I discovered that the only way to alleviate the burden of bank tellers of Authorized Agent Banks of the Bureau of Internal Revenue as regards processing tax payments is to file tax returns online.
For the past two months that I have been doing this, I noticed that my payment transactions became faster as there are only two sets of tax return copies that will have to be stamped "RECEIVED" by the bank teller. This is in contrast to my past experience prior to using the offline software which I can use at home.
Lately, I have been frequenting an internet hub outside my "home office" and my weekly ritual of updating my books of accounts triggered me to realize that spending for operating expenses such as internet usage seems to be a double-edged sword just like autophagy.
On one hand, I get to have more items for the DEDUCTIONS category but my encounter with the CPA has afforded me some business insights that leads to the OTHER hand. It looks like the more I spend for what will be categorized as DEDUCTIONS, the less NET EQUITY I will have. I think the latter is significant when it comes to building a financial reputation in relation to loans for instance.
As for the next BUSINESS deadlines, I will have to remind myself of the following important dates:
Every 20th day of the month:
Deadline for the filing of the Monthly Percentage Tax Return
January 31, 2017:
Deadline for the renewal of the annual registration
February 28, 2017 (0r 30 days after the renewal of registration):
Deadline for the updating of the Books of Accounts
Deadline for the submission of the Authority to Print Receipts (ATP)
April 15, 2017:
Deadline for the filing of the Annual ITR
The fiscal year 2016 has officially ended, at least for me. After submission of nine monthly percentage tax returns (the one for December has been prepared already and will have to be to be paid for before January 20, 2017) and three quarterly income tax returns, I found myself asking how much taxes I need to pay for the entire year.
To prepare my 2nd annual ITR (as far as my freelancing business is concerned), I had to download the CSV file of the Earnings by Client page first. Then I verified the information in the matrix by going to the Lifetime Billings by Client page. I found out that there were details that were seemingly unaccounted for. I found the calendar very much useful as it was easy to navigate across different time periods within the year. After a relatively short period of time, I was able to balance what was in my Cash Receipt Ledger and what was in the revised Earnings by Client report.
It was when I tinkered with my version of the BIR offline software that I got to figure out that my Total Taxable Income is the difference between my taxable income and my excess deductions consisting of my personal and additional exemptions (a husband costs Php 50,000.00 and a toddler is worth Php 25,000.00) and PhilHealth and SSS premiums amounting to Php 2400.00 only as it is the allowed amount stated in BIR Form 1701 Item 44. It is true – paying for pension plans and life insurance can also be a good practice because passive income in these forms are tax-exempt.
Apparently, the Taxable Income is the Optional Standardized Deduction (OSD) which is equivalent to 40% of my Net Taxable Income or my net earnings as reflected in the invoices that I issued to my clients throughout the year (except during the early part of the first quarter when I was not a BIR-registered Self-Employed individual yet) subtracted from my Net Taxable Income.
It looked like my Net Taxable Income is the difference between my Gross Earnings from Invoices and deductions consisting of Upwork Service Fees, Local Funds Transfer and Foreign Exchange Rate Risk – all expressed in my local currency.
But when I inspected my Financial Statement of Business which has, recently, been audited by a Certified Public Accountant, I found out that this is not the case. I surmised that because the Certificate of Earnings Reports was my basis for computing my Net Taxable Income last year, I failed to include such factors as Property and Equipment, Upwork Service Fees, Local Funds Transfer and FOREX rate risk among others.
So I decided to create a new Balance Sheet and Income Statement for 2016 based on what information I could decipher from those documents which were prepared by the two accountants. It was like I had a crash course in Basic Accounting for only Php 5,500.00. I hope that I am not a big disappointment to my “mentors”.
To my gross earnings from January 1 to December 31, 2016 (which is, by the way, considered as Cash on Hand), I added my total assets derived from the amount of the printer that I purchased this year less its depreciation cost (which is roughly the net amount of the equipment divided by 15 – probably it’s the span of time that the printer will likely survive the wear and tear processes) in order to get the value for my Net Taxable Income for 2016. Then I added my beginning capital which was my Net Taxable Income for 2015 to this value to get my Total Net Worth.
The problem with the Net Taxable Income was that it could not be rounded off to the nearest tens using the software. The good news was that the Net Taxable Income could be reduced using the combined powers of both Optional Standardized Deduction (OSD) and Excess Deductions.
After finishing my Balance Sheet, I decided to accomplish my Income Statement which basically comprised of two main components – Sales and Operating Expenses. I decided to work on this sheet like how I would solve a jigsaw puzzle since it appeared that Sales is actually the sum of my Net Taxable Income (derived from my Balance Sheet) and my Operating Expenses that include such categories as taxes (quarterly income and monthly percentage taxes), utilities (internet usage and PC rent whenever I would choose to “work without limits”), Social Security System (SSS) premiums, Pag-IBIG premiums, PhilHealth Premiums, Office Supplies (bond paper, printer ink), and Depreciation (which I previously thought of as the equivalent of the FOREX rate risk).
It was easy to prepare my Income Statement because I have my Cash Disbursement Book where I record all business-related expenses that have been incurred within the year.
At this juncture, I want to express my gratitude to Upwork’s engineering and finance teams for their outstanding work in the consistent release of my accurate business transaction information via email and through my well-maintained business records in my Upwork account. It has been easy for me to print the invoices for my service fees and local funds transfer.
As for the Foreign Exchange (FOREX) rate risk, what I did was to construct a data matrix that enabled me to reconcile the seemingly discrepant gross earnings as reflected in my invoices and in the transaction report. I had to make sure that the invoice dates and gross income per week in US$ were similar before deciding to extract the FOREX rate risk. The FOREX rate risk is classified as a LOSS in the computation of the Income Tax Returns.
When everything was computed, I found some figures relating to the amount I must pay for my ITR. However, since I made tax payments (less penalties and surcharges) this year, I might be paying for my new set of invoices instead. That will approximately be 10-20 booklets depending on the charisma of the auctioneer. Right now, I have three marketers who want my Authority to Print Receipts.
However, when I re-read the guidelines for BIR Form 1701 via the BIR website, I learned that Schedule 9 is only for those who claimed foreign tax credits or have made other tax payments. I am not sure if I qualify for this category since most of the items in this category talk about four quarters and “creditable tax withheld”. My Certificate of Registration does not indicate that I have a fourth quarter for paying taxes. But for Schedule 10 which focuses on the CPA-audited Financial Statement of Business, I can show necessary proofs.
So, yes, I have had earnings in the previous year and I have taxes to pay for. To all my clients who love me very much, Mabuhay!
I am planning to start filing tax as a Freelancer this year. I already have a TIN. I have read in various articles online about requirements needed (Cedula, certificate of residency) in order to get a COR. My questions are:
1. Which RDO should I go to? Should it be the RDO where my TIN is registered at or the RDO that has a jurisdiction of where I currently live?
I file my tax documents at the RDO where I registered as a business individual. An RDO can encompass a large area like in my case, RDO 045 covers Marikina City, San Mateo Rizal and probably nearby areas in the Rizal province. I have been a resident of Marikina City since 2005 so to answer your question, it would probably be best that you register your business where you live.
Currently, I have been going through some steps in regards to the renewal of my registration. Here are the details:
The deadline for the renewal of registration is set on January 31, 2017. I found out that the BIR Form 0605 (except Forms 1901, 1905 and 1906) can be accessed using the offline BIR software. The ATC code for the registration fee is FP190 and the tax type is hailed as RF. I discovered that for businesses that are active from January of the current year, the business year is considered as Calendar and not Fiscal. Fiscal year, I learned, is best suited normally for schools which open in June and closes every March or April.
The registration fee is still Php 500.00 and payment is done via the Authorized Agent Bank. Only two copies of the software-generated document is necessary. It is important that both documents are completely filled out including the date which signals the deadline for filing the form.
After paying for my registration fee, I prepared the following documents:
- Original Copy and two (2) Photocopies of the Certificate of Registration
- BIR Form 1905
- Inventory List of Unused Invoices or Receipts
- Unused Invoices and Receipts for Re-stamping
- Photocopies of the first pages of the previously approved Books of Accounts (Cash Receipt and Cash Disbursement Books)
- Previously-approved Books of Accounts
- New set of Books of Accounts
- Photocopy of the machine-validated receipt of the registration fee payment
- Photocopy of BIR Form 0605
- Photocopy of the Tax Return Receipt Confirmation
- BIR Form 1906
- Original Copy of the sample layout/template of the Official Receipt
- Photocopy of the last series of the printed Official Receipt
- BIR Form No. 1921 of last year
Upon submission of the documents to the receiving section Revenue Officer, I accomplished the checklist of documentary requirements (QF-14-2013.01). The paper had to be initialed as proof that documents have been received by the proper authority.
The inventory of unused receipts and invoices contains such information as the name of the taxpayer, trade name of the tax payer, Taxpayer Identification Number, business address. Information that may be derived from the old ATP) may include the ATP OCN, date of issue, description of receipts (Official Receipt), type (non-VAT), number of bound booklets that are left, number of sets per booklet, number of copies per set, serial numbers of the unused invoices.
BIR Form 1906 calls for this set of information as well. Other details include invoice printer’s TIN, date of accreditation, and printer’s business address.
However, when I got interviewed by the Revenue Officer, I was astonished to discover that the process is not as easy as it may seem. Apparently, I do not need to order for a new set of booklets since my remaining invoices are to expire in 2021.
I am now faced with a dilemma. Is it a good option to consume the remaining invoices given the fact that they are still valid? Shall I submit a new ATP due to the fact that I have changed my address?
And then, it hit me. Why is it that until now, I do not have a permanent address yet? I suddenly felt like I’m an alien even in my own country.
Despite feeling this way, however, I noticed that I was alert while going through the process. This was how I felt when I was a new teacher. Everything has not been just mere green to me since I started becoming a self-employed individual. I can see yellow, blue-green, yellow-green, aqua blue, powder blue, ocean blue, and so on so forth. And for the sake of self-reflection, isn’t this better than being glued to the TV set all day or stay on the streets and munch on people’s lives? These days, I cannot spell the word television correctly. I think that cable TV is just a waste of money (although I find it amazing that TV ads keep on popping on Skype whenever I type certain keywords that sometimes are in my own dialect).
So there it is. Taxes and houses seem to be highly correlated with each other. When will my tax details be anchored on a permanent address?
I got some good news today. First, I learned that all of my records have been updated and that I don't have open cases. Second, I was able to transact business with BIR with no delay and with more time to focus on cutting my toddler's fingernails.
I returned to the Revenue Officer and presented my unused invoices to him. I noticed that he placed two slanting lines across each page - that was quite admirable. My old set of invoices have not been revoked. These will remain in my keeping for filing purposes.
I was able to request for the printing of 10 booklets of invoices for Php 1,200.00 only. These invoices will assume the next batch of serial numbers since the same printer will receive my Authority to Print (ATP) receipts (or invoices, for that matter). The printing, however, might take some time - 10 days at the most.
I was also able to update my books of accounts. I learned that my previously-approved books will remain in my keeping for future auditing. The new set of books have been labeled as VOLUME 2. It specifically means that all of my financial records must be in the second episode of my 2016 entries save for all transactions that have been done between January 1 and 11, 2017. Hence, January 1 to 11 entries for both cash receipts and disbursements will have to be in the old books.
I noted that BIR Form 1905 was necessary in both COR and ATP transactions so I had to prepare 4 copies of the document. The use of the Certificate of Earnings Report was, on the other hand, of no urgent significance at this phase of the registration.
I have observed, likewise, that the filing of the application for both COR (with changed address) and the submission of requirements for the release of ATP could be done simultaneously so that it was not necessary to waste so much time.
As I was leaving the BIR Office a while ago, I had the chance to glance at my new COR (yes, I had it within 5 hours only) and I noted that Filipino freelancers have "other business activities" as stipulated in the document (and the industry code is 7499). This may, presumably, have reference to how novel freelancing is as a business field in the country.
With everything that has been done so far, I think I am ready to transact business this year.
2017, here I come.
Hello Ms. Juvy,
Thank you so much for the informative posts on BIR.
If I may take a bit of your time. I'm currently having a dillema with my BIR transactions and really afraid of the fines.
I would like to fix my status though so as to have a smooth sailing BIR experience the next time.
I have been submitting my taxes every month.
However, it was just recently that I learned everything (from the monthly, quarterly, yearly registration)
and I'm quite horrified that I wasn't doing my taxes right.
If you don't mind me asking.
How did you go about your penalties?
Did they ask you to pay one time?
Every return that is not paid on time has a penalty (otherwise known as compromise) of Php 1,000.00 and the surcharge is 25% of the tax due and a 20% per annnum interest which is calculated from the month prescribed for the payment until the amount has been fully paid. The tax due is computed by the software. Manually, you can find the info in the tax table printed on one of the ITR pages. If you have been paying your monthly percentage taxes on time, then you will be penalized only for your quarterly ITR since the deadline for the filing of the annual ITR is set on the 15th day of April, 2017. The basic premise to my response would be that you are a self-employed individual and that your COR indicated that your tax types include income tax (quarterly and annual) and monthly percentage tax.
I apologize for my late reply. Based on my experience, the Income Tax is paid four times in a year. The Quarterly IT is associated with the first three quarters while the annual IT is paid once a year (as the term connotes).
All income taxes are anchored on what is indicated in the Invoices/Official Receipts.
Today, I received 10 booklets of Official Receipts (OR) that I will be issuing to my clients. This is the first time that I received the actual and fully accomplished BIR Form 1921 (Authority to Print) as well as its attachments which include the Printer's Certificate of Delivery of Receipts And/Or Invoices and a copy of the Taxpayer-User's Sworn Statement. Last year, I had an ATP in every OR booklet.
Essentially, these documents attribute power to the printer (referring to a person and not to the machine which I use when I scan documents) to produce my invoices, indicate the validity date of receipts, certify that said printer cannot reproduce extra copies of the receipts/invoices in compliance with BIR Regulation No. 26-2003. Furthermore, said documents signify that I, a taxpayer and a proprietor, can now begin to issue invoices to my clients and that I cannot issue receipts with serial numbers that do not fall within the bracket specified in the ATP.
I find it amusing that I was able to write these notes at the back of an Official Receipt. Moreover, I find it fascinating that even the rationale of having serial numbers in receipts/invoices is well-articulated in the National Revenue Code of 1997. I am specifically referring to Sections 113, 237 & 238 of the revenue code where Section 113 has been intended originally for VAT taxpayers only.
Why will I be issuing receipts? Am I not inclined to render services to my clients? I heard from a taxation seminar speaker before that receipts are for goods while invoices are for services. But based on the data that I extracted by reading a financial book authored by Mr. Colayco, a famed financial guru in the Philippines, goods are actually those which are intended for the full satisfaction of customers or clients.
So, if my clients will not be happy with my deliverables, does it mean that these Official Receipts cease to have any economic significance at all?