Starting an affiliate, referral, MLM, or networking program for your small business is a fantastic way to drive sales and expand your reach. However, there’s a critical aspect that can’t be overlooked: tax compliance. In the Philippines, the Bureau of Internal Revenue (BIR) requires businesses to withhold and remit taxes on commissions paid to affiliates, regardless of the payment size. This means that whether you’re paying out thousands or just a few pesos, you’ll need to keep detailed records and file the required tax forms.
Tracking Commissions: A Complex Task for Businesses
When running an affiliate or referral program, your business must keep track of all commissions paid. Every transaction needs to be accounted for, and you’ll have to submit details to the BIR in the form of an Alphalist of Payees. The Alphalist includes:
- Each payee’s name and Taxpayer Identification Number (TIN).
- The total commissions earned.
- The withholding tax deducted from each commission.
Managing hundreds or even thousands of small commission payments can be daunting, especially for growing businesses with multiple affiliates. The BIR requires detailed itemization of every commission payment, and this process must be done monthly, quarterly, and annually, with Form 1604-E and the detailed Alphalist submitted at the end of each year.
Understanding Withholding Tax on Commissions
In the Philippines, withholding tax is required on commissions paid to affiliates. This is a creditable tax, meaning that the amount withheld is credited toward the affiliate’s total tax liability when they file their tax return.
- 5% Withholding Tax: If the total annual earnings from your business are ₱250,000 or below, a 5% withholding tax applies.
- 10% Withholding Tax: If annual earnings exceed ₱250,000, a 10% withholding tax is applied to all subsequent payments after crossing this threshold.
Filing Requirements
As the business paying commissions, you’re responsible for withholding the appropriate tax and remitting it to the BIR. Here’s the filing schedule:
- Monthly Filing (Form 0619-E): Due by the 10th of the following month, reporting the total withholding tax for the month.
- Quarterly Filing (Form 1601-EQ): Due by the last day of the month following the end of the quarter, summarizing the withholding tax for the quarter.
- Annual Filing (Form 1604-E): Due by January 31 of the following year, including the Alphalist of Payees and details of tax withheld.
Issuing Form 2307 to Affiliates
Businesses must issue BIR Form 2307 to affiliates for withheld tax. This form acts as a certificate that affiliates use to claim the tax withheld when filing their tax returns.
Introducing PayPHPC: Simplifying Tax Reporting for Sellers
PayPHPC makes tax reporting easier for businesses with affiliate programs. While PayPHPC doesn’t automate the withholding process, it helps sellers by:
- Generating Reports: Providing easy-to-understand reports that include the necessary data for filing taxes.
- Tracking Payments: Maintaining detailed records of all transactions to ensure compliance.
- Secure Data Storage: Storing commission data securely, with the transparency of blockchain technology.
With PayPHPC, businesses can efficiently prepare for tax filing, ensuring that all commissions are properly tracked and reported to the BIR. This streamlines the tax compliance process and reduces administrative effort.
Conclusion: A Simplified Approach to Tax Compliance
Running an affiliate, referral, or MLM program can grow your business, but tax compliance adds complexity. PayPHPC helps ease this burden by making it simple to generate the necessary reports for filing and ensuring your data is accurately tracked.
With PayPHPC, you can focus on growth while we simplify the reporting process, providing an ideal solution for small businesses looking to expand their network without the headache of manual tax compliance.