Due to the numerous changes in our tax system, we opted to create a new post as an update. But you can still read the original post here.
A lot of online workers have been getting away with NOT paying taxes. I understand that many of us justify not giving our hard-earned money to corrupt government officials. Why pay taxes when you know most of what you’re paying will just line the pockets of greedy and corrupt politicians?
But paying taxes is each Filipino citizen’s obligation. Contrary to popular belief, taxes don’t just go to dirty politicians’ pockets. They also go to building schools, bridges and hospitals. Not paying taxes actually hurts the people who need it most– like students, patients, and farmers– more than it punishes corrupt officials.
With the recent barrage of high profile stories in the media about online workers earning millions, the BIR is looking for ways to catch and punish people who don’t pay taxes. It won’t be long before the BIR finds an online worker and makes an example of him.
Besides helping those who need it most and avoiding becoming a public example, paying your taxes also makes it easier for you to obtain a loan, credit card, passport or visa because these applications all require your tax documents.
Think about it this way– filing and paying your taxes NOW will protect you from the wrath of the BIR in the future.
Since the implementation of the Ease of Doing Business Act (RA 11032) and the TRAIN law (RA 10963), there has been a lot of changes made in how online Filipino workers can pay their taxes. The process was made easier and more comprehensive. Now, we’ll look at this process step by step to make paying taxes so much easier for you.
All over the internet, you’ve probably seen in forums all the different things that freelancers need to sign up for.
Should you need to sign up for the DTI and the BIR? What about a business permit?
If you’re a virtual assistant who plans to just work from home, you only need to register with the BIR. DTI (where you register your business name) and the City/Municipal Business Permit (where you register your place of business) are optional.
If you’re a freelancer who eventually to eventually have their own BPO, you will need to also register with the DTI and get a business permit from the city.
For the purposes of this guide, we will be sticking to the BIR process for virtual assistants working from home.
Over the past few years, the BIR has made it easier to pay your taxes. Registering, filing and paying has become a bit easier. It’s still mostly offline but there’s less red tape.
It’s still location specific, which means you have to be registered in the right Revenue District Office (RDO). And different RDOs may ask for different requirements.
So to make sure we get it right, we consulted with the BIR to make sure we get it right. We also crowdsourced information from different parts of the Philippines so we can get as much information as possible. Below, we’ve broken down the process, step-by-step, to avoid any confusion.
Before you can start your registration process, it helps to have everything you need readily available so you don’t have to go back and forth. You will need:
1. Your Tax Identification Number
If you don’t have a TIN yet, you can do this with your registration process through the form 1901. You will need to bring:
- Gov’t issued IDs
- A filled up form 1901
- Any of the following:
- photocopy of Mayor’s Business Permit; or Duly received Application for Mayor’s Business Permit, if the former is still in process with the LGU;
- Professional Tax Receipt (PTR)/Occupational Tax Receipt (OTR) issued by the LGU [For Professionals where PTR is not required (e.i. Consultants, Agents, Artist, Underwriters & the like)]
- DTI Certificate;
In most cases we’ve seen, the easiest thing to obtain would be the OTR. All you need to do is go to your city or municipal hall and ask for information where you can get an OTR. The cost of an OTR would vary depending on where you live.
If you’ve been employed before, it’s likely you got your TIN through your employer. If this is the case, you’ll need to check if your TIN is registered in the right RDO. How would you know if you’re in the right RDO? You’ll need to go to your local BIR office to check and confirm.
If they’ve checked and your TIN is in the RDO AND, the personal information associated with your TIN is still accurate you can move on.
However, if you need to change:
- Your RDO
- Your status (single to married)
- Your name (single to married women)
You’ll need to fill up and file a form 1905.
The form 1905 is used for updating information associated with the taxpayer. How quickly you can update your information depends on what details you want to change and whether or not you have all the documentation ready.
For issues like change of status and name, you will be asked for PSA certified copies of your marriage certificate
If you do need to change your RDO, you can do either one of 2 things:
1. Go to the RDO where you first got your TIN and ask them to transfer your TIN to the RDO of your home address (you will be asked to fill in a Form 1905), or
2. If you can’t go back, ask for a form 1905 from the correct RDO (you can ask the BIR staff to help you fill it up with the correct information) and mail that the Client Support Section of the RDO where you got your TIN.
The process should take around 2 weeks.
If you already have your TIN and you’re sure it’s in the right RDO, also prepare the following documents.
2. Primary ID, which is your valid, government issued IDs with a picture, address, and signature.
- Driver’s license
- SSS ID
- Pag-ibig ID
To speed up things, make sure you also have multiple photocopies of your IDs for whenever you need to submit them.
3. PSA (Philippine Statistics Authority) documents of identification that include:
- Birth certificate
- Marriage license
Same thing with the primary IDs, have multiple copies made of this to make the process faster.
4. General Journal.
You can buy this from almost any bookstore. This is where you will record your receipts. BIR will need to stamp the 1st page to register this.
5. Barangay certificate declaring that you are a virtual assistant residing in your barangay with a certificate of employment (COE) OR an occupational tax receipt (OTR)/occupational permit OR a Mayor’s Permit
Regarding requirement #5 varies depending on where you live. We found that in Luzon, they ask for the Mayor’s Permit. They ask for OTR in the Visayas and barangay certificate in Mindanao. This might be your first hurdle depending on how cooperative or knowledgeable your local government unit will be.
The barangay certificate, for example. Before you can even get your certificate, you may be asked to fulfill certain requirements like paying for trash dues, cedula and the like, depending on your barangay. So make sure you get your cedula and pay all dues as soon as you can. Once you’ve completed that, you can request for a barangay certificate. In some places, you can easily get your OTR or Mayor’ permit from city hall through their one-stop-business registration. Not everybody is going to have the same experience so be prepared to be extra patient.
Based on our experience, some barangay halls only give out residence certificates. Some don’t know how to create a certificate that also indicates that you’re an online worker. To make sure there would be minimal issues in getting this certificate (or OTR or Mayor’s Permit), ask your client if they can provide you a certificate of employment (COE). The certificate of employment should indicate the work that you do and your address. Here’s an example below:
In addition to the COE, it would also help to bring a copy of a barangay certificate that verifies you as an online worker. You can use the sample below:
And as soon as you get your barangay certificate/OTR/Mayor’s Permit, start the registration process right away. This certificate is only valid for a limited amount of time (30 days). If you register with an expired certificate, you can be fined and penalized.
To make sure you have the right requirements prepared, make sure you visit your local BIR office FIRST and get the requirements in writing as much as possible. That way, you can show your LGU that the order comes directly from BIR.
So to summarize, to prepare for registration you’ll need the following:
- TIN registered in the right RDO
- At least 2 primary, government issued IDs
- Multiple (at least 5) photocopies of your at least 2 gov’t issued IDs
- PSA issued certificates for secondary identification (birth certificate or marriage certificate)
- Multiple photocopies of your PSA issued certificates
- General journal
- And depending on where you live:
- Certificate of employment (COE)
- Multiple photocopies of your COE
- Barangay certificate/OTR/Mayor’s Permit indicating your address and occupation
- Multiple photocopies of your Barangay certificate/OTR/Mayor’s Permit
With the documents listed above, you’re now ready to register. Once you’re there, you will need to the following:
- Form 1901 for the application of certificate of registration (COR)
- Form 0605 to pay for your COR
- Form 1905 to register your general journal
- P500 for your certificate of registration
- Form 1906 to register your receipts and get your authority to print (ATP)
Here’s how you fill up your 1901
If you’re wondering what happened to page 2, your BIR personnel is responsible for filling up that page.
With the 1901, this is where you will make your first big decision, should you go for the graduated income tax or 8% gross income tax? Which is better? Well, it depends really.
It’s really up to you on which you find more convenient and cost effective. Either works depending on whether you value convenience or cost savings. If you want to check out how the math is done, we’ll show that in the Filing and Payment Section.
Remember that once you make that choice, you’ll be stuck with it for the rest of the year. So choose wisely.
Here’s how your fill up your 0605
Once you’re inside your RDO, you will be directed where to go to submit and pay for your registration. You’ll need to fill up the 1901 and 0605 in triplicate. Once you’ve paid and you’re given copies of these forms, make sure you photocopy them. You will need extra copies in the future.
Unlike before when you need to have your COR before you can register your books and receipt, now you can do them at the same time. They also simplified the process by requiring only one book, a general journal. And to register your journal, you need a 1905. Here’s how you fill up your 1905.
Once you’re done, submit this with your journal. They stamp the book, document the book in your 1905 and then you’re done. No need to pay for it.
The BIR accredited printing press will be the ones responsible in filling up and submitting the 1906. The BIR will provide you with a list of which printing presses you can work with. If you’re lucky, a printing press representative would be present in the RDO to help you with the process. You will need to give the printing press the following:
- Copy of your completed and paid 1901
- Copy of COE/barangay certificate/OTR
- COR claim stub
Make sure to follow up on your printing press. The BIR places a deadline on when the form 1906 should be submitted and when you should get your receipts. To get your receipts, you will need the documents below. Failure to meet the deadline will result in penalties.
Once you’ve filled up and submitted all the requirements, you will have copies of all these documents. However, it’s strongly encouraged that you also photocopy these documents in case you need them for any BIR transactions in the future.
Once all of this is done, you can either get your COR the following business day OR on the day of the next new registrant seminar (this is done once a week), depending on the RDO.
The seminar is required and you will be asked to submit a certificate of attendance. If you don’t attend the seminar, you won’t get won’t get a tax notice, which looks like this
This is that piece of paper you see displayed in most businesses. This is what tax mappers will look for when they do audits.
Failure to comply with these requirements could result in penalties.
So, to summarize, the registration process would require the following forms:
- Form 1901 for the certificate of registration
- Form 0605 to pay for the certificate of registration
- Form 1905 to register your general journal
- Form 1906 to print and issue receipts
- Certificate of attendance for the new registrant seminar
Once you’ve accomplished all of this, you will have the following:
- Certificate of registration (COR)
- Stamped and registered general journal
- Official receipts
- Tax notice
Before we can answer the question of how to pay and file your taxes and how much you should pay, we first need to know the income. This income is determined by the receipts you issue and record in your journal.
Issuing a receipt simply means documenting the sale so you and your customer/client/employer would have a copy of the transaction. Ideally, receipts should be issued with every sale or income. And ideally, both parties should have a copy of the receipt. But the BIR recognizes that this isn’t the situation for a lot of taxpayers.
For example, a sari-sari store. It doesn’t make sense for them to issue a receipt to every person who buys from that store for the day. It takes too much time to fill up a receipt by hand. It doesn’t make sense to issue one for cheap items. And lastly, the customer may not even want a receipt because it’s not necessary.
So what they do instead is to just compute for the total sales they made for the day and just issue one receipt. They don’t need to give that receipt to anyone. They just keep it and record the amount they indicated in the receipt in their journal. Their tax for each quarter and for the year is determined by the total amount listed in the journal and receipts.
This is the same situation for us online workers. We don’t need to send our employers the actual receipts. The important thing is we issue and record the receipts.
So, how do you fill up a receipt? The important things you need to record are:
1. The date
2. Who you received the money from (your employer)
3. How much (sum of pesos)
4. Your authorized signature
And here’s one way you can record it in your journal:
The amounts in parentheses are expenses. The ones without parenthesis are sales/income. You can also exchange the parenthesis with a minus sign for expenses and a plus sign for sales. Some record their expenses in red ink and sales in black or blue.
Or if you chose the 8% gross sales or optional standardized deduction for the graduated income tax, you don’t have to record expenses, just sales.
Regardless of how you record it, the important thing is that you record ALL your receipts accurately and diligently. When you record your income, make sure you include your receipt number so you can keep track of the amounts going in. and at the end of each month, make it a habit to total everything. So that at the end of each quarter, you can easily total all your income.
Paying and Filing Your Taxes
What you would need to file and how much you need to pay depends on which tax type you selected in your 1901. Your tax obligations will be indicated in your COR.
Even if you didn’t earn anything for that quarter, you still need to file your income taxes. Just indicate in the forms that you have no income and you won’t be charged anything.
To make things easier, we suggest you use the downloadable BIR eforms. Once you download them, they will be installed in your computer (usually the C: drive) and runs like a form application where you pre-fill some of your information and that information would be filled in the selected form. This is what it looks like:
The application saves the documents you have filled up and keeps a record of what you have already filed. And when you click on the list of BIR forms, this will appear:
Make sure you always choose the latest version of the form, the v2018 version.
8% Gross Sales Tax
If you opted for the 8% Gross Sales Tax, all you need is the form 1701Q for the 1st, 2nd and 3rd quarters and a 1701 for the annual income tax.
Here’s your tax schedule:
This means you’ll need to pay for your taxes every quarter. You could compute for your taxes on your own or use the eBIR forms which computes the your taxes for you. But if you want to know how they’re computed, check out the examples below.
Taxes Per Quarter
Now let’s see how we work the 1701 Q works
Here’s how you fill up page 1.
Fill in all the relevant information. Don’t forget to tick the right dots.
Once you are done with that, scroll down the eforms and go to page 2.
It will take you here where you can fill in your income and it will compute how much you need to pay.
If you’re earning less than P250,000 per year, that you don’t need to put anything. You just need to put something there when you have something to declare. Like this one
Once you’re done filling that in page 2, go back to page 1. It will reflect what you have to pay. If you’re tax exempt, it should look like this
But if you have taxes you need to pay, it should look like this
Once you’re done, go back here:
Click on “Validate”. This will check to see if you completed the form correctly. Once you are done, click on “Submit/Final Copy”. This will prompt you to file your taxes through email.
If you have taxes you need to pay, you can pay through GCash Mobile Payment, PayMaya, Landbank’s Linkbiz Portal or DBP’s Tax Online. Payment through these online portals may come with some convenience fees.
Graduated Income Tax
If you opted for the graduated income tax, you will need the form 1701Q and 2551Q (quarterly percentage tax). The tax schedule for the income tax is the same but the quarterly percentage is a bit earlier.
The BIR eForm 2551Q also autocomputes for your percentage tax. But if you want to see the math, here’s an example below.
In this example, we chose optional standard deduction because it’s easier to compute for and you don’t have to record anything in your journal for this. If you want to opt for an itemized deduction, this is where you’ll need the help of a bookkeeper.
Here’s how you fill out the following forms.
For the 1701Q, it’s practically the same as the 1701Q for the 8% gross sales tax. All you need to do is tick a different circle.
Like in the 8% gross, when you’re done with this part, go to page 2. It will direct to where you can fill in your income.
If you’re earning under P250k per year (after deductions), you’re tax exempt. If you earn more, the tax will be auto-computed.
And like in the 8% gross, all you need to do is validate and submit. You will be prompted on how to submit through email.
For the 2551Q, this is what the forms would look like
Same thing with the 1701Q, once you’re done filling in your details, go to page 2 and input your income. It will automatically compute the quarterly percentage tax.
And once you’re done with that, just go back to page one and check if it has appeared.
Once again, when you’re done, validate, submit and pay using GCash Mobile Payment, Landbank’s Linkbiz Portal or DBP’s Tax Online
For the 1701, the 1st page is essentially the same. Although it is 4 pages long, we only need to concern ourselves with pages 1 and 2 (for graduated IT) OR page 1 and 3 (for the 8% gross sales tax). Just follow the sections indicated in the form to know where you need to go.
And when you’re done, validate then submit. And that’s it.
Other Important Things You Need To Remember
In addition paying and filing your taxes quarterly and your annual income tax every year, you also need to remember to do the following:
- Renew your certificate of registration every year
- Change your receipts every 5 years
- File a 1905 if there are any significant changes to you or your business (eg. change of location, change name, hiring employees, etc)
- Go to the BIR if ever you choose to stop working as a VA to “close” your business.
Registering , paying and filing your taxes have never been easier. Now is definitely the time to take the plunge and finally be a taxpayer!