Philippines: Application of creditable withholding tax (CWT) on invoices and transition rules for invoicing systems

The Bureau of Internal Revenue (BIR) on October 22, 2026, issued Revenue Memorandum Circular (RMC) No. 112-2026, clarifying the implementation of Revenue Regulations (RR) No. 006-2026, which requires taxpayers to separately present creditable withholding tax (CWT) on invoices when applicable. The circular provides detailed guidance on the application of the requirement, the responsibilities of buyers and sellers, transitional treatment for existing invoices, and compliance timelines for electronic invoicing and other invoicing systems.

What is CWT?

Creditable withholding tax (CWT) is an income tax withheld by the buyer or payor on certain payments for goods or services and remitted directly to the BIR. The amount withheld may subsequently be claimed by the seller or payee as a credit against its income tax liability. This mechanism allows the government to collect income tax in advance while helping to improve tax compliance.

Key clarifications

The BIR clarified that the requirement to separately present CWT on an invoice applies only when the underlying transaction is subject to CWT under the Tax Code and applicable revenue issuances.

Key points include:

• A transaction is not automatically subject to CWT simply because it is a business-to-business (B2B) transaction.
• The buyer or payor is responsible for determining whether CWT applies and for communicating the applicable withholding information to the seller before invoice issuance.
• The seller may rely in good faith on the withholding information provided by the buyer unless the seller knows or should reasonably know that the information is incorrect.
• When CWT applies, the seller must issue the invoice for the full transaction value and separately disclose the CWT amount, showing the resulting net amount due.
• CWT must not be treated as a discount or reduction of gross sales, taxable sales, service revenue, or the VAT base.
• If the transaction is not subject to CWT, no withholding amount is required to be shown. A pre-existing CWT field may be left blank or populated with "N/A" or "0.00."
• Any CWT determination made after invoice issuance must be documented through a BIR-registered credit memo. The original invoice remains valid and must not be altered.

E-invoicing and invoicing system implications

The circular has significant implications for taxpayers using electronic invoicing and system-generated invoices.

Invoice layout requirements

• Electronic invoices, CRM/POS systems, CAS/CBA with accounting records (with electronic invoicing), and other invoicing systems must include a dedicated field labeled:
  • "Less: Withholding Tax,"
  • "Less: Creditable Withholding Tax," or
  • "Less: CWT."
• The CWT field must form part of the registered or accredited invoice configuration and be available in invoice outputs generated by the system.
• For transactions not subject to withholding, the field may remain blank or display "N/A" or "0.00."
• Failure of a system to generate or display the required CWT field and description may constitute noncompliance with BIR invoice layout requirements.

Data and audit trail requirements

Systems must be capable of capturing, processing, storing, reproducing, and reconciling information such as:

• Buyer’s withholding-agent status
• Applicable income payment classification or ATC
• Withholding tax rate
• Tax base
• CWT amount
• Gross invoice amount
• Net amount due

In addition, systems must maintain an audit trail identifying users who entered, modified, or approved withholding-related information and any subsequent changes made to the information.

System modification rules

The BIR clarified that modifications made solely to implement the CWT requirement will generally be treated as limited system changes, provided they do not materially affect:

• Invoice numbering controls
• Core sales recording functions
• System architecture
• Database structure
• Security controls
• Audit trail functionality
• Other core system functions

Consequently, these modifications generally will not require a new registration, accreditation, Permit to Use, or system approval, although any applicable notification or reporting requirements for system enhancements will continue to apply.

Compliance deadlines and transitional relief

The BIR established the following compliance deadlines:

• Taxpayers subject to mandatory electronic invoicing: Taxpayers covered by the mandatory electronic invoicing regime under RR No. 11-2025, as amended, must ensure their systems can generate and electronically process CWT information by December 31, 2026, with full implementation beginning January 1, 2027.
• Other invoicing systems: Taxpayers using CRM, POS, or other invoicing systems that are not yet covered by the mandatory electronic invoicing mandate must complete the necessary modifications by March 31, 2027, unless an earlier date is prescribed by the BIR.

Transitional treatment

During the transition period:

• Existing manual, loose-leaf, and system-generated invoices may continue to be used.
• For transactions subject to CWT, taxpayers may manually stamp, print, or write one of the following descriptions, together with the applicable CWT amount, on the invoice:
  • "Less: Withholding Tax,"
  • "Less: Creditable Withholding Tax," or
  • "Less: CWT"
• The temporary process must not alter invoice numbering, sales records, electronic journals, or audit trails.
• Taxpayers must maintain records of invoices on which transitional CWT disclosures are applied and reconcile the information with accounting records and withholding tax certificates.
• The transitional method ceases once the system is updated or the applicable compliance deadline is reached, whichever occurs first.

Practical compliance considerations

Taxpayers may need to:

• Determine whether their transactions are subject to CWT.
• Ensure buyers communicate withholding information before invoice issuance.
• Review invoice layouts and electronic invoice data structures to confirm that CWT can be separately presented.
• Assess whether system updates are required to support CWT data capture, reporting, reconciliation, and audit-trail requirements.
• Complete system modifications within the applicable compliance deadlines.
• Maintain adequate supporting documentation and reconcile invoice information with accounting records and withholding tax certificates.

KPMG observation

RMC No. 112-2026 confirms that the separate disclosure of CWT is primarily an invoice information requirement rather than a change to the underlying withholding tax rules. From an e-invoicing perspective, however, the circular introduces new data, layout, recordkeeping, and audit-trail requirements that may require modifications to ERP, POS, CRM, and electronic invoicing solutions. Businesses should evaluate their invoicing processes and systems promptly to ensure compliance with the January 1, 2027, and March 31, 2027, implementation deadlines, as applicable.

For further information, contact a KPMG tax professional:

Julius Acosta | jcacosta@kpmg.com

Philippe Stephanny | philippestephanny@kpmg.com

Ramon Frias | ramonfrias@kpmg.com