Freelancing offers a flexible work lifestyle, but it also comes with the responsibility of managing your own taxes, including filing an Income Tax Return (ITR). Understanding the tax obligations specific to freelancers in the Philippines is crucial for staying compliant with the Bureau of Internal Revenue (BIR) and avoiding penalties. Here's a complete guide to help you navigate the process of filing your ITR as a freelancer.
Who Needs to File for an ITR?
In the Philippines, anyone earning income, whether from employment or freelancing, is required to file an Income Tax Return. As a freelancer, you are considered self-employed and are responsible for declaring your income, deducting expenses, and paying taxes accordingly. This applies to freelancers who earn more than PHP 250,000 annually, as income below this threshold is exempt from tax.
What is ‘Freelancing’ As Per Income Tax Rules?
Freelancing, as recognized by the BIR, is any form of work where an individual is engaged in
earning income without a traditional employer-employee relationship. This includes online
consultants, graphic designers, writers, developers, and other independent professionals. The
BIR categorizes freelancers under the self-employed classification, which means they are
responsible for reporting their own income and paying the appropriate taxes.
Applicability of Taxes and ITR Filing for Freelancers
Freelancers in the Philippines must file their taxes like any other self-employed individual. You
are required to pay the following taxes:
Income Tax: Based on your annual net income, after deductions for allowable expenses.
Percentage Tax or VAT: Depending on your gross receipts, you might need to pay a 3% Percentage Tax or register for VAT if your annual earnings exceed PHP 3 million.
Annual Registration Fee: A PHP 500 annual registration fee is also required for freelancers.
Income Tax Filing Process for Freelancers
Register with the BIR: The first step for any freelancer is to ensure you are registered with the BIR as a self-employed individual. This registration will provide you with a Tax Identification Number (TIN) if you don't already have one.
Bookkeeping: Maintain accurate records of your income and expenses. This will be essential when calculating your taxable income.
File Your Quarterly and Annual ITR: Freelancers need to file quarterly income tax returns using BIR Form 1701Q and an annual income tax return using BIR Form 1701. The quarterly returns are due on the 15th of May, August, and November, while the annual return is due on the 15th of April of the following year.
Pay Your Taxes: After computing your income tax due, make the payment through authorized banks, online portals, or mobile apps linked with the BIR.
Due Consideration of Advance Taxes for Freelancers
As a freelancer, you're also expected to pay quarterly taxes in advance based on your estimated annual income. This is to prevent a large tax liability at the end of the year. If your actual income turns out to be lower or higher than estimated, you can make adjustments in the following quarter or during your annual filing.
Taxes That Freelancers Working in the Philippines Must File and Pay
Freelancers in the Philippines must be diligent about filing and paying the following taxes:
Income Tax: As calculated based on net income after allowable deductions.
Percentage Tax or VAT: Depending on your annual gross receipts.
Annual Registration Fee: This fee is mandatory for all registered taxpayers.
Filing your ITR may seem daunting, but with the right tools and knowledge, it can be
straightforward. KarbonPay can simplify this process by managing your payroll and tax
submissions efficiently, ensuring compliance with all local regulations.
Book a Demo or Sign Up for a Free Trial today and let KarbonPay take care of your payroll
and tax needs.
Comments