The Bureau of Internal Revenue (BIR) has increasingly underscored the importance of ensuring that all persons conducting business, particularly through digital platforms, are properly registered and tax compliant.
With the highly anticipated “9.9” sale approaching, online sellers are preparing for a surge in activity, offering various discounts and promotions to attract customers. However, amidst the excitement and potential for increased sales, it is crucial for online sellers to ensure that their business operations are in compliance with regulatory requirements, particularly concerning their tax obligations.
As a helpful reminder, here’s a review of key BIR issuances and its timeline concerning tax compliance of online sellers. Understanding these requirements will help ensure that their business remains compliant and avoids any potential issues.
Revenue Memorandum Circular (RMC) No. 55-2013
In 2013, the BIR reminded parties engaged in online business transactions, such as online shopping or retailing, intermediary services, advertisements, and auctions, that they are subject to the same tax obligations as any other businesses establishments. Online entities must register with the BIR, issue registered invoices or receipts (simplified now to "invoices" under the Ease of Paying Taxes Act), maintain books of accounts, withhold taxes as required, file returns, and pay the correct taxes on time.
RMC No. 60-2020
As the pandemic accelerated the shift of business owners to online selling, in June 2020, the BIR issued a circular clarifying that tax obligations apply not only to sellers but also to other parties of online business transactions, such as payment gateways, delivery services, internet service providers, and other facilitators. It allowed online business owners to register and/or update their registration with the BIR by 31 July 2020, without facing any penalties for late registration, thus providing a window of opportunity for compliance amid a rapidly changing business landscape.
Revenue Regulation (RR) No. 16-2023 clarified by RMC No. 8-2024
In late 2023, BIR issued a regulation that imposes a 1% withholding tax on the gross remittance of electronic marketplace operators (e-market operators) and digital financial services providers (DFSP) to online sellers. RR No. 16-2023, which was clarified under RMC No. 8-2024, highlighted also that that while e-market operators and DFSPs are the responsible partiesy to withhold, online sellers are not without any obligation at all.
At the onset, online sellers must ensure that their business is registered with the BIR. As part of the requirements to use the e-marketplace facility, online sellers must submit a copy of the BIR-issued Certificate of Rregistration (COR) to the e-market operators. Also, in case the online seller is exempt from tax or subject to a lower tax rate, they are obliged to submit a duly issued certification to the e-marketplace operator as proof of exemption or entitlement to a lower rate.
RR No. 15-2024
Recently, on August 2024, BIR issued another regulation that prescribes the policies and guidelines on the tax obligation of all persons engaged in business, including those with physical stores (called as brick-and-mortar stores) and those solely operating online stores, to register its their business pursuant to Section 236(A) of the Tax Code, as amended.
Particularly, the regulation provides the following guidelines:
a. Persons engaged in the sale and/or lease of goods and services through physical stores must register at the BIR district office having jurisdiction over the place of business address, including that of its branch and/or facility;
b. Persons operating online stores for its their physical store must register its store name as an additional “business name”; and
c. Persons engaged in the sale and/or lease of goods and services through a website, webpage, page, platform, or application who do not have a physical store must register at the BIR district office having jurisdiction over the place of residence for individuals or the principal place of business for juridical entities.
Registration must be done, either electronically or manually, on or before the commencement of business, before payment of any tax due, or upon filing of a return, statement, or declaration as required under the Tax Code, as amended.
It is important to note that all persons, natural or juridical, engaged in trade or business in the Philippines are required to register with the BIR, specifically those selling and/or leasing goods and services through brick-and-mortar stores, e-commerce, or online businesses, which includes selling virtual items in online games, operating and selling through digital platforms, creating and streaming digital content from which income is generated, e-retailing of goods and services, selling services over the internet, and other forms of businesses conducted online.
After registration, online businesses must post their BIR-issued COR or Electronic COR at the place where the business is conducted for those with physical stores and at the place of residence for those solely operating online stores in a way that is clearly and easily visible to the public. Additionally, persons operating businesses through online stores must display conspicuously the electronic copy of the BIR-issued COR on their website, webpage, account, page, platform, or application. It must be, at all times, easily accessible and visible to buyers or customers visiting the seller or lessor’s webpage, account, page, platform, or application.
To avoid penalties during BIR’s tax compliance verification drive (commonly known as "tax mapping"), online sellers must comply with this posting requirement. While it may appear simple, it has become one of the most frequently overlooked compliance obligations.
Any person violating the registration requirements shall be administratively and criminally liable for penalties and fines. The business operations of the violator may be suspended through the issuance of a Closure/Take Down Order by the BIR. The regulation also noted that any person who willfully aids or abets the commission of the violation or who causes the commission of any such violation will be liable in the same manner as the principal violator. This may include lessors, sub-lessors or commercial establishments/buildings/space, and operators of digital platforms, including e-marketplace platforms, who fail to ensure that their respective lessees and online sellers are duly registered with the BIR and are compliant with the tax rules. The list of violations and the corresponding amount of penalties are summarized in the said regulation.
Take aways
The BIR's issuances over the years, as highlighted above, show a continuous and progressive refinement of registration requirements for online sellers, reflecting the government's recognition of the increasing significance of digital commerce in our economy. As technology continues to advance, it is essential for government policies to evolve accordingly, ensuring that compliance requirements and regulations effectively meet the demands of the ever-changing digital landscape and safeguard the interests of all stakeholders—sellers, buyers, and the government.
Further, given the significant role that online sellers play in driving the country’s economy, it is essential for them to fulfill their tax obligations. Just like traditional businesses, online sellers benefit from public infrastructure, services, and a stable economic environment. Thus, they must contribute their fair share of taxes to support these systems. This responsibility is vital for ensuring fairness and sustaining the programs that enable both online and offline businesses to thrive.
Let's Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
As published in BusinessWorld, dated 03 September 2024
