How to File Your Taxes as a Freelancer?

Filing Taxes as a freelancer

In the Philippines, freelancing has become the most common source of income ever since the pandemic started. Albeit for some, freelancing has been their way to survive everyday expenses even before the pandemic but admit it, freelancing has only been made more popularized when we were all got stuck in our homes for the past two or more years. Many people have this common misconception that due to the fact that they do not work for only one specific employer, they have assumed that they do not need to pay taxes for their income. But that’s not correct,  because tax filing for freelancers in the Philippines is still mandated by law.

What is a freelancer and why work as a freelancer?

Any type of self-employed service that is not bound by a long-term or fixed contract can be considered freelance work. Although freelancers are self-employed, there are companies or agencies that represent freelancers and connect them with clients looking for the type of service you provide.

The following are some of the most popular freelance jobs in the Philippines:

  1. Content writers, blog writers, screenplay writers, editors, creative writers, and journalists are all examples of writers.
  2. Web and mobile developers
  3. Video and photo editors, graphic designers, and web designers
  4. Models, video producers, event managers, actors, and filmmakers work in the media.

Flexibility is one of the main factors that draw people to it. It’s thrilling to be able to set your own hours, be your own boss, choose your clients, and decide which projects to pursue or pass on. People are increasingly turning to freelance, either part-time or full-time. Plus, in contrast to office employees, freelancers have more income options and, as many would describe it, they get to enjoy the flexibility of being their own boss. While it is true that freelancing provides freedom, it also comes with significant responsibility. This is especially true when the season for tax filing for freelancers Philippines arrives.

However, there are some drawbacks to freelancing, such as negotiating freelance pay rates and worrying about where your next job will come from or if it will come at all. Aside from that, the difficulties with taxes frequently overwhelm the benefits of freelancing. Although tax laws differ for each freelancer, there are several areas where you must abide by the laws or risk paying substantial fines. Be aware that there have been instances where tax-evading freelancers expanded into large-scale businesses but only to be punished for doing so. It is because many Filipino freelancers have no idea how to file and pay taxes because the rules for other types of taxpayers, such as employees and corporations, are not as clear. Still, knowing how much tax you owe the government is a good starting point.  Therefore, it’s never too late to start paying your taxes, whether you’re just starting out or have been freelancing for a while. Below is a simple guide about tax filing for freelancers Philippines.

How Do You Register as a Freelancer in the Philippines?

The National Internal Revenue Code (also known as the Tax Code) does not explicitly mention “freelancers,” which adds to the confusion about whether freelancers should pay income tax or not. Regardless, depending on the nature of the work or business, freelancers can be classified as self-employed individuals or mixed-income earners. In the Philippines, self-employed and mixed-income individuals are all required to file and pay income tax.

  1. Acquire a Taxpayer Identification Number or TIN

Persons who receive personal income from their profession with or without a license from a ruling board are classified as freelancers by the Bureau of Internal Revenue (BIR). Freelancers, like all other taxpayers in the country, must register with the BIR (either as a self-employed individual or as a mixed-income earner) and obtain a Taxpayer Identification Number, or TIN (for those who do not already have one). The specific requirements and procedures, however, differ from those of other types of taxpayers. Before you can file and pay freelance taxes in the Philippines, you must first register with the BIR.

  1. Know your freelance category

Freelance service could fall into one of the following categories, either a professional or single/sole owner category. Under the professional category falls virtual assistants, content writers, graphic designers, and other similar professionals. While under the single/sole owner category are the pastries/bakery owner, food cart owner, or clothing line. These categories of freelancers do not require a Mayor’s Permit or a Barangay Clearance.

  1. Know if you’re tax exempted

You can be tax exempted if first, you are a minimum wage earner, second, your gross income is way below your basic personal exemption (Php 50,000, no matter what your marital status is), and your additional personal exemption (Php 25,000/child dependent, maximum of 4), or if your annual salary from your employer is Php 60,000 and below.

Tax filing for freelancers Philippines

To operate your freelancing business, you must obtain a business permit as well as annual community tax certificates. Failure to comply and to renew may result in you being sanctioned or penalized.

Freelancers who need to file taxes must register as self-employed individuals with the Bureau of Internal Revenue (BIR). You will receive a Certificate of Registration (CoR) as a result, allowing you to file and pay your taxes. However, the entire registration with the BIR has an annual registration fee of Php 500.00, payable at the BIR or any authorized agent bank within the RDO.

The following is the list of requirements for your BIR registration:

  1. Your NSO Birth Certification
  2. Duly accomplished BIR Form 1901
  3. Duly accomplished BIR Form 0605- Payment Form
  4. Your TIN number
  5. Your Community tax certificate

If applicable, the following are additional requirements you need to prepare:

  1. Present a copy of mayor’s business permit
  2. Your Marriage contract, if any
  3. Any ID with Professional Regulatory Commission (PRC)
  4. A DTI certificate of business name
  5. Any Occupational or Professional Tax Receipt (OTR/PTR)
  6. Any Contract/company certification

When to file taxes for freelancers Philippines

Once you have obtained your Certificate of Registration (CoR), it’s now time for you to file taxes for freelancers Philippines. You will be required to pay annual, monthly, and quarterly taxes as a freelancer.

  1. Monthly Percentage Tax

This must be paid monthly, filed every 20th of the month. The monthly percentage tax comprises 3% of your Gross Revenue. These two forms must be duly accomplished and submitted: BIR Form 2551M and BIR Form 0605.

  1. Quarterly Income Tax

It is paid every 15th of April, August, and November. All self-employed and mixed-income persons are mandated to pay their quarterly income tax. These forms should be duly accomplished and filed, BIR Form 1701Q and BIR Form 0605.

  1. Annual and Last Quarter Payment of Income Tax

Filed every April 15th of the taxable year. These forms should be duly accomplished and filed, BIR Form 1701 (Annual Income Tax Return) and BIR Form 0605. All self-employed and mixed-income persons are mandated to pay their annual and last quarter income tax.

Can you buy an affordable house and lot as a freelancer?

At first, you might think that buying a house and lot as a freelancer seems like a punch to the moon. There’s still a common misconception that working as a freelancer is a low-paying job. But as time has changed, many companies now opt for the services of a freelancer because of its flexibility. Further, BRIA Homes provide tons of options to ordinary Filipino who dreams to acquire their own house and lot that are both high quality and affordable. They can now have their dream homes for as little as P 1, 897* per month. Bria’s house and lot packages cost between Php 460,000 and Php 1.5M, while its condo units cost between Php 1.5M and Php 3M. Bria Homes could help even freelancers to achieve their dream homes, they can select the most convenient financial funding option either thru PAG-IBIG Funding or Bank Financing, to help them with their payment burden.

How to buy a house as a freelancer

  1. Tax filing for freelancers in the Philippines

As discussed above, as freelancers you are mandated by law to pay taxes. In order to achieve your dream home in the Philippines, one must present legal proof that they are in fact earning a living. Paying your taxes on time is one approach to demonstrate that you receive income on a regular basis. The Bureau of Internal Revenue classifies people who make money from their occupation on a personal level with or without a license from a governing body as freelancers (BIR).

  1. Increasing Credit Score

When determining whether or not to lend money to someone, banks and other financial organizations take into account a number of variables. In addition to the financial details provided on a loan or credit card application (proof of income), banks also consider a borrower’s credit record and credit score when determining whether or not to grant credit. Banks give money to borrowers that were from other people’s pools of deposit. They are the ones accountable in the event of any unfortunate event. And that’s why banks are very careful and do not just lend to anyone. They need to ensure that an individual can afford to pay their loan.

In order to manage your personal finances and secure financing for your ideal home as a freelancer in the Philippines, it’s essential to monitor your credit score. If you have a high credit score, obtaining a home loan can be just a piece of cake for you.

You can obtain a high credit score by paying your credit card and insurance bills completely and on time. You can easily be approved for a credit card if you don’t already have one, and you should use it properly in order to establish a solid credit history. Understanding what credit score is, how it functions, and the importance of testing your own score is crucial in applying for a home loan.

  1. Applying for a pre-approval

If you apply for a pre-approval of your home loan, you will be able to know how much you can borrow ahead of time due to the fact that as a freelancer, admit it or not, you do not have a reliable source of income unless you’re also employed. So by getting your home loan pre-approved, you can focus your search on affordable houses and lots that are within your price range. The penthouse flat you’ve had your eye on might have to go, but it also means that your home-buying process will be considerably simpler now that your alternatives have been reduced. If you have a home loan that has been pre-approved, you can manage your finances accordingly. Knowing how much of a loan you will be qualified for, allows you to determine whether or not you will need to contribute more from your funds to buy the property you want.

In preparation for your pre-approval, several income documents are required by banks and other financial organizations to verify that borrowers will pay back their debts. When purchasing a home in the Philippines, you can provide other documents to prove your ability to pay even if you are not employed by a firm and do not have payslips as proof of income. Examine all of your revenue sources to see if you can find any supporting evidence.

  1. Finding a co-maker

It’s not too bad to have a backup plan to strengthen your home loan, hence you should find a co-maker. A co-maker is someone who contractually agrees to repay another person’s loan in the event of failure to pay the obligation. He or she is typically employed when making a collateral loan application and when the borrower doesn’t meet certain credit requirements, including being too young or having insufficient income documentation. If you have a co-maker who has good credit and a stable income, you can raise the loan amount and your chances of getting approved to buy a home in the Philippines. Say your co-maker was compelled to repay the debt because you skipped a payment. The co-maker has the option to demand repayment from the primary borrower for any loan installments made. A spouse is typically regarded as the loan’s co-creator. Depending on their living situation and the lender’s permission, unmarried candidates might be able to qualify with the assistance of a parent or sibling.