Finally, after months of discussion in the Tax on Online Earnings thread in the PMT Forum, we now have an official reply regarding taxation of earnings from online sources outside the Philippines.
If you are wondering whether or not you have to pay taxes on income earned from Google Adsense, pro-blogging, freelance writing, or HYIPs, among others, read below the official reply from the PinoyTax Yahoo Group, a non-government e-Group that provides tax updates and explanation to members.
Scenario 1: A Filipino citizen works part-time as an offshore, outsourced writer for a US -based website. Are the earnings taxable?
A Filipino citizen is taxed based on his taxable income derived within and without the Philippines, which includes part-time works as an offshore, outsourced writer for a US-based website (see page 157 Annex A1 of Philippine Taxation Handbook: A Simplified Course September 2006 Edition).
Scenario 2: Filipino citizen works full-time as a freelance programmer for websites hosted abroad. The programmer bids on projects and receives payment once the project is completed. The income for each project does not meet the minimum taxable income but when aggregated, the income during the year for all projects does. Is this taxable?
A Filipino citizen whether working on full-time or part time is required to file an income tax return, regardless of the amount of gross income (see page 50 of the same book). If the Filipino citizen is a self-employed individual then certain deductions and personal exemptions are allowed (see pages 30 to 47 of the same book) and for which the normal tax rates (see page 157 of the same book) shall be applied to taxable income after such deductions and exemptions.
Scenario 3: A Filipino citizen invests in an online MLM program, an HYIP, or autosurf program — programs not duly registered in any country and are deemed illegal because of their Ponzi structure — and receives 50% return on the “investment”. The program does not require the “investor” to do anything, except to “invest” money and to wait for several months. At the maturity date, the “investor” gets 50% interest income on the principal. Although these earnings are deemed to have come from “illegal” sources, are they still taxable?
A Filipino citizen is taxable based on his income from whatever source (see page 24 of the same book) including the 50% interest income on the principal.
Scenario 4: Same scenario in #3 above but the investor uses an electronic currency (e-currency) such as e-Gold. The income has been received in e-Gold but has not been converted to cash yet. As of the tax reporting period, the money remains in the e-currency account. Is this taxable?
If the Filipino citizen has control in the conversion of the e-currency to cash, then such e-currency can already be treated as a form of a cash and other monetary asset. If he has no control in such conversion but such amount is due and demandable, then the e-currency shall be treated as a receivable item. In any case, it shall be treated as a taxable income in accordance with the method of accounting (example: cash basis or accrual basis) regularly employed in keeping the books of such taxpayer.
Have more questions or clarifications? Post them in the Tax on Online Earnings thread in the PMT Forum to know the answers.
How to declare online earnings for tax purposes is mentioned here: Gross and taxable income from sources without the Philippines
If you are a US citizen/resident wondering whether you have to pay taxes on HYIP and autosurf earnings, read this article.
13 thoughts on “Is online income taxable?”
I know those are actually the official stand I think even of the BIR. The essence here is whatever the source of your income (whether legal or illegal) the government wants to taxed you.
But my impression while reading the thread is: ARE THEY KIDDING? The best reason why work/biz online is to avoid the government lurking into my finances. I don’t know how many of those Filipinos online are really declaring their online income.
WHY SHOULD I TELL THE GOVERNMENT (a corrupt and inefficient government) of my income? I won’t declare hehehehehe — its good thing i don’t have any online income yet.
After all, they are income required to be declared and tax paid. As to when the BIR will know, maybe its just a matter of time as they are quite busy now on big fishes. If you will not declare and pay, its only the US who will be collecting your taxes on that as payment to you is being subjected to US income tax being withheld. Its best to be safe and avoid headache in the future.
Regardless of the manner of doing the business (whether physical or on-line business), it is affirmative that you shall pay for income tax with the BIR. The location of the server-hosting is not relevant to determine liability for the tax. Assuming you are a resident citizen of the Philippines, any income received from such on-line business shall be taxed in accordance with Section 23 (A) and Section 24 (A) of the 1997 Tax Code; to wit:
CHAPTER II – GENERAL PRINCIPLES
SEC. 23. General Principles of Income Taxation in the Philippines. – Except when otherwise provided in this Code:
(A) A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines;
CHAPTER III – TAX ON INDIVIDUALS
SEC. 24. Income Tax Rates.
(A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines.
(1) An income tax is hereby imposed:
(a) On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year from all sources within and without the Philippines be every individual citizen of the Philippines residing therein;
The Tax Code is available from the BIR homepage under the Special Sites Box / Tax Code link.
For other inquiries, you may visit http://www.bir.gov.ph or call us at 981-8888. We appreciate your continued support.
Why pay the tax, working as a freelancer is liked asking a friend to do a work. You can always tell them id did it for a friend.
Hi, I manage a website too and I almost never see junk remarks on your articles. How do you manage to stop it all? Does one just physically moderate all of it?
ok, so it’s taxable income, and how do you do this? without making the BIR rep looking like a foolish idiot.
Due to overload of online jobs at hand , I’m planning to put up a KPO business and hire fulltime employees with mandatory benefits (SSS, HDMF, Philhealth, etc.).
Any ideas which BIR tax code should this be?
How much business tax (aside from employees witholding tax) should I pay.
Is KPO categorized under export business?
Thanks for any information.
I know this is an old article but I think it’s still applicable:
You’d have to pay for taxes but not get government services such as PAG-IBIG and SSS? That’s crazy. I went to both agencies and they just tole me I couldn’t avail of loans if I’m just working online – even if I’ve already paid for my dues. If they wanted us to pay for the same amount of taxes normal employees and business owners do, then at least provide us services that normal employees and business owners get! It’s just that simple.
I pay withholding tax every year and so far very unhappy with the fact that I pay my dues to BIR but still not qualified to get loans or services.
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First time visit here and have your great short article. May I have a copy of the short article?