iRealtee OS Glossary

Revenue Regulations No. 2-98

RR 2-98 governs the following critical aspects of withholding tax compliance:

Revenue Regulations No. 2-98

Revenue Regulations No. 2-98 is a tax regulation issued by the Bureau of Internal Revenue (BIR) that establishes the rules and rates for the Expanded Withholding Tax (EWT) system in the Philippines. This regulation requires withholding agents to deduct taxes at source from various income payments, including professional and consultancy fees.

Key Provisions

RR 2-98 governs the following critical aspects of withholding tax compliance:

  • Section 2.57.2(A) - Professional fees: 5% for individuals earning below PHP 3,000,000 annually; 10% for those exceeding this threshold
  • Section 2.57.2(B) - Rentals: 5% withholding on rental payments for real and personal property
  • Section 2.57.2(I) - Top Withholding Agents: Special rates for designated large taxpayers
  • Income payments to contractors: 2% on payments to general contractors and subcontractors
  • Commissions: 10-15% on commissions paid to agents, including real estate brokers

Who is Affected?

The regulation applies to:

  • Withholding Agents: Employers, corporations, partnerships, government agencies, and individuals engaged in business who make income payments
  • Real Estate Practitioners: PRC-licensed brokers, salespersons, and appraisers receiving professional fees
  • Property Developers: Entities paying commissions to real estate agents
  • Consultants and Professionals: Lawyers, accountants, engineers, architects, and other service providers
  • Top 20,000 Corporations: Designated by the BIR as top withholding agents with additional compliance requirements

Penalties

Non-compliance with RR 2-98 results in:

  • 25% surcharge on the tax due for late filing or payment
  • 12% annual interest from the due date until full payment
  • Criminal penalties: Fines from PHP 5,000 to PHP 50,000 or imprisonment of 1 to 10 years for willful failure to withhold or remit
  • Deficiency assessments from BIR audits with accumulated surcharges and interest

Relevance to Philippine Real Estate

For real estate professionals, RR 2-98 directly impacts commission payments. When a property developer pays commissions to brokers or agents, they must:

  1. Withhold 10% Expanded Withholding Tax from professional fees
  2. Issue BIR Form 2307 (Certificate of Creditable Tax Withheld at Source) to the payee
  3. Remit the withheld tax monthly using BIR Form 0619-E
  4. File quarterly and annual alphalists of payees

Real estate commission systems must automate this calculation to ensure compliance. The withheld tax becomes a creditable amount against the agent's annual income tax liability when filing BIR Form 1701.

You can learn more about related tax compliance topics:

References

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