How is freelancer tax filed in the Philippines?
Freelancers in the Philippines need to file and pay taxes on a regular basis. The specific deadlines and frequency of tax payments will depend the nature of the freelancer’s work.
But how do freelancers pay tax in the Philippines? Under local tax laws, freelancers can either be self-employed or mixed-income earners.
To file taxes as a freelancer in the Philippines, below are the steps:
Steps to file taxes as a freelancer in the Philippines
BIR Registration
Register with the Bureau of Internal Revenue (BIR) as a self-employed or mixed-income individual. This will grant you a Certificate of Registration (CoR), which is necessary for filing and paying your taxes. During this process, you will also receive your Taxpayer Identification Number (TIN), which you will need in every BIR transaction.
Calculate your tax obligations
Determine your tax obligations. As a freelancer, you may be required to pay monthly, quarterly, and annual taxes. The taxes you need to pay will depend on your income and your type of freelance work.
File your taxes
To file your taxes, you will need to fill out the appropriate BIR forms. This includes the BIR Form 1901 for self-employed professionals and BIR Form 1701 for Annual Income Tax Returns (AITR). You can download these forms from the BIR website. Taxpayers can also file their taxes through the Electronic Filing and Payment System (eFPS).
Pay your taxes
After filing your taxes, you will need to pay the corresponding amount. Payments can be made through Authorized Agent Banks (AABs). Make sure to obtain proof of payment, such as BIR Payment Form 0605.
Things to remember after paying your taxes
Renew your Certificate of Registration (CoR)
Your CoR must be renewed on January 30th of each year.
Keep track of your business transactions
As a freelancer, it’s important to maintain proper records of your income, expenses, and other business transactions. This will help you accurately calculate your taxes and provide supporting documents in case of an audit.
Filing taxes as a freelancer can be complex. In some cases, you made need to seek the assistance of a tax professional or use online tax filing platforms.
Annual registration fee
All mixed-income earners and self-employed individuals need to pay the annual registration fee of Php 500.00. Members must then submit the BIR Form 0605 (payment form) before January 31 of each year.
What are the necessary documents to submit when filing taxes as a freelancer in the Philippines?
When filing taxes as a freelancer, you will need to submit various documents and forms to the BIR. The specific requirements may vary depending on your situation, but here are the necessary documents to consider:
BIR Forms
- BIR Form 1901: This is the registration form for self-employed professionals. Fill out this form and submit the necessary documents to your local Revenue District Office (RDO).
- BIR Payment Form 0605: This form is required for the majority of Philippine tax types. You will need to fill it out and submit it along with your other documents.
- BIR Authority to Print Form 1906: Secure this form if you need to issue official receipts for your freelance work.
- BIR Form 2551M (Monthly Percentage Tax Return): You will need this to file and pay 3% of your gross revenue monthly.
- BIR Form 1701 (Annual Income Tax Return): A document you need to file every April 15th of the taxable year.
- BIR Form 1905: This form is for those who already have a TIN and are applying for a business activity change. You may need to submit this form if you are transitioning from being an employee to a freelancer.
Other documents
- Community Tax Certificate or Cedula: A basic identification document freelancers need to operate.
- Mayor’s Business Permit: Some freelance activities may require a mayor’s permit.
- Certificate of Business Name: A required certificate for those who have registered a business name.
- Occupational Tax Receipt: Some freelance work may need an occupational tax receipt.
- Professional Tax Receipt: Other freelance work may also require a copy of your professional tax receipt.
- Book of Accounts: Freelancers need to keep registered books of accounts. This may include a journal, ledger, and other accounting records.
- NSO Birth Certificate: A freelancer may need this for BIR registration purposes.
In addition to these documents, freelancers in the Philippines also need to issue official receipts. Moreover, they also need to keep registered books of accounts, and maintain other compliance requirements set by the BIR.
How much is the freelancer tax in the Philippines?
Freelancers in the Philippines are required to pay various taxes, which may include the following:
- Value Added Tax (VAT): Freelancers with sales and gross receipts of over Php 3,000,000 need to pay a 12% VAT.
- Monthly Percentage Tax: This tax is 3% of your total monthly income and is the easiest to compute. However, it is only applicable if you have a fixed income.
- Quarterly Income Tax: Freelancers with gross annual sales of less than Php 3,000,000 need to pay quarterly income tax. The rate for this is between 2% and 30%.
- 8% Income Tax Rate Option: This option is available for certain types of businesses owned by sole proprietors. This may also apply to individuals in the practice of their profession. To avail of this option, your gross sales should exceed Php 250,000.
- Income Tax: This tax is imposed on a person’s income, emoluments, profits, and other similar sources.
- Percentage Tax: A business tax imposed on persons or entities who sell or lease goods, properties, or services. In this case, the percentage tax rate varies depending on the type of business.
The specific amount that freelancers have to pay will depend on their income, deductions, and the applicable tax rates.
Why do freelancers need to file taxes?
Freelancers in the Philippines are required to file and pay taxes due to the following reasons:
- Legal obligation: The Philippine tax laws demand that individuals, including freelancers, pay taxes based on their income and other relevant factors.
- Contribution to the country’s development: By filing and paying taxes, freelancers contribute to the country’s development and help ensure the availability of necessary public services such as education, healthcare, and infrastructure.
- Avoidance of penalties and fines: Failure to comply with tax obligations can result in penalties and fines. Even small-scale freelancers who initially evade taxes may face significant penalties if their operations grow into large-scale businesses.
- Fairness and equity: Taxation is a way to distribute the burden of funding public services and infrastructure fairly among the population. By paying their fair share of taxes, freelancers contribute to a more equitable society.
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