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Freelance Tax in the Philippines: How Do You File for an ITR?
New to freelancing but haven’t gotten around to filing your taxes? Start here
COVID-19, the height of which forced a great number of people to work from home, made freelancing the most popular it’s ever been in the country. According to a PayPal report, there are now about 1.5 to 2 million freelancers in the Philippines, making the country the sixth fastest-growing market for freelancers.
While freelancing is proving to be a fantastic work option, there are also caveats: you must handle all the paperwork and government documents yourself, including taking charge of your taxes (and we all know how confusing this can get).
If you’re new to freelancing, the guide ahead is for you. Find out the basics of freelance tax in the Philippines and how to file a tax return so you can navigate the process easily.
Who Needs to File for an ITR?
Not everyone is required to file for an income tax return (ITR). Those who are mandated to do so include the following:
1. Filipino citizens living in the Philippines, regardless of income
Individuals employed by at least two (2) employers at any time during the taxable year
Individuals who have mixed or hybrid sources of income
Individuals who derive other non-business- or non-professional-related income aside from their compensation income
Individuals who are employed and married and have withholding taxes but their spouses do not
Marginal income earners
Individuals with income tax during the past year but weren’t correctly withheld
2. Non-Filipino citizens currently earning an income in the Philippines
3. Local corporations receiving income within or outside the Philippines
4. Foreign corporations operating in and receiving income from within the Philippines
Most of those paying their taxes have middlemen shouldering this process, such as employers taking care of their employees’ taxes. Freelancers fall under the category of self-employed individuals (which means they have no withholding agent and will have to pay taxes themselves).
If you are working as a freelancer, you do not have withheld tax amounts. Your tax is subtracted from the tax you paid before your December paycheck instead of being deducted from withheld taxes. The extra amount you get will not be added to your salary but will be a tax credit for the following year.
Taxes That Freelancers Working in the Philippines Must File and Pay
To begin, you must register as a self-employed individual with the Bureau of Internal Revenue (BIR). Submit the required documents such as registration forms, payment forms, birth certificates, and barangay certifications to the district office assigned to your business address. Then, pay the registration fees, certification fees, and documentary stamp tax (DST).
After being registered as a self-employed worker, you’re free to pay the taxes applicable to your freelancer status. These include:
1. Annual registration tax
The annual registration tax refers to employees, businesses, and freelancers paying the registration fee of ₱500 and accomplishing the BIR Form 0605 or payment form. This is a yearly requirement for all taxpayers and needs to be completed whenever they pay taxes that don’t require a tax return. The deadline to file is January 30th of every year.
2. Monthly percentage tax
Your monthly percentage tax makes up 3% of your gross revenue. This percentage tax is required for VAT-registered businesses and self-employed or mixed-income individuals. BIR 2551M or the Monthly Percentage Tax Return and 0605 forms are needed for this particular filing, which is due every 20th of the month.
3. Quarterly income tax
With a rate between 2% and 30%, quarterly income tax is a must for self-employed and mixed-income individuals with gross annual sales not exceeding ₱3 million. Unlike monthly percentage taxes, VAT-registered businesses are exempt from this category. The deadline for submission is on the 25th of the last month of every quarter.
4. Annual income tax
The annual income tax rate is based on the BIR’s graduated income tax rate table or the 8% preferential tax rate.
Self-employed and mixed-income individuals will have to establish their rates on what applies to their situation and whether their total gross does not exceed ₱3 million. If it does, they’re limited to the graduated income tax rate table; if it doesn’t, they can opt for either the graduated income tax rate or the 8% preferential tax rate.
5 Steps to Securing Your ITR as a Freelancer in the Philippines
Now that you know who’s required to file an ITR and what the different taxes are for freelancers, you know whether or not you’re eligible. The next questions are: “How do I get my ITR as a freelancer?” and “How do I pay for freelance work?”
Here’s a step-by-step guide to securing an ITR as a freelancer in the Philippines:
1. Fill up BIR Form 1901 and submit the necessary documents
The BIR 1901 form is submitted in order to register self-employed individuals. You also have to prepare other requirements, like your government ID (passport, driver’s license, TIN, and the like), BIR Form 1906, which you fill out when applying for an official BIR receipt, and tax receipts.
2. Head to your local Revenue District Office (RDO)
Every taxpayer has an RDO assigned to their location. You can find the one nearest you and submit your documents there.
3. Pay the fee
Once submitted, pay a fee of ₱500 to the RDO’s authorized agent bank or any certified alternative (like GCash). You also need to pay for the Documentary Stamp Tax (DST) and a registration certificate.
4. Submit the receipt to the RDO
After payment, an official will validate your submission and issue you a receipt as proof of your payment to the RDO.
5. Claim the receipts and documents from the officer
Once done, the officer in your RDO will hand you your documents, such as the BIR Form 2303, invoices, and proof of payment receipts. That wraps the process up. Congratulations, you’ve successfully filed your ITR!
Get Your Tax Affairs in Order
Dealing with taxes is not always fun, especially when you’re a freelancer who needs to take care of them by yourself—from application to payment. However, it’s an obligation that every law-abiding worker must fulfill.
Did you know? You can stay on top of your taxes and skip the manual BIR payments with GCash! GCash can now settle government dues even if you’re on the go, which makes it the perfect companion for any busy freelancer. To know how to utilize GCash to pay your BIR taxes, check out the GCash Help Center for more detailed instructions.