Tax Laws Every Online Seller in the Philippines Should Know in 2024

If you’re an online seller in the Philippines, you know that selling online can be a great way to earn extra income. However, as an online seller, you must comply with certain tax laws to avoid legal issues and penalties. Understanding tax laws can be overwhelming, but it doesn’t have to be. In this article, we will break down the tax laws that online sellers in the Philippines need to know in a conversational and informative tone.

Whether you’re just starting as an online seller or have been selling for a while, this article is for you. We’ll cover the basics of registering for taxes, the types of taxes you must pay, the tax incentives available, and common mistakes to avoid. 

By the end of this article, you’ll better understand the tax laws that apply to you as an online seller in the Philippines and how to comply with them.

So, let’s dive in and get started!

Registering for taxes

As an online seller in the Philippines, registering for taxes is important to ensure you comply with tax laws. Registering for taxes can be intimidating, but it’s a straightforward process. In this section, we’ll explain why it’s essential to register for taxes as an online seller and the steps you need to take to register.

Why it’s important to register for taxes as an online seller?

Registering for taxes as an online seller is important for several reasons. 

1. Legitimacy: Registering for taxes makes your business legitimate in the eyes of the government, which is essential for building trust with customers and partners.
2. Compliance: Registering for taxes allows you to obtain the necessary permits and licenses to operate your online business legally, ensuring that you comply with all applicable laws and regulations.
3. Savings: Registering for taxes enables you to avail yourself of certain tax incentives, such as income tax exemptions and VAT exemptions for small businesses, which can save you money in the long run.

Steps to register for taxes as an online seller in the Philippines

Registering for taxes as an online seller in the Philippines is relatively simple. Here are the steps you need to take:

1. Obtain a Tax Identification Number (TIN): The first step to registering for taxes is to obtain a TIN. You can get a TIN by visiting any BIR (Bureau of Internal Revenue) office or through the online TIN registration system.
2. Register with the Bureau of Internal Revenue (BIR): The next step is registering with the BIR after obtaining a TIN. You can do this by visiting the nearest BIR office or the BIR’s online registration system. You must submit the necessary documents, such as your TIN and business registration, to complete the registration process.
3. Attend a tax seminar: As a new taxpayer, the BIR requires a tax seminar. The seminar will provide basic knowledge on complying with tax laws and help you avoid common mistakes.
4. Get your Certificate of Registration (COR): After completing the tax seminar and submitting the necessary documents, you will receive your Certificate of Registration (COR). The COR proves you are registered with the BIR and can conduct business legally.

Links to relevant government websites for registration:

Here are some helpful links to government websites where you can register for taxes as an online seller in the Philippines:

• Bureau of Internal Revenue (BIR) website: https://www.bir.gov.ph/ 
• BIR online registration system: https://ereg.bir.gov.ph/init.do?app=ereg 
• eRegistration FAQs: https://ereg.bir.gov.ph/html/ereg_faqs.html  

Remember, registering for taxes is necessary to ensure that your online business is legitimate and compliant with tax laws in the Philippines. Don’t skip this step; register as soon as possible to avoid legal issues.

Taxes for Online Sellers

As an online seller in the Philippines, you must pay various taxes, including income tax, value-added tax (VAT), and percentage tax. In this section, we’ll explain these taxes, how they work, how they are calculated, and the deadlines for filing and paying.

Income Tax

Income tax is a tax on the income earned by individuals, corporations, partnerships, and other entities. As an online seller, you are considered a self-employed individual and must pay income tax on your online business profits.

Income tax rates and brackets

For individuals, the income tax rates in the Philippines range from 0% to 35%, depending on your income bracket. Here are the income tax rates and brackets for 2024:

Amount of Net Taxable Income		Rate
Over	But Not Over
–	P250,000	0%
P250,000	P400,000	20% of the excess over P250,000
P400,000	P800,000	P30,000 + 25% of the excess over P400,000
P800,000	P2,000,000	P130,000 + 30% of the excess over P800,000
P2,000,000	P8,000,000	P490,000 + 32% of the excess over P2,000,000
P8,000,000		P2,410,000 + 35% of the excess over P8,000,000

Source: Income Tax – Bureau of Internal Revenue

How income tax is calculated:

To calculate your income tax, you need to subtract your allowable deductions and exemptions from your gross income. Your gross income is the total amount of money you earn from your online business, while your deductions are expenses that you can subtract from your gross income to arrive at your taxable income.

Value-added Tax (VAT)

Value-added tax (VAT) is a tax on the value added to goods and services at every stage of production and distribution. As an online seller, you are required to register for VAT if your gross sales exceed PHP 3,000,000 in a 12-month period.

VAT rates and exemptions

The standard VAT rate in the Philippines is 12%. However, certain transactions are exempt from VAT, such as the sale of agricultural and marine products, books, and medicines.

How VAT is calculated:

To calculate VAT, you need to multiply the VAT rate by the selling price of your goods or services. For example, if you sell a product for PHP 1,000 and the VAT rate is 12%, the VAT amount would be PHP 120.

Percentage Tax

Percentage tax is imposed on businesses and individuals gross sales or receipts, not VAT-registered. As an online seller, you are required to pay a percentage tax if your gross sales do not exceed PHP 3,000,000 in a 12-month period.

Percentage tax rates and thresholds:

The percentage tax rate for online sellers is 3% of gross sales or receipts. However, certain types of sales are subject to a lower percentage tax rate, such as sales of goods or services to the government, which are subject to a 1% tax rate.

Deadlines for filing and paying taxes

As an online seller, you are required to file and pay your taxes on time to avoid penalties. Here are the deadlines for filing and paying taxes:

Monthly filing and payment:

• Income tax: The deadline for filing and paying income tax is on or before the 15th day of the following month.
• Value-added tax (VAT): The deadline for filing and paying VAT is on or before the 20th day of the following month.
• Percentage tax: The deadline for filing and paying percentage tax is on or before the 20th day of the following month.

Quarterly filing and payment:

• Income tax: The deadline for filing and paying income tax for the first quarter is on or before May 15, for the second quarter on or before August 15, for the third quarter on or before November 15, and for the fourth quarter on or before February 15 of the following year.
• VAT: On or before the 25th day of the month following the end of the quarter,

Penalties for late or non-payment:

Failure to file and pay taxes on time can result in penalties and interest charges. Penalties for late or non-payment may include a 25% surcharge, 20% interest per annum, and other penalties as provided by law. Therefore, filing and paying taxes on time is essential to avoid these penalties.

Understanding the types of taxes you need to pay, how they work, and the deadlines for filing and paying taxes is essential for online sellers in the Philippines. Make sure to keep track of them to save more.

Tax Incentives for Online Sellers

The Philippine government offers tax incentives to encourage small businesses, including online sellers, to grow and contribute to the country’s economy. In this section, we’ll explain the tax incentives available for online sellers in the Philippines, how to avail of these incentives, and the eligibility criteria.

Tax incentives available for online sellers in the Philippines:

1. Income tax exemptions for small businesses: Micro and small businesses with gross sales or receipts not exceeding Php 3 million per year are exempted from paying income tax. This incentive is available to both online and offline businesses.
2. VAT exemptions for small businesses: Micro and small businesses with annual gross sales or receipts not exceeding Php 3 million are exempted from paying VAT. This incentive is available to both online and offline businesses.
3. Tax amnesty program: The government also offers a tax amnesty program for delinquent taxpayers who failed to pay their taxes in previous years. Under this program, taxpayers who settle their tax liabilities will be granted amnesty on all surcharges and interest.

How to avail of these incentives:

To avail of these tax incentives, you need to meet the eligibility criteria and follow the application process.

Eligibility criteria:

1. Income tax exemptions: To be eligible for income tax exemptions, your gross sales or receipts should not exceed Php 3 million per year.
2. VAT exemptions: To be eligible for VAT exemptions, your annual gross sales or receipts should not exceed Php 3 million.
3. Tax amnesty program: To be eligible for the tax amnesty program, you must have unpaid taxes in previous years and should not have been previously charged with tax evasion.

Application process:

1. Income tax exemptions and VAT exemptions: To apply for income tax exemptions and VAT exemptions, you need to register your business with the Bureau of Internal Revenue (BIR) and indicate that you are a micro or small business. You must also maintain books of accounts and other records as required by the BIR.
2. Tax amnesty program: To apply for the tax amnesty program, you need to file a tax amnesty return and pay the corresponding amnesty tax within the prescribed period.

Links to relevant government websites for further information:

To learn more about tax incentives and how to avail of them, you can visit the following government websites:

• Bureau of Internal Revenue (BIR) – www.bir.gov.ph 
• Department of Finance (DOF) – www.dof.gov.ph 
• Department of Trade and Industry (DTI) – www.dti.gov.ph 

Remember, paying tax incentives is an excellent way for online sellers in the Philippines to save money and grow their businesses. Make sure to meet the eligibility criteria and follow the application process to avail of these incentives.

Common Tax Mistakes Made by Online Sellers

While running an online business in the Philippines, knowing online sellers’ common tax mistakes is important. This section will discuss some of the most common tax mistakes online sellers make and how to avoid them.

1. Failure to register with the Bureau of Internal Revenue (BIR)

One of the online sellers’ most common mistakes is not registering with the BIR. All businesses, whether online or offline, are required to register with the BIR within 30 days of starting operations. Failing to register can result in hefty fines and penalties.

2. Not declaring all income

Online sellers must declare all their income, including those earned from online marketplaces like Lazada and Shopee and social media platforms like TikTok Shop, Facebook and Instagram. Failure to report all income can lead to tax evasion charges, imprisonment, and fines.

3. Not keeping accurate records

Online sellers must keep accurate records of all their income and expenses. This includes receipts, invoices, and other financial documents. Failure to maintain correct records can result in penalties and fines.

4. Not filing taxes on time

Online sellers must file their taxes on time to avoid penalties and interest. The deadline for filing and paying taxes depends on the type of tax and the gross sales or receipts of the business. Income tax and VAT returns are filed either quarterly or annually, while percentage tax returns are filed monthly.

5. Not availing of tax incentives

As this article discusses, the Philippine government offers tax incentives to encourage small businesses, including online sellers, to grow and contribute to the economy. Not availing of these incentives can result in paying more taxes than necessary.

To avoid these common tax mistakes, online sellers should keep accurate records, register with the BIR, declare all income, file taxes on time, and avail tax incentives if eligible.

Understanding the tax laws and regulations for online sellers in the Philippines is crucial for running a successful and compliant business. You can save money and avoid penalties and fines by avoiding common tax mistakes.

Bonus: Some Additional Tax Laws That Online Sellers in the Philippines Need to Know 

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 organisation or individual conducting online business. 

It stipulates that anyone who earns from digital transactions on any platform must be registered with the BIR. Such businesses must have been registered with them no later than July 31, 2020. They are also encouraged to voluntarily declare their past transactions before the deadline and pay the corresponding taxes. 

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 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 12 months are exempted from paying taxes. 

However, once you exceed your revenues, you’ll have to pay the applicable fees. 

Republic Act 9178 Section 7

Another way to minimise your taxes, especially if you’re starting, is to indicate that you are a barangay micro business enterprise (BMBE), which describes a small operation. 

Under Section 7 of RA 9178, or the “BMBE Incentives and Benefits Law”, such businesses–holding assets not exceeding PHP 3,000,000–are exempt from paying 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: 

1. Within 10 days from the date of employment or on or before the start of the business
2. Register before payment of any tax due or upon the filing of a return or statement, or 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 out and submitting the form 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 internet connectivity and shipping ports to do their business, which is only possible when built using taxpayers’ money.

Wrapping Up

In conclusion, online sellers in the Philippines must comply with various tax laws and regulations, including income tax, value-added tax, percentage tax, and tax incentives. By understanding these tax laws and avoiding common tax mistakes, online sellers can ensure the success and longevity of their businesses.

At Locad, we understand online sellers’ challenges in managing their logistics and fulfillment needs while complying with tax laws and regulations. That’s why we offer end-to-end logistics solutions that take care of the entire fulfillment process, from receiving orders to delivery, while ensuring compliance with tax laws.

Whether you are a small business just starting or a large enterprise looking to optimise your logistics, Locad can help you streamline your operations, save costs, and achieve your business goals. Contact us today to learn more about our logistics and fulfillment services tailored for online sellers in the Philippines.

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