Starting a business indeed entails a lot of responsibilities. And for the Micro, Small, and Medium Enterprises (MSMEs) in the country, the business registration process and taxation may cause confusion. Still, these are among the biggest responsibilities they have to face and it will surely be of great help if they could learn more about registering their own business and paying their taxes.
Important Notice for Online Sellers
When the COVID-19 pandemic first hit the country in March 2020, several Filipinos resorted to online selling to continue earning and providing for their families. Gladly, new and existing online businesses were received greatly as the call to support local and small businesses has further intensified.
And because it was a booming industry, the Bureau of Internal Revenue (BIR) issued a Memorandum that reminded them of their obligations to register their businesses and pay their taxes.
The Revenue Memorandum Circular No. 60-2020 is about the “Obligations of persons conducting business transactions through any forms of electronic media and Notice of unregistered businesses.”
According to the Circular, this is to “give due notice to 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.”
Furthermore, “These shall include not only partner sellers/merchants, but also other stakeholders involved such as the payment gateways, delivery channels, internet service providers, and other facilitators.”
BIR registration and taxation reminders
Start Your Registration
First, you need to fill up two original copies of BIR Form No. 1901. After completing this step, you will be asked to present any government-issued ID such as birth certificate, passport, driver’s license, and your Tax Identification Number (TIN). Remember that the ID you need to present must be readable and untampered.
If your business already has a name, you will also be asked to present the certificate issued to you by the Department of Trade and Industry (DTI).
The last and final step would be the payments to the New Business Registrant Officer (NBRO) posted in the New Business Registrant Counter (NBRC). Prepare Php 500 for the registration fee, using Form 0605, and Php 30 for loose documentary stamp tax for affixture to the Certificate of Registration (COR).
The COR will be issued upon compliance with the mentioned requirements.
Income Tax Options on Business Income
To know your tax options, you must determine first if your business is earning more or less than three million.
You have three options if you are earning less than three million. Option one is 8% income tax, while options two and three are 0% to 35% graduated tax.
Meanwhile, if you are already earning more than three million, you are subject to a 12% Value Added Tax (VAT) for every sale of your product and also the 0% to 35% graduated tax.
8% special tax rate
Upon the creation of the Tax Reform Acceleration and Inclusion Act, also known as TRAIN Law, on January 1, 2018, the BIR introduced a new tax scheme for self-employed and professionals: the 8% special tax rate.
The 8% income tax is computed based on the total gross sales and/or receipts and non-operating income over 250,000. Individuals earning from pure business or professional income earners such as freelancers, consultants, and practitioners; and mixed-income earners including individuals that earn income from compensation and self-employment are entitled to the 8% income tax regime.
You just have to signify your intention to file under an 8% tax option for the year applicable before the filing of the first quarter Income Tax Return (ITR). Otherwise, you will be considered to have automatically availed of the graduated income tax rates.
Which is the Better Option?
If you are wondering which tax options can make you save more, there is really no definite answer. According to tax experts and accountants, there is no guarantee that the 8% income tax can save you more money than the graduated income tax because it mostly depends on the flow of income and expense of the taxpayer.
If you still have concerns regarding your tax options, it is best to seek advice from an accountant and bookkeeper. Handling a business already puts too much on your plate, so don’t hesitate to ask for help from professionals.
Other Important Reminders
Receipts are very important in businesses; don’t forget to issue official receipts or sales invoices to your customers. You also always have to keep your records and books of accounts to track your income and record business transactions easily.
You can also use various accounting applications such as 1Tax that can be easily accessed on your phone, whenever and wherever you are. BIR can also help with your accounting needs; you just have to log in to their website.
You can also join communities that provide assistance to MSMEs and can link you to experts and fellow entrepreneurs. Communities like Small Business Network (SBN) Philippines have been formed to guide and support Filipino entrepreneurs regardless of their products and services. SBN Philippines offers webinars and online resources, among others, to help you grow your businesses.