Taxpayer's guide

For details and updates, do check out the main page:

The Filipino freelancers' guide to paying taxes and securing social benefits

Updated: 29 September 2015

16 December 2009

Wednesday

Taxpayer's guide²

According to Section 23 of the National Internal Revenue Code of the Philippines, "[a] citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines." (See also existing conditions for a nonresident citizen, a citizen working abroad, and an alien individual.)

Thus, all Philippine-based freelancers and home-based service providers, who may receive payments from around the world, are mandated by law to register their freelance business with the BIR—under the professional taxpayers category, or single proprietorship (if your work entails creation/selling of tangible products or you've simply opted to establish the physical presence of your business—by putting up a sign—within your community or regional location). The requirements for this taxpayer type include the (a) registration of freelance business, (b) BIR-stamped books of accounts, (c) issuance of official receipts, and (d) renewal of freelance business registration.

If you choose to be a single proprietor (not just a professional), you are also required to secure/present other documents and certificates from local government offices (e.g., business name from the DTI, business permit from your city mayor's office, health/sanitary permit from your city health office, permit from your city department of engineering and fire, clearance from your city police department, among others).

Now note I've mentioned freelance business because freelance work is indeed a type of business.

A. Registration (Section 236, NIRC*)

The BIR may have varying lists of requirements depending on (a) civil status, (b) legal dependents, (c) type of product or service provided, and (d) professional qualification, which may require licensure from the Professional Regulation Commission (PRC), among other factors.

Sample list of registration requirements for the single or unmarried individual

1. Two copies of filled-out BIR Form No. 1901, page 1 and page 2—Application for Registration (or electronically fill out this form using the Excel file)

2. Letter of intent (You may use this sample free of charge, as template for writing your own letter of intent. Access or the ability to edit documents posted on this site via Google Docs are exclusive to the administrator of this website. Public requests to access said documents are thus automatically denied. To be able to use the letter of intent template on Google docs, just click on the File tab, click on Download, and then click on dropdown menu the Microsoft Word file docx.)

3. Birth certificate (photocopy)

4. Business location sketch (this can be your home office)

5. Books of accounts

6. Registration fee of Php500, along with two payment forms:

   • filled-out BIR Form 0605 payment form (or use the Excel file or fill out and print form via the eBIRForms portal), per Section 236 of the NIRC

   • another payment form of, and paid at, any BIR-accredited agent bank

Sample list of registration requirements for the married individual

1. Two copies of filled-out BIR Form No. 1901, page 1 and page 2—Application for Registration (or electronically fill out this form using the Excel file)

2. Marriage certificate

3. Birth certificate of children and qualified dependents

4. Occupational tax receipt

5. Books of accounts

6. Registration fee of Php500, along with two payment forms:

• • filled-out BIR Form 0605 payment form (or use the Excel file or fill out and print form via the eBIRForms portal), per Section 236 of the NIRC

  • another payment form of, and paid at, any BIR-accredited agent bank

In that case, you may have to prepare/present copies of your marriage certificate, birth certificates of your legal dependents (i.e., children), or other documents coming from local government offices (particularly for self-employed professionals engaged in manufacturing or production of goods).

The occupational tax receipt is required among PRC-licensed professionals (e.g., architects, chemists, dentists, doctors, teachers, etc.). So do clarify the nature of your work with the BIR that, for instance, you're a teacher but the type who gets paid to teach a subject matter (e.g., English to non-native English speakers) without the need to secure a PRC license.

Take heart! You might already have two or three items from the list you're given. You'll soon complete the requirements—one at a time.

B. Books of accounts (Section 232, NIRC)

For a new freelance business. Books must be registered before their use, before the commencement of the business, or upon registration of the business. The registration/update (i.e., stamping) of books is free of charge.

For a renewing freelance business. New books to be used during the succeeding year must be registered (stamped by the BIR personnel) on or before December 31 of the current year. Buying new books and registering them will not be necessary though, unless the old registered books have been consumed. Old books may be used within three consecutive years, from the date of stamping.

If you need new accounting books to be stamped, remember to bring the following when you visit your BIR-RDO:

1. Photocopy of BIR Certificate of Registration (COR)

2. CMS clearance from the BIR Collection Section

3. Attach CMS clearance to BIR Form No. 1905 (Fill out: Part I—items 1, 2, and 3; Part II—Place an X mark on "Update of Books of Accounts"; then proceed to item 4 I and sign item 5.) You may also electronically fill out the form by using the Excel file.

4. BIR Payment Form 0605 with the attached revenue official receipt of the registration fee paid the current year

5. Previous account books used (see list of typical account books below)

Typical accounts books of freelancers. We only have five to think about--thank God! :) They are as follows:

1. Journal

2. Cash disbursements

3. Cash receipts

4. Ledger

5. ^New Official appointment book (you may purchase another accounting journal for this purpose) together with an affidavit of notarized service/product fees, per BIR Revenue Regulations 4-2014

To give you an idea on how to fill out these books, you may refer to the sample entries of accounting books for the Filipino freelancer. But I must note here that not all RDOs require all these books; so I suggest you follow the instruction of your RDO.

You may choose the stylish books for the same purpose, or you may purchase the inexpensive ones like the Best Buys of National Bookstore. You may definitely request a certified public accountant to accomplish these books for you. But if for some reasons, you are restrained to hire a CPA, then consider this good news: You may fill out your own accounting books based on what you know, as I was also told by a BIR officer of the day.

I learned to fill out my books approximately three days. I have included the above link to sample entries, just in case you need templates or samples for your bookkeeping. You may also add or remove headings based on your day-to-day business transactions. The number of columns (i.e., for the cash disbursement book) will largely depend on the number and type of transactions you make. The important thing is that these records remain truthful whichever angle the BIR people will look at them. Do request for the assistance of the BIR officer of the day for details or clarification.

C. Issuance of official receipts (Section 237, NIRC)

BIR has constantly urged us to "ASK FOR OFFICIAL RECEIPT" from business establishments and individual service providers who receive payments for products or services worth Php25 and up. Professional freelancers are also expected to issue official receipts to their clients. While some clients don't need an OR, the freelancer should at least fill out one each time payment has been received. This entry will then be reflected in the cash receipts book.

Official receipts are not the ones bought from any bookstore. These receipts have serial numbers that appear with the service provider's tax identification number registered at the BIR. For reference, I only paid the printer Php650 (in year 2009) for the first ten OR booklets, which I believe I would consume within two to five years.

But as per Revenue Regulations No. 18-2012, I had to order another set of revised ORs (in year 2013) and paid the printer about Php1,500. For practical reasons, I would recommend you choose the OR booklets with carbonized paper already (around Php2,500 per 10 booklets). The revised OR bears the statement "THIS OFFICIAL RECEIPT SHALL BE VALID FOR FIVE (5) YEARS FROM THE DATE OF ATP." Your printer will specify the date, below the printer's name at the bottom part of the OR (likely printed after April 2013). If, as a customer, you receive an OR from a merchant without this statement, then probably that merchant hasn't complied with the BIR policy yet.

In the process of registering your business, you may request a BIR-accredited printer to assist you in securing from the BIR the authority to print (ATP) your OR booklets (as per Section 238, NIRC).

D. Freelance business renewal

A freelancer may now renew his BIR registration by simply paying the Php500 registration fee at any authorized agent bank (AAB) of the BIR, using BIR payment form 0605 (three copies), along with the payment form issued by the AAB.

______________________

*National Internal Revenue Code

For details and updates, do check out the main page:

The Filipino freelancers' guide to paying taxes and securing social benefits