If you are a first-time business owner, a freelancer, or if it is your first time interacting with the online tax payment website and interface, you might have some questions regarding how to carry out these online transactions. Noteworthy, even online businesses are required to pay taxes, especially amid the boom of e-commerce aided by numerous online shopping apps and portals. Learn more about the common type of online business transactions and proper taxation required by the BIR for each of them below:
The four most common types of Online Business Transactions
- Online retail or online business
Online businesses or retail is characterized by any merchant selling goods or services through online platforms, like social media accounts, shopping platforms, and websites. In this case, merchants may or may not have a physical store location. However, buying from them is still like making a purchase from an actual physical store, except that there is no face-to-face social interaction between the merchant and buyer. Goods are usually sent via a courier service to complete the sale.
- Online intermediary services
As their name suggests, online intermediaries are not the direct seller; rather, they act to promote and boost sales for online merchants. In doing so, they receive commissions or incentives for every successful campaign that generates more sales for the primary seller through referrals and recommendations. This may include platforms like Lazada, Shopee, or Alibaba, as they act as intermediary forces between the merchants and customers. Deliverables are sent via shipping services.
- Online advertising (via social media or websites)
Online advertisements are used to promote products or services in the form of display ads, banners, etc. Owners of platforms, websites, and media that run ads are not owners of the product, rather get paid to advertise them. Think of it as a virtual billboard. This is what Facebook, Instagram, Youtube, bloggers, and other media or websites do. And since there is a recent BIR crackdown on social media influencers, you must pay attention to your accounting and taxation if you are engaged in this industry.
- Online Auctions
These are auctions held through online means. Examples of these can be Ebay where people bid on merchandise. Some even sell their services on online bidding sites like Fiverr or Upwork where clients bid on the services that best suit their needs.
Taxation for Online Transactions
The kind of taxes that you will have to pay will depend on the kind of Certificate of Registration issued to you. Online businesses often pay just the same in taxes as traditional physical businesses. The list of taxes that an online business will have to pay includes:
1. Monthly and Quarterly Value Added Tax
2. Quarterly Percentage Tax for businesses earning an annual sum of 3 million pesos or less, thereby exempting them from VAT
3. Withholding tax on compensation
4. Creditable Withholding Tax
5. Quarterly or Annual Income Tax Returns
Noteworthy, other taxes may apply depending on the local government ordinances where your online company is based and registered to.
- For online retailers
Online sellers are required to issue Official Receipts or Sales Invoices. In addition, acknowledgment receipts must be issued for transactions paid for in cash or card. The merchant is also mandated to pay commission to the credit card company.
- For online intermediaries
Online intermediaries are required to send the Official Receipts to each customer. These receipts, however, are coming from the merchant, and the intermediary is the messenger. The intermediary must ensure that goods are delivered and that services are rendered. The intermediaries must then issue their own Official Receipt, for filing, to the merchant listing their expected commission.
- Online advertisements
Companies earning through online ads have the same tax obligations as an online store. So staying vigilant bookkeeping and accounting are vital. This will help anyone engaged in this business file the correct taxes to the BIR.
- Online auctions
Online auctioneers are required to issue Official Receipts for all payments from buyers. This also includes keeping invoices from clients, especially if your sales exceed more than P250,000 per year.
If all of these sound very confusing to you, seek professional guidance from a certified public accountant. You can call our team to help you with bookkeeping, accounting, and tax compliance. Remember, anyone engaged in online transactions is required to report their earnings to the BIR. Failure to do so will result in tax evasion charges and penalties. Take advantage of our free 30 minute consultation.