If you’re just starting your online business in the Philippines, you may not be aware of the country’s tax system. The Philippine government has been taking notice of the rise of online selling, which has grown to such an extent that just about anyone can start selling on any of the popular e-commerce platforms, on social media, or an owned website.
With e-commerce in the country expected to grow to about US$24.2 billion in 2022, it is no wonder that the taxman will want to ensure that this section of the economy continues to pay its dues in just the same way as any ordinary business would.
The debate and concerns on taxing online merchants continue to rage. Still, every subsequent administration—including that of newly-elected Philippine President Ferdinand Marcos, Jr.—has been looking at ways to ensure that online merchants thrive while keeping them aligned with proper business practices.
Here is a list of important tax laws and regulations issued by the Philippine government that you need to know as an online merchant:
Revenue Memorandum Circular No. 60-2020
RMC Circular No. 60-2020 or the “Obligations of Persons Conducting Business Transactions Through Any Forms Of Electronic Media, and Notice to Unregistered Business”, which was signed and released on June 1, 2020, by the Philippines Bureau of Internal Revenue (BIR), is currently the strongest form of law that the Philippine government has given to any organization or individual conducting online business.
It stipulates that anyone who earns from digital transactions on any platform is required to be registered with the BIR. Such businesses must have been registered with them not later than July 31, 2020. They are also encouraged to voluntarily declare their past transactions before the deadline and pay the corresponding taxes on those.
Those who have started operating their operations after July 31, 2020, must ensure they are registered. They must also issue the following:
- Issuance of registered sales invoice or official receipt for every sale of goods or services to clients.
- Keeping registered books of accounts and other accounting records of business transactions
- Withholding taxes, if applicable
- Filing of required tax turns
- Payment of correct taxes on time
Failure to complete these subjects the seller to applicable penalties under the Philippines’ Tax Code.
RMC No. 55-2013
Entitled “Reiterating Taxpayers’ Obligations in Relation to Online Business Transactions,” RMC No. 55-2013 was considered the first real regulation that the Philippine government released in direct relation to e-commerce. It even acknowledges the new terminologies used by online businesses to indicate the type of transactions they conduct, from business-to-business (B2C), business-to-consumer (B2C), and event consumer-to-consumer (C2C).
The BIR stresses that any online merchant should operate like any ordinary business, which means they must register their business at the revenue district office (RDO) where they are primarily operating. They must also accomplish BIR Form 1901 (for individuals) or 1903 (for corporations or partnerships), and pay the registration fee to any Authorized Agent Bank (AAB) located within the RDO.
The BIR will also issue a Certificate of Registration, which should reflect the tax types required of the concerned taxpayer for filing and payment. This certificate must also be displayed clearly in the business establishment.
Tax exemption under Revenue Regulations No. 11-2000
There is an opportunity for you to be exempted from paying taxes especially if you’ve only started your business. Revenue Regulations No. 11-2000 highlights what is called “marginal income earner” wherein gross revenues that do not exceed PHP 100,000 during a 12-month period are exempted from paying taxes.
However, once you start exceeding your revenues, you’ll have to start paying the applicable fees.
Republic Act 9178 Section 7
Another way for you to minimize your taxes especially if you’re just starting out is to indicate that you are a barangay micro business enterprise (BMBE), which describes a really small operation.
Under Section 7 of RA 9178, or the “BMBE Incentives and Benefits Law”, such businesses–which only hold assets not exceeding PHP 3,000,000–are exempt from having to pay income tax and the Minimum Wage Law. BMBEs will get a certificate from the Department of Trade and Industry that will allow them to operate for two years without paying income tax. The certificate can also be renewed after two years.
But do note that even if your business is considered a BMBE you are still subject to some tax-related items, such as:
- 12% value added tax or 3% other percentages taxes
- Business taxes as applied
Tax Code Section 236
So, are you ready to register your business? Here are some guidelines, according to the BIR’s Tax Code Section 236.
- Every person subject to any internal revenue tax shall register once with the appropriate revenue district officer:
- Within 10 days from the date of employment, or on or before the start of the business
- Register before payment of any tax due, or upon the filing of a return or statement of declaration as required in the Tax Code.
- Registration must contain the taxpayer’s name, style, place of residence, business, and other information required by the BIR.
- A person maintaining a head office, branch, or facility shall register with the RDO having jurisdiction over these locations.
- Apply for appropriate tax types such as value-added tax, and tax exemptions.
- If you do not have a tax identification number (TIN), you must also apply for it. You can apply by filling up the form here and submitting it at the RDO.
Not very many people like to pay taxes. Others claim it is a source of corruption, while others say some taxes are highly unfair to ordinary people. But despite the negativity, taxes play an important role in keeping a country’s economy going and ensuring the working conditions of critical infrastructure, like roads, bridges, farms, markets, etc.
Online businesses also need the availability of internet connectivity and shipping ports to do their business and all of those are only possible when they are built using taxpayers’ money.