Do freelancers pay taxes in the Philippines? How much tax should I pay as a freelancer? How can freelancers get an ITR?

These and more questions often prop up in online and offline discussions. Many Pinoy freelancers barely know about filing and paying taxes because existing rules are not as clear-cut as those for other types of taxpayers, such as employees and corporations.

Still, it’s a good measure to know what taxes you owe the government. Read on to learn the basics of taxation for freelancers in the Philippines.

Disclaimer: This article is for general information only and is not substitute for professional advice.

READ: An Ultimate Guide to Philippine Tax: Types, Computations, and Filing Procedures

Do Filipino Freelancers Need To Pay Tax?

Yes, freelancers are required to pay income tax regardless if they’re working part-time or full-time for clients in the Philippines or abroad. Home-based workers who make money online (such as web developers, writers, SEO specialists, and graphic designers) are included.

Freelancers doing business in the Philippines with overseas clients may claim whatever tax they pay in the foreign country as a tax credit. This will technically “exempt” them from paying taxes in the foreign country.

The confusion about whether freelancers should pay income tax comes from the National Internal Revenue Code (also called the Tax Code), which does not explicitly mention “freelancers.”

Even so, freelancers can be classified as self-employed individuals or mixed-income earners, depending on the nature of work or business. Self-employed and mixed-income individuals in the Philippines are all required to file and pay income tax.

How Do You Register as a Freelancer in the Philippines?

Like other taxpayers in the country, freelancers are required to register with the BIR (either as a self-employed individual or mixed-income earner) and get a Taxpayer Identification Number or TIN (for those who don’t have one yet). However, the specific requirements and procedures are different from other types of taxpayers.

BIR registration is the first step you must take before you can file and pay freelance taxes in the Philippines.

BIR Registration Steps for Freelancers

1. Prepare your BIR Form 1901. You will use this to file your BIR registration. 
2. Apply for an RDO transfer by submitting BIR Form 1905 to your old RDO (if applicable). As per Revenue Memorandum Order No. 37-2019, your tax records must be at the RDO with jurisdiction over your place of residence. So should you decide to become a freelancer and your registration records are still kept outside of your residence, you need to submit the appropriate form to your old RDO to process the transfer of records to your new RDO.
3. Request an Occupational Tax Receipt (OTR) from the municipal/city hall with jurisdiction over your residence. Bring one valid ID as proof that you reside at the address you will use for registration. Note that the payment for the request of OTR depends on your municipal/city hall.
4. Proceed to the BIR RDO assigned to the address you’ll register as a freelancer and submit the required documents. These include the duly accomplished BIR Form 1901, stamped BIR Form 1905 (if you applied for an RDO transfer), and OTR. Since you’re a freelancer, you can select the option on your BIR Form 1901 that allows you to file your income tax under the 8% flat tax rate instead of graduated tax rates that are more appropriate for businesses and individuals with larger expenses.
5. Wait for your Certificate of Registration (COR) to be released. Once your COR is released (usually within 1 to 5 days), ask a BIR officer where to acquire/purchase the accredited Official Receipts Booklet and accounting book. These will serve as your records in case BIR requests them from you. 

What Taxes Do Freelancers Need To File and Pay?

Once you’re registered with the BIR, take note of the different taxes (mostly income taxes and business taxes) you must file and pay. You can find this information in the BIR Form 2303 (Certificate of Registration) issued when you applied for BIR registration.

1. Annual registration fee

• Rate: Php 500/year
• Who is required to pay: All self-employed and mixed-income individuals
• Form to file: BIR Form 0605 – Payment Form
• Deadline: January 31 of every year

2. Quarterly income tax

• Rate: Based on BIR’s graduated income tax rate table or the 8% preferential tax rate, whichever is applicable
• Who is required to file and pay: All self-employed and mixed-income individuals
• Form to file: BIR Form 1701Q – Quarterly Income Tax Return
• Deadlines: May 15 (first quarter), August 15 (second quarter), and November 15 (third quarter) of the current year

3. Annual income tax (tax payment for the last quarter of the taxable year)

• Rate: Based on BIR’s graduated income tax rate table or the 8% preferential tax rate, whichever is applicable
• Who is required to file and pay: All self-employed and mixed-income individuals
• Form to file: BIR Form 1701 or BIR Form 1701A – Annual Income Tax Return, whichever is applicable
• Deadline: April 15 of the following year

4. Quarterly percentage tax

• Rate: 2% to 30% of gross sales and/or receipts

5. Monthly value-added tax

• Rate: A. General: 12% of gross sales (for the seller of goods) or 12% of gross receipts (for the seller of services); B. VAT Exempt Transactions

Note: Starting in 2023, filing and payment of VAT returns will be done only every quarter. Monthly filing of VAT will no longer be required.

6. Quarterly value-added tax

• Rate: 12% of gross sales (for the seller of goods) or 12% of gross receipts (for the seller of services)
• Who are required to file and pay: Self-employed and mixed-income individuals whose gross annual sales and receipts exceed Php 3 million
• Who are exempted: Self-employed individuals availing of the 8% preferential tax rate
• Form to file: BIR Form 2550Q – Quarterly Value-Added Tax Return
• Deadline: 25th day of the month following each taxable quarter

7. Expanded/Creditable withholding tax

• Rate: 1% to 15% of gross income

How Can Freelancers Get an ITR?

Freelancers are considered businesses and, therefore, shall file their tax returns.

If the taxpayer is also employed, then he should request BIR Form 2316 from his employer for him to claim the creditable withholding taxes.

Simply file the appropriate ITR with the BIR. It’s BIR Form 1701 for self-employed individuals availing of the itemized deduction under the graduated income tax rates and mixed-income earners. For self-employed individuals availing of the 8% tax rate or optional standard deduction under the graduated tax rates, the correct form to file is BIR Form 1701A.

After filing and paying your income tax, the BIR will issue a stamped and validated copy of your ITR. This is your proof of income tax filing and payment for the applicable year.

Related: How To Get ITR in the Philippines: Online and Offline Methods

References