its gross receipts but should be recognized as a liability.”

In plain terms: the security agency books the earmarked wage amount as a liability owed to the guards, not as revenue. Only the agency-fee portion — its actual compensation for organizing, deploying, and supervising the guard force — is income to the agency, and only that portion is subject to VAT on gross receipts and to the client’s 2% EWT.

Which ATC code applies to the agency-fee base? #

RMC No. 39-2007 does not create a new ATC — the same contractor codes used for the general 2% rate still apply, just computed on a smaller base. A security agency falls within the “other contractors” category already covered by RR No. 11-2018 and BIR Form 2307’s ATC codes for contractors, so:

The rate and codes are identical to any other contractor payment. What RMC No. 39-2007 changes is exclusively the peso amount those codes get multiplied against — the guards’-salary portion never enters the WI120/WC120 calculation because it was never part of the agency’s income payment to begin with.

How this differs from the general 2% contractor rule #

Most contractors covered by RR No. 11-2018 — including janitorial agencies — are withheld 2% on the full gross contract price, with no carve-out for any pass-through labor cost inside that price. RMC No. 39-2007’s agency-fee-only base is a documented exception limited to security agencies, grounded in RA 5487’s client-liability and earmarking rules — rules that do not extend to janitorial contractors or other manpower suppliers, whose own workers’ wages remain the contractor’s own primary obligation and therefore its own cost, not a segregated pass-through.

A 2024 Philstar Business analysis of this exact contrast summarized it as comparing “apples and oranges” — the security-agency treatment turns on a wage-liability structure unique to RA 5487, not on the general nature of manpower outsourcing. That is also why a client cannot extend the agency-fee-only base to a janitorial contractor’s billing just because both categories sit in RR No. 11-2018’s “other contractors” list alongside security agencies.

Do janitorial and other manpower agencies get the same carve-out? #

No — the BIR has consistently ruled that the agency-fee-only base is specific to security agencies and does not extend to janitorial contractors, messengerial agencies, or general manpower suppliers. The reasoning tracks directly to the legal basis: RA 5487’s client-liability and earmarking requirements apply only to private security agencies. A janitorial or manpower contractor remains primarily responsible for its own employees’ wages under ordinary labor-law and civil-law principles, so those wages are the contractor’s own cost embedded in its price — not a segregated client liability the contractor merely holds.

Because there is no equivalent earmarking obligation, the full amount a client pays a janitorial or general manpower agency stays inside that agency’s gross income, and the client withholds 2% EWT on the full gross billing — the same base used for any other covered contractor under RR No. 11-2018. Do not apply the RMC No. 39-2007 agency-fee split to a janitorial invoice on the assumption that “security and janitorial are treated the same” — the coverage list that puts both categories under the 2% contractor rate is not the same thing as the narrower withholding base RMC No. 39-2007 carves out for security agencies alone.

Worked example: ₱150,000 monthly security billing #

A ₱150,000 monthly security billing that breaks down into ₱120,000 in earmarked guards’ salaries and ₱30,000 in agency fee triggers only ₱600 in EWT — 2% of the ₱30,000 agency fee, not 2% of the full ₱150,000.

A retail chain contracts SentryWatch Security Corp. to post guards at three branches. SentryWatch’s monthly billing itemizes the contract price as follows:

The retail chain remits the ₱600 with its monthly BIR Form 0619-E / quarterly BIR Form 1601-EQ filings, lists SentryWatch on its Quarterly Alphalist of Payees, and issues BIR Form 2307 showing ₱30,000 as the income payment, ATC WC120, and ₱600 tax withheld. SentryWatch, in turn, is the one responsible for withholding tax on compensation from the ₱120,000 it disburses to its guards as payroll — that portion never appears as an income payment on the retail chain’s BIR Form 2307 at all.

Compare this to the contractors and subcontractors example, where a ₱500,000 corporate contractor billing is withheld in full at 2% (₱10,000) because no equivalent earmarking exception applies to that contractor’s price.

Frequently asked questions #

Does BIR Form 2307 withholding on a security agency payment cover the full contract price? #

No. Under RMC No. 39-2007, a client withholds 2% expanded withholding tax only on the security agency’s fee — the portion of the billing that is the agency’s compensation for its services. The portion representing the security guards’ salaries is excluded from the withholding base because it is not part of the agency’s gross income.

Why are security guards’ salaries excluded from the agency’s gross income? #

Republic Act No. 5487, the law governing private security agencies, makes the client primarily responsible for the guards’ minimum wage rates and requires that the portion of the contract price representing those wages be earmarked and segregated by the agency. Because the agency never has beneficial ownership of that segregated amount, it is treated as a liability the agency holds and passes through, not as agency income, so it falls outside the withholdable income payment.

Does the agency-fee-only rule in RMC No. 39-2007 also apply to janitorial agencies? #

No. The BIR has consistently ruled that RMC No. 39-2007 applies only to security agencies, because the mandatory wage-earmarking obligation under RA 5487 is specific to private security agencies. Janitorial agencies and other manpower service providers remain primarily liable for their own workers’ wages, so the client withholds 2% EWT on the full gross payment to the agency under the general contractor rule in RR No. 11-2018 — not on an agency-fee-only base.

Which ATC code applies to the withholdable agency-fee portion of a security agency payment? #

The same contractor ATC codes apply — WI120 for an individually owned security agency and WC120 for a corporate security agency — both at 2%. RMC No. 39-2007 does not create a separate ATC; it narrows the peso base those codes are computed on to the agency fee alone, instead of the full billing.

How does a client know how much of a security agency’s billing is the agency fee versus guards’ salaries? #

The security agency’s billing or contract must show the breakdown between the agency fee and the amount earmarked for guards’ salaries, consistent with the segregation RA 5487 requires. A client should not assume a percentage split — it should rely on the agency’s itemized billing, contract, or official receipt showing the two components separately.

Summary #

RMC No. 39-2007 narrows the 2% EWT base for private security agencies to the agency fee alone, because RA 5487 makes the client primarily liable for guards’ wages and requires that portion to be earmarked and segregated — never becoming part of the agency’s gross income. The same WI120/WC120 contractor codes still apply, just against a smaller base than the full billing. This treatment is specific to security agencies: janitorial contractors and other manpower agencies stay under the general contractor rule, withheld on their full gross payment under RR No. 11-2018. Always confirm a security agency’s billing itemizes the agency fee separately from earmarked guards’ salaries before applying this narrower base, and see What Is BIR Form 2307 and the ATC codes guide for related fundamentals.