If you are running any form of business for a commercial purpose (i.e. engaged in trade or business) in the Philippines, you must consider your BIR tax compliance obligations at all times!
Social media influencers are no different – a point recently reiterated by the BIR! In its most recent Revenue Memorandum Circular, the Philippine tax authority outlined and clarified the specific tax obligations of social media influencers in the Philippines, particularly when earning income directly from social media platforms (YouTube, Instagram, etc).
In PART 1 of this article, we look at the various tax compliance obligations that arise for companies in the Philippines when engaging an influencer for their social media and marketing campaigns.
In PART 2, we review the BIR’s most recent Memorandum and identify the key compliance takeaways that social media influencers must consider themselves when running their own business!
First off – a Question! What is a “social media influencer” from the perspective of tax and compliance in the Philippines?
Definition of Social Media Influencer
The BIR has now actually provided a definition for the term “social media influencer” under their recently issued Revenue Memorandum Circular.
For the purposes of Revenue Memorandum Circular No. 97-2021, the BIR defines a “social media influencer” as including:
- All taxpayers, individuals or corporations;
- That receive income, in cash or in kind;
- From any social media sites or platforms (YouTube, Facebook, Instagram, TikTok, etc);
- In exchange for services performed as bloggers, video bloggers or “vloggers” or as a general influencer and from any other activities conducted on such social media sites and platforms.
What is the Business of Social Media Influencers?
Social media influencers, in the Philippines and across the world, have become a valuable part of many advertising and marketing campaigns run by companies, brands and agencies.
Within RMC No. 97-2021, the BIR includes a short background on the business of social media influencers and social media influencer marketing in order to provide some context on the industry and for their new Memorandum.
Below is a short summary of the key items identified within the BIR’s background narrative:
- The growth of internet accessibility and social media platforms has opened new channels for brands to reach their target market;
- Brands can now leverage the “authority, knowledge, connection and reputation” of social media influencers to impact the lifestyles and purchasing decisions of their audience;
- Sponsored posts and ads on social media platforms contribute to “social media influencer marketing” as an alternative to the traditional TV commercials or billboard advertising campaigns;
- Influencer marketing is now a core element of many marketing strategies, creating an effective way to reach a brand’s target audience and improve ultimate brand awareness.
It is therefore quite clear why the BIR has a specific interest in the business of social media influencer marketing. It is a service from which many companies in the Philippines benefit greatly and it is a service that many influencers provide as their core business offering.
As such, there will often be commercial transactions involved giving rise to tax obligations for all relevant parties!
Tax Compliance – Companies v Social Media Influencers
Social media influencers can and do generate income in a variety of ways.
The sources of income generation may be across both offline and online channels for the influencer – including both traditional marketing platforms and more modern marketing and branding campaigns.
The BIR lists a number of sources for revenue generation, including:
- YouTube Partner Programme
- Sponsored posts
- Display advertising
- Affiliate marketing
- Brand representation
- Podcasts & Webinars
- And many more….!
As mentioned above, we look first examine the tax obligations that arise from the perspective of PH companies when they engage a social media influencer.
In Part 2 of this article, we look at the specific tax obligations of social media influencers themselves as provided for under RMC No. 97-2021.
PART 1 – Tax and Compliance for PH Companies When Engaging a Social Media Influencer
Below are just two of the more common ways by which social media influencers might generate income:
- Providing influencer marketing services, for a company in exchange for payment, by promoting a company or brand through social media posts and campaigns;
- By creating and uploading their own content onto the various social media platforms, influencers can generate income directly from the social media platform based on the level of engagement they receive for the particular content that they post. For example, if a video uploaded by a social media influencer receives a certain number of views on their YouTube channel, they may receive a payment directly from YouTube.
For this next section, we are more concerned with No. 1 above – when a company engages an influencer to promote their brand. In particular, we are concerned with the tax and compliance obligations that arise from such engagements!
How Might A Company Engage A Social Media Influencer?
There are two primary ways in which a Company might engage the services of a social media influencer, as outlined below. We will use the term Company, with a capital “C”, to identify the ultimate client or brand that wishes to benefit from an influencer’s services.
- The Company might engage and deal with the influencer directly; or
- The Company might hire a media, advertising or talent agency to engage the influencer on behalf of the Company (i.e. the agency acts as an intermediary).
No. 1 – Engaging A Social Media Influencer Directly
Engaging a social media influencer directly means that the Company will contract directly with the influencer and the financial transaction will be between the Company and the influencer.
In short, the Company will directly negotiate with and pay the influencer to provide a marketing, branding or advertising service for that Company.
No. 2 – Engaging a Social Media Influencer via an Agency
Engaging a social media influencer via an advertising, marketing, branding or talent agency is slightly different.
In this case, the Company will actually contract directly with the agency for the services it requires. The agency will then contract (or sub-contract) directly with the influencer. This means that there will be two financial transactions – one between the Company and the agency and the second, between the agency and the influencer.
Why Does it Matter How a Company Engages a Social Media Influencer?
Whether a Company chooses to engage an influencer directly or via an agency, there are number of key items that the Company must consider from the perspective of Philippine tax and compliance requirements.
Below are just 4 of these key items:
- Influencer Business Entity – While it is common for social media influencers to run their business as self-employed or individual consultants, some influencers may operate through a corporation, OPC, sole proprietorship or partnership. The engaging Company (or agency) must be aware of what type of entity or vehicle they are dealing with when engaging an influencer. Under the local Philippine tax compliance framework, the compliance requirements may vary depending on the type of business entity engaged (see below).
- Withholding Tax on Payments – In the Philippines, in general, a payor is required to withhold a certain amount of a payment paid to suppliers or service providers. The payor (or receiver of the services) must then remit the amount of payment withheld directly to the BIR. This is withholding tax. Importantly, the rate or amount of payment that must be withheld will also depend on the type of entity, or payee, that the payor is engaging. For example, if a Company engages a self-employed social media influencer, the withholding rate might be between 5% -10% of the total value of the payment depending on the personal circumstances (e.g. revenue per fiscal year) of the influencer. If a Company engages an agency (per No. 2 above) to provide the service, the rate of withholding tax is more likely to be 2% (assuming the agency is a corporate entity). In short, a Company needs to understand what type of “business entity” they are dealing with in order to understand its withholding tax obligations!
- Certificate of Tax Withheld: BIR Form 2307 – In the Philippines, a Company that is required to remit withholding tax to the BIR is also required to complete and send a Certificate of Creditable Tax Withheld, or Form 2307, to the payee (usually a vendor, supplier or service provider) as evidence of the amount of tax withheld. This certificate can then be used as supporting evidence by the supplier (and the Company) when computing income tax at the end of the fiscal year. So, not only will a Company have to apply withholding tax when paying an influencer directly – it will also have to provide certification of all monies withheld from payments to the influencer.
- Official Receipts – In the Philippines, for any payments in respect of services performed, the service provider is required to issue an Official Receipt to the entity for which the services were provided. As such, whether a Company engages an agency or an influencer directly, the Company should always request and receive an Official Receipt. The Official Receipt is a key item of supporting evidence for BIR purposes when computing expenses incurred by the Company and income tax payable.
PART 2 – Tax Obligations for Social Media Influencers
As mentioned above, the BIR recently released Revenue Memorandum Circular No. 97-2021 which sought to clarify the specific tax and compliance obligations of social media influencers in the Philippines.
The BIR included quite a comprehensive background on the growth of social media marketing and the important role of social media influencers in marketing and advertising campaigns – as outlined at the start of this article (see above).
The BIR also provided quite specific reasons for why they decided to issue this RMC!
First of all, the BIR noted that it had come to their attention that some social media influencers a) are not registered with the BIR and are therefore not submitting income taxes or b) are registered with the BIR under different lines of businesses or different corporate entities but are not declaring their earnings from their social media marketing activities.
Secondly, the BIR has received reports that some social media influencers in the Philippines are not declaring taxes on income that they receive from social media platforms in respect of the work they perform on these platforms.
In light of all of the above, the BIR now considers it an “opportune time to discuss the tax obligations” of social media influencers in the Philippines.
10 Key Takeaways from Revenue Memorandum Circular No. 97-2021
To keep it as short and straightforward as possible, we have briefly summarised below our 10 key takeaways from RMC No. 97-2021.
However, for a more detailed explanation on each takeaway, you can check out the BIR’s website to view RMC No. 97-2021.
10 Key Takeaways from RMC No. 97-2021
Takeaway No. 1 – The BIR has now provided a definition for a social media influencer in the Philippines ! See the first section of this article (above) for the full definition!
Takeaway No. 2 – However a social media influencer decides to run their business, they will be required to obtain a Taxpayer Identification Number, or TIN, and register their business with the local BIR office or Revenue District Office (RDO).
Takeaway No. 3 – Resident social media influencers, unless exempt, are liable to pay income tax on all income derived from sources within and outside of the Philippines.
Takeaway No. 5 – Social media influencers must keep Books of Accounts that have been registered with the BIR and depending on the financial status of the business, have those Books audited by an independent auditor each fiscal year.
Takeaway No. 6 – “Income” includes more than just cash payments! If an influencer receives free products in exchange for their service, postings or promotions, the market value of those products should be declared as income for BIR and tax purposes.
Takeaway No. 7 – Social media influencers are also required to apply withholding tax to payments to their employees, suppliers, vendors, etc and in general, comply with the withholding tax framework in the Philippines.
Takeaway No. 8 – Social media influencers working and resident in the Philippines are likely to be subject to tax on revenue generated by working with clients who are based outside of the Philippines. As such, social media influencers must consider rules on double taxation, the applicability of any tax treaties between Philippines and understand their specific obligations on income from foreign-based companies and foreign-based social media platforms.
Takeaway No. 9 – Depending on the service provided by a social media influencer, income generated might be classified across a number of categories. Different levels of withholding tax could apply depending on the revenue source. Service fees and royalty fees are just two examples!
Takeaway No. 10 – The BIR has helpfully included a technical working example in RMC No. 97-2021. Social media influencers should review this example carefully to help clarify their tax obligations on the work they perform!
In summary, RMC No. 97-2021 is a very helpful resource for social media influencers in the Philippines to review and help understand their specific tax and compliance obligations when dealing with either their clients or generating revenue from social media platforms!
CloudCfo – Tax Compliance Services for Startups and SMEs in the Philippines
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Our Team of expert accountants and bookkeepers has significant experience advising on the various compliance obligations, processes and controls that PH businesses must consider when working with such business models.
If you manage or operate a company that regularly works with creatives, influencers or freelancers, Contact the CloudCfo Team today and let’s discuss how we can support your startup or SME’s tax and compliance requirements here in the Philippines!