01 Feb BIR: Small Scale Online Sellers are EXEMPTED from Withholding Tax

The Bureau of Internal Revenue (BIR) has issued new regulations, RR No. 16-2023 and RMC No. 8-2024, that outline the withholding tax that affects online sellers. The regulations define the withholding tax system, the taxes and responsibilities for online sellers and platforms, and when the withholding tax takes effect.

One of the key provisions of the new regulations is that small-scale online sellers are exempt from withholding tax. This is a significant tax break for small businesses, as it will help them to reduce their costs and remain competitive. In particular, BIR tax exemption for small business in the Philippines provides relief to micro and small enterprises that struggle with compliance costs.

It has been declared by the Bureau of Internal Revenue (BIR) that not all online sellers are required to abide by the government’s withholding tax laws. Electronic marketplace operators and digital financial service providers, including Lazada and Shopee, must withhold one percent tax on half of their gross remittances to online vendors, according to a statement released by the BIR.

The bureau indicated that this withholding tax law would only come into effect if the e-marketplace operators’ total yearly gross remittances to online merchants for the previous taxable year exceeded P500,000. BIR Commissioner Romeo D. Lumagui Jr. stated, “Small-scale online sellers are exempted from withholding tax…The BIR is sympathetic to small businesses in its approach to taxing online sellers/merchants”.

What is online seller in the context of tax regulations? According to the BIR, an online seller is anyone who engages in the sale of goods or services through digital platforms, including social media and e-commerce websites. This means that those selling on Shopee, Lazada, and Facebook Marketplace fall under this category.

How to sell on Shopee without BIR registration is a common concern for small entrepreneurs. While the new tax regulations focus on larger sellers, those with annual remittances below P500,000 can continue selling without the need for immediate registration. However, for those exceeding this threshold, BIR registration and tax compliance become necessary.

Lumagui also stated “For those who are above the threshold of P500,000 annual gross remittance, it is only fair that they will be subjected to withholding tax. We have to be fair to the retail sector and brick-and-mortar stores who are regularly paying their taxes. If you have a business, you have to register and pay your taxes. It doesn’t matter if it’s an actual store or an online store. It is your responsibility to pay taxes like everyone else”.

The new regulations are a welcome development for small business owners, as they will help to support them during this difficult economic period. The BIR has shown its commitment to supporting small businesses, and these new regulations are a further example of that commitment.