Important new guidance (Circular No. 8-2024) issued by the Philippines Bureau of Internal Revenue (BIR) clarifies a 2023 Revenue Regulation on the imposition of the 1% withholding tax on gross remittances by e-marketplace operators and digital financial services providers (DFSPs) to sellers and merchants. The circular was published on 27 December 2023 and became effective 15 days later, i.e., on 11 January 2024 and effectively reshapes the tax landscape for e-marketplace operators and DFSPs.
Highlights of the circular
An e-marketplace operator or DFSP is required to withhold a 1% tax on gross remittances to an online seller or merchant of goods and services using its platform or facility. An exemption from the withholding tax applies to remittances made to a seller/merchant where the annual total gross amount for the past taxable year is PHP 500,000 or below, which will benefit smaller scale transactions in particular. However, if the cumulative remittances made by an e-marketplace operator or DFSP to a seller/merchant exceed the PHP 500,000 threshold during the fiscal year, the withholding tax is automatically triggered on the excess and subsequent transactions. It is important to note that the gross remittances of PHP 500,000 encompass the total amount received by a seller/merchant from all e-marketplace operators and DFSPs. At the same time, if an e-marketplace operator/DFSP determines that the gross remittances made to a seller/merchant exceed the threshold at any time during the taxable year, the withholding tax must automatically be deducted.
Navigating the compliance framework involves a two-step process for sellers/merchants: (i) registering with the BIR; and (ii) submitting a BIR-issued Certificate of Registration to e-marketplace operators/ DFSPs before commencing operations on the platform/facility.A seller/merchant also must submit an annual sworn declaration if their gross receipts from a platform/facility do not or are not expected to exceed the PHP 500,000 threshold. Noncompliance results in automatic withholding by the e-marketplace operator or DFSP. Additionally, if the seller/merchant is exempt from income tax or subject to a lower income tax rate, it must provide a duly issued certification to the e-marketplace operator/DFSP as proof of exemption or entitlement.
E-marketplace operators, DFSPs and unregistered sellers/merchants are granted a 90-day transitional period from the date of issuance of the circular to become compliant. This window aims to mitigate abrupt disruptions while taxpayers are transitioning into the new regulatory framework.
BDO insights
E-marketplace operators and DFSPs are tasked with ensuring that sellers/merchants register, verifying their tax status and collecting requisite documentation, in addition to deducting the withholding tax and issuing certificates in accordance with regulatory standards. In conclusion, Circular No. 8-2024 represents a deliberate step towards fair and transparent tax treatment of digital marketplaces.Micah Alvin S. Gimelo
BDO in Philippines