BIR: Small online sellers exempted from withholding tax

THE Bureau of Internal Revenue (BIR) clarified that small-scale online sellers are exempted from paying the 1-percent withholding tax that is being imposed on electronic marketplace operators and digital financial service providers.

According to BIR Commissioner Romeo Lumagui Jr., small-scale online sellers are exempted from the creditable withholding tax under Revenue Regulation No. 16-2023 and Revenue Memorandum Circular No. 8-2024. 

He said that this is in relation to the Creditable Withholding Tax of one percent (1%) on one-half (1/2) of the gross remittances by e-marketplace operators and digital financial services providers to sellers/merchants for the goods or services sold/paid through their platform/facility.

“Small-scale online sellers are exempted from withholding tax. The BIR is sympathetic to small businesses in its approach to taxing online sellers/merchants”, Commissioner Lumagui stated.

The following sellers/merchants are exempt:

• If the annual total gross remittances to an online seller/merchant for the past taxable year has not exceeded Five Hundred Thousand Pesos (P500,000.00); or
• If the cumulative gross remittances to an online seller/merchant in a taxable year has not yet exceeded Five Hundred Thousand Pesos (P500,000.00); or
• If the seller/merchant is duly exempt from or subject to a lower income tax rate pursuant to any existing law or treaty.

The gross remittances of P500,000.00 shall consist of the total amount of remittances received by the seller/merchant for sale of goods and services from all e-marketplace operators and Digital Financial Services Providers.

“For those who are above the threshold of P 500,000 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,” Commissioner Lumagui stated.

RR No. 16-2023 and RMC No. 8-2024 are the regulations issued by the BIR that explain the withholding tax of online sellers. It covers the definitions, taxations, and the obligations of online sellers and online platforms as regard this withholding tax system.

“The BIR has a friendly and approachable stance as regards the taxation of online sellers. We know that most of our online sellers do not have the intention to evade taxes. They just need guidance in the registration and payment processes. The BIR is here to provide all the guidance and explanation needed to this new sector of society. We are here to educate. We are at your service.” Commissioner Lumagui stated.

Commissioner Lumagui has ordered the whole of BIR to educate and guide online sellers and online platforms as to their tax obligations. For 2024, the quest of the BIR is that of Excellent Taxpayer Service. This includes that of educating all kinds of taxpayers, including online sellers.