Online Businesses should Register and Comply with their Tax Obligations

As we suffer an international health crisis brought about by the COVID-19 pandemic, many businesses and companies were forced to put a halt in their operations and to lay off many of their workforces. For many, they can’t rely on the support coming from the government alone.  Due to this event, many Filipinos were forced to find a new source of living and that is where the wonders of the internet came in – many opted to start their own online business to help them get through with their day to day needs.

But even the government needs taxes coming from the people to continue to support the people and to supplement its borrowings to augment the resources needed for a quick economic recovery.  In the Revenue Memorandum Circular (RMC) No. 60-2020 issued by the Bureau of Internal Revenue on June 1, 2020, they gave notice to all persons “doing business and earning income in any manner or form, specifically those who are into digital transactions through the use of any electronic platforms or media”, to register and ensure tax compliance.  But what exactly is required?

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Is RMC 60-2020 a new rule?

The requirement to register and the tax obligations of online businesses is not a new rule but is a reminder and enforcement of existing laws and regulations.  In 2013, the BIR issued RMC No. 55-2013 to remind taxpayers of these rules and their tax obligation, which we published in an article entitled Tax Rules and Obligations on Online Business Transactions.

The Philippine National Internal Revenue Code (Tax Code) provides that all income regardless of source is taxable. 

Does this include income derived from illegal activities? Yes! 

Does this include income derived from the conduct of online selling? Yes!

The Tax Code doesn’t make distinction on whether the income is earned the traditional way or online to be taxable, but it provides specific exemptions.  So unless income earned falls within those exemptions, any income earned is taxable under the existing provisions of the Tax Code.

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Salient provision of the RMC 60-2020

According to the recently issued RMC 60-2020, persons (maybe natural or juridical) doing businesses and earning income through the use of electronic platforms and media includes:

  • Partner sellers/merchants
  • Other stakeholders (payment gateways, delivery channels, internet service providers and other facilitators)

With the issuance of the RMC 60-2020, the BIR:

  • Mandates to follow the guidelines in Annex A of the RMC 60-2020 in the registration of a business
  • Allows registration of business activity or update business registration not later than August 31, 2020* (previously July 31, 2020) without penalty
  • Encourages voluntary declaration of past transactions subject to pertinent taxes and pay taxes thereon without penalty when declared and paid on or before August 31, 2020* (previously July 31, 2020).
  • Advised to comply with the provision of the Tax Code and other applicable revenue issuances 

* The Bureau of Internal Revenue has extended the deadline of registration from July 31, 2020 to August 31, 2020, through the issuance of RMC 75-2020.

Basic registration guidelines

According to the RMC 60-2020, in general, the registration and its updates are done in the Revenue District Office (RDO) having jurisdiction over the place where the Head Office is located or over the place of residence of the individual taxpayer. 

  • Persons with no Tax Identification Number (TIN) yet – Register business following existing policies in securing TIN and registration of business.
  • Persons with TINs but the business is not yet registered:
    • Individual (TIN is from ONETT or employment) – register the business, using BIR Form 1901: 
      • With the RDO having jurisdiction over the place of business, if with the physical establishment
      • With the RDO having jurisdiction over the place of residence if no physical establishment
    • Non-individual – Update business registration, using Form 1905, details to include additional business activity (online selling).

Issuance of the Certificate of Registration (COR)

The COR shall be issued to those engaged in business upon compliance with the requirements as follows:

RequirementsIndividualsNon-Individuals
1. Fill up Registration FormBIR Form No. 1901 (2 originals)BIR Form No. 1903 (2 originals)
2. Present any government-issued ID that is readable and untamperede.g., Birth Certificate, Passport, Driver’s License, etc.As applicable: SEC Certificate of Incorporation; or SEC Certificate of Recording; or License to Do Business in the Philippines
3. Other documents requiredDTI Certificate (if with business name)Articles of Incorporation; or Articles of Partnership
4. Payments to the New Business Registrant Officer (NBRO) posted in the New Business Registrant Counter (NBRC)Registration Fee (P500.00) and loose Documentary Stamp Tax for affixture to COR (P30.00)Registration Fee (P500.00) and loose Documentary Stamp Tax for affixture to COR (P30.00)
5. Secure BIR Printed Receipts (BPR) / BIR Printed Invoices (BPI) or the Authority to Print (ATP)BPR/BPI – depending on the printing cost per RDO or ATP – own choice of printer from the list of accredited printersBPR/BPI – depending on the printing cost per RDO or ATP – own choice of printer from the list of accredited printers 

DOF and BIR on the issuance of RMC 60-2020

Finance Secretary Carlos Dominguez III released a statement saying that if an individual started their online business during the Enhanced Community Quarantine (ECQ) or the General Community Quarantine (GCQ) and opt to register on or before July 31, 2020, any unpaid tax obligations prior to this year would “certainly be covered by a general tax amnesty”. 

However, all those who will be found later on doing business without having complied with the RMC 60-2020 and those who failed to declare past due unpaid taxes shall be imposed with the penalties stated under the law and existing policies. 

Registering your online business with the BIR does not automatically mean that your business will be taxed. According to Finance Assistant Secretary Antonio Joselito Lambino II, “the law provides for tax exemptions to those engaged in small businesses so there is no reason for the owners not to register and violate existing rules. “Online sellers whose earnings do not exceed P250, 000, are exempted from paying income tax, while online businesses with gross receipts of P3 million and below are exempted from paying Value-Added Tax (VAT).”, which are consistent with the current laws, rules, and regulations.

On June 18, 2020, BIR Deputy Commissioner Arnel Guballa said that the RMC released by the Bureau was not to put a burden on small online sellers, but simply to “determine the total population of individuals and enterprises earning money through digital platforms” and that their goal is to tax “large online businesses”. 

Extension of deadline to register until August 31, 2020

On July 29, 2020, the BIR issued RMC No. 75-2020, extending the deadline for business registration of those into digital transactions under RMC 60-2020. This is in response to the call of the online merchants in various fora for more time to comply due to the current problem in going to the district offices such as the means of transportation, fear of dealing face to face with others, limited open bank branches for their funding, and others.

The BIR reiterated that those who will be found later doing business without complying with the registration/update requirements, and those who failed to declare past due taxes/unpaid taxes shall be imposed with the applicable penalties under the law, and existing revenue rules and regulations.

Our final note

While it may sound that subjecting online transactions to tax is a new thing, it is and has been the rule for so long, and we should be reminded that it’s within the power of the BIR and the government to enforce the existing laws, rules and regulations to meet the needs of the government that serves and supports its people.

And while it may sound that the requirements are burdensome to small businesses, compliance with these requirements gives us a sense of peace, patriotism, and fulfillment, that we are not just helping ourselves to survive but for the economy and the nation to thrive.  Compliance with these requirements also opens up greater opportunities in the sense that it enables us to reach a broader market (very often that legitimate and big businesses transact only with sellers who can issue BIR-registered invoices and receipts).

Finally, while you feel that this is detrimental to your business growth and existence, it is actually protecting you and will support your growth. After all, not because you are earning already means that you will pay taxes. It will still depend on the amount you earn and the options you choose. And we’ll definitely give you more tips in the coming days! 

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