Taxes and Legalities of Dropshipping in the Philippines (2025 Edition)

Disclaimer:
This article is for informational and educational purposes only. It does not constitute legal, financial, or tax advice. Please consult a licensed legal representative and/or professional financial advisor before making financial decisions.

Starting a dropshipping business in the Philippines is an exciting opportunity. It is one that offers low upfront costs and scalable income potential. But while it may seem simple to set up a store and start selling, the legal and tax responsibilities are anything but optional.

Whether you're already running a Shopify store or planning to launch on platforms like Shopee or Lazada, you need to know the legal obligations and tax regulations that apply to online businesses. Operating under the radar can lead to unexpected fines, account suspensions, or worse.

This comprehensive 2025 guide walks you through what you need to know to run a compliant and sustainable dropshipping business in the Philippines.

The Rise of Dropshipping in the Philippines

Thanks to increased access to technology, payment gateways like GCash and Maya, and logistics partners like J&T Express and Lalamove, the Philippines is one of the most active e-commerce markets in Southeast Asia. According to Statista, revenue in the Philippine e-commerce market is expected to reach USD 6.29 billion in 2024 and is projected to grow at an annual rate of 11.8%, reaching USD 9.83 billion by 2028¹.

Dropshipping has become especially attractive because it removes the need for upfront inventory. This means you can start small with minimal capital while testing product ideas without risk.

However, don’t confuse ease of entry with a free pass from legal responsibilities.

Legal Requirements for Dropshipping in PH

1. Registering Your Business

Regardless of where you operate from (home, co-working space, or the beach) if you’re earning from selling products, you are legally required to register your business.

Depending on your business type, registration will vary:

• Sole Proprietors: Register with the Department of Trade and Industry (DTI)

• Partnerships and Corporations: Register with the Securities and Exchange Commission (SEC)

Next, you’ll need to:

• Obtain a Barangay Clearance

• Get a Mayor’s Business Permit

• Register with the Bureau of Internal Revenue (BIR) to receive:

  • A Tax Identification Number (TIN)

  • Authority to Print Official Receipts

  • Books of Accounts

You must issue official receipts for all transactions, especially if you’re operating your own store outside marketplaces.

2. Consumer Protection Laws

Under Republic Act No. 7394 (The Consumer Act of the Philippines), online sellers must:

• Provide accurate product descriptions

• Disclose clear pricing, shipping, and return policies

• Deliver products as advertised

• Honor warranties and replacements

Shopee, Lazada, and TikTok Shop already implement some of these standards on their platforms. If you’re running an independent store (e.g., via Shopify), you must ensure your own terms and policies meet these legal requirements.

3. Data Privacy Compliance

The Data Privacy Act of 2012 (RA 10173) applies to dropshippers who collect and store customer data, such as names, addresses, and contact numbers.

To comply, you should:

• Display a privacy policy on your website

• Collect only essential data

• Ensure your payment gateway is secure and encrypted

• Never sell or share data without explicit consent

If you're using platforms like Shopify or WooCommerce, make sure your chosen apps and plug-ins comply with international security standards (e.g., GDPR-ready).

Tax Obligations for Filipino Dropshippers

Many new sellers avoid tax registration thinking they’ll wait until they “make enough.” Unfortunately, this mindset is one of the biggest mistakes new entrepreneurs make.

Here are the primary tax types you need to understand:

1. Income Tax

All business income in the Philippines is taxable. Under the TRAIN Law:

• If you earn less than PHP 250,000/year, you are exempt.

• If you earn above PHP 250,000 but under PHP 3 million/year, you may choose the 8% flat tax on gross sales (instead of the graduated tax table).

• If your gross revenue exceeds PHP 3 million, you are no longer eligible for the 8% rate and must register as a VAT taxpayer.

Returns must be filed:

• Quarterly using BIR Form 1701Q

• Annually using BIR Form 1701

Tools like Taxumo, JuanTax, or working with a certified tax accountant can simplify the process.

Percentage Tax vs. VAT

• If you're not VAT-registered, you must pay 3% percentage tax monthly using BIR Form 2551Q.

• If your sales exceed PHP 3 million annually, you are required to register as a VAT taxpayer and collect 12% VAT from customers.

Even if you're below PHP 3 million, some sellers voluntarily register for VAT to claim input VAT on business expenses.

3. 1% Withholding Tax (New Rule)

Effective February 2025, platforms like Shopee and Lazada are required to withhold 1% of sellers’ gross monthly sales and remit it to the BIR².

This amount is creditable, which means you can subtract it from your total income tax dues at year-end. This change is designed to improve tax collection from digital sellers and increase transparency.

Tips for Staying Compliant

• Use accounting tools like QuickBooks, Xero, or Wave to track income and expenses.

• Maintain digital and physical copies of all receipts and invoices.

• Monitor your sales to determine if you’re approaching the VAT threshold.

• Hire a licensed bookkeeper or CPA if you’re scaling rapidly or unsure about filings.

• Always file and pay on time to avoid penalties.

Common Legal and Tax Mistakes to Avoid

Many dropshippers unknowingly put themselves at risk. Here are the most frequent issues to watch out for:

• Not registering a business despite ongoing sales

• Selling counterfeit or unlicensed branded items (violates IP laws)

• Failing to issue BIR-approved receipts

• Ignoring quarterly tax filings because of “low sales”

• Not declaring marketplace income because the platform “withholds taxes already” (remember: you still file!)

Resources to Help You

For a full, structured path to building a legitimate, automated dropshipping business, visit K+ Collective. Their guides are made specifically for Filipino sellers cutting through the jargon to give you real, local solutions.

Final Thoughts

Running a dropshipping business may feel informal or "on the side," especially if you’re starting small but that doesn’t exempt you from compliance. Registering, filing taxes, and protecting customer data are not just legal requirements. They’re part of building a brand that customers trust.

When you take care of the backend, your business has the foundation to scale confidently and sustainably. Whether your goal is to earn side income or go full-time, treat it like a real business from day one.

Looking to start the right way? Grab The Only Blueprint to Hands-Off Dropshipping in the Philippines and set yourself up for success legally and profitably.

Date posted: June 3, 2025
Author: K+ Collective