[Ask The Tax Whiz] Fintech companies: Are they subject to Philippine taxes?

What are the key roles of fintech companies in the Philippines? Who are the fintech companies available in the Philippines?

The Securities and Exchange Commission (SEC) defined financial technology (fintech) companies as a software, a service or a business that provides technologically advanced ways to make financial processes and transactions more efficient compared to traditional methods. These fintech companies include operators, issuers and service providers of electronic payments, alternative credit scoring companies, online lending firms, digital banks, virtual asset service companies, play-to-earn platforms, crowdfunding platforms, big data companies, digital advisers, and insurance technology firms.

Some examples below are platforms considered as fintech companies available in the Philippines.

What is the government’s overview on the taxability of the fintech companies? How does the BIR monitor the presence of fintech in the Philippines?

The Department of Finance (DOF) has mentioned that as early as 2013, the BIR has already issued a revenue memorandum circular pertaining to RMC No. 55-2013, reiterating the taxpayers’ obligations in relation to online business transactions and that there were subsequent regulations issued in relation to taxpayers’ registration, tax filing and payments on online activities of which the latest is the RMC No. 97-2021.

Also, the DOF has clarified that tax laws, rules and regulations covering domestic or foreign companies, even financial institutions, shall also be applicable to those fintech companies. Meaning, the said companies are also liable for income tax and value-added tax or percentage tax, whichever is applicable. 

To monitor fintech companies, the BIR has established a specific team and the Large Taxpayers Service (LTS) unit who are directed to evaluate the tax obligations of their activities based on the categories identified by the SEC and the BSP, and to check tax payments by large taxpayers engaging in online activities. 

Who is the assigned team for the monitoring of transactions in the digital platforms? How does this team determine their tax compliances?

Under RMO No. 29-2021, the BIR created a Special Task Force (STF) in every revenue regional office and in the LTS to monitor and verify the tax compliances by performing the following tasks:

To gather and collate all relevant information pertaining to, and create a database of:

• All online sellers of goods and services including fintech companies, online leasing services or renting out of properties (Airbnb, Agoda.com, Booking.com and other online leasing platforms), and social media influencers (SMIs).
• Properties are being leased out by online lessors within their respective jurisdictions.

Determine which among the subject taxpayers are or are not registered with the BIR and to evaluate the following tax compliance of registered taxpayers:

• Payment of annual registration fee
• Issuance of sales invoices or official receipts
• Keeping books of accounts
• Timely filing of tax returns and payment of tax due
• Withholding of tax on income payments and timely remittance of taxes withheld
• Filing of required information returns

How does the BIR plan to improve tax collection from these online business transactions including those under fintech companies?

The BIR has been able to propose the imposition of tax on online business transactions engaging in electronic marketplace (e-marketplace), which is a digital platform whose business is to connect online consumers with online sellers of goods and services.

The final draft of the new revenue regulation for the said transactions implements the imposition of creditable withholding tax at 1% on one-half of the gross remittances of electronic marketplaces to sellers of goods and services.

However, since there are small businesses in the said e-marketplace, the withholding tax shall not apply to the following online sellers:

1. If the annual gross remittances for the past taxable year has not exceeded two hundred fifty thousand pesos (P250,000).
2. If the cumulative gross remittances in a taxable year has not exceeded the two hundred fifty thousand pesos (P250,000).
3. If the online seller is a cooperative duly registered with the BIR having a valid Certificate of Tax Exemption.

The tax code provides that all income, including earnings from online transactions, is subject to tax, and fintech companies are not exempted. To ensure compliance and prevent monitoring by the BIR (Bureau of Internal Revenue), consider scheduling a consultation for your tax compliance via the TaxWhizPH Mobile App. – Rappler.com