The freelancing market in the Philippines is quite competitive. In fact, it was reported in December 2018 that the Philippines was the country with the 4th largest number of users on Freelancer.com. This level of competition requires you to stand out. You can only distinguish yourself if you really understand the industry, and this is where this guide comes in.
Getting started as an independent contractor / freelancer in The Philippines
Getting started as an independent contractor / freelancer
Freelancers in the Philippines need to register as self-employed individuals in order to begin work. Furthermore, they need the following:
- A Tax Identification Number (TIN)
- Department of Trade and Industry (DTI) Certificate
A Tax Identification Number
To obtain a TIN, one must register with the Bureau of Internal Revenue of the Philippine government (BIR). The official website of BIR also makes clear that this application must be filed on or before your business as a freelancer starts. According to the website, the following documentation should be provided to obtain your TIN:
- BIR Form No. 1901;
- Any identification issued by an authorized government body (e.g., Birth Certificate, passport, driver’s license, Community Tax Certificate) that shows the name, address and birthdate of the applicant;
- Registration fee of P500.00 and P30.00 for loose Documentary Stamp Tax (DST) or proof of payment of annual registration fee; and
- BIR Printed Receipts/Invoices or Final and clear sample of Principal Receipts/ Invoices.
The list above comprises the general requirements; however, for specific cases, you may also be asked for:
- Department of Trade and Industry Certificate (for sole proprietorships);
- The Special Power of Attorney (SPA) and ID of authorized person, if there is an authorized representative that will transact with the BIR; and
- Certificate of Authority, if Barangay Micro Business Enterprises (BMBE) registered entity (if applicable).
Now that you know what you should have, follow the next steps to apply for a TIN. These steps are also outlined on the website of BIR:
- Submit the BIR Form 1901 and the requirements with the New Business Registrant Counter of the BIR Regional District Office (RDO) which has jurisdiction over your primary place of business or residence. The good news is that your particular RDO will host a meeting for new business registrants about their rights and obligations;
- Make the payment for the annual registration fee and loose DST. Also pay for the BIR Printed Receipt/Invoice at the New Business Registrant Counter in the BIR Office; and
- The RDO, as evidence that you paid, will then issue the Certificate of Registration (Form 2303), “Notice to Issue Receipt/Invoice”, Authority to Print, BIR Printed Receipts/Invoices, and eReceipt.
Currently, actions are being taken to ensure that freelancers in the Philippines start off on the right foot. Philippine News Agency states that the freelancers protection bill was approved by the House Committee on Labour and Employment on January 19th, 2021. This bill stipulates, among other things, that a contract must guide every transaction between a company and a freelancer, and assistance desks or lanes will be reserved for freelancers in all RDOs.
Taxes for independent contractors in the Philippines
We’ve discussed the process of getting a TIN, which is necessary for tax payments. Now, let’s look at things independent contractors need to know about taxes in the Philippines.
- You are not required to pay taxes if you earn less than P250,000.00 annually;
- As an independent contractor, you are responsible for your premium contributions to Philippine Health Insurance Corporation (PhilHealth), Social Security System (SSS), and Home Development Mutual Fund (Pag-IBIG Fund);
- You need the BIR Form 2307 when filing taxes. When a client is paying you, they may give you a BIR Form 2307 to reveal the part of your payment they withheld for tax; and
- If your annual income is more than P3,000,000.00, you must pay a 12% value added tax based on the amount of gross receipts for the services you rendered. If it is less than that but more than P250,000.00, then you can be subject to one of the two tax rates below, depending on your preference:
1. Income tax rates between 0% and 35% on net taxable income and a 1%percentage tax based on gross receipts starting 1 July 2020 until 30 June 2023(after 30 June 2023, the percentage tax shall be 3%); or
2. 8% on gross receipts in excess of P250,000.00.
How to file an Annual Income Tax Return
- Fill out 3 copies of the BIR Form 1701 or 1701A for individuals who are mixed-income earners or earning purely from services as independent contractors, respectively;
- If payment is necessary, do the following:
1. Visit the closest authorized agent bank (AAB) of your RDO and present the BIR Form 1701 or 1701A (whichever is applicable), other documentation, and payment money. In the absence of an AAB, you can visit the Revenue Collection officer. Ensure that the RDO is the one where you are registered at and which has jurisdiction over you.
2. Then, you will be given a stamped and validated copy of the form; and
- If payment is not required, the only difference is that you will go to the RDO or any BIR official tax filing center to show your BIR Form 1701 or 1701A (whichever is applicable) and the other documentation.
Types of Taxes Freelancers Should Pay
Quarterly Income Tax
1. You file the BIR Form 1701Q for this tax;
2. You can declare deductibles when filing this tax;
3. This is based on one of the two tax rates already discussed;
4. It is based on net income; and
5. The deadline for this tax is the 15th of April, August, and November.
Annual income tax
1. The forms required are the BIR Form 1701 or 1701A (whichever is applicable) and BIR Form 0605;
2. It is also based on one of the two tax rates discussed previously; and
3. This tax is paid at the final quarter of the year (i.e., on or before the 15th of April).
Quarterly Percentage Tax
1. The forms you need to file are the BIR Form 2551Q and BIR Form0605;
2. You pay this tax at any AAB of your RDO and the deadline is within25 days after the end of each taxable quarter; and
3. This tax comprises 1% of your quarterly gross receipts (if you do not opt for 8% income tax as discussed above).
How to open a bank account in the Philippines
Generally, the documentation below is crucial for setting up a bank account in the Philippines:
- Two IDs, which could include passport, driver’s license, voter’s ID, etc.;
- ID photos;
- Bank deposit, to be determined by the particular bank; and
- Utility bills.
If you are not a citizen, all is not lost. You can still open an account as long as you have been in the country for more than 180 days (around6months). As a general rule, you will need:
- ACR which is the Alien Certificate of Registration Card. Another option is the Immigrant Certificate of Registration;
- Proof of address;
- Initial deposit that the particular bank requires;
- ID such as a passport; and
- Passport photos.
Note that the foregoing are only general rules and a specific bank may require additional documents based on its own policy.
You are acting solely as independent contractor under the relevant client contract and the relationship between you and the client does not constitute relationships of partners, associates, principal and agent, or employer and employee between you and the client.
Therefore, you are not entitled to any benefits under the Philippine Labour laws and rules and regulations and you are solely responsible for the payment of your own taxes and remittance of your social contributions to PhilHealth, SSS, and Pag-IBIG Fund as discussed above.
We’ve outlined some important facts about being an independent contractor in the Philippines. Nevertheless, you should continuously immerse yourself in research about the ever-evolving freelancing industry. Comment below the tips that have helped you navigate being an independent contractor in the Philippines.
Note. This content was generated by RemotePass team and reviewed by a certified tax advisor Kyle D. Irasust a at Arceo and Tandoc in The Philippines