This current pandemic has shifted the business landscape to e-commerce. Local brands and services gain access to technically global reach, even though the actual target market is just around the corner. This online market boom in social media and other online platform has caught the attention of the Bureau of Internal Revenue (BIR) to issue Revenue Memorandum Circular (RMC) 60-2020 entitled “Obligations of Persons Conducting Business Transactions Through any Form of Electronic Media, and Notice to Unregistered Businesses” dated June 01, 2020. Simply put, BIR reiterated its mandate for Online Sellers in the Philippines to register, file and pay their taxes.
The reality is that there is a mix of online sellers since lockdown due to the pandemic started: existing business that adopted to an online platform; online start-ups that thrive to make a living (like what my wife does); and most people who are forced to sell online as means to survive during this crisis. Some might consider this as a tax dilemma: to register means to reduce your already small profit by tax payment or be caught and penalized by BIR if you opted to operate the business unregistered.
The truth is, registering your online business to the BIR does not automatically mean that you will have to pay taxes. For example, informal vendors (traditional or online) usually fall under the classification of Marginal Income Earners, self-employed with gross receipts not exceeding P100,000 during any 12-month period, and are required to register and file an Annual Income Tax Return but are exempted to pay any tax. On the other hand, an online seller not qualified as marginal income earner must carefully plan how to register their business with optimal tax savings.
For those online sellers or micro-business owners, here are three (3) options choose from when registering your business:
1.) To register under Barangay Micro Business Enterprise (BMBE) and Non-VAT Self-employed – While there are certain criteria to qualify for BMBE, the significant qualification is that your business asset (except land where the business is located) should not exceed P3,000,000.00. This certification is valid for 2 years, renewable, and issued by DTI. Non-VAT registration of your business is available as an option upon initial BIR registration and still qualify as long as your gross sales for the year is below P3,000,000.00. With this set-up, here are your tax liabilities:
- Exempted from Income Tax payment;
- 3% Other percentage income tax based on gross sales
2.) To register under BMBE and Non-VAT One Person Corporation (OPC) – The only difference with the first option is that instead of Self-Employed registration to DTI, you will register to SEC. Why considered this option? Well one of the advantages of OPC is that it has limited personal liability, wherein the owner’s personal assets are protected from the creditors of the corporations. However, tax liabilities remain the same as the previous option:
- Exempted from Income Tax payment;
- 3% Other percentage income tax based on gross sales
3.) To register as Self-employed Non-VAT at 8% tax based on gross sales – This option is to be considered as optimal choice if your annual sales is not or slightly to exceed P250,000. In such case, you will pay minimal, if not zero tax. Though, revenue in excess of P250,000 per year will be subject to 8% percentage tax based on gross sales.
- Zero tax if gross sales does not exceed P250,000 a year, in excess taxable at 8% based on gross.
The mentioned business registration options are way much beneficial on the part of the taxpayer compared with the regular profit-based 20%-35% personal income tax table plus 3% percentage tax or 12% VAT on gross sales.
An online seller should not only be obliged by the BIR directives to legally register their businesses but also see the benefits of doing so. One of these benefits is that the business name/brand will be protected. Another benefit is that they may transact to a bigger market like business-to-business as most big markets only transact with registered businesses and ask for official invoices and receipts. Online sellers would also have access to DTI or other government subsidy program. The filed Income Tax Return may be used for business loans to expand the business. Finally and most important of all, the business owner will have that sense of accomplishment as an entrepreneur and owner of a legitimate business.
Most of this article’s content was shared by the author as part of his lecture entitled “Turn your Online Success to Sustainable Business” as one of the speakers during the Business Network International (BNI) Business Support Power Team’s “WHAT’S YOUR GAME PLAN” webinar streamed via Facebook live last July 22, 2020.