Business Registration and Compliance: The Philippine Digital Freelancer’s Milestone to a Long-term Business

By: Cecile Maglunob-Pagaspas, CPA

Freelancing business is the latest trend especially for digital professionals. The unique setting of this career is indeed promising especially for those who enjoy working for their passion at their own pace. 

It is however commonly observed that many digital freelancers in the Philippines hide their business or let go the good opportunities due to fear of being caught by the tax authorities while operating without legal documents.

Getting Legitimate

Many digital freelancers are starting their work through an informal contract with clients. This is totally fine especially on the initial stage of the venture. Staying on the same career path in the long run however will require a complete paper to show one’s business legitimacy.

In getting legit, digital freelancers can either register in the Department Trade of Industry (DTI) as Sole Proprietor or Securities and Exchange Commission (SEC) as a corporation. For digital freelancers who intend to run the business solely, opting to register a One Person Corporation (OPC) could be an option instead of Sole Proprietorship if looking into a stronger market positioning, business risk management and branding. (Please refer to our article 10 Basic Features of One Person Corporation (OPC) in the Philippines for better understanding of the structure.) At the end of the day, both sole proprietorship and corporation have their own pros and cons and we suggest getting technical advice first from reliable business registration consultants prior to starting the process.

On top of registering the freelancing business with either DTI or SEC, securing the Certificate of Registration from the BIR is also a must. Many potential clients who are conscious of tax compliance would require the submission of a digital freelancer’s Certificate of Registration with the BIR along with the query if there is a capacity to issue a BIR registered official receipt prior to approving the contract. Most digital freelancers view this as one of the heavy requirements in getting legit but one should realize that big opportunities await those doing their freelancing business with valid papers.

Common trend however taken by the freelancers for a more simplified registration process, is to secure an Occupational Tax Receip (OTR) from the Treasurer’s office using their existing contract with the client. This OTR serves like the Professional Tax Receipt (PRT) for those licensed professionals. The same will be presented to the BIR for the registration of the freelancing business.

Business Compliance

Getting legit is only the first step, the more tedious yet rewarding part is being compliant at all times with the business regulations in the Philippines especially when it comes to filing and paying the correct taxes. Most digital freelancers give up early and go back to the old ways of hiding and doing freelancing works without properly paying the applicable taxes. Even though this practice might be common to some, the risk of being caught and paying more penalties with the tax authorities is very high. Being compliant does not mean doing all the technical work, it starts with the mindset that as an entrepreneur, doing business always involve paying taxes

How to Start Proper Tax Compliance?

1. Accept the fact that business entities needs to file and pay applicable taxes
2. Tax compliance starts with identifying the applicable tax types indicated in the COR with the BIR. 
3. Understand the basic concept of Philippine taxation by reading related online resources, attending short courses or engaging professional accountants for the purpose.
4. Pay taxes religiously even other freelancers are not paying based on rules.
5. Ensure to get updates from time to time about local and national taxes.

For a more comprehensive discussion about tax compliance of freelancers in the Philippines, feel free to read our article Tax Compliance for Freelancers in the Philippines (https://taxacctgcenter.ph/tax-compliance-for-freelancers-in-the-philippines/).

We fully understand some freelancers’ stand when it comes to the administrative works required by staying legit and compliant in the Philippines. As professional accountants dealing most of the time with entrepreneurs’ tax issues, we will always advise to do business in a correct way to save from penalties and to be able to stay in the business in the long run.

About the writer: Ces is the VP-Operations of Tax & Accounting Center, Inc. and the head of the Outsourcing Service of G. Pagaspas Partners & Co., CPAs, the affiliate accounting firm of Tax & Accounting Center, Inc. She is dedicating her professional practice on advocating proper Philippine Tax Compliance of SMEs and MSMEs in the hope that these entrepreneurs will be able to save their businesses from unnecessary penalties due to non-compliance. For further inquiries and clarifications, feel free to email us at in**@ta************.ph .