Introduction for internet is far most responsible to the dawn of e-commerce industry. With the evolving market trends and ease of using digital technology, business owners adopted the use of online business and introduce a better and convenient way of transacting with customers and suppliers. Internet also facilitates wide scale of international business operations, however, due to not having a physical address, it may be hard to identify the tax jurisdiction.

To save the hassle of going out and buy something, many customers prefer purchasing products from online businesses, scrolling through media devices for prices and product offers can give you a stress-free shopping experience. You can easily check out diverse products from your loved brands and there is no need to drive to a store to see them.

Online stores, however, are not exempted from taxation. These online businesses must adhere to the tax requirements set forth by the Bureau of Internal Revenue. In order to ensure that taxation is not jeopardized by the evolving system, BIR has released RMC 55-2013 giving a clarity in performing their tax obligation.

Virtual Transactions may involve:

• Business to Consumer (B2C) – Transaction involving selling items to the end consumer.
• Consumer to Consumer (C2C) -Transaction whereby consumers requests for authority from business to transact products/refer to other consumer.
• Business to Business (B2B) -Transaction involving other business service operations such as recruitment,  technical support, online advertising and other related services.

If you think you are qualified as online business owner, it is your responsibility to know the taxes needed to be filed and paid. To help you become mindful, RMC 55-2013 pinpoints 4 major classifications in determining an online business transaction:

A. Online Shopping or Online Retailing

A direct transaction of goods or services from a seller to the consumer over the internet with the use of web browser without any interference of a related third party.

An online shop, e-shop, e-store, internet shop, web shop, web store, online store, or virtual store evokes the physical analogy of buying products or services at a bricks-and-mortar-retailer or shopping center.-(RMC 55-2013.)

B. Online Intermediary Service

A so-called third party that offers intermediation services between the buyer and the principal merchant. They promote sales for online sellers and acts as a conduit of goods or services offered by the supplier. They are also called the “principal agents”. Example for these are Lazada, Shoppee, and OLX.

C. Online Advertisement/Classified Ads

It is a type of ecommerce service wherein it provides online advertisement to products. Example is Facebook is paid for the use of space in their site for the products being advertised but they are essentially not the owner of the product itself.

D. Online Auction

Same as ordinary auction but the difference is that its service is done virtually. It enables the product to be sold through customers who attains the highest bidding.

Tax Requirements

Basically, if you are conducting online business transactions, the tax requirement is same as operating a regular business establishment. In RMC 55-2013, the Bureau of Internal Revenue (BIR) clarified that online businesses are in the same position as physical businesses, implying that online businesses are required to comply with tax regulations followed by regular businesses:

Therefore, online business must comply with the following requirements:

• Register the business to the Revenue District Office where your place of business is located.;
• ​Apply for Authority to Print Receipts (ATP) for issuance of receipts
• Register Books of Accounts for recording purposes;
• ​Issue necessary receipts upon sales transaction;
• ​Withhold any applicable tax and remit the same to BIR;
• ​File and pay applicable tax returns such as Value Added Tax Returns, Percentage Tax Returns, Withholding Tax on Compensation, Expanded Withholding Tax, Income Tax Returns and other applicable taxes.
• ​Maintain Books of Accounts and any accounting records up to date for possible BIR inspection.

It is important to be updated with the existing tax laws, latest revenue issuances and tax treatment.

Receipting Requirements

Payments may come in the following forms – Credit card payments, bank deposits, cash on delivery and others. Online Merchant/Retailer is obliged to issue sales invoice or official receipt to the buyer for the payment of the goods/services and issue acknowledgment receipt to the bank for the amount received if payment is made through credit card companies.

On the other hand, buyers/customers who paid through bank deposits are required to receive a validated copy of the  deposit slips made in the name of the merchant and receive sales invoice or official receipt from the merchant upon delivery of goods or performance of service.

As for Cash on Delivery (COD) payment where goods are delivered through your doorsteps, the Buyer/Customer is required to receive either the electronic or manual registered Invoice/OR for the full amount of payment made to merchant/retailer.

Withholding Tax Requirements

Where payment is received through a credit card company, additional obligations shall apply. A seller must issue an acknowledgment receipt to the credit card company for the amount received. The credit card company shall withhold ½ of 1% of the total amount paid to the seller and remit such to BIR.

Additionally, upon payment of commission to the credit card company, the seller is required to withhold 10% of the amount to be remitted to BIR

Challenges in Taxation

Even though there has been an issued BIR guideline for e-commerce, it is still subject to continuous study for any rise of conflict with any existing laws. It is still amenable for any changes until there will be a concrete tax law for this matter.

It is undoubtedly seen that internet paves the way of innovating new business strategies which traditional businesses can’t do. The growth of e-commerce plays a significant impact to taxation. Due to online transactions and lack of physical address, application of tax laws is a challenge to tax authority. With the never-ending innovation, our taxation must cope up in administering the taxability of its citizens.