Basics of Tax Compliance for Freelancers and Online Sellers
The extended lockdown imposed in the Philippines has made “work-from-home” a household name. The ease and convenience of working from home without the daily commute and the flexibility to take care of one’s children while working are what lured most Filipinos to become digital workers.
More people are also using the internet to do their business thus, online selling is very popular nowadays. Through Facebook or Instagram, one can easily post an item for sale. Sellers may also consider selling through major e-commerce platforms such as Lazada and Shopee to have a broader exposure and market.
Recently, there has been a discussion about the imposition of taxes among online businesses. This government initiative may have been triggered due to the popularity of online business and the Bureau of Internal Revenue’s (BIR) aim to increase its collection target to fund the different programs of the government.
After all, the BIR has reason to collect taxes from online businesses. Based on the National Internal Revenue Code Sec 236, anyone (individual or corporation) earning an income should register their business to BIR and must pay their taxes accordingly.
Moreover, Revenue Memorandum Circular (RMC) 60-2020 states that persons doing business online need to register their online business and pay the corresponding taxes.
Penalties for Non-payment of Taxes
For failure to pay taxes, BIR requires online businesses to pay the tax due plus penalties: 25% surcharge, 12% interest, and compromise penalty (ranges from P1,000.00 to P50,000.00)
Basic Tax Compliance Requirements
“Ignorance of the law excuses no one”, goes an adage. It is essential that you know the filing and paying process of taxation to avoid paying penalties due to tax evasion.
Perhaps, you are “exempted” from paying income tax at this point in your freelancing career, but as your business grows into a large-scale endeavor, you will eventually have to pay your taxes, whether you like it or not.
Here is a comprehensive guide on the basics of tax compliance covering registration, maintenance of financial records, filing, and payment of tax.
1. Register your business to BIR
Go to the Revenue District Office, where your official business or residence is located.
Submit the documentary requirements listed in RMC 57-2020 to the Client Support Officer in the RDO.
Claim from BIR your Tax Identification Number (TIN), Certificate of Registration (BIR Form 2303), “Ask for Receipt” signage, registered Books of Accounts, and Authority to Print (ATP) Sales Invoice or Official Receipt
2. Maintain and keep your accounting records and tax returns
As a legitimate business, you should record your transactions in the Books of Accounts. These financial documents will show your investment, expenses, income, etc.
You may use manual, loose-leaf, or computerized books of accounts for this purpose.
3. File tax return and pay tax
Part of your responsibility as a taxpayer is to know how, when and what taxes to file and pay. Your Certificate of Registration (BIR Form 2303) lists down what taxes to file and pay for your business and the deadline of each tax return.
Currently, BIR allows the electronic filing of tax returns and online payment of taxes. The new method is a more convenient way of complying with your tax obligations.
4. Act as a withholding agent
If you are a BIR-registered business, you have the power to collect taxes in advance and remit the payment to BIR accordingly;
So, if you are renting an office space or you hire the professional service of an Accountant, you may withhold the corresponding tax upon payment and remit the tax to BIR within the deadline.
Failure to exercise this function will cost your business to pay the necessary tax plus 25% surcharge, 12% interest, and the compromise penalty.
Incentives of a BIR-registered Business
When you are a BIR-registered business, you enjoy a certain degree of positive reputation and trustworthiness among your peers in the industry, including your customers. Thus, they are more inclined to transact with you because you are a legitimate enterprise.
Our Team Can Help You
Getting your business’ TIN, Certificate of Registration, and other BIR documents is a challenge for first-time filers. The paper works and the time you spend to finish the task is something that we don’t want to experience.
While you continue growing your business, our team can help you with your non-core business needs, such as BIR registration, tax compliance, bookkeeping, and other accounting services. Talk to us now for a free consultation. You may message us on Facebook or send us an email at firstname.lastname@example.org
- Guidelines on the Registration of a One-Person Corporation
- Who are Required to Use eBIR Form in Tax Return Filing
- Guidelines and Procedures on How to Avail the 8% Income Tax Rate
- Guidelines on the Use of Electronic Audited Financial Statement (eAFS) System
- Who are Required to Withhold Taxes? (RMC 27-2022)