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.
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.
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.