Taxation of Reimbursable Expenses in the Philippines

Reimbursable expense is an expense a taxpayer pays for and in behalf of another. It involves two (2) things where tax implications may come in – one is the payment of the expense for and in behalf of another, and the second is the receipt of the reimbursement of such amount.

Payment for reimbursable expenses in behalf of another

Under this, the agent (the one paying in behalf of another) will pay the third party for and in behalf of the principal (the one actually bound to pay and in whose payment is accommodated by another). The tax implication is the application of withholding taxes on reimbursable expenses in the Philippines. While the amount paid by the agent is not its expense, it is nevertheless bound to account for the withholding taxes (most especially income payments of top twenty thousand principals). Under the rules, the person in control of payment of an expense is under obligation to withhold for and in behalf of the principal. This is the context of Revenue Memorandum Circular No. 35-2006 on third part payments of brokers, and others similarly situated. The agent is bound to issue the Certificate of Withheld Taxes (CWT) or BIR Form No. 2307 for and in behalf of the principal. Official receipts and invoices shall likewise be issued by the third party under the name of the principal.

Repayment of reimbursable expenses in the Philippines

The tax issue in this aspect is whether or not the repayment is a taxable income of the agent. To be taxable, an income should refer to the flow of wealth to the taxpayer, other than a mere return of capital. This would simply mean that the recipient should be wealthier after the transaction that before, or that a new wealth not coming from the taxpayer’s pocket should come in such taxpayer.

In repayment of reimbursable expenses in the Philippines, the agent paid the expense and later reimbursed the same amount it paid. In effect, the amount repaid is the same amount initially paid by the agent in behalf of the principal. Accordingly, no taxable income would arise from such repayment and thus, not subject to income tax in the Philippines. The agent is not bound to issue a taxable official receipt and a simple acknowledgment receipt may suffice. Principal is not likewise bound to apply withholding taxes on such payments because as said above, it should have been already subjected to withholding taxes upon payment of the principal. However, if the agent would add a mark-up on such reimbursable expenses, then, the same would be taxable – business tax (value added tax or percentage tax in the Philippines), and income tax.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at

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