BIR RMC NO.

97-2021: PHILIPPINE TAX PERSPECTIVE ON

SOCIAL MEDIA INFLUENCERS
By: Mandy Therese M. Anderson and Maria Francesca S. Vergara

The age of social media or social media phenomenon, as the millennials term it, has opened
a lot of doors for individuals to share their daily lives and let other people view the activities
they’re doing, the brands they’re using, and the stories they have to share. The phenomenon
has been exemplified during this COVID-19 pandemic when the eyes of people to other
people’s lives are through lenses where videos and photos are mostly posted on social media
sites.

Business owners, from big corporations to starting entrepreneurs, are quick to jump on the
social media bandwagon considering the reach and influence that social media has on general
public. In addition to the traditional media outlets for brand endorsements, digital marketing
through social media has captured the attention of a lot of business owners to help market
fancy houses, airplane flights, luxury cars down to appliances, daily wear, cosmetic products,
food, computer software, and just about anything you can think of in the open market.

These brand endorsements are among the many sources of income of a Social Media
Influencer (“SMI”). Because of the social media phenomenon, the Bureau of Internal Revenue
(“BIR”) has stepped in to clarify the tax consequences of being a SMI and issued Revenue
Memorandum Circular No. 97-2021 dated 16 August 2021 (“RMC No. 97-2021”).

RMC No. 97-2021 defined SMIs “as taxpayers, individuals or corporations, receiving income,
in cash or in kind, from any social media sites and platforms ([i.e.,] YouTube, Facebook,
Instagram, Twitter, TikTok, Reddit, Snapchat, etc.) in exchange for services performed as
bloggers, video bloggers or [‘]vloggers[‘] or as an influencer, in general, and from any other
activities performed on such social media sites and platforms.” The income of these SMIs is
subject to income tax and business tax (i.e., Value-Added Tax (“VAT”) or percentage tax).

This article discusses the following as provided in RMC No. 97-2021:

First, the applicability of Philippine income tax on SMIs, including (i) sources of income; (ii)
deductions allowed to the get taxable income; (iii) applicable tax rates; (iv) availment of tax
treaty benefits; and (v) treatment of income tax paid to foreign jurisdictions; second, the
applicability of VAT; third, reportorial and tax compliance requirements; and finally, an
illustration of the tax consequences on a SMI. In summary, RMC No. 97-2021 outlines the
general principles of taxation and the relevant provisions as applied to SMIs.

I. Income Tax

The BIR reiterated the tax situs rules, where (i) all income derived, from within and outside
the Philippines, by citizen or domestic corporation SMIs are subject to income tax; and (ii) for

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non-resident citizen, resident alien, and foreign corporation SMIs, only income derived from
within the Philippines is subject to income tax.

Notably, RMC No. 97-2021 added that for resident aliens, there is a general presumption that
his/her income from Philippine-based content is taxable in the Philippines and the burden of
proof that income was derived from outside the Philippine lies with the resident alien.

Income generating activities of SMIs

The BIR clarified that payments received by SMIs “in consideration for services rendered or
to be rendered, irrespective of the manner or form of payment”, including income treated as
royalties in another country such as payments received from the Youtube Partner Program,
are all subject to income taxes. For payments in-kind, the fair market value of the product will
be considered.

To illustrate the types of income subject to income tax, the BIR provided examples of activities
undertaken by SMIs that produce taxable income:

1. Income generating activities from the YouTube Partner Program, to include: (i)
advertising; (ii) channel membership or recurring monthly payments in exchange for
special perks that the SMI offers; (iii) sale of merchandise; (iv) super chat and super
stickers that followers pay for; and (v) YouTube Premium Revenue or fee that the
YouTuber gets when followers watch its/his/her uploaded videos;
2. Sponsored social media and blog posts to feature products;
3. Display adverting;
4. Becoming brand representatives/ambassadors by promoting products in the SMI’s
account in exchange for free products, and/or an additional fee;
5. Affiliate marketing where the SMI would be provided with a unique link or code to
track his/her/its conversions, earning the SMI a commission per conversion;
6. Co-creating product lines where brands partner with the SMI to co-create products,
allowing the SMI to earn a percentage of profits on the sale of co-created product(s);
7. Promoting own products where the SMI create his/her own line of products;
8. Photo and video sales;
9. Providing digital courses, subscriptions, e-books, or sale of other digital products; and
10. Podcasts and webinars that may require fee to be accessed or may include sponsored
ads.

Allowable deductions

The BIR recognized that SMIs are allowed to avail of deductions from gross income to
determine taxable income such as (i) itemized deductions under Section 34, in relation to
Sections 24(A), 25(A), 27 (A to C), and Section 28(A)(1) of the National Internal Revenue Code,
as amended (the “Tax Code”), which are mostly “ordinary and necessary expenses” which are
“directly and exclusively related to the production or realization of the income” and
substantiated by BIR-registered receipts or invoices; or (ii) in lieu of an itemized deduction,
the SMI may elect Optional Standard Deduction (“OSD”), which is a 40% automatic deduction
from the gross income of SMIs before income tax rates are applied. To be entitled to OSD, the

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SMI must signify his/her/its intention to do so in the return; otherwise, he/she/it shall be
considered as having availed of the itemized deductions.

To illustrate the types of itemized deductions allowed, the BIR provided for examples the
deductions SMIs may avail. The deductions include, but are not limited to the following:

1. filming expenses (i.e., cameras, smartphones, microphone, and other filming

equipment);
2. computer equipment;
3. subscription and software licensing fees;
4. internet and communication expenses;
5. home office expenses (i.e., proportionate rent and utilities expenses);
6. office supplies;
7. business expenses (i.e., travel or transportation expenses);
8. payment to an independent contractor or company for video editing, costume;
9. designer, advertising, and marketing costs (i.e., cost of contests and giveaway prizes);
10. depreciation expense; and
11. bank charges and shipping fees.

Applicable tax rates

To recall, the following are the applicable tax rates: (i) for citizens and resident aliens, taxable
income in excess of PhP250,000 is subject to a tabular tax rate of 20% to 35% under Section
24 of the Tax Code; (ii) for domestic and resident foreign corporations, a corporate income
tax rate (CIRT) of 25% (20% if the domestic corporation has net taxable income and total
assets not exceeding PhP5,000,000 and PhP100,000,000, respectively) or a 1% (or 2% starting
1 July 2023) minimum corporate income tax rate (MCIT), whichever is higher, is applied on
taxable income; and (iii) for non-resident foreign corporations, 25% withholding income tax
on gross receipts or income is applied.

Income or gains subject to passive income tax and capital gains are not included in the net
taxable income. Moreover, citizens and resident aliens are classified as either self-employed
or persons engaged in trade or business as sole proprietors for purposes of income taxation.

The BIR did not mention the applicable rates for non-resident aliens, nonetheless, under the
Tax Code non-resident aliens engaged in trade or business in the Philippines are taxed
similarly to resident aliens while a non-resident aliens not engaged in trade or business in the
Philippines are subject to 25% withholding income tax on gross receipts or income.

Tax Treaty Benefits on Income Tax

A SMI receiving income from a non-resident person residing in a country which has a tax
treaty with the Philippines must inform the non-resident that: (i) the SMI is a resident of the
Philippines and (ii) the SMI is entitled to tax treaty benefits. The best evidence a SMI may
present to the non-resident is a Tax Residency Certificate (“TRC”) from the International Tax
Affairs Division (“ITAD”) under Revenue Memorandum Order No. 43-2020 dated 01
December 2020 (“RMO No. 43-2020”).

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RMC No. 97-2021 cited the announcement of Google LLC, owner of YouTube, that payments
by YouTube to content creators (or SMIs) are considered royalties and would be subject to
United States (“US”) taxes for royalties earned from US-based viewers. Thus, the BIR advised
that content creators should submit their tax information to Google LLC in order to be eligible
to tax treaty benefits pursuant to the Convention Between the Government of the Republic
of the Philippines and the Government of the United States of America with Respect to Taxes
on Income ratified on 16 September 1982 (“RP-US Tax Treaty”).

Citing Section 34(C) of the Tax Code, RMC No. 97-2021 provided that income taxes paid or
incurred by citizens and domestic corporations to a foreign country may be claimed as an item
of deduction or claimed as tax credit, subject to limitations provided under Section 34(C) of
the Tax Code. Therefore, the tax credit availed of must be either the lower of the: (i)
proportion of taxable income attributable to the foreign jurisdiction over the worldwide
income multiplied by the applicable income tax to worldwide income; or (ii) the actual income
tax paid to foreign jurisdiction.

In case the SMI fails to avail of tax treaty benefits, under RMO No. 43-2020, the SMI may only
avail of a tax credit or deduction to the extent of taxes supposedly imposed had the tax treaty
benefits been availed of. Moreover, the SMI availing of the tax credit must prove (i) that the
tax paid to the foreign jurisdiction is attributable to income from sources without the
Philippines; (ii) the amount of income derived from each country, and the consequent tax
paid or incurred; and (iii) other information necessary for the verification and computation of
the credits (i.e., tax returns filed in the foreign jurisdiction).

II. Value-Added Tax

In addition to income tax, both corporate and individual SMIs are also subject to 12% VAT on
their gross sales or receipts exceeding PhP3,000,000 or to excise tax of 3% if the gross sales
or receipt does not exceed PhP3,000,000. However, individual SMIs with gross sales or gross
receipts of not exceeding PhP3,000,000 have the option to avail of the 8% tax on gross sales
or gross receipts in excess of PhP250,000. The availment of the 8% tax on gross sales and
receipts is in lieu of tabular income tax rates and 12% VAT. Individual SMIs who also have
compensation income, may avail of the 8% tax on gross sales or gross receipts for its other
income while the compensation income remains to be subject to the tabular income tax rates
under Section 24 of the Tax Code.

III. Tax Compliance and Reportorial Requirements

RMC No. 97-2021 also reiterated tax compliance and reportorial requirements which SMIs
must comply with, which include among others:

1. Registration with the Revenue District Officer (“RDO”) and subsequent update on
his/her/its registration, as necessary;
2. Keeping of the Books of Accounts;
3. Filing of the applicable tax returns and payment of relevant taxes; and

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 4. Withholding of taxes, as applicable, such as for SMIs with employees or those
transacting with non-resident aliens, non-resident foreign corporations, and the
government.

The BIR reminded SMIs of the applicable penalties for deliberate failure to comply with the
above such as (i) tax evasion which is punished by a fine of PhP500,000 to PhP10,000 and
imprisonment of six (6) years to ten (10) years or (ii) willful failure to pay taxes, make required
returns, keep records, supply correct and accurate information, withhold or remit taxes
withheld, or refund excess taxes withheld on compensation, which is punishable of a fine of
at least PhP10,000 and imprisonment for one (1) to ten (10) years.

IV. Illustration under RMC No. 97-2021

The BIR provided that “[i]n 2020, GBG, a Filipino social media influencer residing in the
Philippines, received USD200,000 or [PhP10,000,000] from Google LLC (“Google”), an
enterprise resident of the US, as her share from advertising revenues. Under the US tax law,
payments from YouTube through the YouTube Partner Program are considered royalties
which are generally subject to tax at 24%. GBG did not receive any other income during the
year. When she filed her tax return, she claimed [PhP1,000,000] as deductions and opted to
avail of tax credit for taxes paid in the US.”

RMC No. 97-2021 subsequently discussed the tax consequences on the SMI which include the
following:

1. In case the SMI fails to avail of the RP-US Tax Treaty benefits, Google may withhold 24%
US taxes on payments to the SMI which amounts to USD48,000/PhP2,400,000;
2. In case the SMI avails of the RP-US Tax Treaty benefits, Google may only withhold 15%,
pursuant to the RP-US Tax Treaty which amounts to USD30,000/PhP1,500,000;
3. The SMI may avail of PhP1,500,000 tax credit. The amount of PhP1,500,000 is either (i)
the amount actually paid had the SMI availed of the RP-US Tax Treaty benefits; or (ii) the
amount supposed to be imposed if the SMI failed to avail of the tax treaty benefits; and
4. The SMI is required to file her income tax return and pay the income tax payable of
PhP1,260,000 which is derived from (i) the SMI’s gross income of PhP10,000,000 less
allowable deduction of PhP1,000,000 to get taxable income; (ii) applying the tabular
income tax rates under Section 24 of the Tax Code on the taxable income to get the
income tax due; and (iii) deducting PhP1,500,000 foreign tax credit to get the income tax
payable.

~o0o~

For any questions or legal concerns relating to Copyright laws, regulations and issuances, you
may contact:

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 MANDY THERESE M. ANDERSON
Senior Associate
mm.anderson@thefirmva.com

MARIA FRANCESCA S. VERGARA

Junior Associate
ms.vergara@thefirmva.com

This article is intended for informational purposes only and should not be construed as legal
advice.