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Ways for Filipino Freelancers to Pay Taxes in the Philippines

Frequent Visitor
Farah Iman D Member Since: Jun 18, 2017

I think it would save you tons of time if you just opted for the OSD, John Paul. Smiley Happy

 

And Juvy, just wondering. How do you fill out your Balance Sheet in the 1701? Thanks in advance.

Community Guru
Juvy Ann P Member Since: Oct 29, 2015

@Farah Iman D wrote:

I think it would save you tons of time if you just opted for the OSD, John Paul. Smiley Happy

 

And Juvy, just wondering. How do you fill out your Balance Sheet in the 1701? Thanks in advance.


The balance sheet is made from income statement data (specifically the Net Income) which is, in turn, derived from the Cash Disbursement Ledger.  It is very significant in terms of assessing one's financial statment of business.

 

@John Paul: In case you decide to opt for the itemized deduction, operating expenses may include taxes, utilities (internet usage), SSS premium, Pag-IBIG premium, PHILHEALTH premium, office supplies, depreciation (usually at 15 months for personal computers, laptops and printers).

Community Guru
Juvy Ann P Member Since: Oct 29, 2015

Updates:

 

My tax journey has revealed interesting curves that manifest parallel patterns in terms of quarterly income tax filing. It looks like the taxable income of the previous quarter and this quarter have to yield the tax due that must be higher than the taxes I paid for in the previous quarter so there will be taxes left to pay for.

 

It looks like the security period must be considered before finalizing my NET income.  So if I am a freelancer who has a continuous supply of work and get to withdraw earnings on a regular basis, the earliest date for me to file my 2nd quarterly income tax return would have been yesterday, July 6, 2017.

 

Additionally, I would not have seen the "curve" if I did not experience meeting people who, for some reason, impelled me to re-think why on earth am I paying for taxes.  The thought that what I am paying for might be used to purchase items that will be used so my brothers will be able to kill each other is dismally frightening and discouraging.

 

Just recently, I noticed two incidents that triggered this need for introspection.  One time, I was at the mall and having a bowl of soup when five college students who seem to be at the undergraduate level have approached me one after the other and were asking me for a couple of minutes to spare with them.  The next day, a lady came to me while I was also about to feed my son.  She handed me her identification card and was soliciting for money to support her studies. Instinctively, I thought of the idea of not paying taxes so as to be able to support the scholarly needs of these students.  I horribly entertained the possibility that I could farm jobs out so these students will have a better future.  But then, for how long will I be able to support them?  Taxes made me finish my college education but my mother sponsored four scholars on her own.  I am not in a position, therefore, to judge "farmers" who are able to support indigent but smart freelancers or delegees in my country.

 

Today, as I was doing web research on a specific type of savings account, I learned that I can be classified as employed, self-employed or unemployed.  I tried to classify myself as self-employed and for an instant, one thought has been clearly distilled in my mental process.  I am self-employed because I am a taxpayer.  

 

I am a taxpayer because when hope has been extinguished in my country some time in 2015, there was "one marketplace for the world" who adopted me.

Community Guru
Juvy Ann P Member Since: Oct 29, 2015

Just a while ago, I checked my inbox and saw an email coming from my internet provider.  It looks like I have been favored to have received subsidies in the past two years that I was availing of my broadband plan.  This will be my first month since I finished my first plan and I read in my bill that I, a registered non-VAT payer can now be a VAT payer.  

 

It seems to me that freelancers who opt to have the planned arrangement with the internet provider can have Php 99.00 worth of tax deductions so that it (I'm referring to the broadband bill) becomes an exact amount every month. The internet provider shoulders the burden of those taxes.

 

The way I see it, Filipino freelancers may choose to upgrade to a new plan or pay for VAT as a non-VAT taxpayer.

 

How about the others?  Do you have similar experiences?

Community Guru
Juvy Ann P Member Since: Oct 29, 2015

Updates:

 

Currently, it's a bill that's on its way to become one of the laws of the land soon. I am referring to the Tax Reform Law.  If the tax reform (otherwise known as TRAIN – an acronym for Tax Reform for Acceleration and Inclusion) law will be fully implemented, self-employed freelancers who are earning below the VAT threshold (P1,919,500.00) but more than Php 250,000 will have to pay for 8% income tax annually and quarterly on gross sales -- meaning Upwork service fees, direct-to-local bank transaction fees and bank charges will be included in the computation. 

 

Currently the tax rate is at 5%-32% for the net taxable income which is the full amount that our bank receives less additional exemptions attributed to marital status (Php 50,000.00 if you’re married or head of the family) and dependents (Php 25,000.00 for one child at a maximum of 4 children only).  For self-employed individuals who have a tax due amounting to Php 2,000.00 and higher, there is an option to pay for taxes at authorized agent banks at two installments.

 

“The TRAIN… seeks to change the current tax system to make it simpler, fairer, and more efficient. Through TRAIN, every Filipino contributes in funding more infrastructure and social services to eradicate extreme poverty and reduce inequality. It corrects the complex and unjust tax system – reduces personal income tax, simplifies estate and donor’s taxes, expands the value-added tax base, and increases oil and automobile excise taxes.”

 

“The TRAIN will fund priority programs and projects in education, health, and social protection – seek 100% enrollment and completion rates, build 113,553 classrooms, hire 181,980 teachers, establish and upgrade 704 local hospitals, ensure 100% PhilHealth coverage with better services, hire 176,922 more health professionals, upgrade and/or relocate 263 rural and urban health units, build 15,988 new barangay health stations, and build 2,424 new rural and urban health centers”

 

“It will fund the countryside’s investment needs – concretize 14,187 kilometers of national roads and 30,209 kilometers of local gravel roads, provide road access to 7,834 isolated barangays and 23,293 sitios, and irrigate 1.3 million hectares of land."

 

Gucilatar, T.  (24 June 2017). How will the proposed tax reform package affect Filipinos? Retrieved August 27, 2017 from https://www.rappler.com.

 

Dela Cruz, R.T. (14 August 2017).  BIR Quezon City holds Benchmarking and Tax Reform roadshow, attracts capacity crowd of 1,984. Republic of the Philippines, Bureau of Internal Revenue.  Retrieved August 27, 2017, from https://www.bir.gov.ph/.

Frequent Visitor
Evelyn S Member Since: Jun 28, 2015

I have a question... last year 2016, my 1701 (Annual Income Tax Return), turned out to be negative, as in 0 amount tax payable, and -5,000+ overpayment.  In the 1701 form, one of the options there (if you have overpayment)  is: "to be carried over to the next period" - I want to use this option.. but I am confused as to how to deduct this on the next periods like in the next quarters of the year... Has anyone here tried to use the "to be carried over to the next period" option for overpayments in 1701 Annual Income Tax Return?

Frequent Visitor
Evelyn S Member Since: Jun 28, 2015

I have one more question... I am currently registered as "single proprietor" in BIR, NON-VAT... I am thinking of converting to VAT to avail of the zero-rated VAT sales of services (since we sell ervices to Others/non-residents)..  But what are the processes of converting from nonvat to vat? wht forms should i submit?  please any one who has knowledge on this?

Ace Contributor
Francisco F Member Since: Nov 13, 2010

You'll do a change of registration to VAT, just go to your BIR RDO and inquire for the latest requirements because rules/requirements change from time to time and not all RDOs have the same set of requirements. They may have their own way of interpreting laws and policies.

 

But before you consider changing to VAT, be sure you can comply with the requirements which may include documents sourced from foreign govenments and if it is really cost effective in meeting such requirements than remaining as non-VAT.

 

The zero-rated VAT is a form of tax-exemption and under present jurisprudence the burden of proof belongs to the taxpayer, not the BIR.

 

Frequent Visitor
Evelyn S Member Since: Jun 28, 2015

Register as a VAT business

  • - Report monthly zero-rated VAT earnings (BIR Form 2550 M). No payment but you have to attach documentation as proof of your claim.

MY Question: What documents should I attached as proof of my claim that my sale of services is zero-rated? Please someone enlighten me on this.

 

  • - Report quarterly zero-rated VAT earnings (BIR Form 2250 Q)

MY Question: What documents should I attached as proof of my claim that my sale of services is zero-rated? Please someone enlighten me on this.

 

 

 

Community Guru
Juvy Ann P Member Since: Oct 29, 2015

@Evelyn G wrote:

Register as a VAT business

  • - Report monthly zero-rated VAT earnings (BIR Form 2550 M). No payment but you have to attach documentation as proof of your claim.

MY Question: What documents should I attached as proof of my claim that my sale of services is zero-rated? Please someone enlighten me on this.

 

  • - Report quarterly zero-rated VAT earnings (BIR Form 2250 Q)

MY Question: What documents should I attached as proof of my claim that my sale of services is zero-rated? Please someone enlighten me on this.

 

I do not understand what you are trying to say, Evelyn.  As far as I know, gross sales based on receipts or invoices that exceed Php 1,000,000.00 may be subjected to VAT.  It is also possible for you to have wire transfer as your payment option but I have not ventured into this yet.  I am not sure if paying an amount of Php 0.00 as your taxes will not merit you to avail of certain loans that regular taxpayers enjoy.

 

Anyway, the third quarter payment is due this 15th day of November, 2017.  If the 3rd quarter sales is zero or lower than that of the second quarter, then there is a chance that your business will be considered as "closed".  So I am not sure if applying for zero-rated VAT makes sense at all.  On or before the 20th day of every month, monthly percentage tax returns must be filed online and paid via Authorized Agent Banks.

 

Aside from this payment mechanism, I discovered yesterday that my landline phone, the one that my internet provider gave me as a loyalty gift, may be used to pay for our taxes.  I accessed my STK medium first then I scrolled down to GCASH and I registered by citing the following:

 

REG<SPACE>4-DIGIT PIN OF YOUR CHOICE>/MOTHER'S MAIDEN NAME/FIRST NAME/LAST NAME/ADDRESS

 

I sent the text message to 2882.

 

To pay our BIR bills, we just have to either download the GCASH app or press*143# and choose the appropriate command.

 

It is necessary that our GCASH account has a cash load.  We can have our account loaded with cash by paying at "Bayad" centers.  This is best for days when queuing at the bank is almost impossible for us as these payment centers are numerous and can be found anywhere.

 

It is just overwhelming to know that my landline phone is now a bank.