A Guide to Freelance Tax in the Philippines
With the advent of the digital age, freelance work has become a ubiquitously common source of income for people all across the Philippines. One of the most defining elements of freelance work is the internal and operational freedom that it entails: freelancers offer independent services under self-established terms (not bound to a larger corporate structure). Although freelancer services in relation to income are not necessarily fixed and vary on a case-to-case basis, freelance tax in the Philippines is mandatory with strictly enforced laws.
Not all freelancers are obliged to pay taxes. There are clear conditions that determine a freelance worker’s required tax compliance. Many individuals embark on building long-term businesses beginning as startup freelancers. There have been several cases where people have ventured into small freelance work that is exempt from tax and eventually grew their endeavors into successful large-scale operations only to find themselves penalized for tax evasion due to their ignorance of complying to their due tax laws. So if you are at the beginning stages of your freelance pursuits and are still exempt to filing freelance tax in the Philippines, it is important to at this point, get acquainted with all the factors that go into the process.
Working under full-time employers means that matters concerning your taxes are most likely being handled by human resource personnel. Freelance work requires that you either hire an accountant for your bookkeeping and tax concerns or you can take care of it yourself. This article aims to serve as a comprehensive guide that covers the basics on every aspect that concerns freelance work in line with freelance tax in the Philippines, and to also provide a clear and elaborate blueprint for the various steps and procedures when it comes to registration, filing, and payment of freelance tax in the Philippines.
Freelance work can be identified as any type of self-employed service that is not bound to any form of a long-term employer. Although many freelancers are purely independent contractors, there are agencies that represent freelance workers and resell their labor to clients (with or without project management) The different fields of typical freelance work include:
- Event Planning
- Copy Editing
- Copy Writing
- Event Management
- Copy writing
- Computer Programming
- Web Design
- Website Development
- Video Editing
- Video Production
- Content Writing
The Bureau of Internal Revenue (BIR) is the central governing body that facilitates and oversees tax policies, documentation, and compliances. The BIR firmly classifies self-employed professionals as those practicing and receiving personal income from their profession with or without license from a ruling board. With the new digital models for freelance work and income, the BIR has implemented greater scrutiny as to the clear guidelines for different self-employed tax cases.
These are the primary 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.
People have different conceptions, sentiments, and attitudes towards the tax system in the Philippines. There is a common reluctant disposition towards the payment of taxes, but theoretically and regardless of the political climate and its conditions, tax compliance ultimately leads to greater development.
When it comes to freelance tax in the Philippines, the BIR classifies freelancers within a specified category that is legally perceived as a mixture of employees and business owners. At this point, the BIR has not yet established a clear category for strict freelance work.
According to BIR standards, freelancers fall under the general definition of self-employed professionals. Persons that attain personal income from businesses:
- 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.
Taxpayer Identification Number (TIN)
The first step to getting fully registered as a freelance worker involves acquiring a Taxpayer Identification Number or TIN. This is the number that is utilized for tax-related purposes and all matters that concern accounting.
The BIR offers an e-registration system wherein you can apply to get your number online. There is a registration fee of Php 500 for each year. This fee can be paid in any branch under the Authorized Agent Banks (AABs) that is most convenient for your area or location. There is also an option for payment through online means: GCash or Electronic Filing and Payment Systems (Efps).
Once the payment is made, you are now ready to visit the closest BIR office within your area to claim the TIN Card. The TIN Card will then be used in the process of getting registered as a self-employed professional that works and earns income through digital platforms.
REQUIREMENTS FOR REGISTRATION
- 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)
Affidavit indicating rates, billings, and service fees (according to BIR Revenue Regulation 4-2014)
STEPS FOR REGISTRATION
- Fill out BIR Form 1901 then submit along with the documentation requirements to the Revenue District Offices (RDO) that has jurisdiction over the business place.
- 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 briefed an advised 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.
Value Added Tax (VAT)
The BIR requires that registered freelancers ay tax fees whether earning or not. Tax deductions are not based from net income; they are based from gross receipts.
12% VAT – Freelance businesses with sales and gross receipts that surpass Php 1,919,500 are liable for 12 % Value Added Tax, otherwise only 3% is required.
3% VAT – For this classification of VAT, freelancers must file BIR Form 2550M (VAT) and BIR Form 2551M (percentage tax) on the 20th and 25th month following the applicable month.
Freelance Tax Filing and Payment
Once you finally acquire your CoR, you are now an officially registered tax payer. As a Filipino freelancer, here are the regular tax dues that you need to be aware of:
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 are required to have a business permit ad annual community tax certificates in order to operate on legitimate business standards. If you fail to comply with the local tax requirements of your location, your business is not legally legible for operation, and you will get 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.
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 PROFESSIONAL category.
While if you are a fashion designer, food cart franchise owner, selling baked products, etc. you fall under the SINGLE or SOLE PROPRIETOR category. Freelancers that fall under these 2 categories do not require a Mayor’s Permit and Baranggay Clearance.
Online Freelance Tax Filing with TAXUMO
It is evident that there are many intricacies that go into freelance tax in the Philippines. There is a clear sea of formalities and aspects that need to be clarified for the specifications of a case per case basis. Being a freelance worker requires major bursts of effort as to making sure that you save as much of your income while adhering to proper tax compliance policies. As mentioned earlier in the article, there are now online means to file and pay all of your tax related matters.
TAXUMO is the best online tax filing platform that is most ideal for freelancers, self-employed professionals, and small business owners all across the Philippines. Taxumo thrives in their efficiency and professional programming. They provide real-time tax calculation in order to avoid the hassles of bill sock and for you to be fully aware of where you are with your taxes and payment.
The auto-generated tax forms rid you of the time and effort consuming difficulties that comes with filling up complicated tax forms. Another amazing feature that Taxumo provides is that they offer multiple payment channels so you do not have to worry about staying in long lines at the bank or any other payment channel.
With Taxumo, you can effortlessly access your tax information whether at home or abroad, as well as learn more about tax filing in the Philippines, tax computations in the Philippines, and many more. Being responsible and paying taxes is easily done through your computer or smartphone. There is no need to have any prior accounting knowledge with the flawless services that Taxumo provides. Everything is directly in one platform; there is no need for e-BIR or e-FPS forms. Taxumo is the most ideal app for freelancers in the Philippines.
Click here for more on the online tax filing and payment services of TAXUMO.