What are the guidelines that you should follow in filing freelance tax in the Philippines?
- Check and see if you are exempted from filing and paying your taxes
- Register with the BIR
- Prepare the necessary documents
The Philippines is home to many homegrown talents in various other industries. According to the Philippine Statistics Authority (PSA), self-employed professionals are the second largest class of workers in the country. In the total employment rate of the country during the year 2017, the self-employment population amounts to a total of 27.8%.
That number includes the growth rate in the industry of freelancing. A significant sum of contributions to the development of the economy comes from freelance tax in the Philippines, and it is notable that their population continues to grow.
Due to the rise of remote jobs online, freelancers are catching up with the rate of employed individuals. But unlike those who work for a company, taxes in freelance are filed independently. Employed individuals’ taxes are automatically deducted from their salary as well as benefits like health insurance and Social Security System (SSS) contributions, and this is why self-employed individuals’ take-home pay tend to be a bit higher.
It may be tempting to let your paycheck remain unscathed by freelance taxes deduction but doing so will make you an enemy of the Bureau of Internal Revenue (BIR). Unless you want them knocking down your door, you have to set aside an amount for your contribution.
Being a freelancer means you work on your account in collaboration with either partners or clients. Sometimes they can be based locally or in international arenas. Self-employed individuals may register as either a single proprietor or entrepreneur or as professionals.
Knowing guidelines for filing your tax as a freelancer will benefit you in the long run, so read on below for a quick refresher:
Check and see if you are exempted from filing and paying your taxes
With the passage of the Tax Reform for Acceleration and Inclusion (TRAIN) law, its amendments include the exemption on income tax for those eligible professionals and organizations. The new personal income tax rates are as follows:
- Persons with an annual income of Php 250,000 and below are exempted from paying taxes.
- Php 250,000 to 400,000 will pay 20% of excess over Php 250,000
- 400,000 to 800,000 = 30,000 + 25% of excess over Php 400,000
- 800,000 to Php 2,000,000 = Php 130,000 +30% of excess over Php 800,000
- 2,000,000 to 8,000,000 = Php 490,000 +32% of excess over Php 2,000,000
- Above 8,000,000 = Php 2.41 million + 35% of excess over Php 8,000,000
Register with the BIR
If you do not belong to the category that is exempted from paying their income tax, you have to register with the like everyone else to file your taxes. This process can be tedious unlike for those who are employed in a company due to some extra documents.
Those professionals who are classified as self-employed are those who practice their profession, with or without a license under a regulatory board or body. They will receive payment for the service that they do but they would not receive benefits and compensation the same as what employees get. The examples of those self-employed individuals are private practice physicians, lawyers, and accountants who are on a pay-per-service basis.
Just like them, freelancers are considered as professionals, even when they are not under a regulatory board or body. These include bloggers, web developers, graphic designers, virtual assistants, writers, and other individuals who provide specialized services.
Follow these steps for BIR registration:
- Obtain a Tax Identification Number (TIN) via the BIR website or the BIR portal if you don’t have one yet. You can skip this step if you already have one.
- Fill up the Application for Registration (BIR Form 1901) and the payment form (BIR Form 0605), gather the applicable required documents.
- Submit to the form and the supplementary documents to Revenue District Office (RDO) that has jurisdiction over your place of business.
- Pay the ₱500 annual registration fee. You can simply go to any authorized bank located within your district and provide them the payment form with your payment. Check with your RDO what banks are accredited to accept this payment.
- Pay the ₱15 Certification Fee and the P15 Documentary Stamp Tax. A form will be given, which the taxpayer will be attaching to the registration certificate later on.
- Apply for Invoices/Receipts using the Authority to Print form (BIR Form 1906).
Prepare necessary documents
If you are ready to register, then you should be equipped with the requirements. The following are required for the registration:
- NSO Birth Certificate
- Mayor’s Permit, if applicable
- DTI Certificate of Business Name, if applicable
- PRC ID, if applicable
- Payment of Professional Tax Receipt (PTR), if applicable
- An affidavit indicating the rates, manner of billings, and the factors considered in determining service fees (as specified in BIR Revenue Regulation 4-2014)
Meanwhile, these are the forms you need to fill out as part of the registration:
- BIR Form 1905 – for people who already have a TIN number but want to change business. The form is also needed in the case of TIN loss
- BIR Form 1901 – the first and second page is the registration form. Basically, this is the form for all self-employed individuals.
- BIR Payment Form 0605 – present this form upon payment in any authorized bank by the Revenue District Office (RDO).
- Pay via a partner bank or online
Paying taxes is more than just that chore you dread to do, it is your obligation. With the emergence of TRAIN law, you have no excuse not to file your taxes since it has become an uncomplicated system. Avoid delays by keeping this in mind and you will be free from distractions that will nag you if you do so.
These quick guidelines in filing freelance taxes is also a way for you to be mindful of your responsibility so brush up on these tips if you ever feel puzzled.