{"id":3944,"date":"2022-01-05T09:00:00","date_gmt":"2022-01-05T01:00:00","guid":{"rendered":"https:\/\/blog.ninjavan.co\/en-ph\/?p=3155"},"modified":"2023-02-22T17:26:01","modified_gmt":"2023-02-22T09:26:01","slug":"online-business-tax","status":"publish","type":"post","link":"https:\/\/blog.ninjavan.co\/en-ph\/online-business-tax\/","title":{"rendered":"E-Commerce 101: Your Tax Obligations as an Online Seller"},"content":{"rendered":"\n<p>Let\u2019s face it, <em>wala kang kawala sa tax<\/em>. If you run an unregistered online negosyo, you also run the risk of the Bureau of Internal Revenue (BIR) calling on you to pay your online business tax obligations to the government \u2014 yes, not even <a href=\"https:\/\/blog.ninjavan.co\/en-ph\/start-your-ecommerce-business\/\" class=\"ek-link\">ecommerce business<\/a> owners are outside the BIR\u2019s purview!<\/p>\n\n\n\n<p>The Department of Trade and Industry expects to register <a href=\"https:\/\/cnnphilippines.com\/business\/2021\/7\/22\/e-commerce-1m-merchants-2022-DTI.html\" rel=\"nofollow\" class=\"ek-link\">one million ecommerce businesses<\/a> in the Philippines in 2022, as popular online shops like Lazada and Shopee report seeing increases of up to 3 million visits a month over the past year.&nbsp;<\/p>\n\n\n\n<p>With these rising numbers, the BIR has been forced to clarify online sellers\u2019 tax obligations. In the next few paragraphs, we\u2019ll sketch out what the BIR expects from you as an online seller, but we strongly recommend you <strong>talk to a tax expert<\/strong> for a clearer picture of your obligations.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"https:\/\/lh3.googleusercontent.com\/2nxNK7eO0phBxiMzf2rjWhOwaBxt45UXJD0YHVJ_seI5KCgo0q5LKLB9hssCD1zpErFqzpvJtq1fgb_Rj3ZwDjeK2QFOFWVeqthmLezdpn7jQM171669uKaTLDxGlPDrU6KFl3c0\" alt=\"\" \/><figcaption class=\"wp-element-caption\"> <em>As the BIR\u2019s RMC 60 -2020 likes to remind online sellers, taxes are like Thanos.<\/em><\/figcaption><\/figure>\n<\/div>\n\n\n<h2 class=\"wp-block-heading\" id=\"bir-lays-down-the-law-for-online-sellers\">BIR lays down the law for online sellers<\/h2>\n\n\n\n<p>Whether you have a physical store or not, as long as you earn an income within the Philippines, you are subject to taxes and filing requirements. Yes, even for online businesses: in 2013, BIR issued Revenue <strong>Memorandum Circular (RMC) 55-2013<\/strong> covering taxpayers\u2019 obligations for online business transactions.<\/p>\n\n\n\n<p>The circular confirms that the BIR sees no distinction on whether a business\u2019 operations are physical or online \u2014 for both cases, the tax treatment for the sale of goods or services shall be equally applied.&nbsp;<\/p>\n\n\n\n<p>For online sellers (not freelancers providing a service), RMC 55-2013 recognizes these common types of online business transactions: <\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Online shopping or online retailing<\/strong> &#8211; when online sellers sell goods or services through an ecommerce portal or virtual shops.<\/li>\n\n\n\n<li><strong>Online intermediary services<\/strong> &#8211; where an intermediary receives a commission or incentives for successfully generating sales for a principal seller.<\/li>\n<\/ul>\n\n\n\n<p>In 2020, the BIR issued <a href=\"https:\/\/www.bir.gov.ph\/images\/bir_files\/internal_communications_2\/RMCs\/2020%20RMCs\/RMC%20No.%2060-2020.pdf\" rel=\"nofollow\" class=\"ek-link\">RMC 60 -2020<\/a> in the wake of the <a href=\"https:\/\/blog.ninjavan.co\/en-ph\/online-selling-trends\/\" class=\"ek-link\">sudden increase in online selling<\/a>; the circular reminds online sellers that they are obligated to register with the BIR, and register previous years\u2019 income (not just for 2020).&nbsp;<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img decoding=\"async\" src=\"https:\/\/media.giphy.com\/media\/13l17Xc1mk7p8A\/giphy.gif\" alt=\"\" \/><figcaption class=\"wp-element-caption\">The<em> smaller your income, the smaller your tax obligations<\/em>.<\/figcaption><\/figure>\n<\/div>\n\n\n<h2 class=\"wp-block-heading\" id=\"your-online-business-tax-obligations\">Your online business tax obligations<\/h2>\n\n\n\n<p>The taxes you\u2019re obliged to pay varies on a case-by-case basis. Online sellers should expect to pay the following categories of taxes on their sales, depending on the income they\u2019re pulling in.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"a-income-taxes\"><strong>a) Income taxes<\/strong><\/h3>\n\n\n\n<p>If your online business earns <strong>more than \u20b1250,000 but not more than \u20b13 million<\/strong> a year in sales, you need to pay income tax on your profits.&nbsp;<\/p>\n\n\n\n<p>The government gives you two options for your income tax bill. You can either pay a flat 8% tax from your annual gross sales over \u20b1250,000 or follow the tax prescription based on the graduated income tax (0% to 35%) as prescribed by Tax Reform for Acceleration and Inclusion Act (TRAIN).&nbsp;<\/p>\n\n\n\n<p>If your income is under \u20b1250,000, good news: <strong>the TRAIN law exempts you from paying taxes<\/strong> (you are still required to register your business, though).&nbsp;<\/p>\n\n\n\n<p><strong><em>Also <a href=\"https:\/\/blog.ninjavan.co\/en-ph\/tax-exemptions-msmes\/\" class=\"ek-link\">Take Note of These Tax Exemptions for MSMEs<\/a><\/em><\/strong> <\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p><strong>#NinjaTip: <\/strong><em>Paying the graduated income tax can actually come out cheaper than the flat tax, particularly if you have large operating expenses (like personnel or inventory) that can be deducted from your annual revenue!<\/em><\/p>\n<\/blockquote>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"b-quarterly-percentage-tax\"><strong>b) Quarterly Percentage Tax<\/strong><\/h3>\n\n\n\n<p>Online sellers whose annual <strong>gross sales do not exceed \u20b13 million,<\/strong> and are therefore exempt from value-added tax (VAT) under the tax laws, must pay a percentage tax every quarter, on top of the income tax.&nbsp;<\/p>\n\n\n\n<p>The regular percentage tax is 3% of gross sales or receipts earned in that quarter. The <a href=\"https:\/\/www.bworldonline.com\/tax-guide-on-create-law\/\" rel=\"nofollow\" class=\"ek-link\">CREATE Law<\/a>, however, lowers this to 1% from 2020 to 2023 to compensate for business losses during the COVID-19 pandemic.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"c-value-added-tax-vat\"><strong>c) Value Added Tax (VAT)<\/strong><\/h3>\n\n\n\n<p>Online sellers whose annual gross sales go over \u20b13 million must pay VAT representing 12% of the gross selling price of goods sold.<\/p>\n\n\n\n<p>These are just very simple explanations of the types of tax that freelancers or self-employed and sidelining online sellers must expect to pay. These can only give you an idea of your tax bill, but not the complete picture. <\/p>\n\n\n\n<p>As we said earlier, you will need to consult a tax specialist to get a better idea of your online sales tax obligations, based on the particulars of your business.&nbsp;<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large is-resized\"><img fetchpriority=\"high\" decoding=\"async\" src=\"https:\/\/blog.ninjavan.co\/wp-content\/uploads\/sites\/2\/2021\/12\/online-business-tax.jpg\" alt=\"your online business tax obligations\" width=\"592\" height=\"493\" \/><figcaption class=\"wp-element-caption\"><em>Image source: Getty Images<\/em><\/figcaption><\/figure>\n<\/div>\n\n\n<p><em><strong>Also read: <a href=\"https:\/\/blog.ninjavan.co\/en-ph\/tax-exemptions-msmes\/\" class=\"ek-link\">Take Note of These Tax Exemptions for MSMEs<\/a><\/strong><\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"three-scenarios-for-paying-your-online-business-tax\">Three scenarios for paying your online business tax<\/h2>\n\n\n\n<p>Let\u2019s consider three different scenarios, which will roughly illustrate how you calculate your ecommerce business taxes based on your gross yearly income. There are lots of \u201cif\/then\u201d in there, which is why you need to talk to a tax professional to sort this out!&nbsp;<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"scenario-1-less-than-250-000-in-annual-sales\">Scenario 1: less than \u20b1250,000 in annual sales<\/h4>\n\n\n\n<p>You\u2019re completely reliant on your online store to sell Korean makeup. Your annual sales add up to only \u20b1220,000 a year. This means you pay <strong>zero taxes, <\/strong><strong><em>zero<\/em><\/strong>. You will still need to file your income tax return.&nbsp;<\/p>\n\n\n\n<p>And you need to work on your selling game!<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"scenario-2-over-250-000-less-than-3-million-in-annual-sales-flat-tax\">Scenario 2: over \u20b1250,000, less than \u20b13 million in annual sales, flat tax<\/h4>\n\n\n\n<p>You make \u20b1600,000 a year selling \u201cSquid Game\u201d replica jackets. (Green is really your lucky color).&nbsp;<\/p>\n\n\n\n<p>To calculate your flat 8% income tax, subtract \u20b1250,000 from your annual gross sales and get 8% of the result. Remember, under the flat tax, you\u2019re not allowed to deduct any expenses.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img decoding=\"async\" src=\"https:\/\/blog.ninjavan.co\/wp-content\/uploads\/sites\/2\/2021\/12\/calculating-flat-tax.png\" alt=\"calculating flat tax\" class=\"wp-image-3165\" \/><\/figure>\n<\/div>\n\n\n<p>But wait, there\u2019s more!<strong> You also need to pay 1-3% in quarterly percentage tax.<\/strong> Let\u2019s say you\u2019re earning an even \u20b1150,000 every quarter in gross sales, so 1% of that (under the CREATE Law\u2019s 1%) is \u20b11,500 every quarter. After 2022, the quarterly percentage tax rises to 3%, so revise that to \u20b14,500 every quarter.<\/p>\n\n\n\n<p>So your total tax bill this year adds up the <strong><em>income tax plus the quarterly percentage tax<\/em><\/strong>: \u20b134,000 total taxes, or \u20b146,000 starting in 2023.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"scenario-3-over-250-000-less-than-3-million-in-annual-sales-graduated-tax\">Scenario 3: over \u20b1250,000, less than \u20b13 million in annual sales, graduated tax<\/h4>\n\n\n\n<p>Alternatively, you can choose to pay the graduated income tax under the TRAIN Law. You\u2019re still selling green \u201cSquid Game\u201d jackets, still making annual gross sales of \u20b1600,000. But under this scheme, you\u2019re allowed to deduct your business expenses.&nbsp;<\/p>\n\n\n\n<p>Let\u2019s say the cost to have the jackets made (raw materials, hiring the seamstresses, packing) plus <a href=\"https:\/\/www.ninjavan.co\/en-ph\/\" class=\"ek-link\">shipping via Ninja Van<\/a> all adds up to \u20b1200,000. According to the graduated table, you belong to Bracket #2, meaning your tax rate is 20% of earnings in excess of \u20b1250,000. Your income tax is thus:&nbsp;<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img decoding=\"async\" src=\"https:\/\/blog.ninjavan.co\/wp-content\/uploads\/sites\/2\/2021\/12\/calculating-graduated-tax.png\" alt=\"calculating graduated tax\" class=\"wp-image-3167\" \/><\/figure>\n<\/div>\n\n\n<p><strong>Don\u2019t forget the 1-3% in quarterly percentage tax.<\/strong> Using the previous calculation, this means your total taxes this year add up to \u20b136,000, or \u20b148,000 starting in 2023.<\/p>\n\n\n\n<p>Making more than \u20b13 million annually in \u201cSquid Game\u201d jacket sales? This means you have to pay VAT as well, which is a whole article in itself, and really needs a tax professional to explain.&nbsp;<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large is-resized\"><img decoding=\"async\" src=\"https:\/\/blog.ninjavan.co\/wp-content\/uploads\/sites\/2\/2022\/01\/Subscribe-ad2.png\" alt=\"Subscribe to Ninja Van blog\" width=\"414\" height=\"414\" \/><\/figure>\n<\/div>\n\n\n<h2 class=\"wp-block-heading\" id=\"what-you-should-do-next\">What you should do next<\/h2>\n\n\n\n<p><em>Kung wala kang takas sa tax,<\/em> might as well do it properly. These are the next steps you should take to make your business good with your tax obligations:&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"talk-to-a-tax-expert\">Talk to a tax expert<\/h3>\n\n\n<div class=\"wp-block-image is-style-rounded\">\n<figure class=\"aligncenter size-full\"><img decoding=\"async\" src=\"https:\/\/blog.ninjavan.co\/wp-content\/uploads\/sites\/2\/2021\/12\/pexels-alexander-suhorucov-6457537.jpg\" alt=\"ecommerce tax obligations\" class=\"wp-image-3160\" \/><figcaption class=\"wp-element-caption\"><em>Image source: Pexels<\/em><\/figcaption><\/figure>\n<\/div>\n\n\n<p>An accountant with intimate knowledge of tax law can give you a clearer idea of your online business tax bill, which will change according to your business\u2019 situation. They can give you advice on when and how to file your taxes; the paperwork involved; and tips on how to minimize your online sales tax by taking advantage of loopholes.&nbsp;<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p><strong>#NinjaTip: <\/strong><em>Online sellers may be eligible to apply as a Barangay Micro Business Enterprise (BMBE), which will exempt you from paying income taxes. Other incentives and benefits include a minimum wage exemption, a special credit window in select banks, and access to government business development services for barangay microenterprises.<\/em><\/p>\n<\/blockquote>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"register-your-online-business\">Register your online business<\/h3>\n\n\n\n<p>This is your way to get your business officially recognized by the government. Registering your ecommerce business requires a multi-step process that involves at least three government bodies (BIR, DTI and your city government):&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>You\u2019ll need to register your business name at DTI&nbsp;<\/li>\n\n\n\n<li>Get a barangay clearance and mayor\u2019s permit from City Hall, and&nbsp;<\/li>\n\n\n\n<li>Register your business at BIR.&nbsp;<\/li>\n<\/ul>\n\n\n\n<p>Once you\u2019ve registered your business, you\u2019ll need to follow certain steps like clockwork over the financial year. You\u2019ll need to issue official receipts (ORs) and sales invoices to your customers, then record all business transactions on your books of accounts.&nbsp;<\/p>\n\n\n\n<p>You\u2019ll also need to start withholding taxes from your proceeds, so you can pay your tax obligations without delay. Quarterly and annually, you\u2019ll need to file tax returns with BIR, so you can report your income and any deductions you are authorized to claim.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img decoding=\"async\" src=\"https:\/\/blog.ninjavan.co\/wp-content\/uploads\/sites\/2\/2021\/12\/online-sales-tax.jpg\" alt=\"online sales tax\" \/><figcaption class=\"wp-element-caption\"><em>Image source: Getty Images<\/em><\/figcaption><\/figure>\n<\/div>\n\n\n<p><br>Seems scary? It shouldn\u2019t be: when you\u2019re signed up with the tax authorities and paying your online business taxes on time, you\u2019ll realize just how good it feels to know you won\u2019t worry<em> na hahabulin ka ng<\/em> BIR. You\u2019re also paying your dues for maintaining government services! <\/p>\n\n\n\n<p>Good citizenship, after all, comes at a cost \u2014 but that cost is lighter than you think it is.<\/p>\n\n\n\n<p><em>Featured image by 12963734 via Getty Images<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Big or small, ecommerce businesses must pay their taxes. How do you calculate your online sales tax?<\/p>\n","protected":false},"author":5,"featured_media":3703,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_seopress_robots_primary_cat":"none","_seopress_titles_title":"ECommerce 101: How to Calculate Your Online Business Tax","_seopress_titles_desc":"ECommerce businesses are required by Philippine law to pay their taxes. Here's how to calculate your online business tax, plus other tips.","_seopress_robots_index":"","footnotes":""},"categories":[201,69],"tags":[170,171,172,173,174],"class_list":["post-3944","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-beginner-smes","category-business-basics","tag-ecommerce-tax","tag-online-business-tax","tag-online-business-tax-philippines","tag-online-sales-tax","tag-tax-for-online-business-philippines"],"_links":{"self":[{"href":"https:\/\/blog.ninjavan.co\/en-ph\/wp-json\/wp\/v2\/posts\/3944","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blog.ninjavan.co\/en-ph\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.ninjavan.co\/en-ph\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.ninjavan.co\/en-ph\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.ninjavan.co\/en-ph\/wp-json\/wp\/v2\/comments?post=3944"}],"version-history":[{"count":7,"href":"https:\/\/blog.ninjavan.co\/en-ph\/wp-json\/wp\/v2\/posts\/3944\/revisions"}],"predecessor-version":[{"id":9038,"href":"https:\/\/blog.ninjavan.co\/en-ph\/wp-json\/wp\/v2\/posts\/3944\/revisions\/9038"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.ninjavan.co\/en-ph\/wp-json\/wp\/v2\/media\/3703"}],"wp:attachment":[{"href":"https:\/\/blog.ninjavan.co\/en-ph\/wp-json\/wp\/v2\/media?parent=3944"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.ninjavan.co\/en-ph\/wp-json\/wp\/v2\/categories?post=3944"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.ninjavan.co\/en-ph\/wp-json\/wp\/v2\/tags?post=3944"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}