BIR Requirements Every Filipino Freelancer Should Know
Tax, a dreaded word, especially among freelancers. Last Nov 25, in a #CoffeeBreakSession, we decided to conquer our fears and face it head on. We invited Mark Ong, Chief Financial Officer of Taxumo, to answer the common tax-related questions we get from the freelancing community. And as requested, we are turning this Ask Me Anything session as a resource page for you. Bookmark this, save this, share this.
Most Common Freelancer Questions
- Should I register as a self-employed professional, voluntary, sole proprietor/business, baranggay microbusiness?
- What are the steps for those who are previously employed and those are freelancers from the start
- What are the usual fees to expect? Do we pay monthly/quarterly/yearly?
As with any other government agency, long queues await you. As per Mark’s experience, be prepared to go back 2-3x before completing the registration process. You may visit the BIR office/RDO nearest you but expect that some rules and procedures vary per office. Even local government units impose varying fees or requirements. But for the purpose of this guide, we will include the common proceedings.
What Category Do I Fall Under?
Q: In the absence of a tick box for freelancers, how should we categorize our online work?
A: According to Mark, most freelancers fall under Professional category. Some examples are:
- Graphic Designers
- Content Writers/Bloggers
- Virtual Assistants
- Insurance/Real Estate Agents
- Online Coach/Trainer
However, you become a single/sole proprietor if you are:
- Selling baked goodies
- Fashion designer
- Food Cart Franchise Owner
Another striking difference between these two categories is that professional need NOT get a Mayor’s Permit and Baranggay Clearance.
How Do I Register as a Professional?
If you don’t have and never had a Tax Identification Number(TIN), please follow the steps below:
- Visit your nearest Revenue District Office (RDO)
- Fill up BIR Form 1901
- Ask for assistance from BIR personnel (same as filling bank application forms)
- Be clear in what you are NOT (Please specify that you don’t have employees to avoid compensation tax)
- Know your applicable taxes!
- Bring documents
- NSO birth certificate
- NSO marriage contract and NSO birth certificate of qualified dependent (if applicable)
- DTI registration document if trade name will be used (if not default is your name)
- Professional Tax Receipt (PTR – for licensed profession like Architects) or Occupational Tax Receipt (OTR – for consultants, agents, artists, underwriters and the like)
- Next steps – printing receipts and stamping of book of accounts (your RDO will advise the process for this)
If you have a TIN and was previously employed locally, there are additional steps to update your status:
- Visit RDO that has your records – at previous address, or employer’s/ex-employer’s RDO
- Fill up BIR Form 1905 to transfer RDO
- Wait for confirmation of transfer with your new RDO (at least a week)
- Fill up BIR Form 1905 at your new RDO
- Follow steps above ^^
How Do I Register as a Sole Proprietor?
- Steps prior to going to the BIR
- DTI registration for your business (try DTI online facility)
- Visit your city hall
- Bring DTI document
- Lease contract or real estate tax declaration
- *ID picture
- *NSO documents
- Proceed to barangay hall for business clearance
- Follow the same steps when applying for BIR update or first-time registration
What’s the Cost of Registration?
- P500 for registration
- Approximately P2,000 to P3,000 for printing of receipts
- Around P200 to P300 for “books of accounts”
- Important to take note – 4 books for service business; 6 for manufacturing/buy & sell
- DTI and local government
- DTI – P200 to P2,000
- Barangay – varies
- City hall
- Varies per city
- May require further payments for sanitation, fire extinguishers, etc.
How Much Tax Should I Pay?
- Local government
- Annual local business taxes for sole-proprietorship (amount varies per city)
- Know your taxes!
- Most freelancers need NOT pay 12% VAT. This is only applicable if annual revenues exceed P1.919 million or quarterly revenues exceed P478,000.
- Default is to pay 3% MONTHLY percentage tax (3% of revenues)
- QUARTERLY and ANNUAL income tax
- No need to file compensation tax returns if you don’t have employees
- No need to file expanded withholding tax returns
- Annual registration fee – P500
Common Freelancer Questions
Q: Why do I need to pay taxes when my clients are overseas?
A: Excerpt from Taxumo’s blog:
“Unfortunately, the location of someone’s customers is generally NOT a basis for income tax exemption. Online freelancers are, from a tax perspective, similar to exporters of handicrafts and garments (only in our case it’s exporting a service). While it’s true companies in ecozones and certain BPOs enjoy exemptions or temporary exemptions (income tax “holiday”), as do some cooperatives, exporters in general are NOT exempt from the income tax.”
Q: Are our services subject to final withholding tax
A: Final withholding tax normally applies to foreigners, for us locally it would be “creditable withholding tax.”
Q: How do I pay for taxes when my income is fluctuating on a monthly basis?
A: If you don’t make money, you don’t need to pay any taxes. You just need to declare it on a monthly basis (percentage tax). On the other hand, “income” tax is revenue (what you take in) LESS your business expenses. Each taxpayer is allowed the following deductions:
Income Tax Deduction = P50,000
Dependents = P25,000 deduction per dependent up to 4 children
So if you make P200,000 total revenue and you have 4 kids, deduct P50,000 + P100,000. Only the remaining P50,000 is taxable.
Q: Is RA 9178: Barangay Micro-Business Enterprise Law applicable to freelancers?
A: BMBE law is intended to generate employment which means it generally refers to micro businesses. But there’s no harm in trying though, it’s free.
Q: How about those who have full time jobs and are also engaged with freelance projects every now and then, how do we file our tax?
A: There is no risk with declaring other sources of income, I would think the risk lies with not declaring
There you have it, folks. Not too scary after all. We hope this guide has clarified a lot of your tax questions. Once you’re all set up, make sure to take advantage of Taxumo’s services to simplify your life. You can also watch the #CoffeeBreakSession by clicking the recording below. See you in the next AMA session!