The Bureau of Internal Revenue (“BIR”) has issued Revenue Memorandum Circular (“RMC”) No. 97-2021 to clarify the tax obligations of social media influencers, and to remind them of their obligations to pay taxes and comply with registration and reportorial requirements, and the possible consequences for non-compliance. The concerned BIR officers were also directed to conduct a full-blown tax investigation on social media influencers.
The term “social media influencers” refers to all taxpayers, whether individual or corporations, receiving income, in cash or in kind, from any social media sites and platforms (such as YouTube, Facebook, Instagram, Twitter, TikTok, Reddit, Snapchat, etc.) in exchange for services performed as bloggers, video bloggers or “vloggers” or as influencers, in general, and from any other activities performed on such social media sites and platforms.
Social media influencers are generally liable to pay income tax and business tax, i.e., value-added tax (“VAT”) or percentage tax.
Income Tax
Social media influencers (other than corporations and partnerships) are classified for tax purposes as self-employed individuals or persons engaged in trade or business as sole proprietors. Their income is generally considered as business income.
Income derived by social media influencers from the following sources are generally subject to income tax: YouTube Partner Program, sponsored social and blog posts, display advertising, becoming a brand representative/ambassador, affiliate marketing, co-creating product lines, promoting own products, photo and video sales, digital courses, subscriptions and e-books, and podcasts and webinars.
If a social media influencer receives free products in exchange for the promotion thereof in YouTube or other social media platform, the same is also taxable and the influencer must declare the fair market value of the said product as income.
RMC No. 97-2021 provides that for resident aliens, any income derived from Philippine-based contents shall generally be taxable. Thus, the burden of proof that the income was derived from sources without the Philippines lies upon the resident alien. Absent such proof, the income will be assumed to have been derived from sources within the Philippines.
In computing the taxable income subject to income tax, social media influencers are entitled to deduct ordinary and necessary business expenses from their gross income. These expenses may include the following: filming expenses, computer equipment, subscription and software licensing fees, internet and communication expenses, home office expenses (rent and utilities), office supplies, expenses on travel or transportation, video editing, costume design, advertising and marketing, depreciation expenses, bank charges, and shipping fees. In lieu of the said itemized deductions, social media influencers may avail of the 40% optional standard deduction.
Business Tax
Social media influencers are also liable to pay VAT or percentage tax. In general, VAT shall be imposed if the influencer is a VAT-registered taxpayer or if the influencer is not VAT-registered but his/her taxable gross sales or gross receipts for a given year exceeds the P3 Million VAT threshold. Otherwise, the influencer shall be liable to pay percentage tax.
Self-employed individuals whose gross sales or gross receipts and other non-operating income do not exceed the VAT threshold of P3 Million shall have the option to avail of the 8% tax on gross sales or receipts and other non-operating income in excess of P250,000.00 in lieu of the graduated income tax rates and percentage tax.
For social media influencers who are mixed income earners (i.e., earning both compensation income and business income), the compensation income is always subject to the graduated income tax rates. With regard to their business income, the same can be subject to: (a) the graduated income rates, and VAT or percentage tax; or (b) 8% income tax based on gross sales or gross receipts if the total gross sales or gross receipts and other non-operating income do not exceed the P3 Million VAT threshold.
Tax Compliance
Apart from paying taxes, social media influencers must also register with the appropriate Revenue District Office of the BIR and secure their taxpayer’s identification number. Influencers who are already registered with the BIR must ensure that their registration reflects their existing line of business.
They must also keep books of accounts duly registered with the BIR. The same must contain all transactions and results of operations. Influencers whose gross annual sales, earnings, receipts or output exceed P3 Million shall have their books of accounts audited and examined yearly by independent certified public accountants and their income tax returns accompanied by a duly accomplished Account Information Form.
Further, influencers are also required to withhold the creditable or expanded withholding tax (e.g., withholding tax on rentals), final tax on compensation of their employees and other withholding taxes, if applicable, and to remit the same to the BIR. They must issue Certificates of Tax Withheld to the payees.
Influencers are reminded that apart being held liable to pay deficiency taxes, surcharge, interest and penalties, they may also be held criminally liable under Section 254 and 255 of the Tax Code for non-payment of taxes and/or non-compliance with the registration and reportorial requirements.
Avoidance of Double Taxation
In order to avoid the risks of double taxation, a social media influencer receiving income from a non-resident person or entity residing in a country that has a tax treaty with the Philippines (“Non-Resident Payor”) must inform the latter that he/she is a resident of the Philippines and is therefore entitled to claim tax treaty benefits (e.g., lower tax rate on royalty income).
If the Non-Resident Payor requires the presentation of proof of residency, the influencer must secure a Tax Residency Certificate (“TRC”) from the International Tax Affairs Division (“ITAD”) of the BIR and submit the same to the Non-Resident Payor.
The TRC is an official document issued by the BIR ITAD certifying the tax residency of a taxpayer in the Philippines pursuant to the residency provision of a tax treaty. The TRC is presented to the foreign country/Non-Resident Payor to prove that the taxpayer named therein is a Philippine resident and may, therefore, claim tax treaty benefits.
Income taxes paid to a foreign country may either be claimed as an item of deduction from gross income or as a tax credit subject to the limitations set forth in Section 34(C) of the Tax Code. However, alien individuals and foreign corporations are not entitled to claim tax credits for taxes paid to foreign countries.
Generally, credit for taxes paid in a foreign country shall be limited to that paid or accrued in the said foreign country. However, if a tax treaty exists between the source state and the Philippines but the taxpayer fails to invoke the provisions thereof, the tax credit that may be claimed by the taxpayer shall be limited to the tax that should have been paid by the taxpayer had the latter claimed or invoked the benefits under the said treaty.
If the influencer is denied treaty benefits despite being able to prove the entitlement thereto, he/she must file an application for Mutual Agreement Procedure with ITAD.
For questions, please contact:
Head, Tax Practice