Updated: Nov 8
Many people are abandoning the security of their jobs to become their own bosses due to the ease with which technology is available and the convenience of working from home. As a freelancer, you have the flexibility to work according to your own schedule and from anywhere.
In addition, you are now required to register as a freelancer, Self-Employed, or professional with the Bureau of Internal Revenue (BIR). As a result, you must also handle your own bookkeeping and tax return filing.
What is Non-VAT Registration?
If your yearly sales are less than P3,000,000 and you have registered with the BIR as a non-VAT business, you are eligible for non-VAT registration.
BIR Tax Compliance for Non-VAT Registered Freelancers
Ensure your freelancing activities are legal and tax compliant, especially with the BIR, by following this basic checklist to avoid future tax liabilities and potential consequences.
1. Secure your Certificate of Registration (COR) by applying through BIR Form 2303.
The first step to complying with tax laws is to register with BIR at the Regional District Office (RDO) that is closest to your place of residence or company.
The BIR Form 0605 Annual Registration Fee must also be completed, filed, and paid.
Present the completed BIR Form 1901, a photocopy of your valid ID containing your full name and address, along with the printed and paid BIR Form 0605 at your relevant BIR RDO.
2. Submit the BIR Form 0605 to file and settle the payment for the Annual Registration Fee.
As indicated in Step 1, during the initial registration as a Self-Employed individual or freelancer with the BIR, it is mandatory to file and remit payment for the BIR Form 0605, which pertains to the registration fee.
Once completed, it is important to file and fulfill the payment for the Annual Registration Fee annually, using BIR Form 0605, no later than January 31st.
3. Registration and Issuance of Official Receipt – BIR Form 1906.
It is necessary to register an official receipt in your BIR RDO after you have registered and obtained a copy of BIR Form 2303, Certificate of Registration (COR).
In order to receive payment for your services, you must provide your client with this BIR Registered Official Receipt for each cash collection. The BIR fines individuals who issue or use an unregistered official receipt.
Therefore, upon receiving your COR, it is imperative to promptly request an Authority to Print (ATP) Official Receipt from your designated BIR RDO.
4. Register and accurately document transactions in the appropriate books, including journals and ledgers.
Here is where you will keep a record of your financial activities, such as sales, expenses, cash receipts, and cash disbursements, which may be subject to examination by the BIR during an audit.
You have three (3) options for registering your journals and ledgers: manual, loose-leaf, and computerized. Each method has specific requirements, with manual books being the most common. To register manual books, you can use the BIR Form 1905 Application Form.
The necessary documents include a copy of your BIR Form 2303 - Certificate of Registration (COR), and proof of payment or filing of the BIR Form 0605 - Annual Registration Fee.
5. File and Pay Percentage Tax Return Every Quarter – BIR Form 2551Q
Verify your filing obligation for this BIR Form by checking your BIR Form 2303 – COR, and confirming if percentage tax is included in your tax type.
The tax calculation is determined by multiplying the gross receipts or sales by the applicable percentage tax rate. Currently, the rate stands at 1% from July 1, 2020, to June 30, 2023. From July 1, 2023, onward, the tax rate increases to 3%.
BIR Form 2551Q needs to be filed every quarter as outlined below:
Quarter 1: Jan to Mar
Quarter 2: Apr to Jun
Quarter 3: Jul to Sep
Quarter 4: Oct to Dec
Jan 25 of the next year
Note: You don't need to file this if you're using the 8% flat income tax rate.
6. Submit and settle the Quarterly Income Tax Return by using the BIR Form 1701Q.
Regardless of whether you use the 8% flat income tax rate or not, you are required to file and pay your quarterly income tax return each quarter using BIR Form 1701Q.
The taxable amount is determined by the net taxable income, which is computed as gross receipts or sales minus allowable deductions. However, if you are eligible for the 8% scheme as a freelancer without employment, the taxable amount is calculated as gross sales or receipts minus P250,000.
BIR Form 1701Q is submitted on a quarterly basis, irrespective of whether there is a tax liability or not.
The deadline for filing is as follows:
7. File and Pay Annual Income Tax Return – BIR Form 1701 or 1701A
Freelancers must ensure that they file their personal income tax return on or before April 15 of the following year.
As an example, let's consider the period from January to December 2022. In this case, you must file and settle your Annual Income Tax Return by the deadline of April 15, 2023, in the next year.
The tax base is similar to a quarterly income tax return, but it is for the entire year rather than the quarter.
Typically, if you are solely engaged in freelancing and do not have any income from employment, you can utilize BIR Form 1701A when opting for either the 8% Flat Income Tax Rate or the 40% Optional Standard Deduction for the Regular Income Tax Rate. Otherwise, BIR Form 1701 should be used.
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