Pinoy Freelancers and Taxes
Many Filipino professionals and Pinoy freelancers aren’t aware of the taxes they have to remit to the government. Oftentimes, it’s not because they choose to be apathetic about it. It’s primarily because they lack formal education about taxes and remittances. So in light of our Bureau of Internal Revenue’s (BIR) recent tightening of tax regulations, I’ve compiled a simple Taxation 101 guide for Filipino Freelancers.
Who are considered freelancers/ professionals?
A professional, classified as self-employed, refers to an individual or a group, practicing his or their profession or calling, with or without license under a regulatory board or body.
In other words, freelancers are those who consider themselves self-employed and get their income from project-based jobs. They are not directly employed by a company. Rather, they make their living by earning from projects and professional fees. Some examples of professionals and freelancers are: Physicians, accountants, chefs, online sellers, graphic artists, etc.
3 Kinds of Taxes Every Pinoy Should Know About
There are three major kinds of taxes that a Pinoy freelancer must file and pay: the annual registration fee, income tax, and business tax.
1. Annual Registration Fee
After registering at the BIR, you are required to pay an annual registration fee of P500. The Annual Registration Fee is paid on the first or last day of the month of January. The Registration Fee is paid after payment of initial registration as a tax payer.
Where do I pay my Annual Registration Fee?
- You can pay at your Accredited Agent Bank (AAB) under your Revenue District Office (RDO)
- Via BIR’s Electronic Filing and Payment System
2. Income Tax
A certain percentage of our income is paid to the BIR. As registered professionals, we declare how much of our income is taxable by using this formula:
GROSS INCOME – ALLOWABLE DEDUCTIONS = TAXABLE INCOME
A freelancer can apply two types of allowable deductions to their gross income:
- Optional Standard Deduction – This type of deduction is by default a maximum of 40% deduction to their gross income. By choosing Optional Standard Deduction, you will not be required to prepare a Financial Statement.
- Itemized Deduction – All your business related expenses are accepted as itemized deductions. These expenses must be made during the taxable year and at a time when your business is operational. Some examples of expenses are rental expenses, and transportation fees. Take note that you need to provide proof that these expenses were made. Allowable proof may come in the form of receipts, vouchers, sales invoices, and bank statements.
Which Type of Allowable Deduction Should I Choose?
Optional Standard Deduction – If your business expenses are less than 40% of your gross income. And if you don’t have the time, patience, and energy to itemize your expenses.
Itemized Deduction – If your business expenses are more than 40% of your gross income.
How To Compute for Income Tax:
Income tax for individuals is between 5% to 32%.
Reference Guide: Refer to The Tax Table on Page 2 from BIR Form 1701 (Quarterly Income Tax Return for Self-employed Individuals, Estates, and Trusts).
The tax table can be your reference every time you compute for your income tax.
3. Business Tax
There are two types of business taxes:
- Value Added Tax – VAT is 12% of every transaction. You are a VAT tax payer once your annual gross income is above P1.9M per year.
- Percentage/Non-VAT tax – The percentage tax is a minimum of 3%. You are non-VAT registered if your gross income is not more than P1.9M per year.
Which Form To Use?
The VAT or Percentage Tax is filed using BIR form 2550M and 2551M.