There’s an idea out there that freelancers don’t need to pay taxes or register their businesses. While there are freelancers who intentionally evade these responsibilities, many don’t actually know what they’re supposed to do.
According to Section 74 of the National Internal Revenue Code of 1997 an individual receiving income within or outside the Philippines is required to pay taxes.
You are considered as self-employed if you are:
- A sole proprietor who owns a small or home-based business;
- A professional who practices a profession, even without being affiliated with a company; or
- Anyone who “(pursues) an art and make their living therefrom,” including writers, athletes, and others.
The Bureau of Internal Revenue classifies freelancers and home-based service providers as self-employed workers.
Here is a summary of the registration process you need to undergo with the BIR:
- Gather the necessary BIR forms (online or offline), along with your documentary requirements.
- Submit your requirements to the BIR RDO (Revenue District Office) that your business address is under.
- Obtain copies of your official receipts (or sales invoices, if applicable) through a BIR-accredited printer.
- Submit your books of accounts for registration along with the corresponding BIR form.
Requirements for Registering a Freelance Business
Prepare these documents before you start your registration.
- NSO Birth Certificate or any documents showing your full name, address, and birth date;
- Mayor’s Permit, if applicable;
- DTI Certificate of Business Name, if applicable;
- Professional Regulation Commission ID, if applicable; and
- Payment of Professional Tax Receipt (PTR) from the local government, if applicable
NOTE: Ask your RDO for possible conditions when submitting your PTR payment. Some cities don’t require this. Others may ask you to submit this personally, or you may be allowed to have an authorized party do so for you.
Just to be safe, prepare these beforehand:
- Photocopy of your birth certificate
- Photocopy of your marriage certificate (if married) and the birth certificate/s of your dependents, if you have any
- Photocopy of proof of address
- Photocopy of ID with name, birth date, and signature
Submitting your Registration Requirements
Once you have these documents, here’s what you’ll need to do:
- Accomplish two copies of BIR Form 1901 (for individuals) and submit it along with the required attachments to the RDO that has jurisdiction over your business’ address. If you already have a Tax Identification Number (TIN), this makes your application easier. NOTE: The BIR has a directory to help you find which RDO your business will be under (). You may also call the BIR Trunkline at 981-7000 to confirm your RDO address.
- Pay the registration fee of P500.00 using BIR Form 0605 (Payment Form) to any Authorized Agent Bank located within the RDO. Prepare one original and two photocopies of this form.
- Pay P 15.00 for the Certification Fee and P15.00 for the Documentary Stamp Tax.
- Attend a taxpayer’s briefing at your RDO. This is where you will learn your rights and responsibilities as a taxpayer.
- At this point, if you’ve submitted all of your requirements, you will be issued your TIN (in case you don’t have one), the BIR Certificate of Registration (COR or Form 2303), and an “Ask for a Receipt” Notice (ARN). The COR will reflect the returns that must be filed and the taxes to be paid, so keep it close by.
You may opt to accomplish your BIR forms using the Offline eBIRForms Package instead of manually filling them up. You can encode, edit, and validate your details online. Print them out and submit along with a confirmation email when you pay your fees. Once you’ve paid everything, you can submit the printed forms to your RDO.
Be careful when attempting to apply for a TIN online. If you’re freelancing, you will need to go to BIR’s eRegistration system, which is for single proprietors and mixed income earners. If you’re an employee, don’t do it. Application of new TINs online can only be done by employers.
Receipts and Bookkeeping
Once you become a registered professional, you’ll need to have your own sales invoices or official receipts (OR) printed. The BIR has a strict policy regarding receipts. It would be best to work on getting your receipts on the same day you’re processing your registration.
You may sometime hear the terms “receipts” and “invoices” interchangeably. Don’t get confused. If you’re selling goods, you are expected to issue invoices. If you’re offering services, you must issue ORs. So if you’re a freelancer who offers services, you need to get ORs.
How to register for an OR
- Fill up 3 copies of BIR Form 1906, or Authority to Print (ATP) Official Receipts, Invoices, and other Commercial Invoices. Also, bring a copy of your BIR Certificate of Registration (COR) or BIR Form 2303 and 0605.
- Submit your requirements to your RDO. You may have to wait up to two weeks for your ATP to be released.
- Submit your ATP to an accredited BIR printer.
- Wait for at least 10 to 15 working days for the release of your receipts.
Take note of the following when you issue receipts:
- Receipts are serially numbered.
- The receipt should show the professional’s name, business style, TIN, and business address. You may choose to add a logo or other customizations, but adding these will require approval and take more time printing.
- The receipt should be issued during every transaction. The client will receive the original copy, and you will keep a duplicate (or a triplicate if you’re running a huge operation). Your receipts will be preserved for 3 years from the close of the taxable year. You may use carbon paper to help you make copies of your receipts. Or if you can spare a few extra pesos, you may opt to get a carbonized copy. This will save you the effort of stocking up on carbon paper and rewriting details again.
- You may also need to issue a billing statement. A billing statement is issued when you bill a client for services, after which you issue an OR once you’re paid. Some clients specifically request for billing statements while some don’t. If you are unsure if you’ll need a billing statement, it’s always best to get one so you don’t have to worry about the downtime brought by updating your ATP and printing out receipts.
- If your business sells goods, you will need to issue a collection receipt. This is given to the client when receiving payment after delivery of goods.
Registering your Books of Accounts
The BIR also requires you as a professional to maintain books of accounts. These could be managed by any acceptable method of accounting (accrual or cash basis) in a consistent manner. Like your receipts, these will be preserved for 3 years from the close of the taxable year for post audit examination. Take time to have them processed along with your registration and receipts.
- Submit a copy of BIR Form 1901.
- Bring your books of accounts (journal/ledger/subsidiary professional income book and subsidiary purchases/expenses book) and have them stamped by the same RDO.
- Pay P15.00 for the Documentary Stamp.
The business registration process is a tedious task, but once you accomplish everything, you can present yourself more confidently to clients as an honest-to-goodness business.