The modernization and innovation of technology in today’s world have paved the way for many opportunities for a lot of individuals. Apart from providing convenience and efficiency, technology has also created tons of jobs, which many Filipino workers have reaped benefits. Also, since the pandemic has occurred, many Filipinos lost their regular jobs resorting to the increasing number of Filipino freelancers. Nonetheless, the Philippine economy was greatly suffering due to the decline of taxes collected from Filipino workers. That’s why to help improve the economy, in this article I will share with you the guide to paying taxes for Filipino freelancers.
Why should Filipino Freelancers pay taxes?
Filipino freelancers who are working in the Philippines or with clients abroad, whether full-time or part-time are required to pay income tax. Since many Filipinos are working home-based, making money from doing online works such as writers, graphic designers, virtual assistants, and developers, are all required to pay their taxes.
Meanwhile, freelancers who are working with clients abroad and conducting business in the Philippines can claim a tax credit in the foreign country for the taxes they are paying. Doing so will exempt a freelancer to pay the foreign country the required taxes. Also, by claiming a foreign tax credit a freelancer can lessen the impact of double taxation through tax exemption or preferential tax rates.
Although there is confusion if freelancers are required to pay taxes since the Tax Code does not specifically indicate “freelancers”, they are still categorized as self-employed individuals or mixed-income earners. Thus, it does not exempt them from filing and paying income tax in the Philippines.
How to register with BIR for Filipino Freelancers?
The initial step to take is to register with BIR so that freelancers can proceed with filing and paying freelance taxes. Freelancers should register with BIR as self-employed individuals or mixed-income earners. A Taxpayer Identification Number or TIN is also needed in the process and has an annual registration fee of Php500 that can be paid through Authorized Agent Banks (AABs), GCash, or under Electronic Filing and Payment Systems (Efps). After paying the fee, you can claim the TIN Card at the nearest BIR office.
Requirements for Registration
To prepare for the registration process, here are the following documents that you need to provide with BIR, including:
- PSA Certified Birth Certificate
- 2 Valid Government-Issued IDs
- At least 5 photocopies of a Valid Government-Issued ID with three specimen signature
- TIN Number
- Community Tax Certificate/ Cedula
- Barangay Certification as proof of address
- Mayor’s Business Permit photocopy, if available
- Business Name DTI Certificate, if available
- PRC ID, if available
- Affidavit stating rates, billings, and service fees stated on BIR Revenue Regulation 4-2014
- Profession Tax Receipt (PTR)
- Occupational Tax Receipt (OTR), if available
- Marriage Contract, if available
- Company Certification or contract, if available
- Book of Account- unused journal book, ledger book, columnar books
- BIR Form 1905- for individuals with TIN requesting for business activity change, or loss TIN Card
- BIR Form 1901- Page 1 and Page 2 registration form for self-employed individuals
- BIR Payment Form 0605- form for Philippines tax type
Steps for Registration
- Contact the Revenue District Offices (RDO) to determine the location of your business. Fill out the BIR Form 1901, and submit it together with the documentation requirements for registration at the RDO. For previous employees with TIN, fill out the BIR Form 1905.
- Pay the annual registration fee of Php500 with BIR or through AABs.
- Ensure that all the needed BIR Forms are filled out accordingly, together with sufficient photos and copies. Then, submit the required documents.
- Pay the fee for certification of Php 15 and another Php for the documentary stamp tax. Afterward, you will receive a form that needs to be attached with the registration certificate.
- Go to the initial briefing hosted at RDO required for new registrants to be informed of their rights, and duties as taxpayers.
- Next, RDO will issue the Official Certificate of Registration (CoR) or Form 2303 together with the “Ask for Receipt” notice and Authority to Print (ATP) and Book of Accounts.
- Lastly register your book of accounts including journal, ledger, Expenses book, and Subsidiary Professional Income Book by getting them stamped by the RDO you registered. Also, record all your income and expenses, and pay taxes regularly.
What taxes and charges should Filipino Freelancers pay?
- Renewal of Annual Registration Tax (CoR)- Php 500 yearly, BIR Form 0605, Due on every January 30th of the year
- Monthly Value-Added Tax- Based on gross receipts, BIR Form 2550M, 12% VAT for earnings exceeding Php 1,919,500; 3% VAT is required for lower earners
- Quarterly Value-Added Tax- 12% of gross receipt, Exempts self-employed individuals paying 8% preferential tax rate, BIR Form 2550Q, Due on 25th of the month following each taxable quarter
- Quarterly Percentage Tax- 2% to 30% of gross receipts, Exempts VAT-registered business, BIR Form 2551Q; Due on every April 25th, July 25th, October 25th, and January 25th of the year
- Quarterly Income Tax- Based on Income Tax rate table of BIR or 8% preferential tax rate if applicable, BIR Form 1701Q, BIR Form 0605; Due on every May 15th, August 15th, and November 15th of the year
- Annual Income Tax- Based on Income Tax rate table of BIR or 8% preferential tax rate if applicable, Last quarter payment, BIR Form 1701, BIR Form 0605, Due on every April 15th of the following year
- Monthly Percentage Tax- 3% of Gross Revenue, BIR Form 2551M, BIR Form 0605, Due on every 20th of the month, Payable through partner banks of BIR
- Creditable or Expanded Withholding Tax- 1% to 15% of gross income, Exempts individuals with a certificate of exemption to pay income tax, BIR Form 1601-EQ for Quarterly, BIR Form 0605 for Monthly; Due on every April 30th, July 31st, October 31st, and January 31st of the year
Additionally, when submitting and filling out the necessary forms together with the documents, freelancers are advised to prepare everything beforehand when heading to the BIR office. Since the BIR representative will collect the forms and documents, prepare everything ahead to get an appointment date right away and come back to obtain your CoR. Also, it is important to bring the Cash Disbursement and Cash Receipt Journal Books to proceed with the registration.
To sum it up, whether you are earning small or big with your freelancing career as a Filipino citizen, it is your responsibility to pay your due taxes from your earnings. So start filling and pay your freelance taxes to help with the economy.