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.

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”.

Online sellers who have cumulative gross remittances in a taxable year of less than P500,000 and whose yearly total gross remittances for the previous taxable year do not exceed P500,000 are exempt from the new tax legislation, according to the BIR.

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.