Online Sellers Taxes: A Guide and Important Things to Know

So I’ve been reading through a lot of online seller groups and there were a lot of questions on online sellers taxes.

My friend Welly and I are starting this online selling business and we’re just waiting for our samples before we start production. But feel free to pre-order.

So going back to these online seller groups, I’ve noticed that there are a lot of questions on online seller taxes. Not surprised, actually. Discussing about online sellers taxes is quite a complicated topic, and you actually get a lot of confusing answers.s

I’ve seen a lot of answers from random people in the group, and I know they mean well, but some are still quite confusing. So let me answer some of these questions that I see in these groups for you. For full disclosure, I am not a CPA. I am a business owner like you, as well, but since 2016, my company, Taxumo, has been in the forefront of helping MSMEs and self employed professionals with understanding, filing and paying their taxes and being compliant.

So in the close to 8 years that we’ve been in business, we have understood and confirmed a lot of things with the BIR. Taxumo, as an accredited tax software provider, has also helped cascade information about the new rules and regulations shared by the Bureau of Internal Revenue.

Okay, so now that you know who we are and what we do, let’s deep dive into the common questions that I see from online sellers. Get ready for a long post since we’ll try to cover a lot of stuff from online sellers registration process to online sellers taxes.

How do I register? Do I register as a sole prop? Do I need a Municipal Hall or Mayor’s permit to be able to do business?

Paano ba ako magreregister? Mag-reregister ba ako as a Sole Prop? Kailangan ba ng Mayor’s Permit?

For online sellers, BIR requires them to register as a sole proprietorship business. To register as a sole proprietorship, you’ll have to go through 3 government offices: DTI, LGU and the BIR. If you need a guide on the requirements needed for these, check this guide: https://www.taxumo.com/business-registration/sole-proprietors/

I have registered with the BIR and I got my BIR form 2303 or Certificate of Registration. What are the types of taxes that I should see in my registration as an online seller?

Nakapag-register na ako sa BIR at nakuha ko na ang BIR Form 2303 o Certificate of Registration. Ano ba ang buwis na dapat kong i-file at bayaran bilang isang online seller?

As a sole proprietor, (usually) you’d see these type of taxes:

  • Income tax return (filed Quarterly): 1701Q and 1701 or 1701A (for those who opted for 8% tax rate – earning below Php 3 Million Gross Revenue per year)
  • Sales Taxes (filed Quarterly): Percentage (for Non-VAT entities; earning below Php 3 Million Gross Revenue per year) or VAT (earning more than Php 3 Million Gross Revenue per year)
  • [Some entities with employees] Withholding Taxes on Compensation: 1601c (monthly) and 1604c

Some IMPORTANT things to note on filing online sellers taxes:

  • Tax rate types are 8% or Graduated Income Tax Rate. You can change your tax rate ONLY at the start of every year, before you file your first form. You can indicate it on your first Percentage tax form / Income tax form for the first quater.
  • For the 8% tax rate, you can only choose this if you are an individual tax payer (i.e. sole proprietor, professionals) and Non-VAT (earning below Php 3 Million Gross earnings per year)
  • Now that you’ll receive a 2307 form for the taxes withheld from your pay, these forms are very important. The total amount withheld will be tax credits that will be deducted from the total tax that you need to pay for your income tax return. These forms are “attachments” to your income tax return form.
  • These attachments also needs to be submitted to the BIR. If you’re using eBIR forms, you’ll need to use the Alpahlist validation tool of BIR to submit the attachments. I personally use Taxumo because Taxumo also submits the attachments for me. What I need to do for income tax filings is to submit all of the forms, confirmations, etc. via the EAFS tool. It makes submitting easier.
  • By the way, regardless of whatever tax rate you choose for Income tax return, you will need to write on your Books of accounts. BTW, I personally use Taxumo for filing, payment and even updating Books of Accounts. No need to know how to compute or have an accounting background. Join this FREE tutorial session with Taxumo: https://calendly.com/consultnow/onboarding
  • For mixed income earners (those with businesses who are still employed), you will need to file the taxes indicated in your COR then for your Annual income tax (use 1701 form), you will need to include the details in your 2316 (given by your employer).

So these are some of the things that I can think of, but if you have other questions, feel free to chat with Taxumo or send a message in their Facebook page. They are super duper helpful! They also have webinars specifically for online sellers.

I am part of the “cooperative / coop”, should I still register?

Yes, based on the BIR rules, all of us online sellers should register. You are required to register your business as the 1% withholding tax in the new BIR law for online seller taxes will be reported to be for your business.

To know more about the 1% withholding tax for online sellers, read this: withholding tax for online sellers

There are a lot of deductions in seller platforms like discounts for customers, etc. Which number should I report and how do I write it down in my sales invoice?

Ang daming kaltas sa seller platforms tulad ng diskwento sa customers, etc. Alin sa mga ito and dapat kong ireport at ilagay sa sales invoice?

Here is a sample breakdown that you can refer to. FYI, this is for those who want to use Taxumo to file their taxes.

Here are the steps to set up your account in Taxumo.

Step one: The first thing that you need to do to pay your online sellers taxes is to set up your profile in the settings page of Taxumo.

Step two: You’ll need toadd some “Categories” in Taxumo. As seen in the sample above, there are 4 DIRECT COSTS that are indicated: Commission, Payment Fee, Shipping Fee and Raw Materials. The other costs, not directly related to your business’ core activity (in this case… it’s selling goods), will be under deductible expenses.

This is where you can set up the categories in Taxumo.

If you need help in setting up categories and have other questions, you can also book a consultation session with Taxumo CPA partners in this page: Taxumo Consult.

So for the 4 direct costs for online sellers taxes that I’ve mentioned, 2 of these needs to be set up. So copy and add these 2. See screenshots below.

So the 4 direct costs will be categorized as such:

Commission: (to be added as a category as mentioned above)

  • Group classification: Services – local
  • Category Name: Commissions
  • Type: Direct
  • VAT Classification: Domestic Purchase of Services

Payment fee: (to be added as a category as mentioned above)

  • Group classification: Services – local
  • Category Name: Payment fee
  • Type: Direct
  • VAT Classification: Domestic Purchase of Services

Shipping fee: (existing category in Taxumo)

  • Group classification: Services – local or Services – foreign
  • Category Name: Services – local or Services – foreign
  • Type: Direct
  • VAT Classification: Domestic Purchase of Services or Services Rendered By Non-Residents

Raw mat cost: (existing category in Taxumo)

  • Group classification: Merchandise/Raw Materials – local or Merchandise/Raw Materials – imported
  • Category Name: Merchandise/Raw Materials – local or Merchandise/Raw Materials – imported
  • Type: Direct
  • VAT Classification: Domestic Purchase of Goods Other Than Capital Goods or Importation of Goods Other Than Capital Goods

Step 3: Encode all of your revenue and expenses in the Cashflow tab of Taxumo.

Remember that one invoice equals one entry on Taxumo. For the new rules on BIR Invoices, you can read this: Navigating BIR Rules on Receipts: Transitioning to Invoices Encode diligently since every time you encode your revenue and expenses, you will see an automated approximation of the taxes that you need to pay in the “TAX DUES” tab.

Step 4: Encode also all 2307 forms received in the “WITHHELD TAX” tab. It’s very easy to fill out. Just copy what is shown in your 2307 form.

Step 5: If you have subscribed to Taxumo, you can FILE AWAY. Go to the tax dues tab and file the forms that you need to file.

I think this post is becoming a bit too long already (LOL!), but feel free to comment below if you have questions on online seller taxes or better yet, go directly to Taxumo’s FB page and send them your questions.

Hope this helps! 😀

P.S. Some other articles that will help you: https://mommyginger.com/end-of-year-business-checklist-for-sole-proprietorships.html