Freelancing has been a dream for many people, except when it comes time to file an ITR Freelancers Philippines. It’s a reality for many, but the tax system in the Philippines isn’t really designed to accommodate freelancers.
If you’re a freelancer and not yet filing an income tax return (ITR). What is ITR, and why do I need to file it? Who is obligated to file an ITR? What taxes must I pay in order to qualify for an ITR? How can I obtain my ITR as a free agent in the Philippines? These are just some of the questions we will answer in this article. So, if you’re a freelancer who wants to know more about ITRs, read on!
- Paying Taxes in the Philippines
- What exactly is ITR Freelancers Philippines?
- Who is Required to File an ITR Freelancers Philippines?
- Which taxes must be paid to be eligible for an ITR Freelancers Philippines?
- How may remote workers obtain their ITR Freelancers Philippines?
- Why should you become familiar with ITR Freelancers Philippines and taxes?
- Frequently Asked Questions
- 1. How Do You Register as a Freelancer in the Philippines?
- 2. How Can Freelancers Get an ITR?
- 3. How to transfer RDO?
- 4. What is form 2303 for BIR?
- 5. What is the first step before filing freelance taxes in the Philippines?
- 6. Why do freelancers have no idea about filing taxes?
- 7. Can freelancers in the Philippines claim tax credits?
- 8. When is the tax return due?
- VIDEO: How to Compute Income Tax of Freelancers in the Philippines (TRAIN Law)
- Final Thoughts
Paying Taxes in the Philippines
But before discussing any of it, we must first address a loaded question. We pay taxes because the law requires us to do so, but why is this necessary? Why is it imperative that tax offences such as fraud and evasion be punished so severely? Why must we give the government a chunk of our hard-earned money?
Taxes are said to as the lifeblood of the government, and paying them is a civic responsibility. The government uses the money we “give” them to support programs and projects that aim to better the lives of every Filipino and contribute to the nation’s prosperity.
Without any type of taxation, there will be no roads, public services, police protection, or civil order of any kind. Therefore, you must always pay your taxes, regardless of how hard it may be.
Now that we have a better understanding of the significance and utility of taxes, we can go deeper and explore ITR. Regular office workers do not need to be concerned about ITR because their employers handle all Philippine tax filings on their behalf – one thing that remote workers do not enjoy.
On the other hand, freelancers must file everything themselves, which can be rather time-consuming. Even without the extraordinarily arduous tax filing process, our lack of knowledge about the subject is incapacitating. As a result, we are unable to function.
Unfortunately, there is no way around it; there are, but they all result in jail time. So, let’s take a deep breath and examine this matter in minute detail. We will provide step-by-step instructions and answer relevant questions to the topic, so let’s get started!
What exactly is ITR Freelancers Philippines?
It is difficult to answer the issue “How can I obtain my ITR tax if I’m a freelancer in the Philippines?” without addressing ITR, therefore, let’s begin there.
In simplified terms, an income tax return, or ITR, is a tax refund or the excess tax paid throughout the year. To clarify, we will describe it from the perspective of an office worker.
As an employee, your employer becomes your withholding agent automatically. This means that you authorize them to deduct and withhold an amount of tax from your monthly income. They then send this amount to the Bureau of Internal Revenue (BIR) and file a report detailing all withholding taxes remitted at the end of the year. This is all required by the Internal Revenue Code and their employer’s responsibility.
You ask, where does the ITR Freelancers Philippines fit in? Before the last payment of the year, your employer will compute the total amount of income tax you owe or the entire amount of tax you must pay for the year and subtract this amount from the total amount of taxes withheld from January to November. The difference is now your income tax return/tax refund, which your employer will provide. It’s rather straightforward when viewed in this manner:
Tax amount withheld by the employer from January through November minus the employee’s total tax liability for the year = ITR/Tax Refund
What does all of this entail for a freelancer? You have no withholding agency because you file and pay your taxes. Second, no taxes are withheld from your pay; thus, the equation will alter. Instead of deducting your tax liability from withheld taxes, it will be deducted from the tax you paid in advance of receiving your December salary. It will resemble the following:
Total tax paid monthly from January to November minus total tax owed for the year Equals ITR/tax refund
Finally, any surplus will not be automatically added to your paycheck; you will need to request it, or it can be carried over as a tax credit for the next year.
Who is Required to File an ITR Freelancers Philippines?
You may be surprised to learn that not everyone is required to file an income tax return. The following categories of persons and businesses are required to file an ITR, so you may determine where you fall:
1. Filipino citizens residing in the Philippines are required to file an ITR if they fall into any of the following categories, regardless of their source of income:
Individuals who worked for two or more employers at any point throughout the year.
Individuals who are self-employed through professional practice or commercial activity (this is where freelancers fall into).
Individuals with a mixed source of income or who were both self-employed and employed during the same tax year.
Individuals who earn additional non-business, non-professional income in addition to their remuneration.
Individuals who are married, working, and subject to withholding tax are not eligible for alternative filing.
Individuals whose income tax was not withheld accurately during the prior year.
Individuals whose earnings are negligible.
2. Non-Filipino citizens whose income is derived from Philippine sources.
3. Corporations based in the Philippines whose revenue is derived from enterprises within or outside the country.
Foreign firms that generate revenue within the Philippines.
Which taxes must be paid to be eligible for an ITR Freelancers Philippines?
To answer the issue “How can I obtain my ITR if I’m a freelancer in the Philippines?” you must first pay your taxes correctly. Now is the time to pull out your calculator and ledgers, as we will explore the many Philippine taxes freelancers must pay.
But don’t stress out just yet! We will explain in detail how to file your taxes correctly and efficiently. First, let’s have you familiarize yourself with some of the most common terms involved in this process:
Tax by Percentage Per Month
The monthly percentage tax is merely 3% of your total monthly income, which makes it the easiest to figure. If you have a fixed income, you won’t have any issues because it remains constant throughout the year. However, freelancers typically do not have a fixed monthly income, so they must calculate this each month.
As an example, let’s pretend you earned P30,000 for June. Your monthly percentage tax is 3% of that, which is P900. Noting that the deadline for filing your monthly percentage tax is the 20th of each month is also essential. So your tax of P900 for the month of June should be paid by July 20th.
In addition, if the 20th of the month falls on a weekend or holiday, the deadline will be automatically moved to the next business day.
Fiscal Quarter Income Tax
Your quarterly income tax returns are due on April 15, August 15, and November 15, because they must be filed three times per year. Your quarterly income tax will be greater than your monthly income tax, but you can deduct expenses now.
Deductibles are subtracted from your entire monthly income to determine your taxable income. You can report your tax deductions in two ways:
Optional Standard Deductible (OSD) – Independent contractors are advised to select the optional standard deductible because it is simpler and more transparent. When filing for the OSD, 40% of your quarterly income is claimed as a deduction. This automatically makes the remaining 60% of your income taxable. In addition, the BIR will not need to audit your spending, and you will not be required to categorize and calculate your expenses.
Itemized Deductible — If you choose the itemized deduction, you’ll need a lot of time, patience, or a competent accountant. As the term suggests, you must itemize all company expenses and deduct them from your quarterly revenue. No longer may you subtract at will. You must produce receipts, bank records, and invoices as evidence that these expenditures have been incurred.
How may remote workers obtain their ITR Freelancers Philippines?
How do I obtain my ITR if I’m a freelancer in the Philippines? is an issue that freelancers in the Philippines frequently inquire about.
The first thing you must do if you’ve just begun freelancing is register with the BIR as a self-employed individual. These are the documents you will need:
- Form of Registration (Form 1901)
- Form of Receipt (Form 0605)
- BIR Permission to Print Form (1906)
- Birth Certificate from NSO
- Barangay Authorization
- Taxpayer Identification Number/Card
- Account books (ledger/journal/expense book).
Once you have obtained all of these documents, submit them to the BIR district office with authority over your company. You will be required to pay a P500 annual registration charge, a P15 certification fee, and a P15 document stamp tax price.
After attending a session where the BIR briefs taxpayers, you will be issued a Certificate of Registration (COR). After obtaining your COR, you must submit BIR Form 1906 to request invoices or receipts. Register your accounting records and have them stamped at the same district office.
Once registered as a self-employed individual, you are free to conduct your business and pay the taxes outlined in the preceding section. Before the April 15 deadline, you should have filed your ITR, and we will explain how to do so. It is far less complicated than other tax filing procedures and the registration procedure. Here are the steps you must take to obtain your ITR if you are a freelancer in the Philippines:
Step 1: Download BIR Form No. 1701, “Annual Income Tax Return for Self-Employed Individuals, Estates, and Trusts,” from the BIR website.
Step 2: Observe the BIR’s instructions and complete the form properly. Form No. 1701 is a 12-page document that is arduous to complete, yet errors must be avoided at all costs. You should also refrain from providing false information unless you wish to be punished.
Step 3: After completing the form, take it and the required documentation to any approved agent bank of the district office where you are registered.
Step 4: If everything is in order, they will stamp and validate the paperwork as evidence of ITR submission.
Step 5: That’s it! Now you understand how to obtain your ITR Freelancers Philippines. After completing the registration process and paying your taxes, it is actually very simple.
Why should you become familiar with ITR Freelancers Philippines and taxes?
The issue with taxes is that they are crucial, yet we are taught little about them. During our extended time in academia, the subject of taxes and their significance was never examined in depth. Forget how to file them; we were not even taught fundamental information.
There may be a valid explanation for this vexing behavior. No one was expected to calculate their taxes, for starters. As adults, we were supposed to form corporations and delegate our tax preparation to others. As self-employment was not as prevalent as it is today, integrating tax issues into the general curriculum was not a priority for the government.
However, due to the surge in self-employment, freelancers are suddenly required to answer queries such as “What is ITR and why do I need it? Who is obligated to file an ITR? What taxes must I pay to qualify for an ITR? How do I acquire my ITR as a freelancer in the Philippines?”
But perhaps we should all ask the same questions, not just freelancers who are required to do so. New tax rules are currently being implemented, and we cannot assess their consequences without thoroughly understanding tax payments and filing. Even if it is exceedingly uncommon, we could be robbed right in front of our eyes. So let this be the beginning of your search for taxation information!
Frequently Asked Questions
1. How Do You Register as a Freelancer in the Philippines?
Freelancers must register with the BIR (as self-employed individuals or as mixed-income earners) and get a Taxpayer Identification Number, or TIN (if they do not already have one). However, the specific criteria and processes differ from those that apply to other sorts of taxpayers.
2. How Can Freelancers Get an ITR?
Independent contractors are classified as businesses and are required to file their own tax returns.
3. How to transfer RDO?
If you’re a former employee who wants to transfer your BIR Form 1905 records to the RDO, you can do so by filling out the application form. Once the transfer is completed, you can then start becoming a freelance contractor. You should wait up to 10 working days before your RDO transfer takes effect to start the next step.
4. What is form 2303 for BIR?
When you apply for a BIR registration, you will be given a Certificate of Registration that contains this information.
5. What is the first step before filing freelance taxes in the Philippines?
Before you can start working as a freelance tax consultant in the Philippines, you must first register with the Bureau of Internal Revenue (BIR). This is the first step in the process of filing and paying taxes.
6. Why do freelancers have no idea about filing taxes?
Many Filipinos who are freelancers don’t have a lot of knowledge about filing and paying taxes due to the lack of clear-cut rules.
7. Can freelancers in the Philippines claim tax credits?
Freelancers in the Philippines who work with their clients in other countries may claim a tax credit for the taxes they pay in that country. This exemption allows them to avoid paying taxes in that country.
8. When is the tax return due?
The return is filed on or around the 15th day of the following month, the 4th day following the end of the year for which the taxpayer was paying taxes.
VIDEO: How to Compute Income Tax of Freelancers in the Philippines (TRAIN Law)
If you’re a freelancer, your income is subject to both individual income tax and business tax.
But how do you compute your net income? What expenses can you deduct?
In this video, we’ll walk you through the process of computing your net income as a freelancer, explaining what expenses are deductible and which aren’t.
With the dawn of the new normal, freelancing in the Philippines has become a viable option for many people. If you’re a freelancer, you must understand the tax implications of your business so that you can prepare for them and avoid unpleasant surprises in the future.
With the right knowledge of ITR Freelancers Philippines, you can keep your expenses low and save more of your hard-earned money. We hope that you’ve found this article useful. Please share it with your friends and family who may be interested in freelancing or starting a business.