What Constitutes an Online Seller?
The BIR defines an online business as any person or company that uses the internet to earn income. As such, this pertains to online sellers, including delivery channels, internet service providers, online payment gateways, and facilitators of any other online transaction. All of these have to register their business and pay the corresponding taxes. Do note that if you sell something online occasionally to merely declutter, you are not considered a business.
What Do I Need to Register with the BIR?
As a micro-enterprise, you are mandated to register your online selling business. All businesses, no matter how big or small, must comply with the regulations. Under the current Tax Code, failure to register with the BIR will result in the closure of no less than five days, plus corresponding penalties.
Do note that the BIR has no online registration system. To register your online business, you have to go to the Revenue District Office (RDO) near your place of business. These are the following requirements you must prepare:
Noteworthy, the Mayor’s Permit is no longer required. You can process your LGU requirement concurrently based on the BIR order issue last June 9, 2020. It removes the said permit to streamline the registration process.
How Do I Register My Online Business?
Step 1: Go to the RDO nearest your place of business.
Step 2: Fill out 2 copies of BIR Form 1901 or the Application for Registration for Self-Employed (Single Proprietor/Professional), Mixed-Income Individuals, Non-Resident Alien Engaged in Trade/Business, Estate and Trust.
Step 3: Present all the registration requirements to the BIR Client Support Officer (CSO) for review. If you don’t have a DTI certificate, you must secure this online here on their business name online registration page. You also need to provide your TIN. If you don’t have one, apply for it here easily.
Step 4: Once everything has been verified, proceed to the New Business Registrant Counter so you can pay the Annual Registration Fee of P500 and Documentary Stamp Tax (DST) of P30.
Step 5: After complying with all the requirements, you will receive the following:
• The BIR Certificate of Registration (BIR Form No. 2303)
• A copy of BIR-stamped Form No. 1901 with your TIN (if you were not issued a TIN before)
• Notice to Issue Receipt/Invoices and Book of Accounts
• Proof of payment of annual registration fee and DST
How Much Taxes Will I Pay?
If your online selling business only makes less than P250,000 in gross annual sales, then you don’t have to pay any income tax. However, you are still required to register your business with the BIR.
Those whose gross sales do not exceed P100,000 during the fiscal year are dubbed as marginal income earns. Below are its tax implications:
• Required to register with the RDO and issued a TIN (no need to pay P500 registration)
• Exempted from maintaining book of accounts and issuance of receipts
• Free from providing audited financial statements
• Exemptions from 12% VAT or 3% OPT
• Exempted from paying expanded withholding tax on its sales
Don’t forget to register with the BIR as a marginal income earner to avail of the above exemptions.
Noteworthy, those whose online businesses are worth less than P3 million, you can also opt to register as a BSBME or a Barangay Micro Enterprise at the DTI and BIR to receive the following perks:
• Exemption from income tax
• Liability for 12% VAT or 3% OPT
• Exclusion from audited financial statements
• If your employees have the same benefits, you can be exempted from the minimum wage law
• Access to financial assistance and training programs from the government and other designated institutions.
Do note that online sellers are slated to pay taxes just like physical businesses for their e-commerce activities when a certain level of income is reached. This includes:
• Monthly and quarterly Value Added Tax (VAT) for those earning more than P3 Million in a year
• Quarterly Percentage Tax for those earning P3 Million or less annually not subject to VAT
• Withholding tax on compensation to be remitted monthly
• Withholding tax expanded to be remitted monthly
• Quarterly and annual Income Tax
Should you be making more than P250,000 but less than P3 million in gross annual sales and not VAT registered, you can choose to pay the graduated tax rate or the 8% self-employed tax rate. The latter, however, cannot claim any deductibles.
If you are making more than P3 million in gross annual sales or VAT registered, then you can only choose to pay your income tax based on graduated tax rates on your net income.
For the withholding tax compensation and expanded, these are not your taxes. These represent taxes of your employees and suppliers which you deducted from your payment to them. As such, you are required to remit these advance taxes to the government on a monthly basis.
Do note that the most optimal way to approach the issue of taxes is to verify with a Certified Public Accountant. While researching on your own will keep you informed and educated, for matters as complex as BIR regulations and tax compliance, it is in your best interest to let a professional guide you.
If you need any help so you can focus on growing your business and dispense with the tedious forms, we’ll be happy to serve you. Happy online selling!