Tax Compliance for Sole Proprietor, Freelancer and Professional

We, as citizens of the Philippines, have a duty to pay taxes for the income we earn. For employees, these are deducted by their employers directly from their salary and remit the same to BIR. This is different for freelancers, sole proprietors, and professionals as they are their own bosses.

Who are these people?

Sole Proprietor

An exclusive owner of a business engaged in providing goods or services.

Freelance Worker

Commonly known as “Freelancers” provide services to their clients and is not necessarily committed to a particular long-term employer

Professional

Similar to Freelancers, these individuals provide services to their clients for a fee. The major difference is that they are considered licensed professionals registered with government agencies such as PRC and IBP. Example of these individuals are engineers, accountants, lawyers and others.

What Taxes do they need to pay?

Individual whose gross sales or receipts does not exceed Php 3,000,000.00, the following taxes are needed to be filed and paid:

• Quarterly Percentage Tax (BIR Form 2551Q)
• Quarterly and Annual Income Tax (BIR Forms 1701Q and 1701/1701A)
• Annual Registration Fee (BIR Form 0605)

For those whose gross sales or receipts exceeds Php 3,000,000.00 shall file and pay the following taxes:

• Monthly and Quarterly Value Added Tax (BIR Form 2550M and 2550Q)
• Quarterly and Annual Income Tax (BIR Forms 1701Q and 1701/1701A)
• Annual Registration Fee (BIR Form 0605)

Upon implementation of TRAIN Law, Sole Proprietors, Freelancers and Professionals now have the option to avail 8% Income Tax Rate in lieu of Income Tax and Percentage Tax. This option, however, is only available to individual whose gross sales or receipts does not exceed Php 3,000,000.00. (For more information, please see blog article Graduated Income Tax or 8% Special Tax: Which is Better?)

Withholding Taxes

Other than the taxes stated above, an individual may be required to file and pay withholding taxes. These taxes are deducted on certain payments and remitted to BIR.

• Withholding Tax on Compensation – These are taxes withheld from payment of salaries to your employees.

• Expanded Withholding Tax – These are taxes withheld on certain payments to suppliers, such as rental, professional fee and others

Common Mistakes

There has been misconception that individuals earning Php 250,000.00 are exempt from tax. This is true for Income Tax Returns; however, this does not exempt an individual from paying Percentage Tax or Value Added Tax.

Another common misbelief is that individuals with no tax due are not required to file these taxes. Although, tax due may be zero, it is still required for an individual to file their taxes on time. Best way to file these taxes is thru eBIR Forms or eFPS.