Is online income taxable?

James Ryan Jonas

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.

James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.