Non-VAT Freelancers Guide to BIR Tax Compliance

Driven by ease in availability of technology and the comfort of working from home, many are leaving the security of their employment to be their own boss and choose to become freelancers.

As a Freelancer, you get the freedom of time to work in your preferred schedule and it also gives you freedom to work anywhere. Plus, if you choose projects or clients overseas, it can give you higher income potential due to foreign exchange like if your earning is in US Dollar.

However, the flip side is you forego the security of continuous monthly salary and other benefits from employment.

Aside from that, as a freelancer, you are now responsible to register in the Bureau of Internal Revenue (BIR) as a Freelancer, Self-Employed or Professional. As such, you must also do your own bookkeeping and tax return filing.

This article aims to help non-vat registered freelancers with their tax compliance with the BIR.

What is Non-VAT Registration?

To qualify for Non-VAT registration, your annual sales must be less than P3,000,000 and you registered with the BIR as Non-VAT. If you are a non-vat registered freelancer, this article is for you.

Otherwise, if your annual sales is P3,000,000 and above you must register as VAT. This article may not apply to you. Another article will be publish for VAT registered freelancers.

7 Step Guide on BIR Tax Compliance for Non-VAT Registered Freelancers

Here is a basic guide that can serve as your checklist to ensure you are doing your freelancing legally especially with the BIR to avoid future tax liabilities and consequences.

1. Apply for Certificate of Registration (COR) – BIR Form 2303

If you are already registered in BIR, you may skip this step.

If you are not yet registered in BIR, the first step to tax compliance is to register in the BIR Regional District Office (RDO) where your home or business address is found. To know what RDO, visit this link: https://www.bir.gov.ph/index.php/contact-us/directory/regional-district-offices.html

To register, fill-out and print BIR Form 1901 Application for Registration in duplicate copy. Prepare a photocopy of a valid government ID that shows your complete name and address.

You also need a filed and paid BIR Form 0605 Annual Registration Fee. To do this, read step 2 of this article.

Submit the filled-out BIR Form 1901, photocopy of your valid ID with complete name and address and printed filed/paid BIR Form 0605 in your applicable BIR RDO.

Alternatively, you may use NewBizReg service of the BIR in this link: https://www.bir.gov.ph/newbizreg/

2. File and Pay Annual Registration Fee – BIR Form 0605

As mentioned in Step 1, when registering in BIR for the first time as Self-Employed or Freelancer, one of the requirements is to file and pay BIR Form 0605 – Registration Fee.

Afterwards, you must file and pay the same BIR Form 0605 Annual Registration Fee each new year on or before January 31.

You may refer to this article as a guide on how to file and pay BIR Form 0605. Visit this link: https://mpm.ph/bir-form-0605-annual-registration-fee/

To automate preparation and filing of BIR Form 0605, you may use MPM Accounting Software. Read below on how.

3. Register and Issue Official Receipt – BIR Form 1906

Once you have registered and got your copy of BIR Form 2303 – Certificate of Registration (COR), you need to register an Official Receipt in your BIR RDO.

You will issue this BIR Registered Official Receipt to your customer for every cash collection as payment of your service.

Issuing or using an unregistered official receipt is penalized by BIR. As such, as soon as you get your COR, apply for an Authority to Print (ATP) Official Receipt in your BIR RDO.

You may refer to this guide on how to register Official Receipt with BIR: https://mpm.ph/how-to-get-official-receipt-from-bir/

4. Register and Record in the Books – Journals and Ledgers

Another process you need to do is to register your accounting books or books of accounts.

This is where you will record your financial transactions, such as sales and expense or cash receipts and cash disbursements, which may be inspected by BIR during audit.

Using an unregistered journal and ledger book is penalized by BIR. As such, as soon as you get your COR, apply for registration of books of accounts.

There are three (3) ways to register your journals and ledgers: manual, looseleaf and computerized. Each has different requirements but the most common is manual books. To register a manual books, you may use BIR Form 1905 Application Form. The requirements will be copy of your BIR Form 2303 – COR and paid/filed BIR Form 0605 – Annual Registration Fee.

To learn more about books, you may read this article: https://mpm.ph/what-are-the-books-of-account/

To automate your bookkeeping requirement, you may also use MPM Accounting Software. Read below on how.

5. File and Pay Percentage Tax Return Every Quarter – BIR Form 2551Q

If you are non-VAT registered freelancer, you need to file percentage tax quarterly. To know if you must file this BIR Form, check your BIR Form 2303 – COR and see if you have Percentage Tax in your Tax Type.

The basis of the tax computed is the gross receipts or sales multiplied by percentage tax rate. Currently the rate is 1% from July 1, 2020, to June 30, 2023. But the tax rate increases back to 3% starting July 1, 2023, onwards.

BIR Form 2551Q is filed every quarter as follows:

If you’re availing the 8% Flat Income Tax Rate, you don’t need to file this. Thus, you may skip this step.

For more details on how to prepare BIR Form 2551Q, visit this link: https://mpm.ph/bir-form-2551q-guide-to-nonvat-taxpayer/

To automate preparation and filing of BIR Form 2551Q, you may use MPM Accounting Software. Read below on how.

6. File and Pay Quarterly Income Tax Return – BIR Form 1701Q

Every quarter, you must file and pay your quarterly income tax return – BIR Form 1701Q regardless of if you availed 8% flat income tax rate or not.

The tax base is the net taxable income which is computed by gross receipts or sales less allowable deductions, in general. If you’re availing the 8% then the basis will be the gross sales or receipts less P250,000, if purely freelancer and not employed.

BIR Form 1701Q is filed every quarter, regardless of if there’s tax to be paid or not.

Deadline for filing is as follows:

For more details on how to prepare BIR Form 1701Q, visit this link: https://mpm.ph/bir-form-1701q/

To automate preparation and filing of BIR Form 1701Q, you may use MPM Accounting Software. Read below on how.

7. File and Pay Annual Income Tax Return – BIR Form 1701 or 1701A

Last but not the least, in fact it’s the most popular tax classification, and that’s the Annual Income Tax Return – BIR Form 1701 or 1701A.

As a freelancer, you need to file your own income tax return on or before April 15 of the next year.

For example, this whole year January to December 2022 you need to file and pay your Annual Income Tax Return on or before April 15, 2023, of next year.

The tax base is like quarterly income tax return, but the difference is it’s for the whole year instead of for the quarter.

Normally, if you are purely a freelancer with no employment income, you may use BIR Form 1701A if you avail 8% Flat Income Tax Rate or 40% Optional Standard Deduction for Regular Income Tax Rate. Otherwise, use BIR Form 1701.

To learn more about BIR Form 1701A visit this link: https://mpm.ph/bir-form-1701a/

To automate preparation and filing of BIR Form 1701 or 1701A, you may use MPM Accounting Software. Read below on how.

Do Your Own Bookkeeping and Tax Filing using MPM Accounting Software 

As a freelancer, especially those who are just starting, it can be difficult to do tax compliance manually and at the same time it can be costly to hire an accountant. At the same time, as a freelancer, you are very used to doing things your own.

To help you save money and time to learn and do it manually, you may use MPM Accounting Software (MAS).

With MAS, the mentioned above such as BIR Forms 2551Q, 1701Q and 1701 or 1701A are all prepared by the system. You just encode the details of your sales and expense so that the system can automate not only the tax forms mentioned, but also the financial reports, journals and ledgers. Lastly, you may also use MAS to directly file your tax forms without the need to download BIR’s eBIRForm.

Try it and subscribe for 30 days free trial here: www.MPM.ph/tax

That’s it, I hope this article has been helpful for you! Until our next article!

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