Q: How do I Become Self-Employed in the Philippines?
Learn how to register yourself as an independent contractor in the Philippines, complying with the tax and invoice regulations that follow.
Over a million people in the Philippines have chosen to become freelancers, and you can join them. Setting your hours, picking your clients, and gaining all the profit from your hard work makes freelancing a desirable option for many people. Here we break down the process of becoming self-employed in the Philippines.
Registering as an Independent Contractor in the Philippines
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Standard employees usually have employer companies that take care of their income tax returns. As a freelancer, you’ll have to do your taxes on your own or with an accountant. To become an independent contractor with the appropriate tax classification, you will have to register with the Bureau of International Revenue (BIR). Keep in mind that different cities and districts have varying requirements and processes. Here’s how to get started:
Check if you need a Mayor’s Permit. Some cities require you to have an Occupational Tax Receipt (OTR – for non-licensed professionals) or a Professional Tax Receipt (PTR – for licensed professionals). However, other cities may follow the general Filipino guidelines.
You’ll need a Tax Identification Number (TIN).
- If you don’t have a TIN (never been employed in the Philippines before), you can get one by filling out BIR Form 1901. You can register online or go in-person to a nearby BIR Revenue District Office (RDO). You can then obtain your TIN ID at the BIR office, which should altogether take about 3-10 business days.
- If you have a TIN already (have been employed in the Philippines before), you can change your status from employed to self-employed by filling out the BIR Form 1905. If you are still employed but have a side-gig, you can declare yourself a “mixed-income” earner. If you need to change your RDO, go to your current Revenue District Office and request to change. (blog)
Then, get your Certificate of Registration (COR) by filling out BIR Form 0605. The COR will cost PHP 500, which you can directly pay to the BIR office or any Authorized Agent Banks of your RDO. Make sure to keep your copy of the payment form and receipt. Once you turn in all forms and fees and acquire your bookkeeping journals, you will have to go to a seminar about filing taxes. Your RDO should have information about scheduling the seminar for self-employed individuals. The seminar informs of what you need to do for your business. You can ask an official BIR officer questions, and the entire seminar is around 1-2 hours in length. Altogether, it should take 1-4 weeks to get the certificate. You will have to pay PHP 15 for the Certification Fee and PHP 15 Documentary Stamp Tax.
Bookkeeping for your business in the Philippines
Independent contractors must comply with mandatory bookkeeping, managing detailed records of your accounts. As a freelancer, the accounting books for you are General Journal, General ledger, Cash Receipt Journal, and Cash Disbursement Journal. Remember that your accounting books must be registered with the BIR.
Once you acquire a journal/ledger, make sure you print your receipts (the RDO will provide a list of accredited printers of receipts/invoices). It’s important to have printed receipts in case the BIR asks you for them. You must keep your accounts for the designated time period (three years after the close of the tax year) in case of post-auditing.
For details on what exactly is needed when registering your accounting books with the BIR, check out the BIR government website.
Taxes and Invoicing for Independent Contractors in the Philippines
In the Philippines, the Tax Reform for Acceleration and Inclusion Act (TRAIN Law) was enacted in January of 2018. This law lowers taxes for freelancers, allowing self-employed professionals with gross sales below VAT to pay only 8% flat tax instead of their income and personal tax. In terms of taxes, each year, you will pay the Annual Registration Fee (January), Monthly Percentage Tax (on or before the 20th of each month), and the Quarterly Income Tax Return.
In the Philippines, you have to pay VAT on goods and services that are imported or supplied domestically (exports are not included). On your VAT invoices, you should include the date, invoice number, TIN, customer’s TIN, description of the goods/services, and the amounts (net, VAT, gross) involved in the transaction. You can make invoices in a foreign currency, coveted into pesos with a public exchange rate.
You should issue the original copy of receipts/invoices to clients with the transaction. You must keep and save a copy for three years after the end of that tax year. Sending digital copies of invoices to clients is okay; the invoice does not necessarily have to be a physical copy.
Advice for clients hiring independent contractors in the Philippines
If you are looking to hire independent contractors from the Philippines, it is a good idea to understand when certain labor laws and regulations, like Department Order No. 174, apply. Compliance is not necessary with all contract-based freelance relationships, but if Filipino contracting laws are involved, compliance can get tricky.
If you hire a contract-based online freelancer (independent and not through an agency), that relationship is usually exempt from the Philippines’ contracting and labor law requirements. There are still regulations that apply here, but they generally fall on the freelancer side. It can be a good idea to make sure your freelancer complies with Filipino law (is registered with the BIR, etc.).
For a US-based company hiring a Filipino freelancer, the IRS does not require any extra tax obligations. However, if your US company hires a Filipino contractor to perform services on US soil, tax and reporting obligations can apply. Regardless, whenever a company hires a foreign independent contractor, it is a good idea to have the contractor fill out the IRS Form W-8BEN. This helps reduce liability for your company.
When making payments to the Philippines via wire transfer or via Liquid, you’ll need a purpose of payment code which you can obtain from your freelancer.
Dive into Filipino Freelancing!
Those are the basics of becoming an independent contractor in the Philippines. As long as you stay aware of the specific local regulations in your district, you will be able to complete the registration process smoothly. Now you are prepared for everything you have to face, from the various forms to the mandatory tax seminar. Don’t be afraid to get started with your freelancing business; you’re already on your way!
Ready to invoice your United States-based clients? Try Liquid today.
Updated: April 8, 2021
Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.