You’ve heard it before: working freelance isn’t always a cakewalk. One of the challenges that tend to confound newbies is doing taxes as a freelancer. For those hearing this for the first time, yes, you have to pay taxes too.

Who are considered self-employed?

A freelancer falls under what the government calls self-employed individuals, defined as:

• Persons operating their own trades or businesses with a partner or in a cooperative
• Persons not employing paid workers in conducting their economic activities
• Persons working purely on a commission basis and may not have regular working hours

According to a 2019 report by the Philippine Statistics Authority (PSA), independent contractors are the second-largest class of workers in the country. Professionals like you comprise 28.5% of the total employed. This means your contribution to the economy bears as much gravity as regular salary workers.

In a full-time job, taxes are something you’d simply see on your payslip. The people over at payroll or human resource settle everything related to your government contributions. Sadly, HR support is a convenience you have to do without when freelancing.

With taxes for virtual workers or taxes for remote workers, you must familiarise yourself with the documents and processes related to taxes for freelancers. It’s not only about giving a portion of your income to the government but also getting an ITR to use for various transactions.

What is an ITR, anyway?

Income tax return (ITR) is a refund of the excess tax paid during the year. From the perspective of an office employee, it’s the difference from subtracting the tax due for the entire year from the amount withheld by the employer from January to November.

(amount withheld by employer from Jan to Nov) – (employee tax due for entire year) = tax refund

The formula is different with taxes for freelancers since there’s no one to function as your withholding agent. Besides that, there is no amount withheld. Instead, your tax due for the entire year is subtracted from the tax you paid prior to receiving your December income.

(sum of monthly tax paid from Jan to Nov) – (freelancer tax due for entire year) = tax refund

Any refunds or excess won’t be automatically added to your salary but you’ll have to get it yourself or ask for it to be carried over as tax credit for the next year.

What taxes do you pay for an ITR?

To be eligible for a tax refund, you have to properly pay your taxes first. It’s often the case that you have to pay more than one kind now when doing taxes as a freelancer.

Quarterly income tax

Part of filing taxes for freelancers in the Philippines is having to file quarterly income tax in April, August, and November through the BIR Form 1710Q. This is applicable for the following individuals regardless of your gross income:

• Resident citizens engaging in business, trade, or practice of their profession inside or outside the country
• Resident and non-resident aliens as well as non-resident citizens engaging in business, trade, or practice of profession within the country
• Guardians of minors, trustees of trusts, administrators or executors of estates, or anyone acting in fiduciary capacity for a person, where the minor, trust, estate, or person is engaged in business or trade

Your quarterly income tax is higher than your monthly income tax but it’s where you also declare your deductibles, such as:

• Optional Standard Deductible (OSD) – where you claim 40% of your income as deductible from gross sales or receipts for the quarter.
• Itemized Deductible – where you must identify and deduct all ordinary and necessary expenses attributed to managing, operating, and developing your business.

Monthly percentage tax

This is easy to compute as it’s just 3% of your total monthly income. The amount is the same throughout the entire year if you have a fixed income. That usually isn’t the case with taxes for freelancers so you’ll have to compute this every month.

To understand if you fall under the percentage tax system rather than the value-added tax one, determine if you fall under the following:

• Businesses with gross annual sales and/or receipts that don’t exceed 3 million pesos in total
• Businesses that are VAT-exempt or aren’t VAT-registered

About fixed rates and exemptions

Under the Tax Reform for Acceleration and Inclusion (TRAIN) law, you may avail of the 8% tax rate in lieu of the graduated percentage tax and personal income tax. This is available only to professionals and sole proprietors whose gross sales or receipts don’t exceed the 3 million threshold.

The same reform states that you are exempt from paying an income tax if you earn less than 250,000 pesos per year or less than 21,000 pesos per month. If you do, you will have to follow the income tax bracket system. You may check the tables on this page for reference.

How do you register as self-employed?

The government office tasked with collecting taxes for remote workers and regular earners alike is the Bureau of Internal Revenue (BIR). They operate on a national level so you need only transact with the Revenue District Office (RDO) nearest to you.

The documents you need to bring with you are:

• PSA birth certificate
• Barangay or mayor’s certificate
• Cedula
• TIN number or card
• Books of account, be it a ledger, journal, or expenses book
• DTI certificate of business name, if applicable
• PRC ID, if applicable
• Professional Tax Receipt (PTR) or Occupational Tax Receipt (OTR), if applicable
• Affidavit stating rates, manner of billings, and factors determining service fees

The forms you have to fill-out or fulfil are:

• BIR registration form or Form 1901
• BIR payment form or Form 0605
• BIR authority to print form or Form 1906
• BIR registration update form or Form 1905

Upon gathering these documents, submit them to the district office that has jurisdiction over you. You will have to attend a seminar to be briefed about being a taxpayer plus you have to pay an annual registration fee, certification pay, and documentary stamp tax.

Once you’ve been registered as a self-employed individual, all that’s left is going about your business to pay for the necessary taxes outlined above. Before the deadlines come around, make sure to file your ITR or BIR Form 1701.

We highly recommend that you visit the BIR website for the latest information about filing taxes for freelancers in the Philippines. You’ll find the guidelines there so it’s easier for you to prepare the necessary documents and know what step to take next.

An easier way to do taxes for freelancers

Taxes for freelancers and other self-employed individuals are often easy to overlook. Unlike regular employees whose taxes are automatically deducted from their payslips, taxes for virtual workers have to be processed by the professionals themselves so it’s tempting to keep them.

It’s important to fulfil your duty as an income earner in the Philippines though. Anyway, there are many situations where you need an ITR form, such as processing a visa or applying for a home loan. It’s hard to get approved for them without a Form 1701.

Working with Remote Workmate makes it easier to file your taxes. While we don’t process it ourselves like an employer would, we provide guidance through articles like these. We advise our virtual workers how to file taxes so earning online is less of a hassle.