What Taxes Should I Pay in the Philippines (Self-employed)
What taxes should you pay in the Philippines? What taxes should self-employed individuals pay in the Philippines? Self-employed taxpayers are those individuals who receive income from business or from practice of profession. Persons who receive mixed income (income from business or practice of profession and income from compensation) are also considered as self-employed and are also taxed similarly.
Self-employed individuals include persons who own business in the form of single proprietorship and practicing professionals (registered or non-registered with the professional commission), such as accountants, lawyers, doctors, engineers, architects, artists and even bloggers. If you are one of them, the following are the ordinary taxes you may be required to pay or remit to the Bureau Internal Revenue (BIR) .
Taxes that are payable monthly
1. Monthly Percentage Tax (BIR Form 2551M)
This is applicable to persons whose gross annual sales and/or receipt do not exceed P1,919,500 (RR 16-2011, RR 3 -2012, as amended). and who are not VAT-registered persons. If paid manually (other than EFPS), it should be paid not later than the 20th day following the end of each month.
To learn more about Percentage Tax, please read our article “How to Compute Percentage Tax Payable in the Philippines“.
Note: Taxpayer can either be VAT registered or NON-VAT registered. Thus, he can be liable to either Percentage Tax or Value Added Tax, but not both.
2. Monthly Value Added Tax (BIR Form 2550M)
This is applicable to persons whose gross annual sales and/or receipt is at least P1,919,500, persons who are required to register as VAT taxpayers and those who have opted to duly register as VAT registered taxpayers. The deadline for monthly VAT is the same with monthly percentage tax.
To learn more about the computation of Value Added Tax payable and filing of the VAT returns, please read our article titled “How to Compute VAT Payable in the Philippines“.
Monthly VAT returns are not filed on the months that correspond the end of the quarters (i.e., March, June, September and December). Instead, the taxpayer must file Quarterly VAT returns which compute the VAT Payable as of the end of the quarter. Please see #2 of taxes that are paid quarterly.
4. Monthly Remittance Return of Income Taxes Withheld on Compensation (BIR Form 1601C)
If you have employees, you are required to deduct and withhold taxes on compensation paid to employees. The return must be filed on or before the 10th day of the month following the month in which withholding was made. For the month of December, it must be filed on or before January 15 of the following year. EFPS may have different deadlines of filing.
5. Monthly Remittance Return of Creditable Income Taxes Withheld (Expanded) (BIR Form 1601E)
If you are paying for rental, professional services, prime contractors/subcontractors and other income payment subject to Expanded/Creditable Withholding taxes, you are required to deduct and withhold taxes on those income payments. The return must be filed and remitted on or before the tenth (10th) day of the month following the month in which withholding was made except for taxes withheld for the month of December which shall be filed on or before January 15 of the succeeding year.
Taxes that are payable quarterly
1. Quarterly Income Tax (BIR Form 1701Q)
This return shall be filed by the following individuals regardless of amount of gross income:
a) A resident citizen engaged in trade, business, or practice of profession within and without the Philippines.
b) A resident alien, non-resident citizen or non-resident alien individual engaged in trade, business or practice of profession within the Philippines.
c) A trustee of a trust, guardian of a minor, executor/administrator of an estate, or any person acting in any fiduciary capacity for any person, where such trust, estate, minor, or person is engaged in trade or business.
The deadline for filing is shown below:
1st qtr – On or before April 15 of the current taxable year
2nd qtr - On or before August 15 of the current taxable year
3rd qtr – On or before November 15 of the current taxable year
Note: There is no quarterly return to be filed on the fourth quarter, since the taxpayer is filing Annual Income Tax Return where the previous three quarters tax payments are carried forward. Please see #1 of the taxes that are payable annually.
2. Quarterly Value Added Tax (BIR Form 2550Q)
This return is filed not later than the 25th day following the close of each taxable quarter. The term “taxable quarter” shall mean the quarter that is synchronized to the income tax quarter of the taxpayer (i.e. Calendar quarter of Fiscal Quarter). This return shows the VAT payable at the end of the quarter. Please see #2 of the taxes that are paid monthly.
3. Quarterly Percentage Tax (BIR Form 2551Q)
This return shall be filed by the following:
a. Franchise grantees sending overseas dispatch, messages or conversation from the Philippines;and
b. Proprietor, lessees or operators of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games, jai-alai and racetracks.
The return shall be filed and the tax paid within twenty (20) days after the end of each taxable quarter.
Taxes that are payable annually
1. Annual Income Tax (BIR Form 1701)
Aside from the 3 quarterly (1st, 2nd and 3rd) income taxes that you will pay during the taxable year, you will also file your annual income tax return. Please see #1 on taxes that are payable quarterly. This tax return should be paid and filed on or before April 15 of each year covering income for the preceding taxable year.
Please read our article on how to compute Income Tax for self-employed individuals.
Note: When the tax due exceeds P2,000.00, the taxpayer may elect to pay in two equal installments, the first installment to be paid at the time the return is filed and the second installment 15 of the same year at on or before July the Authorized Agent Bank (AAB) within the jurisdiction of the Revenue District Office (RDO) where the taxpayer is registered.
2. Annual Registration Fee (BIR Form 0605)
An annual registration fee of Php 500 should be paid on or before January 31 of the year.
3. Annual Information Return of Income Tax Withheld on Compensation and Final Withholding Taxes BIR (Form 1604CF)
There is no payment to be made in this return for it only reports the summary of Monthly Remittance Return of Income Taxes Withheld on Compensation (BIR Form 1601C) you have paid and filed for the year. Please see # 4 of the taxes that are payable monthly. This return must be filed on or before January 31 of the year following the calendar year in which the compensation payment and other income payments subject to final withholding taxes were paid or accrued.
4. Annual Information Return of Creditable Income Taxes Withheld (Expanded)/ Income Payments Exempt from Withholding Taxes (BIR Form 1604E)
Just like BIR Form 1604CF, this return is only filed to the BIR. It contains the annual summary of your remittance of Creditable Income Taxes Withheld (Expanded)/ Income Payments Exempt from Withholding Taxes to the BIR. Please see #5 on taxes that are payable monthly. The return shall be filed on or before March 1 of the year following the calendar year in which the income payments subjected to expanded withholding taxes or exempt from withholding tax were paid or accrued.
5. Annual Inventory List (only to be filed)
If you are engage in trading and merchandising business, you may have inventory. Thus, you are also required to submit an annual inventory list not later than thirty days after the close of accounting period.
This article only lists the regular and ordinary taxes that should be paid by self-employed taxpayers in the Philippines. There can be other taxes and returns that may be required to be paid and filed by particular taxpayers, such as Excise tax and other taxes payable per transactions. For more information, please visit the BIR website or inquire at the RDO offices where your business is located. Updates on this post will be provided.