Tax Basics for Online Sellers | What Online Sellers Need to Know About Taxes in the Philippines

1. Registering Your Online Business with the BIR

All online sellers are required to register with the Bureau of Internal Revenue (BIR) as part of their business obligations. Here’s a quick rundown of the registration requirements:

• Step 1: Get a Tax Identification Number (TIN) from the BIR if you don’t have one. You can apply with BIR online or at the BIR's office.
  
  
• Step 2: For online applications, please visit this BIR website. While for applications to be done at the BIR office, please fill out:
  
             a. BIR Form 1901 (for individuals) or 
             b. BIR Form 1903 (for non-individuals like corporations) .
  
  
• Step 3: Prepare and submit the following documents:

                   a. Government-issued ID, and 
                   b. DTI or SEC registration.

• Step 4: Get an Authority to Print (ATP) for official receipts or invoices. 
              Fill up and submit this BIR form 1906 - 

✅Pro Tip 1: Always consult tax professionals to properly apply your BIR registration.  

✅Pro Tip 2: Remember to display your BIR Certificate of Registration (COR) on your physical or online store or page where it’s visible to your customers. It’s a requirement and adds legitimacy to your business. 

2. VAT vs. Percentage Tax

Here’s where it gets interesting—understanding VAT and Percentage Tax is crucial for setting up your business taxes right from the start.

A. Value-Added Tax (VAT): VAT is a 12% tax on the sale price of your goods. It’s mandatory if your annual gross sales exceed ₱3,000,000. VAT returns must be filed monthly (Form 2550M) and quarterly (Form 2550Q). If you’re VAT-registered, you can claim input VAT (tax you paid on purchases) as a deduction.

B. Percentage Tax: If your annual gross sales are ₱3,000,000 or below, you can register for Percentage Tax instead of VAT. This tax is only 3% of gross sales and is filed quarterly using BIR Form 2551Q. It’s simpler and has a lower rate, so it’s ideal for smaller businesses or new sellers.

Example:

• Monthly sales of ₱100,000 would mean a ₱12,000 VAT payment.
• Under Percentage Tax, the same monthly sales would incur ₱3,000 in tax (₱100,000 x 3%).

✅ Pro Tip 1: Keep track of your annual sales. Once you exceed ₱3,000,000, you’ll need to shift to VAT registration. 

✅ Pro Tip 2: Also, using accounting software helps streamline tax calculations and keeps your records organized.

3. Income Tax Obligations

All businesses in the Philippines, including online sellers, are subject to income tax obligations. The applicable tax rates depend on your business structure (individual seller, sole proprietor, or corporation) and your annual revenue.

• For Individual Sellers and Sole Proprietors:
  
  
  • Graduated Income Tax Rates: Ranges from 0% to 35% based on your taxable income. This applies if your annual income exceeds ₱3,000,000 or if you choose not to opt for the 8% flat rate.
    
    
  • Optional 8% Flat Rate: Individual sellers and sole proprietors whose annual gross sales do not exceed ₱3,000,000 can choose to pay an 8% tax on gross sales in place of the regular graduated income tax rates and percentage tax.
    
    
  • Example: If your online store has an annual income of ₱1,500,000 (after allowable deductions), you may opt for the 8% flat rate on gross sales rather than calculating tax using the graduated income tax rates.
    
    
• For Corporations:
  
  
  • 25% Tax Rate: Corporations with gross sales or receipts above ₱5,000,000 are taxed at a 25% rate on taxable income.
    
    
  • 20% Tax Rate: Corporations with gross sales or receipts of ₱5,000,000 or below are eligible for a reduced 20% tax rate on taxable income.

✅ Pro Tip 1: Leverage the Barangay Micro Business Enterprise (BMBE) Program

If your business qualifies, applying for Barangay Micro Business Enterprise (BMBE) status can lead to significant tax benefits. Under the BMBE Law, registered micro-businesses are exempt from income tax, making it highly advantageous for small-scale sellers to keep more profits. Qualification requires that your capital does not exceed ₱3 million (excluding land).

✅ Pro Tip 2:  Optimize Deductions and Allowable Expenses: 

Maximize your tax deductions by keeping thorough, organized records of all business-related expenses, including utilities, supplies, and even certain software or platform fees. Accurate expense tracking can significantly reduce your taxable income, which is crucial if you're subject to graduated tax rates.

✅ Pro Tip 3: Evaluate the 8% Flat Rate Option

If you’re an individual or sole proprietor with gross sales below ₱3,000,000, consider the 8% flat rate. Compare the tax savings between using the flat rate on gross sales and the graduated income tax after deducting expenses. The 8% flat rate is generally more favorable for businesses with minimal expenses.

✅ Pro Tip 4: Consider Incorporation

If your revenue is steadily growing, consider incorporating your business to benefit from a lower corporate tax rate (20% for small businesses with under ₱5 million in sales). This can lower your effective tax rate, especially if you have considerable profits.

✅ Pro Tip 5: Use Accounting Software for Accurate Reporting

Invest in reliable accounting software to help track your revenue, expenses, and deductions in real time. Many platforms also offer automated tax estimates, which can help prevent underpayment and avoid penalties.

For bookkeeping assistance, feel free to schedule a free consultation with us.

4. Withholding Taxes

A. Withholding Tax on Compensation: As an employer, you’re required to withhold a portion of your employees’ salaries for taxes. This amount depends on the tax table and should be remitted to the BIR monthly using BIR Form 1601-C.

B. Expanded Withholding Tax (EWT): Certain payments you make (like to suppliers, rent, or contractors) may require withholding EWT, ranging from 1% to 15%, depending on the service provided. File EWT through Form 1601-E monthly and submit a summary via Form 1604-E annually.

Example: If you paid your supplier ₱10,000 for services with a 2% withholding, you would remit ₱200 to the BIR and pay the supplier ₱9,800. This helps ensure taxes are paid on all service-based earnings.

Filing and Payment Schedules at a Glance:

• Monthly: VAT (if registered), withholding taxes (compensation and expanded)
• Quarterly: Percentage Tax, Income Tax (first three quarters), and VAT
• Annually: Annual Income Tax Return (Form 1701 or 1702), Summary of Withholding Taxes, and VAT

Make Taxes Easier with Expert Help!

Tax compliance can get complicated, especially as your business grows. If you need guidance or support with VAT registration, Percentage Tax, or withholding requirements, we’re here to help! Our tax filing and consulting services are tailored to online sellers like you. 

Contact us to stay compliant and keep your focus on growing your business, not handling paperwork.

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