Self-employed are working individuals who do not have regular employers as such they specifically earn through their own efforts and expertise.
Let us first define who are under the category of self-employed.
- A Sole Proprietor is simply as a business-owner who utilizes their resources as capital for profit. It is sufficient that they are knowledgeable with any kind of business they are interested in.
- Freelancers or Independent Service Contractors are people with acquired, enhanced and special skills. They render their time, skills and expertise for a fee. Examples are IT/Programmers, sales agents, bookkeepers, masseurs etc., these service providers usually work on their own.
- Professionals may be similar to freelancers, the big difference is that prior to practicing their profession publicly they should have passed a board examination administered by Professional Regulation Commission; after passing the board exam they are called Professional with PRC identification card and certificate.
All persons who work on their own, and not limited to the above as discussed, and includes others who earn by rendering a special kind of job or services are considered self-employed.
Generated income from business, jobs and services rendered are taxable, as such self-employed individuals must secure registration and licenses to operate.
SOLE PROPRIETOR’s undergoes business name registration with the Department of Trade and Industry, DTI. Must secure a business permit to operate from the Local Government Unit - LGU, and must register with the Bureau of Internal Revenue-BIR. Compliance to those requirements make Sole Proprietor as a business entity.
FREELANCERS AND OTHER SERVICES PROVIDERS must secure Occupational Tax Receipts (OTR) from the Local Government Unit - LGU for them to be able to register with the BIR.
Why is it important that a Freelancer and other services provider be registered with the BIR?
Freelancers, like any other business, must be registered with the Bureau of Internal Revenue (BIR). It is stated in Section 74 in the Philippine Tax Code that if an individual is receiving income from sources within or outside the Philippines, they are required to pay taxes.
PROFESSIONALS must secure Professional Tax Receipt (PTR) and must also register with the BIR with the same reason as freelancers.
It is important to note that freelancers must have an OTR; and a professional have PTR.
Now that you are able to identify yourself as to what type of self-employed you are, then you may go to the BIR and register. Take note that once you register with the BIR you must religiously comply with all the tax types indicated in BIR Certificate of Registration BIR form 2303 because non-compliance requires no explanation but penalty and sanctions may be imposed without recourse.
Below are the usual compliance for self-employed;
SOLE PROPRIETOR
- Annual BIR registration renewal – 0605
- Quarterly Percentage Tax BIR form 2551Q for Non-Vat or;
- 2550Q for VAT registered
- Quarterly Income Tax Returns
- Withholding Tax on compensation 1601C if with employees
- Expanded Withholding Tax 0619E for monthly and 1601EQ for quarterly payment
- Invoice and or Official Receipts with approved Authority to print
- Books of accounts
- Annual Inventory
- Annual Alphalist of payee withholding for both Compensation and EWT
- Income Tax Return with Audited Financial Statement if Sales exceeded the Three Million Threshold.
FREELANCERS and PROFESSIONALS
- Annual Registration
- Official Receipt
- Books of Account
- Quarterly ITR
- Annual ITR
Detailed discussion about actual tax computations and examples will be discussed in a separate blog.
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