[Ask the Tax Whiz] Who are required to withhold tax on online transactions?

Will online sellers or merchants be required to file and pay the 1% withholding tax? If not, who will then be remitting the withholding tax to the Bureau of Internal Revenue (BIR)? 

No. As clarified by Revenue Memorandum Circular (RMC) No. 8-2024, online sellers or merchants are required to register and pay their taxes. However, it is the e-marketplace operators and/or the digital financial service providers (DFSPs) which are required to withhold the 1% tax on gross remittances, and thereafter remit the same to the BIR.

When will this take effect, and until when can they comply before they start withholding tax?

Revenue Regulations (RR) No. 16-2023 will take effect on January 11, 2024, as clarified by RMC No. 8-2024. However, e-marketplace operators and DFSPs, including online sellers and merchants, will have a 90-day transitory period from the issuance of RMC No. 8-2024 within which to comply with the policies and requirements of other government agencies, if any, and to give them an opportunity to adjust and comply with the provisions of RR No. 16-2023.

I started selling clothes online during the pandemic. I don’t really make a lot of money but it helps pay my rent and other bills. What do I need to do as an online seller under RR No. 16-2023 so I don’t get into trouble with the BIR? Is there any exemption for small online sellers like me who barely make any profit? How do I avail or apply for it?

As an online seller, you are required to register your business with the BIR and to submit a copy of the BIR-issued Certificate of Registration (COR) as part of the documentary requirements by e-marketplace operators prior to the use of their facility.

If you are exempt from income tax or subject to a lower income tax rate pursuant to any existing law or treaty, submit a duly issued certification to the e-marketplace operator as proof of your exemption or entitlement to a lower rate pursuant to Section 2 of RR No. 16-2023.

In addition, you may also provide a Sworn Declaration (SD) duly received by the BIR if it is determined and/or expected that the gross remittance received from the e-marketplace operators or DFSPs will not exceed the threshold of P500,000. This declaration is to be submitted on or before January 20 of each taxable year.

In the event of failure to submit the SD, regardless of the actual total income or gross remittance, the e-marketplace operator or DFSP will automatically deduct the withholding tax.

If the gross remittances exceed the P500,000 threshold at any time during the taxable year, the BIR-prescribed SD must be submitted to the e-marketplace operators or DFSP to initiate the withholding tax on gross remittance.

In a nutshell, what are the obligations of an e-marketplace operator under this new regulation? Are there any opportunities to discuss our concerns with the BIR since it seems quite abrupt and may be disrupted in our operations since a lot of online sellers are not yet registered?

An e-marketplace operator is required to observe the following:

1. Ensure that the sellers/merchants applied BIR Form No. 2303 or Certificate of Registration
2. Require sellers/merchants to submit necessary certification as proof of entitlement to exemption or subject to a lower income tax rate
3. Requires sellers/merchant to Submit a copy of the BIR-received Sworn Declaration, if Seller/Merchant failed to submit SD, regardless of actual amount the withholding tax shall be deducted.
4. Monitor the gross payments of buyers/customers and deduct the withholding tax before remittance to the concerned sellers/merchants
5. Provide sellers/merchants Certificate of Creditable Tax Withheld at Source or BIR Form No. 2307 within the prescribed under the tax code or upon request by the seller/merchants.

The Asian Consulting Group (ACG) is organizing a series of dialogues to address tax complexities with a fair and coordinated approach. If you are a stakeholder in the government or private sectors, you may join the dialogue using the link or QR code here. 

This is part of the International Tax and Investment Conference happening on February 27, 2024 in partnership with international organizations such as the World Bank, International Tax and Investment Center (ITIC) based in Washington DC, and OECD. Visit www.acg.ph for more information or register here to attend the conference.

If you have other tax issues or concerns, consult through this link.

– Rappler.com