What Online Sellers, Freelancers need to know before paying their tax

The Bureau of Internal Revenue (BIR) has recently announced that it is giving an extension to online sellers, freelancers, and practically anybody else who are earning from digital transactions until July 31, 2020 to register and settle their accounts.

Here are things you need to know before you panic about your online business.

1) You will need to register your business as either sole proprietorship, self-employed professional or a corporation (depending on your situation). For most home-based online businesses, it’s just sole-proprietorship and you can start by registering your business name with the DTI (see here). You then register with the BIR.

2) If your annual sales or professional fees do not exceed Php250,000 a year, you will pay zero (Php0.00) tax. You will still need to file your annual Income Tax Returns (ITR). It’s just that you won’t be paying anything.

3) If you earn more than Php250,000 but not more Php3,000,000 a year in sales or professional fees, you have the option to pay a flat 8% tax from your gross receipts. To compute your payable tax, just deduct your annual gross sales by Php250,000 and apply 8%.

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For example, you earn Php600,000 a year from selling cookies and baked goods from home. You subtract Php250,000 from that (Php600,000 – Php250,000 = Php350,000) and then multiply the remainder by 8%. That (Php350,000 x 8%) is the amount you pay to the BIR (Php28,000). This only applies to sole-prop and self-employed professionals where expenses are very minimal.

Another option is to pay the tax based on graduated income tax (0% to 35%). This is better if you have large operating expenses that are deductible from your annual revenue.

If you look at the tax table above, you can see that you will also pay zero (0) tax if you earn less than Php250,000 a year.

So, for example, if you sell cookies and baked goods with an annual sales of Php600,000, you need to add up all your expenses (cost of goods). Let’s say, you spent Php200,000 for raw materials, packaging, marketing and delivery of your cookies, your taxable income is only Php400,000 (Php600k – Php200k). You belong in the bracket #2 which is 20% in excess of Php250,000. That means your income tax is (Php400,000 – Php250,000) x 20% = Php30,000.

You will have to compute your payable tax using these two options before choosing which one to apply for.

4) Remember — even if your sales is below Php250,000 a year and you don’t need to pay any taxes, you still need to register with the BIR and get your receipts printed so you can issue sales invoices to your customers. These invoices will be the bases of your total annual income that will be computed for the tax next year.

Avatar for Abe Olandres

Abe is the founder and Editor-in-Chief of YugaTech. You Can follow him on Twitter @abeolandres.

6 Responses

  1. Avatar for Birayusinnyoaccountingnyo Birayusinnyoaccountingnyo says:

    Not to mention other addtl expenses like accountant, hassle sa pila dahil bulok ang online registration, etc. If BIR want people to register, make everything simple.

    Remove gross sales tax and just give people a direct annual bracket e.g. If you earn 250k- exempted, if you earn 400k above- 10% tax flat no extras.

    Pinapakita kasi nila yung bracket pero gugulatin yung mga tao sa fine print at extra charges. Sana mapansin ng lawmakers ang complication ng BIR policy, let’s encourage people to work with govt. with proper rgulations.

  2. Avatar for Andres Buco Andres Buco says:

    This is INCOMPLETE info and left out the most important info. Once registered with BIR, any business needs to pay 3% PERCENTAGE TAX from GROSS Sales. It must be done Quarterly or every 3 months. NO EXCEPTIONS as long as you’re now registered and earning online. Also, once BIR registered, your LGU will soon come a calling, for you to have Mayor’s permit. BIR submits to LGU’s all the registered businesses in their LGU, and Mayor’s permit usually costs from 10k-30k! Must be renewed ANNUALLY.

  3. Avatar for ngsprctr ngsprctr says:

    “you still need to register with the BIR and get your receipts printed so you can issue sales invoices to your customers.”

    What if a business’ customers are all offshore and BIR receipts are not issued? I.e. invoices are digital?

  4. Avatar for chubibo chubibo says:

    you missed the part where it should say that you have to file a couple of forms with bir every month, even if you have zero income. failure to file these forms will incur you penalties of 1k pesos per form per month. there is also what is called the vat threshold, which is 3m sales if i remember correctly. this means if you estimate your sales to breach 3m a year you need to register as a vat entity. freelancers are also assessed 3% percentage tax so it’s not entirely tax free.

  5. Avatar for Your first follower here in Yugatech Your first follower here in Yugatech says:

    The best ka talaga bos abe!

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