New BIR Regulation (RMC 55-2024) What Online Sellers on Lazada, Shopee, and TikTok Need to Know About Tax Compliance

On April 15, 2024, the BIR published the Revenue Memorandum Circular (RMC) No. 55-2024 announcing the extension of the deadline for compliance to July 14, 2024.

Tax Compliance: Online sellers on platforms like Lazada, Shopee, and TikTok must familiarize themselves with the recent Bureau of Internal Revenue (BIR) Regulation, RMC 55-2024, to ensure proper tax compliance. This regulation aims to bring clarity to the taxation of e-commerce transactions and online selling activities, making it crucial for online sellers to understand their tax obligations and responsibilities. By staying informed and compliant, online sellers can avoid penalties and issues with the BIR, paving the way for a smooth and legal operation of their online businesses. Here is what online sellers on Lazada, Shopee, and TikTok need to know about tax compliance under the new BIR regulation.

Overview of BIR Regulation RMC 55-2024

Purpose of the New Regulation

The new BIR Regulation RMC 55-2024 aims to ensure that online sellers on platforms such as Lazada, Shopee, and TikTok are compliant with tax regulations in the Philippines. The regulation is designed to enhance tax compliance among individuals engaged in e-commerce activities and to promote a level playing field for all businesses.

Key Changes for Online Sellers

With the implementation of RMC 55-2024, online sellers are now required to register with the Bureau of Internal Revenue (BIR) and secure a Tax Identification Number (TIN). They must also issue official receipts or sales invoices for every sale made and keep records of their transactions for monitoring and tax assessment purposes.

Understanding the key changes for online sellers is crucial to avoid penalties and ensure compliance with the BIR regulations. By familiarizing themselves with the new requirements, online sellers can operate their businesses smoothly and contribute to the country's tax revenue.

Compliance Requirements for Online Sellers

Registration Process

Requirements for online sellers on platforms like Lazada, Shopee, and TikTok entail compliance with the new BIR regulation. All online sellers are required to register with the Bureau of Internal Revenue (BIR) to ensure proper tax compliance. This process includes obtaining a Tax Identification Number (TIN) and registering as a self-employed individual or business entity.

Tax Obligations and Reporting

Requirements for online sellers also encompass tax obligations and reporting responsibilities. This includes the proper declaration and payment of income tax, value-added tax (VAT) or percentage tax, and filing of tax returns. Online sellers must keep accurate records of their sales and expenses for tax purposes.

Plus, online sellers must issue official receipts or sales invoices for their transactions and maintain compliance with invoicing and reporting requirements set by the BIR.

Platforms Covered by the Regulation

While the new BIR Regulation (RMC 55-2024) applies to all online sellers on various e-commerce platforms, it specifically outlines guidelines for sellers on Lazada, Shopee, and TikTok.

Guidance for Online Sellers

Specific Guidelines for Lazada Sellers

Lazada sellers need to ensure compliance with the regulation by accurately declaring their income from sales on the platform. They are required to keep detailed records of their transactions and ensure that they are properly reflected in their tax filings to avoid any penalties or fines.

Specific Guidelines for Shopee Sellers

Specific Guidelines for Tiktok Sellers

Sellers on TikTok are also required to comply with the new regulation by registering as taxpayers and accurately reporting their income from sales on the platform. They must keep detailed records of their transactions and ensure that they are in line with the BIR guidelines to avoid any penalties.

Sellers on TikTok should be proactive in understanding their tax obligations and seek guidance from tax professionals if needed to ensure compliance with the regulation.

III. Important BIR Updates

Under RMC No. 55-2024, online sellers on these platforms are required to register with the BIR and secure a Tax Identification Number (TIN) if they have not done so already. They are also mandated to issue official receipts or sales invoices for their transactions and keep accurate records of their sales and expenses.

In accordance with BIR Revenue Regulation No. 16-2023, local online sellers can be subject to 1% Creditable Withholding Tax of 50% of your gross income (i.e. 0.5% of your gross sales) starting July 15, 2024.

Also, all local online sellers must be registered with the Bureau of Internal Revenue (BIR) to sell online. Existing sellers must submit their complete Business Information on Seller Center by July 14 to avoid platform restrictions.

Furthermore, online sellers must declare their income and pay the corresponding taxes, including the 3% percentage tax on gross sales or receipts and the annual income tax. Failure to comply with these requirements could result in penalties and sanctions from the BIR, including fines and even criminal charges.

The BIR is stepping up its efforts to closely monitor online sellers' compliance with tax obligations and can track online transactions through digital footprints. Therefore, online sellers on Lazada, Shopee, TikTok, and other platforms should be proactive in understanding and fulfilling their tax responsibilities to avoid any legal issues.

On July 15, 2024 (12:00 AM), the withholding tax will be automatically charged by Shopee in the following scenarios:

Orders created on July 15 onwards
On all orders escrow verified on July 15 onwards
This will still apply to you if you have incomplete business information; all your orders for escrow on July 15 onwards will be taxed.
As there is no TIN provided, these orders cannot be claimed as a tax credit.

Implementation of restrictions: Sellers who are unable to complete their business information page will have their listings hidden from public view or have limited access to their Shopee account.

Under this regulation, the withholding tax will apply to sellers/tax entities in the following scenarios:

Seller submits a sworn declaration (SD) of gross remittances that their total income exceeds ₱500,000
Seller’s total annual gross remittances from Shopee in previous year or for the current year exceeded ₱500,000
Seller fails to submit a sworn declaration (SD) of gross remittances

Sellers/Tax entities with income equal to or below this threshold are exempt from the withholding tax, provided they also submit to Shopee a Sworn Declaration stamped and verified by their BIR RDO.

Additionally, the minimum value threshold of ₱500,000 is shared across all shops associated with the same tax entity. Once the cumulative income of all associated shops exceeds the threshold, the withholding tax will be applied to all shops.

Lastly, sellers can be exempt as determined by any existing law or agreement (e.g. tax exemption certificate and documents such as BMBE/Barangay Micro Business Enterprise). Tax exemption documents can be submitted for Shopee verification here.

Common Questions and Clarifications

Thresholds for Taxable Income

Not sure about the thresholds for taxable income as an online seller? The BIR regulation stipulates that individuals earning less than Php 250,000 annually are exempt from income tax. However, all online sellers are required to register with the BIR regardless of income level.

Deductibles and Allowable Expenses

Allowable expenses for online sellers include costs directly related to the business such as packaging, shipping, and advertising. It's important to keep detailed records and receipts to support these deductions when filing taxes. To maximize deductibles, online sellers should ensure that all expenses claimed are necessary for the operation of their business. Separate personal and business expenses to accurately report taxable income.

Penalties for Non-Compliance

On the subject of penalties for non-compliance, online sellers who fail to register with the BIR or underdeclared their income may face fines and even criminal charges. It's important to stay informed and adhere to the regulations to avoid these repercussions.

Deductibles for online sellers can help reduce taxable income and minimize tax liabilities. By understanding what expenses are allowable and keeping proper documentation, online sellers can ensure compliance with tax laws and optimize their financial management.

Summing up

Upon reflecting on the new BIR Regulation (RMC 55-2024) and its implications for online sellers on Lazada, Shopee, and TikTok, it is crucial for these individuals to prioritize tax compliance to avoid penalties and ensure business continuity. Understanding the taxation requirements, keeping accurate records, and filing taxes properly are vital steps to comply with the regulation. By staying informed and proactive in their tax obligations, online sellers can operate legally and sustainably in the digital marketplace.

Relevant Articles: (PENDING)

Penalties and Consequences for Non-Compliance

A. Fines and Penalties for Non-Adherence
B. Potential Impacts on Online Business Operations

Tips and Best Practices for Tax Compliance

A. Utilizing Digital Tools for Efficient Tax Management
B. Seeking Professional Tax Advice and Services

How to register your business as a Sole Proprietor in the Philippines?

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Written by: Clarice Francesca Mae Lim, 2023, PUP Manila