Do you currently make money online?
If you’re selling any product via online shopping websites such as Lazada, Shopee, or Amazon or earning money from videos you posted on YouTube, Facebook, or Instagram, then congratulations, you are considered a legit online money maker!
But this, perhaps, you already know: when you make money, you also have the obligation to pay taxes to the government. Anything that earns you money, except for those explicitly excluded by the law, is taxable. Did you know that even income from illegal activities (such as sale of fraudulent items, dealing drugs, or ransom money from kidnapping) is taxable by the Bureau of Internal Revenue (BIR)?
According to the Philippines’ Tax Code (officially called the “National Internal Revenue Code” or NIRC), pretty much anything that gives any Filipino citizen “income from sources within or outside the Philippines” is taxed. Specifically, the following individuals are required to pay income taxes to the BIR:
- (1) Employees deriving purely compensation income, whether from a single or several employers during the calendar year;
- (2) Self-employed individuals receiving income from the conduct of trade or business and/or practice of profession;
- (3) Individuals deriving mixed income, i.e., compensation income and income from the conduct of trade or business and/or practice of profession;
- (4) Individuals deriving other non-business, non-professional related income in addition to compensation income not otherwise subject to a final tax.
So what about those making money online? What about YouTubers, vloggers, Shopee and Lazada sellers, do they need to pay income taxes?
Are online sellers and YouTubers required to pay taxes?
The short answer: Yes, if you’re making money online as a seller on Lazada, Shopee, or Amazon or as a YouTuber or vlogger, then you’re required to pay income taxes to the Bureau of Internal Revenue (BIR).
If you sell products online or make money from your own YouTube channel or Facebook page with video ads but have not registered a business, you’re required to pay income taxes under the category of “No. 2: Self-employed individuals receiving income from the conduct of trade or business and/or practice of profession.”
If you’re currently working as an employee of a company AND receiving sideline income from your online store or YouTube channel or Facebook videos, then you’re considered a “Mixed Income Earner” and falls under the category of “No. 3: Individuals deriving mixed income, that is, compensation income and income from the conduct of trade or business and/or practice of profession.”
If you will choose to register a business (either as a Corporation or Partnership), then you will become a corporate taxpayer and the TRAIN income tax rates will apply to you.
Simply put, as long as you make money — whether from online or other sources — the BIR requires you to pay income taxes. This is exactly what the BIR recently reminded the public about registering their online business and paying the corresponding income tax. In its Revenue Memorandum Circular (RMC) No. 60-2020 dated June 1, 2020, the BIR instructs:
“All persons doing business and earning income in any manner or form, specifically those who are into digital transactions through the use of any electronic platforms and media, and other digital means, to ensure that their businesses are registered pursuant to the provisions of Section 236 of the Tax Code, as amended, and that they are tax compliant.”Source: BIR RMC 60-2020
According to this BIR-issued RMC, if you’re making money from “digital transactions through the use of any electronic platforms and media, and other digital means” — basically, anything online such as running online stores or owning money-making video channels that have been operating in the past years, not just this year — you should register your business activity. If you do so on or before the deadline of July 31, 2020, there will be no penalty for late registration, according to the BIR
The BIR also requires you to declare income you’ve earned not just for the years 2019 or 2020, but for ALL past years (2018 or earlier) — and pay corresponding income taxes on such transactions. Yup, the BIR wants you to pay taxes on income you earned in the past years too.
If you declare and pay taxes for those transactions on or before the deadline of July 31, 2020, there will be no penalties or tax surcharges, as per the BIR circular.
How to pay taxes as an online seller or vlogger?
The bad news is that the process of taxation in the Philippines is a bit confusing if you’re doing it yourself without the help of an accountant or a tax lawyer or anyone familiar with Philippine tax laws. So make sure you seek advice from professionals. But the good news is that for now, we have this simple guide to help you get started!
First things first, let’s talk about Income Taxes. This is the annual tax liability that you need to pay to the BIR as default tax obligation for receiving income. Simply speaking, the income tax is tax you pay just because you’re making money.
Unfortunately, in addition to income tax, there are other taxes that you also need to pay regularly once you’re registered with the BIR. These include Percentage Tax, Value Added Tax (VAT), and Withholding Tax (WHT), among others. These types of taxes will be discussed in a separate article.
Let’s try to understand the most basic form of tax that you need to pay as an online earner, that is, Income Tax. Your income tax liability will vary depending on your tax status, whether you are a:
- Corporation or Partnership registered with the Securities and Exchange Commission (SEC); or
- Freelancer, Self-Employed, or owner of a Sole Proprietorship that is registered with the Department of Trade and Industry (DTI).
If you haven’t paid any income taxes yet as either of the two types above, you are the target of the BIR’s recent call for registration. Regardless if you’re earning P1.00 or P10,000.00 or P100,000.00 per month as an online seller or vlogger, the BIR wants you to register yourself or your business entity.
The registration steps and corresponding fees you have to pay are explained in a latter section below. The actual amount of tax you’ll have to pay, though, will vary depending on your tax type, whether you’re registered as a corporation or partnership or sole proprietorship or freelancer or self-employed individual.
Income Tax and BIR Form for Corporations and Partnerships
If you’re registering either as a Corporation or Partnership, the income tax rates applicable to you will be the new TRAIN Income Tax Tables which became effective starting January 1, 2018. One benefit of having a registered business is that, if it’s already paying corporate income taxes then no need for you, as owner, to pay your own personal income tax.
The income tax rates, under the approved TRAIN tax law of the Philippines, for the years 2018 until 2022 are as follows.
The tax rates above will be used until the year 2022. After that, there will be new income tax rates, but the good news is, from 2023 onwards, the tax rates have been adjusted downwards further.
The new graduated income tax rates, from the year 2023 onwards, are as follows.
Examples of how the TRAIN tax rates are applied and sample computations of how much income tax you will have to pay are discussed in the article New Income Tax Rates under Philippine TRAIN Law.
The applicable BIR forms to use when paying income taxes as a registered partnership or corporation are the following:
- BIR Form 1702-RT — for businesses subject to regular corporate income tax rates; and
- BIR form 1702-Q — for the payment of quarterly income tax return of corporations and partnerships
Income Tax and BIR Form for Freelancers, Sole Proprietors, or Self-Employed
Now, if you do not have an SEC-registered corporation or partnership, but belong to the categories below:
- Registered a Sole Proprietorship business with the DTI; or
- Working as a freelancer, self-employed individual, or making money from gigs, projects, or part-time work and NOT working at the same time as a regular employee of any company
Then you have a choice with regard to the applicable income tax rate. You may choose either one of the two tax rates below that you want applied to you:
- Graduated income tax rates under TRAIN (as shown above); or
- Eight percent (8%) fixed tax on gross sales or receipts, in excess of two hundred fifty thousand pesos (P250,000.00).
The first choice, graduated income tax rates, simply follows the corporate income tax rates as if you’re registered with the SEC. This is no different from the taxation rules for corporations and partnerships as explained above.
The second choice, 8% tax rate, is simpler and more straightforward. If you decide to adopt this tax rate, your tax due will be equivalent to 8% of your gross sales or income. Take note, though, that there will be no deductions for business expenses allowed. Thus, this 8% tax option is generally preferred for freelancers or self-employed individuals engaged in money-making activities where business expenses are minimal.
Our Tip! If you’re a YouTuber or vlogger without a lot of associated business expenses, the 8% income tax rate might be better for you.
If you’re an online seller with substantial product costs, marketing or promotions expense, delivery charges, and Lazada/Shopee commissions, you might be better off choosing the graduated income tax rates under TRAIN.
But warning: always check with a qualified professional (CPA or tax lawyer, etc.) to help guide you in your tax decisions. You’ll need to do estimations and computations to determine if you can actually save more on taxes by choosing the graduated income tax rates or the fixed 8%.
Another important rule! If your gross sales or total income for the year is more than P3 Million (that is, around P250,000 average income per month), you’ve already reached the so-called “VAT threshold”. This means you have no choice but to adopt the graduated income tax rates. You’re no longer allowed to opt for the 8% straight tax rate.
You’re also now required to register and comply as a VAT taxpayer. Take note that the P3 Million VAT threshold refers to “gross receipts” — this is NOT net income; this is sales before deducting any business or operating expenses.
If your income is derived purely from freelance work or sideline income (example: gigs, online tutorials, online freelancing work, part-time projects, etc.), professional services (example: consultancy not registered as a business, etc.) or self-employed money-making activities (example: blogging, vlogging, or online selling), the applicable BIR tax forms to use are:
- BIR Form 1701 — for annual payment of income tax of Self-Employed Individuals, Professionals, Freelancers, etc.; and
- BIR form 1701-Q — for the payment of quarterly income tax of Self-Employed Individuals, Estates and Trusts, including those with both Business and Compensation Income
If you want to see examples of how the tax rates are applied, read our article Sample Income Tax Computations for Freelancers, Self-Employed, Professionals, and those with Sideline Income.
Income Tax and BIR Form for Employees AND with Sideline Income
Now, in case you’re employed by a company AND at the same time, separately earning from your side hustles (as a vlogger or online seller, for example), then you’re considered a “Mixed Income Earner” by the BIR because, well, your income sources are a mix of compensation and business/professional income.
As a Mixed Income Earner, you also have a choice whether you want to use the graduated TRAIN income tax rates or the fixed 8% tax rate. The tax rate, though, will be charged on the sum of your taxable income coming from your employment salary AND from your sideline income (from the online store, YouTube channel, etc.) combined. Simply put, you will be charged tax rate on the combined earnings of your employment income and sideline income.
But take note! Same rule with regard to the VAT threshold: if your gross sales or total income for the entire year exceeds P3 Million, you’re not allowed to use the 8% tax rate anymore. You must use the graduated income tax rates under TRAIN.
Examples of how taxes are calculated are explained in our article Sample Income Tax Computations for Mixed Income Earners.
Just like the freelancers and self-employed, mixed income earners use the BIR Form 1701 and 1701-Q when filing taxes with the BIR.
Does this sound a bit confusing and overwhelming already? It’s OK. Taxation in the Philippines is undeniably challenging. It’s not you, it’s the BIR. Ooops. But just to summarize what we discussed earlier, these are the tax rules and income tax rates applicable to you if you’re merely a freelancer, sole proprietor, or a registered corporation.
- If you’re a Corporation or Partnership registered with the SEC, the graduated Income Tax Rates under TRAIN apply to you.
- If you’re a Freelancer, Professional, or Self-Employed (if you’re a vlogger, YouTuber, or online seller, then this is your category), you have the option to choose between 8% fixed tax rate or the graduated income tax rates under TRAIN.
- If you don’t incur a lot of related business expenses, our suggestion is for you to choose the 8% tax rate.
- But if you have a lot of business expenses (which you’ll need to identify and properly record), then you can save more by deducting these expenses from your income, but this means choosing the graduated income tax rates.
- If you’re already earning gross income of P3 Million or more per year, you have no choice but to use the graduated income tax rates.
I earn less than P250,000 a year, should I pay taxes?
If you’re running a small Lazada or Shopee store or a YouTube channel with just a handful of subscribers, it’s highly likely you’re not making a lot of money yet.
Here’s the good news: if your gross income from your vlogs or YouTube videos or total sales from your Lazada or Shopee store does not exceed P250,000 for the year (average of P20,833.33 income per month), then you do not have to pay any income tax!
Again: zero income taxes for those earning P250,000 or less per year (around P20,833 average per month)!
But do you still need to register your business? Yes, according to the BIR.
Even if you’re earning less than P250,000 per year, you must still register your business either with the DTI (if you’re registering a Sole Proprietorship) or with the SEC (if you’re registering a Corporation). Follow the steps in the succeeding section below on how to apply for DTI registration.
Do you still need to get TIN or Tax Identification Number? Yes.
You’ll need to register with the BIR office or Revenue District Office (RDO) located closest to your main place of business. The registration fee is P500.00 to be paid to the New Business Registrant Officer (NBRO) at the New Business Registrant Counter (NBRC), plus P30.00 Documentary Stamps.
Now, if your gross sales or total revenues is less than P100,000 per year, you’re considered a “Marginal Income Earner” (MIE). As a Marginal Income Earner, the BIR still requires you to register your business, but you’re exempted from paying the P500.00 NBRC registration fee and, of course, you won’t have to pay income tax because you’ve not yet reached the P250,000 income threshold.
How much taxes should YouTubers and online sellers pay?
You want to know how much income tax you might have to pay as an online earner in the Philippines? Let’s take a look at these three scenarios and see which one applies to you.
Example 1. Aling Linda runs her own online store both in Shopee and in Lazada, selling hand-sewn skirts and other apparel. Last year, her total one-year sales from Lazada was P50,000 while her total one-year sales from Shopee was P30,000. How much income tax will she need to pay for her sales as an online seller? Here’s the tax calculator for her entire year’s earnings:
|Total Sales (Lazada)||P50,000|
|Total Sales (Shopee)||30,000|
|TOTAL SALES (COMBINED)||P80,000|
|INCOME TAX DUE||Zero (None)|
Income Tax Payable: None, because Aling Linda only earned combined sales of P80,000 from her Lazada and Shopee online stores. This is, of course, less than the P250,000 annual income threshold. This means she is exempted from paying any income tax. Hooray for Aling Linda!
Example 2. DJ Booboo has a YouTube channel which he started in January last year but has already gained 140,000 followers. On average, his channel is earning P50,000 per month from Google Adsense ads that appear on his YouTube videos. His entire earnings last year was P600,000 (that’s P50,000 x 12 months). He spent P100,000 on his vlogging equipment, apparel, internet fee, salaries of assistants — all of which are considered business expenses.
DJ Booboo opted to be charged the 8% income tax rate. He has no other sources of income. How much income tax will he need to pay? Here’s the income tax calculator for his entire year’s earnings:
|Average Monthly Income from YouTube ads||P50,000|
|x Number of Months in a Year||12|
|GROSS INCOME FOR THE YEAR||P600,000|
|Less: Amount Allowed as Deduction||P250,000|
|TAXABLE INCOME FOR THE YEAR||P350,000|
|Income Tax Rate||8%|
|INCOME TAX DUE (8% x P350,000)||P28,000|
Income Tax Payable: P28,000. DJ Booboo is NOT exempted from paying income taxes, since his gross income for the year is beyond the P250,000 threshold. This P250,000 amount, though, will be deducted from his total earnings in order to arrive at the taxable income which will be the basis for the computation of tax due.
What about the P100,000 business expense? Shouldn’t that be deducted from the earnings as well? Unfortunately, no. Since he elected to be charged the 8% tax rate, this 8% rate will simply be multiplied with the taxable income — no deductions for business expense. Thus, DJ Booboo’s taxable income is P350,000 computed as P600,000 minus the P250,000 tax base amount.
DJ Booboo will then have to pay the BIR income tax of P28,000 — that’s simply 8% * P350,000 taxable income.
Example 3. Mr. Putol runs a very popular YouTube channel called “Isumbong mo kay Mr. Putol” with 1 million subscribers. Last year, Mr. Putol’s videos earned him a total of P4.25 million from YouTube ads alone. He has no other sources of income.
There were several business expenses, though, that he incurred when making the videos, including salaries of his employees, transportation expenses, electricity and other utilities, etc. — all in all, totaling P3.15 million business expenses. How much is his income tax due? Here’s the income tax calculator for Mr. Putol’s entire year’s earnings:
|Total Income from YouTube ads||P4,250,000|
|Less: Business Expenses||3,150,000|
|TAXABLE INCOME FOR THE YEAR||P1,100,000|
|INCOME TAX DUE:|
|On P800,000.00 (from Graduated Income Tax Tables)||P130,000|
|On the Excess (P1,100,000.00 - P800,000.00) x 30%)||90,000.00|
|INCOME TAX DUE||P220,000|
Income Tax Payable: P220,000. Mr. Putol has no choice but to follow the graduated income tax tables (instead of 8% optional tax rate) because his gross earnings of P4.25 million is beyond the P3 million VAT threshold. Because he’s using the graduated income tax tables, he is allowed to deduct relevant business expenses (worth P3.15 milion) leading to a taxable income of P1.1 million.
From the graduated income tax tables below, his taxable income falls under the row “More than P800,000 but less than P2,000,000.” As such, his tax due is “P130,000 plus 30% of the amount in excess of P800,000.”
All in all, from the computations above, the total income tax that Mr. Putol needs to pay to the BIR is P220,000.
|Taxable Income per Year||Income Tax Rate (Year 2018-2022)|
|P250,000 and below||0%|
|Above P250,000 to P400,000||20% of the excess over P250,000|
|Above P400,000 to P800,000||P30,000 + 25% of the excess over P400,000|
|Above P800,000 to P2,000,000||P130,000 + 30% of the excess over P800,000|
|Above P2,000,000 to P8,000,000||P490,000 + 32% of the excess over P2,000,000|
|Above P8,000,000||P2,410,000 + 35% of the excess over P8,000,000|
|Source:||BIR and PinoyMoneyTalk.com|
How to register online business with DTI and BIR?
The BIR is giving all online earners a chance to register their businesses until July 31, 2020 without penalty. Fortunately, the registration steps have been streamlined and some steps can now be done online.
What’s unfortunate, though, is that some of the registration requirements come at a price — which means online sellers, vloggers, and YouTubers, even if they’re not earning more than P250,000 and therefore exempted from paying income taxes — still have to shell out some money in order to comply.
Here are the registration steps and applicable fees if you choose to register as a Sole Proprietorship with DTI. (If you’ll register as a Corporation or Partnership, instead of going to the DTI for Step 1 below, you’ll need to go to and register with the Securities and Exchange Commission (SEC). The amount of SEC registration fee will be different.)
Step 1: Register your business name with the DTI.
Fortunately, this can be done online. Just go to the DTI Business Name Registration System or BNRS website.
What’s a good business name that you can register? Think of a good but relevant name for your business. Take note that you’re not allowed to use the words “Company”, “Corporation”, “Corp.” , “Incorporated”, or “Inc.” as part of your business name since these are to be used only by corporations registered with the SEC.
In addition, DTI does not allow business names that are:
1. Connoting activities or norms that are unlawful, immoral, scandalous or contrary to propriety;
2. Used to designate or distinguish, or suggestive of quality, of any class of goods, articles, merchandise, products or services (example: Best T-Shirts, High Quality N95 Face Masks Business, Super Beautiful Make-up, etc.);
3. Registered as trade names, trademarks, or business names by any government agency authorized to register names or trademarks;
4. Inimical to the security of the State;
5. Composed purely of generic word or words;
6. By law or regulation, restricted or cannot be appropriated;
7. Officially used by the government in its non-proprietary functions;
8. Names or abbreviations of any nation, intergovernmental or international organization unless authorized by competent authority of that nation, inter-government or international organization;
9. Ordered or declared by administrative agencies/bodies or regular court not to be registered;
10. Names of other persons;
11. Names which are deceptive, misleading or which misrepresent the nature of business.
How much is the DTI business name registration fee? This depends on the “territorial scope” of your business, meaning, the area wherein you’ll be selling your products or where your potential market is located. Depending on the scope below, the DTI business registration fee is as follows:
- Barangay: P200.00
- City/Municipality: P500.00
- Regional: P1,000.00
- National: P2,000.00
If you’re an online seller or vlogger catering to the entire Philippines, your business scope is likely “National” which means you must pay P2,000 business name registration fee. In addition, you also need to pay P30.00 Documentary Stamps Tax (DST).
Perhaps you’re wondering: Why don’t I just choose “Barangay” scope and pay only P200? That’s a lot of savings!
True, but if you register the business name in the “Barangay” for P200, your business name will only be exclusive to you in that barangay. Anyone else outside the barangay can use and register that business name.
So if you want to make sure you’re the only one that can exclusively use your preferred business name in the entire Philippines, better choose and pay the P2,000 National Scope registration. But if this is not an issue to you, then yes you can save some money by choosing the P200 Barangay Scope registration. Just don’t be surprised if another company or person — from another province or region — will start using the same business name.
Also take note: the DTI Certificate of Registration is only valid for five (5) years and must be renewed prior to the expiration of the DTI registration.
Step 2. Secure a Certificate of Registration (COR) from the BIR.
Prepare and bring the following to the RDO having jurisdiction over your place of business in order to get your COR:
- Completed BIR Registration Form No. 1901 (2 copies)
- Any valid government-issued ID
- DTI Certification of Business Name Registration (or Articles of Incorporation, for an SEC-registered company)
- Registration Fee of P500.00
- Doc Stamps (DST) Fee of P30.00 for affixture to the COR
- BIR Printed Receipts (BPR) or BIR Printed Invoices (BPI) – printing cost varies depending on the RDO
- Authority to Print (ATP) – choose from a list of accredited printing companies that will print your receipts
The printing of your business receipts or invoices is the expensive part of registration. The actual cost depends on the printer (printing company) that you will choose, but typically this fee is around P2,000 to P5,000 for every ten (10) booklets.
Don’t forget to prioritize the printing of your Official Receipts (OR)! You need to have your receipts booklets ready within one (1) month after securing your BIR registration. Failure to produce your ORs within 1 month will result in monetary penalty of at least P1,000.00 depending on the delay.
Also remember that each booklet only contains 50 pieces of OR to be given to your customers. Your 10 booklets will then just be enough for at most 500 transactions or 500 customers. Make sure you don’t run out of ORs because if you don’t issue an OR, you could be penalized — as stated in the country’s taxation code — with monetary fine of at least P1,000 but not more than P50,000 and also face possible imprisonment of at least four (4) years.
That’s it. Just two steps to register your online business! What about Mayor’s Permit, is that still needed? Based on RMC 60-2020 of the BIR, sellers of online shopping websites, vloggers, and other online earners do NOT anymore need to secure a Mayor’s Permit in order to legally operate. Nice!
To recap, to be able to register your online business with the DTI and BIR, you’ll need to comply with these requirements and pay the following fees:
|DTI Business Name Registration (National scope)||P2,000|
|Documentary Stamps Tax (DTI Registration)||30|
|BIR Certificate of Registration (COR)||500|
|Documentary Stamps Tax (BIR COR)||30|
|Printing of Official Receipts (10 booklets)||P2,000 to P5,000|
|TOTAL COST TO REGISTER ONLINE BUSINESS||P4,560 to P7,560|
Done with all of these? Congratulations, you’re now a legit money-maker on the internet! Happy online earning!