Freelance work has become a common income source for Filipinos. One of the primary reasons people gravitate towards it is flexibility. Unlike office workers, freelancers can diversify their income source and as many would put it – enjoy the freedom of becoming their own boss.
The perks of freelancing, however, are often overshadowed by tax struggles. Although tax policies aren’t fixed for all freelancers, there are areas you’ll need to comply with or face hefty penalties. Take note that there have been cases where tax-evading freelancers grew their endeavors into large-scale operations– only to find themselves penalized for tax evasion.
So, whether you’re just starting out or have been freelancing for a while now – it’s never too late to start paying your taxes. Here’s a comprehensive guide to get started.
Let’s define: Freelance work
Freelance work is defined as any type of self-employed service that is not bound by a long-term or fixed contract. Although freelancers are independent contractors, you’ll find that there are agencies that represent freelance workers and connect them with clients seeking the type of service you offer.
Some of the most popular freelance jobs in the Philippines are:
- Writing: Content writers, blog writers, screenplay writers, editors, creative writers, journalists
- Developers: Web, full stack, front-end, back-end, mobile
- Designers: Video and photo editors, graphic designers, web designers
- Media: Models, video producers, event management, actors, filmmakers
Registering your freelance job/business in the Philippines
The Bureau of Internal Revenue (BIR) classifies freelancers as self-employed professionals – or, by definition are individuals who receive personal income from their profession with or without license from a ruling board.
While there is no established category for freelance work, persons that receive income from their business and profession are:
- Those practicing a profession and registered under the Professional Regulation Commission (PRC) such as doctors, lawyers, dentists, public accountants, etc.
- Those pursuing art as a means of personal income (including freelance and home-based work) such as writers, athletes, etc.
Given the growth of freelance work since the onset of the pandemic, the BIR has reinstated guidelines for different self-employed tax cases.
Below are the conditions for tax exemption:
- If you are earning minimum wage.
- If your gross income is significantly below Basic Personal Exemption (Php 50,000, regardless of marital status) and Additional Personal Exemption (Php 25,000 per child dependent with a maximum of 4).
- If your annual salary from your employer is Php 60,000 and below.
Now, if you’re thinking about evading taxes due to political conditions or simply because you don’t like the idea of paying extra fees, this is our last warning.
Apart from the penalties we mentioned earlier, taxes are essential for personal and national growth. They fund public infrastructures like our national roads and highways, healthcare, and public education.
Taxes also benefit you when taking out a loan or applying for a visa, as you’ll be asked to submit your income tax returns upon application.
Securing your Taxpayer Identification Number (TIN)
The first step to register as a freelance worker is to acquire a Taxpayer identification number or TIN. You can apply for a TIN online, or head to your nearest Revenue District Office (RDO).
Full list of requirements for registration (self-employed individuals):
- NSO Certified Birth Certificate
- Community Tax Certificate or Sedula
- BIR Form 1905 (for those already with TIN Number and are applying for business activity change)
- BIR Form 1901 (registration form pages 1 and 2 are the forms for self-employed professionals)
- BIR Payment Form 0605 (the form required for majority of Philippine tax types)
- Photo Copy of Mayor’s Business Permit (if applicable)
- Certificate of Business Name (if applicable)
- Occupational Tax Receipt (if applicable)
- Professional Tax Receipt (if applicable)
- Marriage Contract (if applicable)
- Contract or Company Certification (if applicable)
Note that you’ll need to pay a registration fee of PHP 500 each year, the payment can be made on Authorized Agent Banks (AABs) within your location.
Once you’ve indicated your rates, billings, and service fees, follow these steps for registration:
- Fill out BIR Form 1901, and submit it along with the documentation requirements to the RDO within your jurisdiction (or the area where your freelance service is registered).
- Pay the (Php 500) registration fee at a BIR office or AABs of the concerned RDO.
- Make sure that you have all the necessary forms along with adequate photo and digital copies. Submit all required documents.
- Pay the (Php 15) certification fee and the (Php 15) documentary stamp tax. The form that you will receive will later be attached to the registration certificate of the taxpayer.
- Attend the RDO initial briefing for taxpayers and new registrants in order to get advice on the different rights and duties of tax compliance.
- The RDO will then issue Form 2303 or the official Certificate of Registration (CoR) along with the Ask for Receipt notice and Authority to Print (ATP) and Book of Accounts.
Submit all requirements for ATP along with registration of the Books of Accounts (expenses book, journal, subsidiary professional income book, subsidiary purchases) for the RDO to stamp.
Freelance Categories in the Philippines
Your freelance service may fall under the different categories:
- PROFESSIONAL CATEGORY: Virtual assistants, content writers, graphic designers, etc.
- SINGLE OR SOLE PROPRIETOR: Selling baked goods, food cart owner, fashion designer (or owner of a fashion line)
Freelancers that fall under these categories do not require a Mayor’s Permit or Barangay Clearance.
What you need to know Value Added Tax (VAT) for freelancers
Registered freelancers are required to pay tax fees whether they’re actively earning or not.
Deductions are based on your gross receipts. A 12% VAT (VAT registered) is imposed on freelance businesses (or registered freelancers) generating sales and gross receipts that surpass PHP 1,919,500 annually.
If the receipts do not meet that amount, only 3% (non-VAT registered) is required. We get into more detail in the next section.
Freelance Tax Filing and Payment
Monthly Percentage Tax
- 3% of your Gross Revenue
- BIR Form 2551M (Monthly Percentage Tax Return) and BIR Form 0605
- Deadline Date – the 20th of every month
- Payable in BIR Partner Banks
Quarterly Income Tax
- Based on Net Income
- BIR Form 1701Q (Quarterly Income Tax Return) and BIR Form 0605
- Deadline Date – April 15th, August 15th, and November 15th
Annual Income Tax (Last Quarter Payment)
- BIR Form 1701 (Annual Income Tax Return) and BIR Form 0605
- Deadline Date – April 15th of the following year
Renewal of Annual Registration Tax (CoR)
- BIR Form 0605
- Deadline Date – January 30th of every year
When it comes to freelance tax in the Philippines, your annual and quarterly income taxes are required to be filed and paid based on tax income rates ranging from 5-32 % prescribed by the BIR.
Quarterly taxable net income is the differentiating factor between business expenses and gross receipts. These requirements are to be filed on or before the 15th day of every month. Expanded withholding tax is applied for expenses such as hiring outsourcing personnel, rent dues. Those listed under Revenue Regulations No. 2 – 98 must be remitted to the BIR on a monthly basis.
Local Tax Requirements
You need to secure your business permit and annual community tax certificates to operate. Failure to comply (and renew), could put you at risk of getting sanctioned or penalized.
Important Notes on Freelance Tax
Tips for Submitting and Filing Documents When filling out the forms along with the required documents, it is important to already have them fully ready when visiting the BIR office because a BIR representative will provide you with a date in which you have to come back and receive your CoR. Make it a point to remember to bring your Cash Disbursement and Cash Receipt Journal Books for registration. You are going to have to register a new book for every fiscal year. Make sure to photocopy your CoR and Form 005 and take them to the Accredited Printers of Receipts of BIR. The accredited center will provide you with 12 booklets that contain 1000 receipts. These booklets can be used for the next 5 years. Freelance Categorization For freelance tax in the Philippines, many individuals inquire as to which taxation category the nature of their services falls under. If you are a graphic designer, content writer, virtual assistant, online coach, etc. you fall under the PROF
Let’s not sugarcoat things – tax filing can be a grueling process, especially when you’re just starting out!
So we’ve compiled some tips to make the process more streamlined for you:
- Fill out forms before heading to the BIR Office. You can download the forms on the BIR website.
- Remember to bring your Cash Disbursement and Cash Receipt Journal Books for registration. Note that you are going to have to register a new book for every fiscal year.
- Photocopy your CoR and Form 005 and take them to the Accredited Printers of Receipts of the BIR. The accredited center will provide you with 12 booklets that contain 1000 receipts. These booklets can be used for the next 5 years.
File your Freelance Taxes with Taxumo
Being a freelancer has its benefits,so don’t miss on the chance of pursuing a flexible and financially rewarding career.
And if you’re worried about staying on top of your taxes, you can always opt to automate the process to enjoy a more seamless experience.
Trusted by freelancers and self-employed individuals,Taxumo is the pioneering online tax platform in the Philippines. The platform provides real-time tax calculations to help you avoid the hassles of bill shock.
You can also leverage features like auto-generated tax forms and online payments so you never have to worry about long bank lines again. To top it off, Taxumo is BIR-accredited, so everything you need is on the platform – no more e-BIR or e-FPS forms.
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