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Are you starting out as a self-employed individual in the Philippines? Do you have no idea how to go about paying your taxes?
First off, let’s determine if you fall under the self-employed bracket. If you are any of the below, you can be categorized as self-employed:
- You run your own business where you provide a service AND do the service (usually solely by or largely by yourself)
- You are a sole proprietor
- You are a freelancer
- You are a contractual worker (not in all situations because some companies withhold taxes from contractual workers)
- You are a professional providing a service (as a doctor, lawyer, accountant, etc.)
If you are employed by a company receiving a purely compensation income and are doing freelance work on the side, you are a mixed-income earner, which is another category under BIR with a different set of tax requirements.
If you are a minimum wage earner (less than P250,000 annual) or if you meet certain conditions, you are eligible for tax exemption. You can still file a tax report for documentation purposes, but you’ll only need to pay for the registration, annual renewal, book of accounts, and receipts – your tax reports will reflect zero payments.
By law, if you are receiving compensation for an exchange of services, you are required to declare your gross income, regardless if this is received online or from overseas.
The information below is based on my personal experience as a contractual project manager for a US-based publishing company. I moved to the Philippines from Dubai four years ago and it took me more than a year to get properly set up as a self-employed professional with the BIR (and yes, I had to pay fines). This information might be different from what you need (especially if you are selling products that require VAT rates or have a company) and is not meant to be one-size-fits-all. My hope is that this will be helpful for you to get started- it’s what I wish someone had told me when I was setting up.
Necessary documents you will need to prepare before registering:
- NSO Certified Birth Certificate
- 2 Gov’t IDs & Photocopies (at least 2 copies each)
- Community Tax Certificate or Sedula
- Barangay Clearance
- BIR Form 1901 (registration form pages 1 and 2 are the forms for self-employed professionals)
- BIR Payment Form 0605
- Contract or Company Certification
- Prepare the necessary documents to register as a taxpayer.
- Register as a taxpayer under the correct RDO (Revenue District Office, based on your address) using form 1901 (assuming you already have a TIN) and form 0605. If you are transferring your TIN from one RDO to another because you were previously employed or had a different address, use form 1905. If you don’t have a TIN yet, go to your RDO to apply for one.
- In your form 1901 (Item 12, Line of Business Operation) register as ‘Self-employed’ and specify the type of tax rate you think is appropriate for your business (Graduated income rate or 8% tax rate). In Part 2, list down any dependents since this will be included in your annual deductibles. BIR will advise you when to go back to pick up your COR (Certificate of Registration).
- Once you have your COR stamped and paid for (around PHP30), BIR will give you the ATP (authority to print) your receipts and the types of books of accounts to get. You will also be instructed to attend a short informational seminar. You can buy your books of accounts from National Bookstore.
- Find an accredited printer to have your official receipts printed with the same name that’s on your COR, which will be your name. Bring your ATP and your COR along with you. This can take anywhere from 7-14 days.
- Go back to your RDO to have the receipts and your books of accounts stamped and verified within 30 days of receiving the ATP).
- Determine how much tax you need to pay (take note of deductibles and be aware of late filing fees). Decide if you will be filing it yourself, which platform you will be using (see below), or if you need to get a bookkeeper/accountant.
- Know which forms to file and the dates of filing. If you are under the 8% tax rate, you only need to file forms 1701 and 1701Q. Know which banks are accredited by your RDO to accept payment.
- Start filing your taxes regularly (every quarter)! Keep your tax documents organized. You will need those ITRs as documentation and requirement for certain types of work and applications (like passports and visas), as well as loans and possible audits if your company/client requires it.
- Go back to your RDO every January to file the annual renewal of registration and pay the PHP500 fee.
You can complete this process within 15-20 days, and it depends on how quickly you can process the requirements. You’ll be going to your RDO at least 3 times, and at least once a year to file your annual renewal of registration.
Ways to file taxes:
- Using eBIR Forms (offline): Download the most recent version of eBIR Forms (will only work on Windows OS). Here’s a quick breakdown of the process: Register your TIN and other information > start filling in the necessary forms before the cut-off dates > calculate your gross receipts to input the correct taxable income > ‘Validate’ the form to check for errors > Submit the Final form > print the filled form as well as the acknowledgment email you will receive within 1-3 days > go to an accredited bank to pay the taxes due > receive & file the receipt and stamped forms. BONUS: Below is an excel sheet with a tax formulation (graduated income & 8% tax rate) that allows you to calculate your taxes in only a few minutes! You can use this to file as a guide to fill out your 1701Q and 1701:
CLICK HERE to get your FREE Personal Tax Calculator
2. Taxumo.com provides a tax filing service for a monthly fee of P888 (or P700/mo for annual payment. You will still have to submit and pay the taxes yourself to an accredited bank, but the tax calculations will be all automated. This is great for small businesses or if you simply have no time to deal with taxes. BONUS: Get a 10% discount using my promo code upon sign-up: JFTAX
3. JuanTax also provides a tax filing service called Fast File. This is similar to the eBIR Forms but is more accessible since it is done in the browser application. There is also an option to pay online. The payment fee is P100 per tax filing.
And that is it! Stay tuned and subscribe below for more articles about self-employment. Leave a comment if you have any questions, feedback, or stories about your own experience of filing taxes.
Featured image by Luca Bucken from Unsplash.com