The term freelancing is ringing a bell nowadays. You may have heard it from a friend or a relative, or you may have seen it on different social media platforms. Freelancing means that an individual works independently, offering services to different clients on a short term or long term basis. Some of the most in-demand freelance jobs include, but are not limited to the following:
- general virtual admin support
- customer support
- social media content creation, management and marketing
- writing jobs (fiction/ non-fiction / copywriting/ ghostwriting/ scripwriting
- photo/ video editing
- Search Engine Optimization (SEO)
- translator
- lead generation, data management, data encoding
The rise in this “gig culture” was brought by the emergence of the digital age. In the Philippines alone, the number of people doing freelance jobs has spiked in the last 5 years. In 2019, the country was ranked sixth by Forbes magazine to be among the fastest growing markets for freelancers, which contributed to a 35% income growth. More and more professionals are getting enticed with its promise of time freedom, higher income, and having to work practically anywhere as long as there is a strong and stable internet connection, and no power interruptions (digital nomad).
Appealing as it may seem, in reality, freelancing is not a walk in the park. Aside from the fact that competition is really tough, it involves a more “adulting” task – PAYING TAXES ON YOUR OWN.
Freelancing is considered a business because an individual, as mentioned above, offers services. This makes him or her self-employed (sole proprietor), so he or she is required by law to pay tax. Without the convenience of having an employer who does this on his or her behalf, it can really be gruelling task for freelancers. Do note though, that not all freelancers are obliged to pay taxes. According to the Bureau of Internal Revenue (BIR), only individuals who have an annual income of at least ₱250,000 are required to pay their income tax. However, I’m sure that if you plan to be a freelancer, you will definitely not settle for a less-than-₱250K income and would want to grow your business further. To help you start your freelancing journey right, we answered some basic FAQs, and have prepared a step by step guide that individuals like you can follow, to make your tax-paying responsibilities easier.
Will I be taxed here or based on the location of my employer?
Most of the clients you will get when you choose to do freelance work are from other countries. You may be paid in dollars by the hour or by project, however, since your business is based here in the Philippines, you are still under the jurisdiction of Philippine Tax Law.
What Documents Should I Prepare?
- PSA Certified birth certificate
- 2 government-issued IDs
- Tax Identification Number (TIN)
- Occupations Tax Receipt (OTR) or Professional Tax Receipt (PTR)
- Professional Tax Receipt (PTR) – for licensed professionals such as accountants, engineers, architects, physicians, therapists, etc.
- Community tax certificate (sedula) – which you can get from your barangay office
- Barangay Certificate – original and photocopy
- BIR Form 1901 – form needed for registration of self-employed or mixed-income individuals)
- BIR Form 1905 – needed for business activity change
- BIR Form 0605 – used for majority of Philippine taxes, including freelance tax
- Proof of freelancing work (professional website, portfolio, project contract, etc.) NOTE: All forms can be downloaded from the Bureau of Internal Revenue Website
Registration Process:
STEP 1: Obtain an OTR/ PTR
OTR is for non non-licensed professionals (graphic artists, writers, designers, etc.), while PTR is for licensed professionals (accountants, engineers, architects, physicians, therapists, etc.)
STEP 2: Secure a / Update your TIN
If you are previously employed and are now currently doing freelance work, there is a chance that your TIN is still registered in a different Revenue District Office (RDO). You need to file a BIR form 1905 to transfer records form your previous RDO to the RDO of your residence or current location. However, if your residence or current location is the same with the area of jurisdiction of your former employer, you may proceed to the next step.
STEP 3: Head to your RDO
This is the step wherein you will submit your Form 1901, 1905 (if applicable) and form 0605. Make sure to prepare 3 copies of each form. In this step, an assessing officer will ask about the nature of your work. Make sure to describe your job as specific as possible to help the officer categorize you more accurately and quickly. You will also need to pay a ₱500 registration fee to the BIR-authorized banks that the officer will tell you.
STEP 4: Claim your Certificate of Registration (COR)
Once you completed Step 3, you may now head back to the RDO to claim your certificates. A copy of the forms 1901, 1905 (if applicable), and 0605 will be returned to you, along with the payment receipt, and a taxpayer’s verification slip.
You will be required to buy two or four copies of Book of Journals. Make sure to have them stamped to confirm registration.
What are the basic taxes that freelancers need to pay?
So you completed your registration already. Good job for you, but reality check, the process does not end there. You need to know the different taxes you need to pay, and their deadlines.
Annual Registration Fee
Amount: ₱500
Form needed: BIR Form 0605 Deadline: Every January 31st
Quarterly Income Tax
Amount: Will be based on the latest Graduated BIR Income Tax Rate Table or the 8% preferential tax, whichever is applicable
Form Needed: BIR Form No. 1701Q
Deadlines:
- First Quarter: May 15
- Second Quarter: August 15
- Third Quarter: November 15
** current year
Annual Income Tax
Amount: Will be based on the latest Graduated BIR Income Tax Rate Table or the 8% preferential tax, whichever is applicable
Form Needed: BIR Form 1701 or BIR Form 1701A, whichever is applicable Deadline: April 15 of the following year
Shifting to freelance work is a safer and more convenient choice, especially with the whole pandemic situation. However, being a “newbie” does not excuse you from your responsibilities as a citizen of our country. You may not have a steady stream of income yet, but it pays to start your journey on the right track. It’s better to pay taxes during this early part of your career, than grow your business with the fear of tax evasion cases looming around and waiting to pounce on you along the way.
