Taxes for Freelancers in the Philippines

Dose Freelancers Pay Tax?

Yes, regardless of whether they work full or part-time for clients in the Philippines or abroad, freelancers must pay income tax. Taxes for freelancers in the Philippines cover all online contractors who work from home, including web developers, authors, SEO experts, and graphic designers.

Any taxes paid in the foreign nation may be used as a tax credit by freelancers operating in the Philippines with clients abroad. They will theoretically be “exempted” from paying taxes there because of this. As a freelancer, you’re working for yourself, so anything paid by a company abroad when working from the Philippines will not have any tax in the Philippines, as companies outside the Philippines do not need to pay this.

The National Internal Revenue Code, generally known as the Tax Code, does not specifically identify “freelancers,” which has led to misunderstanding regarding whether or not they must pay income tax.

Then again, freelancers might be categorized as either self-employed people or mixed-income earners depending on the type of work or business. In the Philippines, tax filing and payment are mandated for self-employed and people with mixed incomes.

How to Pay Taxes as a Freelancer in the Philippines?

Freelancers must register with the BIR as self-employed individuals or as mixed-income earners, and if they don’t already have one, they must obtain a Taxpayer Identification Number, or TIN. However, the guidelines and processes are distinct from those for other categories of taxpayers.

Before you can submit and pay freelance taxes in the Philippines, you must first register with BIR.

Steps for BIR Registration for Freelancers

1. Complete the BIR Form 1901. This is what you’ll use to submit your BIR registration.
2. By completing BIR Form 1905 to your former RDO, request a transfer of RDO (if applicable). Your tax records must be at the RDO with authority over your place of residence in accordance with Revenue Memorandum Order No. 37-2019. Therefore, if you choose to work independently and your registration records are still held somewhere other than your home, you must submit the necessary paperwork to your old RDO in order for them to transfer your data to your new RDO.
3. You should ask the municipal/city hall that has jurisdiction over your address for an Occupational Tax Receipt (OTR). As evidence that you are a resident of the address you will use for registration, bring one valid ID. Take note that your municipal/city hall determines how much you must pay for your OTR request.
4. Go to the BIR RDO allocated to the location where you plan to register as a freelancer and turn in the necessary paperwork. They consist of the properly filled-out BIR Form 1901, the stamped BIR Form 1905 (if you requested an RDO transfer), and the OTR. As a freelancer, you can choose on your BIR Form 1901 to file your income taxes at the 8% flat tax rate rather than the graduated tax rates that are better suited for corporations and individuals with higher expenses.
5. Await the release of your Certificate of Registration (COR). Inquire with a BIR official about where to get/buy an authorized Official Receipts Booklet and accounting book once your COR is released (often within 1 to 5 days). These will act as your records in the event that BIR asks for them.

Taxes for Freelancers Philippines?

Be patient while your Certificate of Registration is released (COR). Once your COR is released, ask a BIR representative where you may obtain or purchase an authorized Official Receipts Booklet and accounting book (often within 1 to 5 days). In the case that BIR requests them, these will serve as your records.

1. Annual Enrollment Charge

• Rate: 500 PHP per year
• Who must pay: All self-employed and persons with variable incomes
• BIR Form 0605, the Payment Form, must be submitted.
• The deadline is always January 31.

2. Periodic Income Tax

• Rate: Based on the 8% preferential tax rate or the BIR’s graduated income tax rate table, whichever is appropriate.
• Who must file and pay: All self-employed and those with variable income
• BIR Form 1701Q – Quarterly Income Tax Return is the required document.
• There are three deadlines this year: May 15 (first quarter), August 15 (second quarter), and November 15 (third quarter).

3. Yearly Income Tax (tax payment for the last quarter of the taxable year)

• Rate: Based on the 8% preferential tax rate or the BIR’s graduated income tax rate table, whichever is appropriate.
• Who must file and pay: All self-employed and those with variable income
• Annual Income Tax Return BIR Form 1701 or BIR Form 1701A, whichever is applicable, must be submitted.
• April 15 of the next year is the deadline.

4. Periodic Percentage Tax

• Rate: 2% to 30% of total receipts or sales1
• Self-employed and mixed-income people with gross yearly sales and/or receipts under Php 3 million who are not VAT-registered or as required by law are required to submit and pay.
• VAT-registered enterprises are exempt.
• BIR Form 2551Q – Quarterly Percentage Tax Return is the required document.
• Deadlines: April 25 for the first quarter, July 25, October 25, and January 25 for the second and third quarters (fourth quarter)

5. Value-added Tax per Month

• Rate: 12% of gross sales or gross revenues, depending on whether you’re selling products or services; B. Transactions2 exempt from VAT: Exempt; C. Sales3 at 0 percent of gross receipts or sales
• VAT-registered firms and self-employed and mixed-income people with gross annual sales and/or receipts of more than Php 3 million are required to submit and pay.
• Businesses required by law to pay the other percentage taxes4 are exempt.
• BIR Form 2550M – Monthly Value-Added Tax Declaration is the required document.

20th day of the following month is the deadline.

• Note: Beginning in 2023, only quarterly VAT return submission and payment will be accepted. VAT will no longer need to be filed monthly.

6. Value-added Tax due per Quarter

• Rate: 12% of gross sales or 12% of gross receipts (for the supplier of goods) (for the seller of services)
• Self-employed and mixed-income people with gross annual sales and/or revenues of more than Php 3 million are required to file and pay.
• Self-employed people who use the 8% preferential tax rate are excluded.
• BIR Form 2550Q – Quarterly Value-Added Tax Return is the required document.
• Each taxable quarter’s 25th day of the following month is the deadline.

7. Creditable/Expanded Withholding Tax

• 1% to 15% of gross revenue is the rate.
• Self-employed and people with mixed incomes whose income is subject to increased withholding tax (such as professional fees, talent fees, rental income, etc.) are required to file and pay.
• Who is exempt: Individuals who have a certificate of exemption exempting them from paying income tax (i.e. BMBE)
• BIR Form 1601-EQ – Quarterly Remittance Return of Creditable Income Taxes Withheld is the required document (Expanded)
• April 30 (first quarter), July 31 (second quarter), October 31 (third quarter), and January 31 are the deadlines (fourth quarter)
• Each quarter’s first two months must be used for monthly payments using BIR Form 0605.

How Do Freelancers Acquire ITRs?

Because they are treated as businesses, freelancers must submit their own tax returns.

In order to claim the creditable withholding taxes, the taxpayer must ask his employer for a BIR Form 2316 if he is also employed.

Just submit the proper ITR to the BIR. For self-employed people and people with mixed incomes who are claiming an itemized deduction under the graduated income tax rates, the appropriate form is BIR Form 1701. The appropriate form to submit is BIR Form 1701A for self-employed people taking advantage of the 8% tax rate or the optional standard deduction under the graduated tax rates.

The BIR will provide you with a stamped and authenticated copy of your ITR once you file and pay your income tax. This acts as your evidence of filing and paying income taxes for the relevant year.