Tax Notes: Online sellers subject to 1% expanded withholding tax

IN this day of modern technology, online transactions are a part of daily life. One can easily shop at online marketplaces, request food delivery, and book resort or hotel accommodations without being physically present at the merchant store.

Hence, due to the increasing number of sale transactions conducted through online platforms, there is a need to create fair competition and equitable tax collection between physical stores and those operating on digital platforms.

To address this, the BIR issued Revenue Regulation (RR) No. 16-2023, amending RR No. 11-2018 and RR 2-98, which previously did not provide any provision on withholding tax on income payments made by electronic marketplace operators and digital financial services providers to online sellers.

In summary, below are the salient features of RR No. 16-2023:

Who are the withholding agents?

All electronic marketplace operators and digital financial services providers.

Electronic marketplace shall refer to a digital service platform whose business is to connect online buyers with online sellers, facilitate and conclude the sale, process the payment of the goods or services through such digital platform, facilitate the shipment of goods or provide logistic services and post-purchase support within such platforms, and otherwise retain oversight over the consummation of the transaction.

On the other hand, digital financial services platforms shall refer to the financial technology provided by digital financial services providers, which can offer a wide array of services of a financial nature that are made available to the public through the Internet, mobile applications, or other similar means.

Who is subject to withholding? All online sellers.

What are the exceptions to withholding? Withholding is not applicable under any of the following conditions:

a. If the annual total gross remittances to an online seller for the past taxable year have not exceeded P500,000; or

b. If the cumulative gross remittances to an online seller in a taxable year have not exceeded P500,000; or

c. If the online seller is duly exempt from or subject to a lower income tax rate pursuant to any existing law or treaty, provided that the online seller can secure the necessary certification, clearance, ruling, or any other document serving as proof of entitlement to the said exemption or lower income tax rate.

What is the withholding tax rate? One percent expanded withholding tax.

What is the tax base?

It is one-half of the gross remittances by electronic marketplace operators and digital financial services providers to the sellers for the goods or services sold and paid through their platform or facility.

Gross remittance refers to the total amount received by an electronic marketplace operator or digital financial services provider from a buyer for the goods and services sold by or paid to the seller through the online platform facility of the electronic marketplace operator or digital financial services provider, excluding sales returns and discounts, value-added tax, and consideration for the use of the online platform.

When is the effectivity of RR No. 16-2023?

Jan. 11, 2024, or 15 days from Dec. 27, 2023, which is the date of publication in the Official Gazette or a newspaper of general circulation.

Please be guided accordingly.

Source:

P&A Grant Thornton

Certified Public Accountants

P&A Grant Thornton is the Philippine member firm of Grant Thornton International Ltd.