If you are a freelancer or self-employed professional, taxation can be very confusing. If you get it wrong, you may lose an enormous amount of money. I had a hard time looking for a complete guide for BIR tax for freelancers online that’s why I resolved to myself that I’ll make one to be of better help.
You must understand how taxes impact your business and plan accordingly. Get some helpful tips from this in-depth guide.
As a self-employed freelancer, these are detailed experience in paying my tax obligations. I am including my personal experience in BIR, subjective observations, opinions and comparison. Also objective public data and guidelines.
“In order for a country to move from poverty to prosperity, there must be EASE IN DOCUMENTING and TRANSFERRING OWNERSHIP. Together with this must be security for people’s papers so that trust and transactions can flourish. – Wayne Grudem, Reformed Theologian , Poverty of Nations: A Sustainable Solution“
My writing style is to make this as layman-ish as possible by using common terms that the majority of ordinary Filipinos will understand especially those that are not professional book-keepers, lawyers or CPA’s.
If you have no time, a company called Taxumo can do the nitty-gritty stuff for you.
Who Are Classified as Freelancers?
The word freelancer was not specifically mentioned in the BIR Tax Code (Internal Revenue Code), but this type falls on a certain term. Currently, there are bills proposed to integrate this into our national economic nomenclature and maybe, soon, we will no longer look at the word freelancers with perplexed eyebrows but with the same eyes of understanding with employed and self-employed categories.
The rise of the internet came with the rise of online jobs. Some people in other countries, especially the West, would prefer to hire talents in other countries for lower cost of labor.
Sites such as Upwork provide this kind of opportunity to many Filipinos. As a result, there’s a new breed of workers have a different kind of work situation. Almost any job right now, even the classic ones such as lawyering, stenograph, architecture, do flourish in freelance work environments. Freelancers can be classified as (1) self-employed or (2) mixed-income individuals.
Should Freelancers Pay Taxes?
According to the Internal Revenue Code, any person whether personal or juridical (e.g. a corporation), is required of:
- Filing a return or statement (if no income, it’s still required to file BIR returns)
- and shall have a TIN (Tax Identification Number) given by the BIR
Nota Bene: Failure to pay income taxes with or without tax due at the required time would incur penalties of:
- Fine of not less than P10,000; and
- Imprisonment of not less than one (1) year but not more than 10 years; and
- Compromise fee of not more than P50,000 (if a tax is due), or up to P25,000 if without tax due.
Why Pay? Importance and Benefits of FIling Taxes
1. Nation-building – one of the very core reason for paying taxes, besides it is required by law, is that we are contributing for the good of our nation. We hope to build our country, support our government officials and create a better environment for ourselves when we pay taxes.
Spiritually speaking, it is God’s command and will for us. When Jesus was asked about paying taxes, He answered “Give unto Caesar (the Emperor) what is Caesar’s; and give to God what is God’s”
2. Law-abiding Behaviour – to say it abruptly, it is illegal not to pay your taxes. If you have a registered before, you would incur charges or penalties which is, as of November 2018, costs P1,000 per unsubmitted form. According to our BIR seminar speaker, they increased this from P300 before so that Filipinos will learn the hard way and won’t forget to fulfill their duties as citizens who benefit from public goods. You will know this if you visit the Receiving Department of BIR.
3. Loan Requirement – You may need a loan someday for the following reasons:
* Emergency Expenses
* Events Expenses
* Medical Expenses
* Home Improvement
* Car Loan
* Calamity Loan
* Travel or Vacation Expenses
Lending institutions such as banks and financing corporations would require a tax proof from you when you need to burrow money someday. If you wrote “self-employed / businessman / or freelancer” as your occupation, the proof that you must present for loan is most likely the Annual Income Tax Return of the previous year. Rather than burrowing money from informal lenders such as 5/6, banks have much lower interest rates where you can also establish a credit history. So, working on your taxes is also a way of opening up a way to save yourself from headaches of needing finances in the future.
4. Housing Loan / PAGIBIG Requirement – as a real estate professional, one of my work is to help my clients who are self-employed professionals to avail a housing loan of PAGIBIG or the Home Development Mutual Fund (HDMF). As a self-employed person, you must present ITR, Audited Financial Statement and Business Permit so you can be approve for a loan. Without ITR, you will have a hard time getting a home loan if you want or need it someday.
5. Overseas Requirements – There may come a time that ITR would be required from you when you travel abroad as a tourist or work as an employee. According to our BIR speaker during the seminar, some employers or embassies require ITR that’s why it’s better to properly work on it. If you are a freelancer now, it’s still a need because when opportunities come, you will be ready.
6. Patriotism and Nationalism – I think the best way to show your love for your country is to support your government and its programs. Yes, some argue that there is corruption but the burden is not yours. We have justices to work on that. Our duty is to support the nation where we are also benefiting.
As a freelancer, I would think of it as contributing to the “sustainability” of our country. Imagine, if no one (in any way) paid for sites like Upwork, Facebook or even our local malls, we and the next generations would not have enjoyed it. In essence, it’s a gesture of gratitude.
Advice: Prior to Registration
Attend BIR Seminar – I think this should be the first thing to do before you start your tax obligations. But this depends because some may require to file requirements first, so this should go ideally.
Here are things suggest as you attend the BIR educational seminar:
- List down all the questions that you have in mind
- Ask those questions to the BIR seminar speaker – they are regularly doing it, most likely once a week
- You can ask your questions to a specific window or counter of BIR but have in mind that their obligation is to process a certain task
- Define your occupation, profession, source of income or income-generating activities
- If time does not allow, you can approach the seminar speaker after the session for your specific inquiries. This is their obligation and would be glad to help you.
FIRST STEPS FOR REGISTRATION OR UPDATE OF REGISTRATION FOR FREELANCERS / CONSULTANTS / SELF-EMPLOYED PROFESSIONALS
Being your own boss and working for yourself is a wonderful thing but it also comes with its challenges. One of the biggest challenges you will face is doing your own taxes. If you are self-employed or run your own business you might find yourself having to do your own taxes.
1. Get a Certificate of Registration (COR)
This marks the beginning of your relationship with taxes. This is the “foundation” document because your COR will define your Trade Name, Address of Business, Income-Generating Activities / Tax Type and your Tax Forms.
The best thing to do I recommend is to tell the BIR assessor about your profession or means of income. This will help them identify your matching duties. You can try to negotiate easier obligations if possible.
Your COR document will tell you the tax obligations you need to comply with.
When you register, there are important data you should bear in mind.
- Trade Name – as a freelancer or self-employed providing services, this will be your complete name. Tip: If you want to have a name other than your personal name, choose the path of Sole Proprietor (or Partnerships or Corporations). Scroll down to section 7 for DTI Registration.
- TIN Number – apply for one if you don’t have. Only one per person / personal entity. If you have multiple businesses, the dash zero (-0) at the end of your TIN Number becomes dash one, dash two and so on.
- Address – usually this is your permanent address. I recommend an address where you don’t regularly change such as your own house, parent’s house or where you stay for long-term. You would have to display the COR, BIR poster and 0605 at this address which may be checked by the authorities at some point.
- Registration Date- defines when you start to issue Official Receipts and write on the logbook
- Line of Business / Industry / Activities
- At the bottom part, you will see the REMINDERS with Bullet Points. These contain the obligations that you have to bear in mind.
If you have no COR or TIN yet, use BIR Form No. 1901
2. Update of Trade Name, Tax Type or Activities
If you have a current COR and TIN from your previous business, consider UPDATING instead of closing. Closure of business requires many documents and processes and the BIR officer suggested me that I should just update my Tax Type and Trade Name.
Before, I was a Sole Proprietor with Monthly Sales Tax and Quarterly Income Tax. BIR suggested that I’ll just update my trade name from sole proprietorship to self-employed professional, and my tax obligations to quarterly sales tax and quarterly income tax.
3. Professional / Occupational Tax
Before BIR changed my COR, I need to submit a Professional / Occupational Tax Receipt from the city government.
So I went to the city government center (City Hall) and the department in charge required me to submit proof that I am a freelance / online job worker and insurance agent. So the requirements or proofs to present are:
- Certificate of Earnings or you can ask a Certificate of Employment from your employer
- Certificate of Agency from Sun Life as an Insurance Advisor
- PRC Receipt or License as a Real Estate Agent
Get a Professional Tax Receipt or known as PTR (or Occupational Tax Receipt) from the City or Municipal Government Office.
- Photocopy it.
- Present the PTR to BIR
Go back few days later or next week to get your new or updated certificate of recognition.
You will be given your COR and BIR Signage at red orange fonts. Display this at the address that was stated at your COR.
- Please note that BIR might check this so put it in a frame and hang on a wall.
4. Registration Stamp for Journal / Columnar
- A columnar is where you log your income with the corresponding official receipt number
- Buy a columnar (3 or 5 columns), fill up a form and have it stamped at the BIR
- Some things to note:
- Columns: Date of receipt | Issued To | Amount | Receipt Number
- Optional: Running Balance
- Start on the day you received your COR
- This Columnar is required as part of your Audited Financial Statement and Annual Income Tax Return
5. Printing of Receipts
Requirements for Printing of Your Receipts:
- Bring your Annual Certificate of Registration or 0605
- and Photocopy of Certificate of Registration to the Printer
6. Download the eBIR Forms 7.2
- To Download the latest eBIR Form, click here.
- The download should begin automatically.
- You must use Windows Operating System in order for this program to function. No support for Mac OS yet.
7. DTI Permit for Sole Proprietor
If you want to register as a sole proprietor with your own coined BUSINESS NAME, register first with DTI and bring that to BIR for your COR Trade Name.
Rule: DTI Always wants to have a word that suitably describes your business.
There must be a descriptive word that will cause any discreet common, and ordinary man to understand what your business is all about. Have you seen a business placard that made you confused what the business was all about? This is what DTI wanted to avoid. Confusion.
Your Business Name must also have somehow a unique name before or after the generic name to distinguish it from others. It could be your initials, a play of words, a witty colloquial wording, something that sets you apart from the rest of the world. “Branding.”
Example Brand Names
- Goodwich Cafe
- WashVibes Laundry
- Washio Laundry
How to Encode / Fillup the EBIR Forms Offline
Fill-up all the profile requirements especially the email address portion.
- Tip #1: If you have no email address, create one using Gmail, Yahoo or your preferred Email provider but for me, I prefer Gmail.
- Tip #2: If possible, I suggest create a business email to separate your personal emails from business. So as to improve your mental health.
- Tip #3: My business email for example, is firstname.lastname@example.org and my personal email is email@example.com
- Business Email is better when sending email to clients because has lesser tendency to go to spam folder because of the “ownership” of the domain (bryanvillarosa.com). Generic Email such as @gmail.com can be created by any person, thus higher chances of spam.
- You can create business email using Google Business Suite
- Click FILL-UP button
- CONFIRM / Retype TIN and Email Address
- Click SUBMIT. Click OKAY.
- Click FILL UP BUTTON again. Click OKAY.
- FILL UP THE FORM
- Click VALIDATE
- Note: A window will pop-up. Please read the words and it should be VALIDATION SUCCESSFUL. If this does not appear, then there is something missing in the form you filled up.
- Click SAVE
- To Print:
- Click FILE, click PRINT PREVIEW then FILE and PRINT.
- To return to your form, click FILE then CANCEL PRINT
- If you want to send online, click SUBMIT / FINAL COPY. Note: You don’t need to send online if you are paying at the bank because the bank itself will send it online with your payment.
Make sure you have internet access and a valid email. Click OKAY
TOSA (Terms of Service Agreement) will appear. Click OKAY if you are ready to submit your tax return.
After clicking OKAY, a pop-up will appear saying SUBMIT SUCCESSFUL. An email notification will be sent to the email you provided. Please print or save the email as a proof of e-File.
- To start a new session, click FILE then MAIN SCREEN and just delete the previous user’s TIN number.
- If you need to encode another return / form, do not exit the program. Just delete the information and start again from step number 1.
- The Email from BIR will arrive approximately 20-30 minutes to Gmail users, 30 mins – 1 hour to Yahoo email users.
- Maximum time for email confirmation is 3 days.
- Check spam folder of email if not received.
- If not received within max time, change email and file again.
Regular or Recurring Tax Returns of a Self-Employed / Freelancer[table “43” not found /]
1. Annual Registration (Every January)
- P500 per year
- On or Before January 31 of every year
- Put this form in a frame and display in your business / home address (based on your COR)
2. Quarterly Percentage Tax
- How much? 3% of your Gross Sales Receipts (if Non-VAT)
- Who are required to pay? If income from your services does not exceed P3Million / year and other conditions found here.
- Meaning, in every earnings you make, get 3% from it as Quarterly Tax.
- Form to use: 2551Q
3. Quarterly Income Tax
- Formula: Quarter’s Income less Operational Expenses = Taxable Income
- How much? Get the 3% from your Taxable Income
- Exampls of Operational Expenses? Those you used for business operations (e.g. car maintenance, transportation, business attire, utilities); Tax Credits (Overpayment from last quarter or other arrangements); Tax Witheld at Source Form 2307.
- Note if you’re receiving BIR 2307: Do not deduct if the Tax Withheld from you appears at the top portion of Part II of Form 2307. Only deduct if the Tax Witheld for the quarter appears at the bottom of Part II.
4. Annual Income Tax
5. Other Options
1. Hire a Freelance Bookkeeper
2. Hire Taxumo
Related / Afterwords
Keep COR and BIR Sign – display them publicly
Keep your Official Receipts- it is valid up to 10 years
When you decide to Close / Stop
- Decide if you really want to cease or just update the nature of your business? BIR 1701 Form
- Keep the Receipts in case it will be needed (10 years)
- Keep the Documents
Requirements for Printing Your Receipts
- Photocopy of Annual registration 0605
- P500 Receipt
- Photocopy of COR
- Previous Authority to Print
- Photocopy of Valid ID/s
How to Pay Taxes via GCash
As Freelancers, we can all relate to the fact that time is money. Instead of using the time to work on transactions, if we can do it online to save time and produce income, why not? So if we are paying tax to BIR, we must take advantage of doing it on our mobile phones.
One of the monthly responsibilities of having a BIR permit is taxes. As self-employed freelancers, we are solopreneurs most of the time. We normally don’t have an accounting department and messengers so we work it out by ourselves.
Primary tax to pay: Monthly percentage tax (But this has been updated to Quarterly Tax now)
Use the BIR Forms (eFPS) Software which can be downloaded from the BIR site. Fill-out basic information, TIN number and select the type of form. It will then give the specific form, fill out the amounts and submit. It will be emailed to the BIR servers and a copy of the confirmation will be sent to your designated company email.
Paying through GCash
Head to Pay Bills, select BIR and fill-in important information.
- Select Government or Search BIR among the list of merchants.
- Select BIR
- Enter TIN Number, and the type of Form Series and Form Number.
- Remember to pay taxes before the deadline to avoid having penalties.
I went to BIR beforehand to confirm this and they acknowledged such a process. Just keep a snapshot of your payments or you can request a copy of your transaction history inside the GCash App itself.