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Quick Guidelines in Filing Freelance Tax in the Philippines

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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 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

 Filing Taxes chart

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

Important 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

 

Key Takeaway

Paying taxes is more than just that chore you dread to do, it is your obligation. With the emergence of TRAIN law, you would have no excuse not to file your taxes since it is an uncomplicated system already. 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.

How to Avoid Delays in Filing Freelance Taxes in the Philippines

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How can you avoid delays in filing freelance tax Philippines?

  • Register before you start being a freelancer
  • Improve your tax knowledge
  • Use an online tax calculator to compute your taxes and file them on time

 

People who earn income, manage their own business, transfer personal or real properties, are all required to pay taxes. The freelance industry is not a stranger to this involuntary fee. There are many perks to being a freelancer – the decent pay, flexible work hours and the comfortable workspace.

One of the things that can become a burden is filing taxes. The Philippine Freelance industry is also required as professionals to register under the appropriate category with the Bureau of Internal Revenue (BIR) and get a Tax Identification (TIN) in order to file and pay your taxes. With the passage of the Tax Reform Acceleration and Inclusion (TRAIN) law, all taxpayers with an annual income less than Php 250,000 are exempt from paying taxes.

Professional freelancers who earn more than that threshold, have to file their income tax based on the graduated tax table as well as three percent percentage tax. In addition, you must pay 12 percent VAT if your annual revenues are greater than Php 3,000,000 but if you qualify as a non-VAT taxpayer, you can opt to pay eight percent on gross receipts.

Becoming a regular taxpayer can be a chore if you are too occupied with projects and deadlines. Good thing there are online tax filing platforms that are perfect for freelancers. Still, you have to file and pay taxes, late filing of income tax return can be a great cause for penalties which mean additional expenses for you. So, to save yourself from financial, personal, and entrepreneurial inconveniences, here are tips and common mistakes you have to avoid in filing freelance tax in the Philippines:

 

Register before you start being a freelancer

 

Like any other professionals or business, freelancers must be registered with the BIR. In the Philippine Tax Code, it is stated in section 74 that an individual receiving an income within sources within or outside the Philippines are required to pay taxes. Most freelancers forget this requirement and their freelancing gigs remain unregistered with the BIR. Do not imitate others who intentionally avoid this obligation.

It doesn’t matter if you are engaged in full-time or part-time work, if you are earning income from your job, then you have to file and pay your taxes. You should know that the BIR defines the professionals under the category of self-employed as:

  • Persons engaged in business and who derive their personal income from such business;
  • Professionals such as (1) “persons who derive their income practicing their profession” like lawyers, and those registered with the Professional Regulation Commission (PRC) such as doctors, dentists, certified public accountants, and others; and (2) those “who pursue an art and make their living therefrom,” including writers, athletes, and others. Freelancers and home-based service provides also fall under professionals

If all of the above pertains to you, and you haven’t registered your services to the BIR yet, then you should make time to do so. Make sure that you do to avoid being tagged as a tax evader. Prepare the necessary documents and register your services. Accomplish forms and submit supplementary documents to revenue district offices (RDO).

 

Improve your tax knowledge

taxes

In order to steer clear of possible violations, you must have a prior knowledge of what they are. These are not only violations but they are considered criminal violations under the Tax Code, as stated by the BIR and they are as follows:

  • Failure to file tax return/s
  • Failure to pay taxes
  • Deliberate under-declaration of income or overstatement of deductions by more than 30% of that declared per return (substantial under-declaration or overstatement of deductions)
  • Hiding or transferring assets or income
  • Non-remittance of withholding taxes
  • Claiming personal expenses as business expenses (tax shield)
  • Failure to register with the BIR
  • Keeping more than one (1) book of accounts
  • Making false entries in financial books and records
  • Use of fake Certificate of Authorizing Registration (CAR), Tax Clearance Certificate (TCC), or other accountable forms

If you are found to have committed a violation of the provisions of the National Internal Revenue Code (NIRC), then you will be subject to the consequences and penalties which are imposed by the BIR.

 

Use an online tax calculator to compute your taxes and file them on time

calculator

The internet provides nifty tools to help you with a lot of daily tasks. One of them is filing and paying your taxes. Basically, online tax calculator is the best go-to guide in computing freelance taxes. Aside from real-time tax calculation, you can also use an online tax-filing platform to pay your taxes. With this, you can manage to skip lines at the bank to pay your taxes, with unlimited accessibility through various payment channels.

An online tax calculator will only require you to enter your income and expense, then that’s it! No more fuss in using calculators and spreadsheets which is a significant benefit for freelancers like you.

 

Key Takeaway

 

Avoiding delays in filing freelance taxes should be on top of your mind at all times. This is to ensure that you can work independently without financial troubles from additional expenses coming from penalties in filing and paying taxes on time. Follow these simple tips and be a regular taxpayer, you will reap long-term benefits from it.

Tax Filing Philippines: Choosing Graduated Rate or 8% Threshold Rate

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What are important factors that come into play with the new tax filing policies?

  1. Mechanics
  2. Conditions
  3. Qualifications

 

Tax filling in the Philippines can be a very daunting and tricky task. With President Duterte’s implementation of TRAIN (Tax Reform for Acceleration and Inclusion), there have been several new policies that fall in line with the new tax reform laws. DIY or freelance taxpayers are faced with major changes from the previous frequency, processes, formulas, and tax tables that were previously applied in the country.

According to the Bureau of Internal Revenue or BIR, if a professional is earning less than P250,000 on an annual basis, then he or she is exempt from paying percentage income tax or the 8% gross receipt tax. In terms of the new TRAIN laws, this simply means that you are not required to file any tax return. The past threshold for VAT taxpayers was P1,919,000 and is now currently raised to P3,000,000.

There are many new changes and that directly affect your calculated tax rates. One of which is that professionals are given certain options to adhere to when it comes to legal tax processing. So, it is important that you make sure that the tax calculator you are using is using the current system for calculation.

Below are overviews on what goes into the new income tax reform laws:

 

Tax Alert Mechanics

Tax Alert Mechanics

Under Republic Act No. 10963 of the TRAIN Law: graduated income tax rates for individuals have been reduced to income below P8,000,000. Payment of the following to taxable judicial persons remain subject to 10% or 15% expanded withholding tax rate:

  1. Professional fees, talent fees, commissions of serves rendered.
  2. Distribution of income to estate and trust beneficiaries.
  3. Income payment to brokers and agents
  4. Income payment to partners of GPP
  5. Medical practitioner professional fees
  6. Commission of independent or exclusive sales representatives and company marketing agents.

The reduction of withholding tax rate for self-employed individuals was implemented in order to be aligned with the 8% optional tax on gross receipts for considerations on the lower tax rates of individual income.

 

Income Tax Conditions

list

Self-employed individuals and professionals are now given a choice for their applied tax rates that identify their income tax liability. However, there are considerations that need to be met and observed before the taxpayer can select the options. Taxpayers that practice his or her profession and earn purely from self-employment have the option to avail of the following conditions:

  1. The graduated income tax rates –under Section 24, A, 2, a of the Tax amended.
  2. The 8% tax on gross sales and other non-operational income that is in excess of P250,000, in substitute of the graduated income tax rates under Section 24(A) and percentage tax under Section 116 of the Tax Code.

 

Taxpayer Qualifications

 

If you are an individual taxpayer earning annual gross sales of P2,000,000 from your business, according to the Tax Reform for Acceleration and Inclusion laws, the 8% flat tax rate option for self-employed professionals can be valid under certain qualifications.

An individual that earns from purely business-related income or mixed-income can only apply the 8% tax rate for the business income only. Non-VAT registered individual taxpayers of the following are granted the 8% flat tax rate option:

  1. Domestic carriers of garages
  2. International shipping carriers with business in the Philippines
  3. Water and gas utilities
  4. Television and radio broadcasting companies with annual gross receipts of the previous year that do not exceed P10,000,000
  5. Overseas dispatch coming from the Philippines
  6. Banks and financing intermediaries performing quasi-banking operatives
  7. Life insurance companies
  8. Authorized insurance agents
  9. Cockpits
  10. Cabarets, day or nightclubs, karaoke bars, karaoke bars, music lounges
  11. Boxing matches
  12. Professional Basketball
  13. Jai-alai and racetracks
  14. Horse race winnings
  15. Exchange of stock shares traded through the local stock exchange
  16. Exchange of stock shares in closely-held corporations

Gross receipts and sales that do not surpass the new VAT threshold of sales receipts accumulating to P3,000,000 are viable flat tax candidates. Signifying your intent by filing the 8% flat tax rate for the first quarterly income tax also grants you the 8% option.

 

Key Takeaway

 

It is crucial that you be well-acquainted with the new TRAIN laws when it comes to tax filling in the Philippines. The new tax income rates provide for many options where self-employed professionals and individuals can optimize his or her earnings.

Whether you are doing your own tax filing, working with a hired accountant for his or her services, or utilizing an online tax calculator, the new formalities that gravitate towards President Duterte’s TRAIN law implementations pose fundamental and structural changes to how your tax rate is determined.

Ultimately, the purpose of these changes is to incorporate a flat tax regime that is open to options, simpler, and easier to comply with self-employed individuals and professionals.