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**@************er.ph.

By: Tax and Accounting Center Philippines

With the technological advancement and improvement of internet connectivity in the Philippines, the world of internet has become a huge market place of variety of goods and services. Social media like (e.g. facebook), online stores, buy and sell web sites, online malls offer a variety of goods for sale and services.

As to BIR tax compliance, online sellers are treated in like manner as regular taxpayers doing manual transactions. To reiterate online taxpayer’s obligation in relation to online transactions in the Philippines, Revenue Memorandum Circular No. 55-2013 dated August 5, 2013 (RMC No. 55-2013) has been issued.  The following are the BIR tax compliance of online sellers of goods and services in the Philippines:

1. Register with the Bureau of Internal Revenue (BIR)

Online sellers in the Philippines Register the business at the Revenue District Office (RDO) having jurisdiction over the principal place of business/head office (or residence in case of individuals), by accomplishing BIR Form 1901 (Application for Registration for individuals) or 1903 (for corporations or partnerships), and pay the registration fee to any Authorized Agent Bank (AAB) located within the RDO.

A BIR Certificate of Registration or BIR Form No. 2303 shall be issued by the RDO, reflecting therein the tax types required of the concerned taxpayer for filing and payment, which shall be displayed conspicuously in the business establishment;

2. Register BIR Official Receipts and/or Sales Invoices

Online sellers are required to secure an Authority to Print (ATP) invoices/receipts with the BIR using BIR Form No. 1906. Under Revenue Regulations No. 18-2012 dated October 22, 2012, such ATP is valid for five (5) years and renewable within sixty (60) days prior to actual expiry date.  All unused unissued receipts/invoices shall be surrendered to the BIR on or before the 10th day after the validity period of the expired receipts/invoices for destruction and an Inventory listing of the same shall also be submitted.

3. Register with BIR their Books of Accounts

Online sellers in the Philippines are likewise required to register with BIR books of accounts and accounting records.  Books of accounts of online sellers of goods and services may either be:

1. Manual books of accounts, booklets of invoices/receipts, accounting records or loose-leaf of such;
2. Computerized Accounting System (CAS) and/or its components including e-Invoicing System under Revenue Memorandum Order (RMO) No. 21-2000 as amended by RMO No. 29-02.

Registration of BIR books of accounts are normally made immediately after registration of online sellers with the BIR. Learn more on our article about Books of Accounts of Taxpayers in the Philippines.

4. Issue BIR registered invoice or official receipt

Online sellers are required to issue registered invoice or receipt, either manually or electronically, for every sale, barter, exchange, or lease of goods and properties, as well as for every sale, barter, or exchange of service. Said invoice or receipt shall conform to the information requirements prescribed under existing revenue issuances, and shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of the latter’s accounting records;

5. Obligation to withhold taxes on payment of certain expenses

Withhold required creditable/expanded withholding tax, final tax, tax on compensation of employees, and other withholding taxes. Remit the same to the Bureau at the time or times required, and issue to the concerned payees the necessary Certificate of Tax Withheld. Learn more about withholding taxes in our article on 7 Features of Withholding Taxes in the Philippines.

6. File applicable BIR tax returns

File applicable tax returns on or before the due dates, pay correct internal revenue taxes, and submit information returns and other tax compliance reports such as the Summary List of Sales/Purchases (SLS/P), Annual Alpha List of Payees, etc., at the time or times required by existing rules and regulations. You have the option to do it yourself or through some trusted bookkeepers in the Philippines. You can educate yourself by attending seminars on BIR tax compliance.

7. Maintain books of accounts and other accounting records

Keep books of accounts and other business/accounting records within the time prescribed by law, and such shall be made available anytime for inspection and verification by duly authorized Revenue Officer/s for the purpose of ascertaining compliance with tax rules and regulations.

Summary 

Ignorance of the law excuses no one from compliance therewith. We suggest that online sellers of goods/services, freelancers and alike to simply comply the above tax compliance obligations and avoid headaches. We could help you comply with the above from tax education, processing registrations in your behalf, maintaining your books of accounts, and filing of tax returns, reports and other BIR submissions.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at in**@************er.org, or you may post a question at Tax and Accounting Center Forum and participate therein.