A Guide To BIR Registration For Online Sellers

Should online sellers register to BIR and pay taxes - Carousell Philippines

The information contained on this page constitutes general information only and is not intended to be legal advice. No information contained on this page or communicated through this page is intended to create a lawyer-client relationship. Before relying on the contents of this page, please obtain professional advice relevant to your particular circumstances.

As creative and enterprising as most Pinoys are, many have taken to setting up online businesses amid the COVID-19 pandemic. Whether doing it to help survive a loss of income or to seize opportunities that the quarantine has brought about, many Filipinos have entered the world of online business.This boom in the industry did not go unnoticed by the government as the Bureau of Internal Revenue (BIR), the government’s tax-collecting body, issued a memo urging online business owners to register their businesses and pay the appropriate income taxes.

As one would expect, the public’s response was less than enthusiastic. But after letting the emotion die down, let’s look at the facts of what the BIR meant. 

 

What’s considered an online business?

The memo, BIR Memorandum Circular No. 60 – 2020, defines online business as any means which a person or a company earns income using the internet. This means online sellers, as well as payment gateways, delivery channels, internet service providers, and other facilitators of online transactions all have to be registered and pay taxes.

That immediately raises the question, what about when you sell items on sites like Carousell, are you required to register? 

The answer: It depends. Ask yourself, “Am I doing it to make money?” 

The main difference between an online seller and someone who is simply selling something online is intent. If you sell items or promote services on Carousell to earn, for example, then you can consider yourself a business and you have to register with the BIR. However, if you’re just selling some items because you’re decluttering your home or upgrading your phone and selling your current one, engaging in the occasional kaliwaan, then you’re not a business. 

 

What about people selling cars?

The same logic with online sellers applies here. If you sell cars to earn money, then you can consider you have to register because you are in the business of selling cars

However, if you’re simply selling your preloved car on a site like Carousell because you found a new car you want, then there’s no need to register.

It’s important to note however that if you end up earning when you sell your car for more than how much you bought it, then you might have to report these taxes for the year you sell it. However, it doesn’t mean you have to register at the BIR.

Should car sellers online register to BIR and pay taxes too - Carousell Philippines

 

Are there benefits to registering your online business?

This may come as a surprise but registering your online business at the BIR actually does have some advantages. In particular, it lends your business a sense of legitimacy, giving your customers peace of mind that they’re transacting with someone trustworthy enough to be recognized by the BIR. By extension, this also means you’ll need to be registered with the Department of Trade and Industry (DTI) or the Securities and Exchange Commission (SEC).

Besides this, the BIR has given until July 31, 2020 for online businesses to register at the BIR and declare all their taxable income to date. Those who apply after the deadline will have to pay late registration fees. 

Meanwhile, those continuing to operate online businesses without registration can be charged with tax evasion, which can be punished by hefty fines, closure of your business, or even imprisonment. Yikes.  

If the assets (e.g. office space, inventory, cash reserves) of your online business are worth less than P3 million, then you can also register as a Barangay Micro Business Enterprise (BMBE) at the DTI which gives you access to the following benefits:

  • Tax exemptions
  • Exemption from the minimum wage law provided all employees have the same benefits
  • Access to financial assistance from designated institutions
  • Access to training and technological assistance by the government

Lastly, if you register as a business or service provider with official receipts, it’ll open up opportunities for you to take on bigger clients that have regular requirements and budget.

 

Interested in registering your online business?

Before you can register your business at the BIR, you will first have to register it at the DTI or the SEC, the process and requirements of which you can find on their websites, respectively.

Where you register your online business you have a number of options, namely, sole proprietorship, partnership, or corporation. Each option comes with its own set of pros, cons, and legal implications. 

To register as a sole proprietorship, you have the option of registering it over the counter at any DTI Field Office near your, or via the DTI’s online business name registration service (BNRS).

Note that depending on how wide of an area your business reaches will affect how much you pay in registration fees. Since your business is online, in theory, anyone in the world can be a customer. However, the product or service you deliver can be limited to a specific area only. For example, your business could be online but you’re only able to make deliveries within your city. So, it will depend on what your most probable area of coverage would be. 

The fees based on scope are as follows:

  • Barangay – Php 200
  • City / Municipality – Php 500
  • Regional – Php 1,000
  • National – Php 2,000

Meanwhile, if your online business is a partnership  or a corporation, then you will have to go to the SEC. Like DTI, the SEC also has field offices as well as an option to register online via the Company Registration System (CRS).

For corporations, the SEC has a calculator to help you estimate how much it will cost since it will depend on your corporation’s stock capitalization. 

After you have your DTI or SEC registration, you can apply for a BIR Certificate of Registration by filing the necessary paperwork at the Revenue District Office (RDO) you’re registered at. It’s usually the RDO of the place you reside in or the RDO of where your office is located. The BIR website has a list of all RDOs but if you’ve forgotten where you’re assigned, you can check at any RDO where you’re actually assigned to. 

You can also find the downloadable copies of all the forms that you need on the BIR site

Whether your online business is your primary source of income or it’s a side-hustle on top of your regular job, then you should register with the form under “Self-Employed Individuals, Estates And Trusts (Including Those With Mixed Income, i.e., Compensation Income and Income from Business and/or Practice of Profession).” 

However, if your business is an SEC-registered partnership or corporation, you will have a different form and a different set of requirements to accomplish.

Note that the registration process entails fees of varying amounts depending on if your business is under the DTI or under the SEC. 

In general, the overall cost of registering at the BIR for a small business is around Php 4,500. 

However, do note that this information applies only as of writing. For the most updated information, it’s best to check with the BIR, DTI, and SEC websites themselves.

Hire a professional tax accountant to help you with BIR registration and tax computations as an online seller - Carousell Philippines

 

How much will you have to pay in taxes once registered?

If your online business makes less than Php 250,000 in gross annual sales, then you don’t have to pay any income tax! 

Next, if your online business does make more than Php 250,000 but less than Php 3 million in gross annual sales, then you have the option of choosing to pay the graduated tax rate or a flat 8% income tax rate

Finally, if your online business makes more than Php 3 million in gross annual sales, then you can only choose to pay the graduated tax rate.

With all that said, the best way to approach the topic of taxes with certainty is to consult with a certified public accountant (CPA). While it’s good to research on our own, for matters such as taxes, it’s best to let a professional guide you.

Good luck and happy selling!

(Published and last updated on June 25, 2020)

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