Steps to Register as Professional with BIR

How to register with the Bureau of Internal Revenue (BIR) as a self-employed professional in the Philippines? A self-employed individual can be either a person who is engaged in business (sole proprietorship) or a person who practice his profession. In this article, we will tackle the registration of professionals with the BIR. Recently, I have received a lot of questions from freelancers regarding with their taxability. I have also encountered some Filipino online money earners (bloggers, web designers and other online service providers) on online forums, discussing about whether they should register with the BIR and pay their taxes or not. My other tax articles, especially the article about “how to compute income tax of self-employed persons” have also received comments from freelancers who want to register with the BIR and pay their taxes for the first time. To address those questions, let’s start our discussion.

Who are considered as professionals?

Professionals are those who practice their profession or calling, “with or without” license under a regulatory board or body. Professionals with license under a regulatory board include Certified Public Accountants (CPAs), practicing lawyers, doctors of medicines, dentists, architects, engineers and teachers. Bloggers, internet marketers, web designers, writers and other persons who provide specialized services can also be considered professionals, though they may not have professional licenses under a regulatory body. Professionals, for the purpose of this article, are self-employed individuals, and exclude those who are earning purely from compensation income (purely employees).

Should professionals register with the BIR?

Section 236 (j) of the Tax Code, states that any person, whether natural or juridical, required under the authority of the Internal Revenue Code to make, render or file a return, statement or other documents, shall be supplied with or assigned a Taxpayer Identification Number (TIN) to be indicated in the return, statement or document to be filed with the Bureau of Internal Revenue, for his proper identification for tax purposes. Thus, professionals who are required to file tax returns, like income tax return, should register and obtain a TIN with the BIR. Remember that you cannot file your income tax return without a TIN – the TIN must be indicated in the tax return.

Who are not required to file income tax return?

Let’s take a look on the following list of individuals who are not required to file income tax return, and let’s see if professionals and freelancers are also required to file income tax return.

Individuals who are not required to file income tax return.

(1) An individual who is a minimum wage earner (visit this DOLE page to see the current regional daily minimum wage rates).
(2) An individual whose gross income does not exceed his total personal and additional exemptions
(3). An individual whose compensation income derived from one employer does not exceed P 60,000 and the income tax on which has been correctly withheld
(4). An individual whose income has been subjected to final withholding tax (alien employee as well as Filipino employee occupying the same position as that of the alien employee of regional headquarters and regional operating headquarters of multinational companies, petroleum service contractors and sub-contractors and offshore-banking units, non-resident aliens not engaged in trade or business)
(5). Those who are qualified under “substituted filing”. However, substituted filing applies only if all of the following requirements are present:

a) the employee received purely compensation income (regardless of amount) during the taxable year
b) the employee received the income from only one employer in the Philippines during the taxable year
c) the amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer
d) the employee’s spouse also complies with all 3 conditions stated above
e) the employer files the annual information return (BIR Form No. 1604-CF)
f) the employer issues BIR Form No. 2316 (Oct 2002 ENCS version ) to each employee.

Take note that Items 3 and 5 pertains to employees, and item 4 also usually pertain to employees (though an individual whose total income is only derived from interest on bank deposits, which is subjected to final withholding tax, can be included in this item). Number 1 may also refer to employees, since the term “wage” according to the Labor Code is defined as all remuneration or earnings paid by an employer to a worker for his services rendered. Thus, we can tell that self-employed individuals, such as professionals, may not only be required to file income tax return if they are qualified under the condition in number 2, i.e., if his or her gross income does not exceed his total personal and additional exemptions. For example, if you are a single person whose gross income only amounts to Php 50,000 during the taxable year, you are not required to file income tax return because your gross income for the year doesn’t exceed your personal exemption of P 50,000 (for single taxpayers). Gross income means the difference of your total Sales/Receipts/Revenues/Fees minus your total Cost of Sales/Services. So if you averages monthly gross income of P 4,500 (P 54,000 a year), and you’re single with no dependents, you’ve got to file you income tax (BIR form 1701/ 1701Q).

What are the benefits and advantages of professionals who register with the BIR?

If you are a professional, who’s required to register as a self-employed individual, but still not registered with the BIR and not filing income tax returns, the following are the things you must consider.

1. Your annual income tax return (BIR form 1701) will serve as you proof of earnings, which you can use for obtaining loans with different institutions, such as banks, credit cooperatives, lending companies, SSS and PAG-IBIG. You can also use it to apply for credit cards.
2. By being registered with the BIR and having official receipts (OR) under your name, your clients will have more confidence of getting your services.
3. You can save money in the future by paying your taxes on time and avoiding penalties, such as interests, surcharges and compromise.
4. You will not be charged with tax evasion, which is punishable by the law.
5. and other ethical and moral benefits, such as having a clear conscience and having good night sleeps.

How to change from being a pure employee to a self-employed individual?

If you are previously employed and have recently decided to escape from employment and become your own boss, you may be asking how to change your status as a pure employee to a self-employed taxpayer? Usually, employees have already their TIN numbers. Thus, their existing TIN will remain as their tax identification numbers for tax purposes (you can only have one TIN in your entire life). Individuals who are both practicing their profession and at the same time employed with a company/employer (those who receive mixed income from practice of profession and compensation income) are also considered self-employed taxpayers for registration and tax purposes. Please read below the procedures and requirements for registration of professionals.

Steps and requirements for registering with the BIR

Tax Forms you will use (click on the form to download)

BIR Form 1901- Application for Registration for Mixed Income Individuals, Estates and Trusts
BIR Form 0605 – Annual registration fee
BIR Form No. 1906 – Authority to Print for applying Invoices/Receipts

You also need to provide books of accounts (simplified books of accounts or journals and ledgers) for registration with the BIR.

Documentary Requirements

1. Birth Certificate or any documents showing name, address, and birth date;
2. Mayor’s Permit, if applicable;
3. DTI Certificate of Business Name to be submitted prior to issuance of the Certificate of Registration or BIR Form No. 2303, if applicable (if you choose to not register a trade name and only choose to use your name as the registered name, you don’t need to submit DTI certificate;
4. Professional Regulation Commission ID, if applicable; and
5. Payment of Professional Tax Receipt (PTR) from the local government, if applicable

Steps / Procedures
1.) Accomplish BIR Form 1901 and submit the same, together with the required attachments, to the Revenue District Office having jurisdiction over the registered address of the business establishment. If you already have a TIN, then supply your TIN on the form. Your application as a self-employed person will be faster if you already have an existing TIN.

Note: The Professional may electronically secure TIN through e-TIN at the BIR Website at http://www.bir.gov.ph or the BIR Portal at http://www.my.bir.gov.ph

2.) Pay the registration fee of P500.00 using BIR Form 0605 (Payment Form) to any Authorized Agent Bank (AAB) located within the RDO

3.) Pay P 15.00 for the Certification Fee and P15.00 for the Documentary Stamp Tax (in loose form to be attached to Form 2303).

4.) Attend the required taxpayer’s briefing at the RDO before the release of the BIR Certificate of Registration (COR) or BIR Form No. 2303, which reflects the returns that must be filed and the taxes to be paid. The BIR will also provide you An “Ask for a Receipt” Notice (ARN), which must be posted conspicuously in your office or business establishment, together with your COR (BIR form 2303), Application for registration (BIR form 1901 for self-employed) and current registration payment form (BIR form 0605).

5.) Apply for Invoices/Receipts using BIR Form No. 1906 – Authority to Print. Usually, the BIR accredited printing press who will print your receipts can assist you on the registration of your official receipts or invoices. Your receipts or invoices should be serially numbered. It also indicates your name, business style (profession), TIN and your registered business /office address.

Receipts or invoices shall be issued by the Professional for every payment received. The original of each receipt or invoice shall be issued to the client at the time the transaction is effected and the duplicate shall be preserved in the place of business for a period of 3 years from the close of the taxable year.

6.) Register books of accounts (Journal / Ledger / Subsidiary Professional Income Book and Subsidiary Purchases/Expenses Book) and have them stamped by the RDO where the Professional is registered. Professionals are required to maintain books of accounts using any acceptable method of accounting (accrual or cash basis) in a consistent manner. The same shall be preserved within the prescriptive period (3 years from the close of taxable year) for post audit examination.

For professionals whose quarterly revenues exceed one hundred fifty thousand pesos (P150,000.00), they shall have their books of accounts audited and examined by an independent Certified Public Accountant (CPA) in order to give an independent opinion regarding its financial condition. In addition, their annual returns shall be accompanied with certified balance sheets, profit and loss statements and other relevant documents.

Credit: businesstips.ph

 

Steps to Register Your Business with BIR

How to register your business with the Bureau of Internal Revenue (BIR) in the Philippines? After securing a certificate of registration from the Department of Trade Industry (DTI) for single proprietorship, Securities and Exchange Commission (SEC) for partnership and corporation, and after obtaining a Mayor’s Business permit with the Local Government Unit (LGU), your next step to operate as a duly registered business is to secure a certificate of registration from the BIR.

Registering your business with the BIR will give you the authority to print your official receipts and other invoices, provide you or your corporation a Tax Identification Number (TIN) and register the books you will use to record your business transactions. Furthermore, your BIR certificate of registration will state the types of taxes you will pay, such as business taxes, withholding taxes and income tax. The following are the requirements and steps to register your business or company with the BIR.

For single proprietorship

1. Accomplish BIR Form 1901 and submit the same, together with the required attachments, to the Revenue District Office having jurisdiction over the registered address of the business establishment. The following are the forms and requirements to be attached with your application:

a. BIR Form 1901 – Application for Registration
b. Birth certificate or any valid identification showing name, address and birth date
c. Mayor’s permit or application for Mayor’s Permit
d. Department of Trade and Industry (DTI) Certificate of Registration of Business Name (to be submitted prior to the issuance of the BIR Certificate of Registration (COR)

2. Pay the Annual Registration Fee (P 500.00) at the Authorized Agent Banks of the RDO.

3. Pay P 15.00 for the Certification Fee and P15.00 for the Documentary Stamp Tax (in loose form to be attached to Form 2303).

4. The RDO shall issue the Certificate of Registration (Form 2303).

For partnerships and corporations

1. Accomplish BIR Form 1903 and submit the same together with the required attachments to the Revenue District Office having jurisdiction over the registered address of the business establishment. The following are the forms and documentary requirements to be attached with your application:

a. BIR Form 1903 – Application for Registration for Corporations/Partnerships (Taxable/Non Taxable)
b. SEC “Certificate of Registration (Certificate of Incorporation/Certificate of Co-Partnership) or     “License To Do Business in the Philippines” in case of resident foreign corporation
c. Mayor’s Permit or application for Mayor’s Permit – to be submitted prior to the issuance of the BIR   Certificate of Registration

2. Pay the Annual Registration Fee (P 500.00) at the Authorized Agent Banks of the RDO.

3. Pay P 15.00 for the Certification Fee and P 15.00 for the Documentary Stamp Tax (in loose form to be attached to Form 2303).

4. The RDO shall issue the Certificate of Registration (Form 2303).

5. Taxpayer must pay the Documentary Stamp Tax on the Articles of Incorporation as prescribed under Section 175 of the NIRC, on the 5th of the month following the date of issuance of said article (per RR 4-2000).

Further steps following the registration

1.  Apply for Invoices/Receipts using BIR Form No. 1906 – Authority to Print. The BIR will give you an “Ask for a Receipt” Notice (ARN) together with the COR BIR form 2303, and it must be posted conspicuously in your business establishment.

2. Register books of accounts (Journal / Ledger / Subsidiary Income Book and Subsidiary Purchases/Expenses Book) and have them stamped by the RDO where the business is registered. The BIR examiner will usually advise you the types of books and taxes applicable to your business upon briefing.

3. Update registration information, if needed, using BIR Form No. 1905 (change of registered address, personal exemptions, additional tax types, etc.) Submit this at the RDO having jurisdiction over the place of business

Notes: Thank you Mam Rinna, Mam Soc and Mam Chi for assisting me all throughout my application process. (RDO 25B located in Sta. Maria Bulacan)

Credit: businesstips.ph

V.A.T. Vs. Non-V.A.T.

Value Added Tax (VAT) and Percentage Tax are both business taxes collected from the sale of goods and services. The similarity ends there because these taxes are different in nature. Business owners, especially the new ones, need to know which one applies to their business to avoid future disputes with the Bureau of Internal Revenue (BIR).

Value Added Tax (VAT)

Value Added Tax (VAT) is a form of sales tax. As such, it is based on gross receipts from sale, barter, exchange, or lease of goods or properties and services within the Philippines. It is also imposed on goods imported into the country. VAT is an indirect tax which means the end consumer is being charged for the tax. In the Philippines, the rate of VAT is at 12% except for export sales and other zero-rated sales which is at 0%.

Who needs to register as a VAT taxpayer?

  1. Any person or entity engaged in the business of selling goods or services that are subject to VAT and whose annual gross sales or receipts exceed or are expected to exceed One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (Php1,919,500.00).
  2. Any person or entity that is not VAT exempt but failed to register.
  3. Any person or entity engaged in importation of goods.

How to register as a VAT taxpayer?

  1. Use BIR Form 0605 and pay the registration fee of Php500.00.
  2. Register books of accounts like ledgers and columnar books.
  3. Secure Authority to Print then register invoice and official receipt booklets.

What are your responsibilities as a VAT taxpayer?

  1. Display Certificate of Registration at the place of business.
  2. Issue invoices and/or official receipts. A sales invoice is issued for every sale, barter, or exchange of goods or property. An official receipt is issued for lease of property and sale, barter or exchange of services.
  3. Keep your books. Make sure that your books are updated and always ready in case an audit is made.
  4. File monthly. Use BIR Form 2550M. If there is payment, go to an Authorized Agent Bank (AAB) in the Revenue District Office where registered. If there is no payment, submit to the RDO where registered, with required attachments. Deadline is not later than the 20th day of the next month.
  5. File quarterly. Use BIR Form 2550Q. If there is payment, go to an AAB in the RDO where registered. If there is no payment, submit to the RDO where registered, with required attachments. Deadline is every 25th day of the following month from the last day of covered quarter.
  6. Pay annual registration fee equivalent to Php500.00 not later than January 31.

Percentage Tax (Non-VAT)

For small businesses with gross annual sales and receipts that do not exceed Php750,000.00, and are not VAT-registered, percentage tax is imposed for sold or leased goods, properties or services. The tax rate varies depending on the nature of business. The usual rate is 3% but it could go as high as 30%, for gross receipts of Jai-Alai and racetrack operators for instance.

Who are required to file percentage tax?

  1. Any person exempted from VAT under Sec. 109z of the Tax Code.
  2. Domestic carriers and keepers of garages.
  3. International air and shipping carriers based in the country.
  4. Franchise grantees of utilities.
  5. Franchise grantees in broadcasting business the annual gross receipts of which do not exceed Php10M and opted not to register as VAT taxpayers.
  6. Operators of communications equipment sending dispatch, messages, or conversations overseas.
  7. Life insurance premiums and agents of foreign insurance companies.
  8. Proprietor, lessee, or operator of betting businesses such as cockpits, race tracks, cabarets, etc.
  9. Stock brokers trading through Local Stock Exchange other than sake of dealer in securities, as well as corporate issuers or stock brokers of domestic or foreign markets.

When to file percentage tax returns?

  1. Monthly. Use BIR Form 2551M. If there is payment, go to an Authorized Agent Bank (AAB) in the Revenue District Office where registered. If there is no payment, submit to the RDO where registered, with required attachments. Deadline is not later than the 20th day of the next month.
  2. Quarterly. Use BIR Form 2551Q. If there is payment, go to an AAB in the RDO where you are registered. If there is no payment, submit to the RDO where registered, with required attachments. Deadline is every 20th day of the following month from the last day of covered quarter.

Note that for both tax types, even if there are no payments to be made, it is important that you file your returns to the RDO that covers your business location. Failure to do so may mean penalties and you must pay even if there are no tax dues.

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BIR Taxation and Receipts 101

I recently attended a seminar for business tax payers. It was conducted in Sta. Maria, Bulacan (my RDO) since my business address is within its jurisdiction. That was after I transferred my RDO address from East Pasig as an employee (from previous employer) to Sta. Maria as an entrepreneur. Ms. Soc (a BIR Officer) was very detailed of the information which I need to know as an entrepreneur. I should have taken some pics during the briefing. I was so busy taking down notes like a kid’s first day in school. I listened carefully but still mixed up some details in mind. I am confident I was able to jot down the important things to remember.

Before we proceed, let us define first taxation.

Taxation is the act of levying the tax, i.e., the process or means by which the sovereign, through its law-making body, raises income to defray the necessary expenses of the government. It is merely a way of apportioning the cost if the government among those who in some measures are privileged to enjoy its benefits and, therefore, must bear its burdens. (71 Am Jur. 2nd 342; 1 Cooley 72-73). (Credit: philtaxation.blogspot.com)

Tax law in the Philippines covers national and local taxes. National taxes refer to national internal revenue taxes imposed and collected by the national government through the Bureau of Internal Revenue (BIR) and local taxes refer to those imposed and collected by the local government. The Tax Code of 1997, Revenue Issuances and BIR Rulings pertaining to national taxes are posted at the BIR website. (Credit: bir.gov.ph)

I learned that when you have a business entity rendering services such as ours; printing, also transportation (ex. Grab Taxi),  and others you need to issue an Official Receipt. While if you are engage in trading such as selling shirts and other stuff, you need to issue a Sales Invoice. Those 2 receipts should have the taxpayer’s info such as Trade name, Tax Identification Number (TIN), Name of Proprietor, Business Address, Contact number, Printer’s info at the bottom and of course the amount of transaction involved. So, when you hear someone needs an O.R. or Official Receipt, that person is pertaining to a receipt with TIN issued by the business establishment/proprietor. It could be a Sales Invoice or the Official receipt. Again, depends if the nature of business is service or trade. Another one is Collection receipt, issued when full payment of items are given after the down payment as agreed upon the seller and the buyer . Got it?

As a business owner, you and your business will start to pay taxes in the Philippines according to law. There are VAT (12% of the gross income) and Non-VAT, Percentage tax (3% of the gross income), Withholding tax, Income tax (Gross less the disbursement) and others. The business owners shall pay their taxes on a monthly, quarterly and annual basis; depends which they are classified. There are also digferent deadline dates each month, quarter and the annual deadline every 15th of April.

There are BIR forms for every tax type which the business owners shall pay. It can be found here.

I have a lot to learn in taxation. I will share with you every step of the way. I actually need help to illuminate me on some matters. Anyone?

“Pay your taxes on time to avoid penalties” 😊

How to Transfer RDO Address of BIR

I just want to share my knowledge when you need to change your RDO address.

Let’s go to the basics. RDO means Revenue District Office. Every TIN (Tax Identification Number) is registered to one RDO. For the list of Philippine RDO, click here. An employee’s RDO should be the same to that of his employer’s RDO for tax payment and reporting purposes.

So, if you are moving from one company to another, your new employer would ask you to change your TIN’s RDO from your previous employer’s RDO to the new employer’s RDO. To do this, you would need to fill-in BIR form 1905 and submit to your RDO. It’s good to note that  this form has many purposes other than change in RDO address.

Reminder: If not sure where your TIN is registered to, then verify (at any BIR office). This is important because this determines which RDO you need to submit the BIR 1905 for transfer. You cannot submit this form to just any RDO/BIR branch because they would not accommodate you. It has to be your TIN’s RDO.

Here’s an example. My TIN is registered to RDO 43A (East Pasig) because that is where my previous employer was filing my taxes. Then, if I just got hired to a company whose TIN is registered to RDO 040 (Cubao). Then this means that I need to request for a transfer of record.

I would then visit the RDO 43A branch which is located in 2nd and 3rd Floor Rudgen Building, Shaw Blvd. Brgy. San Antonio, Pasig City beside the office of SSS and infront of Pag-Ibig Fund. Then, I would fill-in two copies of BIR form 1905 and submit to the BIR personnel. Both stamped and signed will be returned to me which 1 form would have to be submitted to the new employer. The transfer of my record to RDO 040 would take effect within five days.

Here’s what needs to be filled-in on the form:

Front page, Top:BIR 1905 top

Front page, Bottom:

BIR 1905 bottom

Then do not forget to sign at the back page, at item number 5.

For inquiries, you may contact the details below:

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