Because freelancers are not our employees and we don't pay taxes on payouts, they must declare any income received via Solar Staff by themselves.
To carry on tax accounting in the Republic of the Philippines for your Solar Staff income, you need to:
Be a tax resident
Determine the applicable tax obligations
Tax residence
The Philippines taxes its resident citizens on their worldwide income. Resident and non-resident aliens are taxed only on income from sources within the Philippines.
Residence is determined by a period of 180 days during a calendar year.
A resident alien is a stateless person or citizen of another country who resides in the Philippines with no definite intention as to the length of stay, but is not a sojourner.
A non-resident alien is a person who arrives in the Philippines and stays there for no more than 180 days in any calendar year (or more than 180 days in case of entering into a fixed-term employment contract).
The Philippines has double taxation agreements with a number of countries (full list), the provisions of which may override the applicable tax residence rules and other provisions of national legislation.
Tax ID number
The Taxpayer Identification Number (TIN) is a card that contains a tax number, full name, address, date of birth, and signature, and serves as an identification document. Individuals and legal entities are required to have it for their tax reporting to the Bureau of Internal Revenue (BIR) of the Philippines and for interaction with other institutions. If an individual initially obtained the TIN for official employment, then when switching to full-time freelancing, they need to change their status from an employed individual to a self-employed individual. If an individual combines freelancing with their main job, they can declare themselves as a recipient of mixed income.
To engage in trade or business, all individuals shall register and submit an application before commencing their operations. Any changes to the TIN shall be made by filing an application with the Regional/District Offices (RDO) of the BIR.
Taxes and contributions payable by freelancers
In the Philippines, a self-employed individual is a status given to those who engage in professional (subject to being registered with the Professional Regulation Commission (PRC)) or entrepreneurial activity. To obtain this status, one must register with the BIR by submitting an application using Form 1901 (learn more).
IMPORTANT! Solar Staff does not have the option to choose a tax status for freelancers based in the Philippines, but you can fill in your tax ID in your account.
Read on for more details on the taxes payable by the self-employed.
Income tax is paid on taxable income and calculated in Philippine peso (PHP) at a progressive rate:
Taxable income, PHP | Income tax, PHP | Tax on excess, % |
Up to 250,000 | – | 0 |
250,000 – 400,000 | – | 15 |
400,000 – 800,000 | 22,500 | 20 |
800,000 – 2,000,000 | 102,500 | 25 |
2,000,000 – 8,000,000 | 402,500 | 30 |
8,000,000 and up | 2,202,500 | 35 |
If an individual's gross income does not exceed the VAT cap of PHP 3 million, the income above PHP 250,000 may be subject to a preferential tax rate of 8% instead of the rates mentioned above.
Taxpayers, except non-resident aliens, can choose from two deduction options:
The optional standard deduction (OSD) of up to 40% of gross income
Deductions based on the amount of documented expenses (in which case taxpayers are required to submit all supporting documents as an attachment to their tax return):
Expenses paid or incurred during the fiscal year in connection with a trade, business, or profession
Wages and other forms of compensation for personal services actually rendered (including travel expenses)
Rental expenses
Interest paid or accrued during the fiscal year in connection with professional activities
Taxes
Losses
Bad debts
Depreciation
Charitable and other contributions (subject to certain limitations)
Research and development (R&D) expenses
Tax reporting and payment. The Income Tax Return (ITR) shall be filed annually on either Form 1701 or Form 1701A (+ Form BIR 1701 AIF) no later than April 15 of the year following the reporting year in three counterparts (two for the BIR and one for the taxpayer) with the Authorized Agent Bank (AAB) or at the taxpayer's place of registration. The tax shall be paid within the same timeframe. Taxpayers with income not exceeding PHP 250,000 are not required to file the ITR.
Self-employed individuals whose gross income exceeds PHP 3 million are not permitted to use BIR Form 1701 AIF to file their tax returns. Instead, they must file annual tax returns along with balance sheets, profit and loss statements, schedules listing income-generating property and corresponding income, and other relevant statements duly certified by an independent CPA.
Self-employed individuals are also required to file quarterly income tax returns (BIR Form 1701Q), which are due before the 15th day of the month following the reporting quarter (May 15, August 15, and November 15 of the current fiscal year for Q1, Q2, and Q3, respectively). The tax shall be paid within the same timeframe.
If the tax payable exceeds PHP 2,000, the taxpayer may elect to pay it in two equal instalments: the first instalment on the due date for the tax return filing, and the second instalment no later than October 15 after the tax return period is closed.
Taxpayers may file their tax returns and make tax payments online through the Electronic Filing and Payment System (eFPS).
Taxpayers are required to complete BIR Form 0605 whenever they pay taxes and fees that do not require the use of a tax return (such as the second instalment of income tax, registration fees, penalties, advance payments).
The registration tax is a fee of PHP 500 payable for registering and continuing operations.
Tax reporting and payment. The registration tax is paid annually along with filing BIR Form 0605 before January 31.
The percentage tax is a tax on entrepreneurial activities for individuals who pay income tax based on non-preferential progressive rates and are not VAT-registered taxpayers. The tax rate is set at 3% of gross income.
Tax reporting and payment. Two tax return forms are required to be filed:
BIR Form 2551M is a monthly tax return form submitted (along with BIR Form 0605) before the 20th day of the month following the reporting month (with the tax due within the same timeframe).
BIR Form 2551Q is a quarterly tax return form submitted (along with BIR Form 0605) within 25 days after the end of the quarter (with the tax due within the same timeframe).
The Value-Added Tax (VAT) is a 12% indirect tax on sales that can be passed on to buyers, recipients, or lessees of goods, property, or services. Persons whose gross income exceeds PHP 3 million are required to register as VAT payers (registration is also possible on a voluntary basis). To do this, an application for registration must be filed and a registration fee of PHP 500 must be paid using BIR Form 0605.
The tax returns are to be submitted using BIR Form 2550Q within 25 days after the end of the quarter, with the tax payable within the same timeframe.
Insurance taxes include the following contributions:
Contributions to the Social Security System (SSS) are mandatory for self-employed individuals engaged in trade, business, or professional activities with an income of at least PHP 16,000. To pay them, payers must register and obtain an SS number (learn more). The contribution rate is set at 14% and the payment schedule to adhere to is known as the SSS contribution table. Self-employed individuals are required to file their income returns quarterly and make monthly contributions using the appropriate form before the 10th day of the month following the reporting month. The SSS contribution calculator can be used to calculate contributions.
Contributions to the Philippine Health Insurance Corporation (PHIC) are another type of mandatory contributions payable by the self-employed. To pay them, payers must register and obtain a PhilHealth Identification Number (PIN). The contribution rate is set at 4% (or PHP 3,200 if the income is more than PHP 80,000), and the payment schedule to adhere to is known as the PhilHealth contribution table. These insurance contributions are also calculated based on the income level, which requires the submission of supporting financial reports (the most recent income tax return, notarized statement of income, or overseas employment contract). Failure to provide these documents will result in contributions being calculated based on the highest rate. Payments must be made monthly using the appropriate form before the 10th day of the month following the reporting month.
Contributions to the Home Development Mutual Fund (HDMF or Pagtutulungan sa Kinabukasan: Ikaw, Bangko, Industriya at Gobyerno / Pag-IBIG Fund), which is a public institution that offers housing loans, savings programs, and other benefits to its members. For the self-employed with a monthly income of at least PHP 1,000, membership is mandatory, which requires registration and obtaining a Pag-IBIG (MID) number (learn more). Contributions of the self-employed are calculated as a percentage of their monthly income: 1% for income of PHP 1,000–1,500 and 2% for income exceeding PHP 1,500. Contributions can be paid via the Virtual Pag-IBIG account, in any branch of the Pag-IBIG Fund, or through authorized partners monthly (before the 10th day of the month following the reporting month) or quarterly (no later than the 10th day of the month following the quarter).
Additional information
Income received through Solar Staff is declared based on the Offer Agreement using data from certificates and invoices.
If you have any questions, get in touch via the chat in your Solar Staff account or email us at [email protected].