I Really Need Help Understanding this 8% Income Tax Rate Option of the BIR

I completely understand. We’ve been receiving thousands of inquiries via our chat button in Taxumo’s site this April asking a lot of things about the 8% Income Tax Rate option. So, I thought writing about it would be a good idea (and note that this is based on my understanding). Full disclosure! I am not a tax expert. I am just relaying what I have heard from our BIR contacts. And if you read opinions on this post, this is MY own personal opinions and not the opinion of Taxumo. Got it? 🙂

What is this 8% Income Tax Option and who can avail of this?

Because of the TRAIN Law (aka R.A. 10963), a lot of changes have been happening and a lot of people don’t know what to do. For sole proprietors, like yours truly, I just take in and digest parts of the TRAIN LAW that is applicable to me. One of the things that is an option now is the opportunity to avail of a simpler 8% Income Tax Rate Option.

The BIR released Revenue Regulation or RR 8-2018 which details how the income tax changes as per TRAIN will be applied. Although it explains a lot of things, there are still things that are not explained thoroughly. According to the regulation, the 8% Income Tax Rate on Gross Sales/Receipts can only be availed by any self-employed individual whose gross sales/receipts for the year does not exceed P3,000,000 (aka the VAT Threshold).

Check out this video from Taxumo:

So should I choose the 8% Income Tax Rate Option?

Choosing the 8% tax rate option is simple because it’s a flat rate! No hassle, no computations 🙂

But for me, I actually did not choose this. But I have my own reasons, and these are:

    1. The Regulations said one thing but when I called my RDO, it seems they were not following what was on the RR. Case in point: RR No 08-2018 says: “If the taxpayer is unable to timely update the required registration, s/he shall continue to file the percentage tax return reflecting a zero amount of tax with a notation that s/he is availing of the 8% income tax rate option for the taxable year.” BUT, when I called my RDO, they said that for them (whatever that means), they don’t accept these forms filled out according to what the RR said.

  1. So two (2), I personally called BIR and asked what the process is to opt for 8% and the gave me the process (as seen below) BUT I personally don’t have time to do that (hahaha! again, it’s just me and my laziness!)
  2. And three (3), as an events coordinator, we have a lot of expenses. So, based on this calculator, I think the 3% plus income tax is still a better option for me.

So how do you tell the BIR that you’re opting for the 8% Income Tax Rate Option?

Step one: Go to your BIR RDO and bring your Certificate of Registration (COR) and a Letter of Intent. They will ask you if you haven’t gone beyond the threshold of Php 3 Million (They will also check your records and see if there are open cases, etc.)

Step two: Wait for them to release the new COR. It will not include “percentage tax” anymore. It will only show you that you need to pay for Income Tax and your yearly renewal. When do you get the new COR? Well, it really depends on how fast your Revenue District Office can release it.

It’s not that bad really and it’s very simple. I’m just lazy (haha!). After you receive your new COR, you can use Taxumo for filing taxes all throughout the year at just Php 250 per form. We just don’t have the rate yet for the 8% filing and the annual income tax filing, but we’re really affordable so you don’t have to worry about that part.

Please don’t forget to still file the first quarter Percentage Tax form for this year and just indicate zero filing. This is what the BIR Officers in different RDOs told me.

For opting in for the 8%, you need to update your COR before April 30, 2018. 

What else did I miss?

Oh, for the Quarter 1 Income Tax Return filing due in May, don’t forget to indicate that you’re “opting in” to avail of the 8%. If you miss indicating this in the form, you will have to file your Income Tax Returns using the Graduated Income Tax Table AND also file quarterly percentage tax returns. I’m not sure if you need to change your COR back again to indicate that you’ll pay percentage tax though, but it’s most likely that you will.

So that’s it! These are the things that I know about the 8% Income Tax Rate Option.

If you still want to talk about this, chat with us at https://taxumo.com

 

 

Freelancers’ Questions About Taxation, Answered!

I have seen a shift in the mindset of a lot of freelancers (for this working online and for those rendering offline services). Back in 2013, when we at Manila Workshops started to create learning events for Freelancers and aspiring freelancers, we saw that most of them were in that realm of trying things out. Some of the freelancers that we encountered were starting a freelancing career and most of them were still thinking of starting. Four years after, we see that now, a lot of them want to make this their full time profession. They want to make this a career and their main source of income.

Since they will make this their primary source of income, a lot of questions on legitimising and registration with the government come up. As you know, as a freelancer, you need to fix and do everything (as an employee, people in HR do it for you). Registering as a freelancer in the Philippines is actually quite easy. I kid you not! You just need resources (like this article) to guide you.

Do I need to pay taxes even if I earn only a little from Freelancing?

Yes, you need to pay taxes, and it’s clearly stated in Section 74 in the Philippine Tax Code. It says that for as long as you receive income, regardless of the source (even from international entities), you are required to pay taxes. Again, we are seeing more freelancers pay taxes because of their need for a proof of their income which they will use to get VISAs, loans, health cards or HMO plans, etc.

So, I’m now earning a small amount of money from my freelancing career, but I am also employed. How do I declare my income to the Bureau of Internal Revenue?

First, you have to register as a non-PRC Licensed professional. You may opt not to have a DTI Certificate of Registration. In DTI you reserve the name of your business, which is something that is not really that important if you’re registering as an individual. As a freelancer, you NEED NOT go to the municipal hall to register for a barangay business permit. Just go straight to the BIR. Although, some BIR Revenue District Offices (RDOs) may require you to get an Occupational Tax Receipt issued by the Local Government Unit (LGU).

What are the instances when I need to get a barangay business permit and clearance?

For example, you are a yoga teacher that is commissioned by different yoga studios, you need not get a barangay permit. Once you open your own studio though, this becomes a sole proprietor/business that you will need to register. You will need to go to DTI and the Municipal Hall, and of course, BIR. If you don’t have employees, you need not go to SSS, Philhealth and Pagibig, since you will just have to pay for your own SSS/PHIC/Pag-ibig contributions under your own identification number as a voluntary contributor.

For employees, they have to option to opt for “substituted filing”, which means they are exempted from filing an income tax returns on their own. To qualify, one should have only worked for one employer during a calendar year and has no other sources of income. This can be availed by signing off on the Form 2316 (proof of remittance of payroll tax) provided by employers after the end of the year, or after an employee has moved on. The Form 2316 will then be submitted by the employer (or ex-employer) to the BIR.

If one has worked for more than one employer during a calendar year, he or she would have to file for either of the following:

Form 1700 – use this form if one has no other sources of income other than employment income, and add all employment income and deduct all payroll taxes withheld by employer(s), and pay remaining tax due (if any)

Form 1701* – use this form if one has other sources of income in addition to employment income, or earning purely business income; use this form to report all sources of income (employment, business, others)

*Self-employed freelancers, professionals and sole-proprietors are required to also file quarterly income tax forms (Form 1701Q) in addition to the annual Form 1701. However, employment income are not required to be included in the quarterly tax returns as these are to be reported only at year-end.

Self-employed freelancers, professionals and sole-proprietors are also required to pay quarterly taxes. Depending on their classification (see section below), they will need to file either (updated for TRAIN):

Under Professional – Graduated Income Tax Table:

  • Non Vat / Percentage taxes (Form 2551Q) – gross revenues x 3% or VAT (Forms 2550M and 2550Q) – gross revenues x 12%, less the VAT charged by VAT-registered vendors/suppliers
  • Quarterly Income taxes (Form 1701Q) – Graduated Tax Table

Under Professional – 8% Income Tax Rate

  • Quarterly Income taxes (Form 1701Q) – 8% of Gross Receipts or Gross Sales

But before going to taxation, what are the requirements to register as a freelancer in BIR?

First of all, you have to decide on a business address. The city where your business address will be should match the Revenue District Office of the BIR that your TIN will be attached to. If you previously worked in Makati, and have decided to use your home address in Pasig as your business address, be sure to transfer your TIN from the Revenue District in Makati to the Revenue District in Pasig. Just fill up the form 1905 (Download Form 1905) then submit it at the current Revenue District Office. Wait for at least a week before going to the new RDO to register as a freelancer.;

The list of the BIR Revenue District Offices is here: https://www.bir.gov.ph/index.php/contact-us/directory/revenue-district-offices.html

Once I have transferred my RDO, what should I do?

You should fill out the form 1901 (download Form 1901). You can get it from the Officer of the day or from the guard from the entrance of the RDO.

For the Taxpayer Type, as a freelancer, choose professional – In General. (It’s best though to ask the Officer of the Day on how they classify Freelancers).

Be sure also that you start as a Non-Vat entity. Vat Entities are those that earn Php 3.00 Million a year. Be sure also that you say that you still don’t have employees, if you’re working alone. Check the form, and ASK QUESTIONS before signing and submitting the form.

Each form is only at Php 500 which you can pay at the Authorized Agent Banks (AABs) near the RDO using form 0605. There will also be a certification fee and you also have to pay for Documentary Stamps. These will be around Php 30 to Php 50. You will get the Certificate of Registration a week or two weeks after.

Before leaving the Revenue District Office though, you can order for you Official Receipt booklet. Some of the accredited suppliers are in the BIR premises. If you don’t see them, just ask the BIR Officer the details of the supplier that you may contact. One order is normally 10 booklets at the minimum. This may cost 1000 to 2000 pesos for 10 booklets (depends on the design and if duplicate or in triplicate).

When you go back for the Certificate of Registration, you will also receive the following: ATP or Authority to Print and your books of accounts. The BIR will stamp your books of accounts (journal/ledger/subsidiary professional income book and subsidiary purchases/expenses book) and also your official receipts.

You will know if you are registered when you have your Certificate of Registration. Once you have your COR or form 2303, you SHOULD already start filing and paying for your taxes. Be sure to file even if you haven’t earned anything for the month.

Here is the schedule for the tax deadlines for a Non-Vat Entity

Quarterly Percentage Tax (Form 2551Q) – BIR Deadline is on April, July, October and January of the next year (usually on the 15th of these months).
Quarterly Income Tax (Form 1701Q) – Q1 is on May 15 / Q2 is on August 15 / Q3 is on November 15 / Annual Income Tax Return is on April 15 of the following year.

Once you have your Certificate of Registration, this is where Taxumo, an online web application service can help you file and pay for your taxes. All you need to do is:

  • Copy the details in your Certificate of Registration to your Taxumo Profile
  • Fill in your income and expenses tabs
  • Click on the tax cost to submit your tax filing
  • Payment can be done online, too! Just go to Taxumo.com
  • Taxumo will save your BIR confirmation and the payment confirmation in your dashboard as proof of payment.

YOU’RE DONE! It’s so simple. Please view this video if you need more information.

I hope this article helps! Use my code GINGER to get a discount on your first filing! 🙂

Love lots,

Ginger

P.S.

These are other links to some other articles that can help you:
http://www.freelancing.ph/bir-requirements-every-filipino-freelancer-should-know/
https://www.rappler.com/business/53578-self-employed-how-to-register-bir

P.P.S.

Online Tax Preparation with a Heart

Never in million years would I have guessed that I would be a TECH STARTUP company co-founder AND focus on online tax preparation. When I was little, I never liked math. One of the reasons why I chose marketing was I assumed it had a few subjects where I had to compute or use a calculator. When I graduated and helped my dad handle the family business, I would be so bored looking at excel spreadsheets that showed profit and loss statements.

I think I only got to love numbers when I joined a bank. Of course, in the beginning, I forced myself to look at spreadsheets and reports containing mostly numbers — all kinds of numbers and computations. Plus, I had to force myself to understand banking language like ADB, MBR, TPR, NPV, TITF, JA, CASA, FLOATS, etc. But, for anyone who knows me, I am a competitive person. I loved the challenge. So when I started understanding number, I found that I loved it and it was “actually” useful! haha! My almost 7 years of service in that bank was the best years of my life. I learned a lot and challenged myself A LOT!

When 2012 came, I went away to seek the life that I wanted, which was to become an entrepreneur. I would watch videos of Marie Forleo, Tyra Banks, Oprah and other influential women on the internet. I really admired each one of them and how they got to where they were. I saw the millions and millions of people whom they have helped. I wanted to be like them. I wanted to see how I could directly help others with a business. This dream was the foundation of Manila Workshops. When I started, it was a challenge getting our name out there. It was even more challenging to manage the “business” side of everything — from sustaining profits, controlling costs and most of all, dealing and paying taxes! I really hated that part.

I would always get stressed it if taxes was the topic. I wished for the longest time that someone would create anything like an online tax preparation system or whatever to make it easier for me. And so, with someone did notice and create a rudimentary system for me. This someone was my husband and my saviour. With this very rough local automation at home, we were able to expand the business of 3 directors to 20 directors.

The TAXUMO Story

taxumo-logo-full-black

And this is where our Taxumo story begins. We wanted to share this process and system with other small business owners, freelancers and professionals. We created a deck of the idea that we had, and started to pitch it to different people and in different competitions. This is where we started, because it seemed that others were doing this as well. With this, we were chosen as one of the 100 startups in Asia for the Echelon e27 Summit. During this time, we were already slowly developing the product. I was talking to different possible partners and was building alliances. EJ was developing algorithm, framework and the other stuff that we had to have before developing the software.

The next chapter of our story started when we were chosen as top 25 for the Ideaspace incubation program. We got some funds to build the prototype. With the money, we hired a freelance developer who would build the working prototype for us (A big shout out to Barry! Thank you! He developed our MVP and was really good, but had to let go of the project because we didn’t have enough funds to pay him.). This is the typical challenge of a startup. If you’re going through a financial turmoil, this is normal. We were bootstrapping as bootstrapping can be. Then, we were chosen as one of the top 10 startups for the Ideaspace Acceleration program. This came in at the right time. We used the funds to speed up development. A competent team is helping us develop the new system now (shoutout to Spectres Solutions! Wooohoo!)

During this time also, we invited people to be co-founders with us. Why and how did we decide on that? Well, we knew that we needed competent people to join our team to handle different aspects of the business. We knew that we needed an accounting and taxation expert, so we invited Mark. We knew that we needed to be covered legally, so we invited Atty. Kevin. And finally, after a few months of personally handling operations and marketing, the four of us decided to invite Evan, a marketing and advertising expert, and a freelancing advocate. So that’s how our team came to be.

Today is a really important day for us — it’s Ideaspace’s Demo Day. This is where we show the world the months of hard work that we have put into our startup (thanks Charz Medoza for the great design work, our new logo and the new UI/UX that everyone should watch out for!) But forget about us, because this is the time when we share the benefits of Taxumo for all of the Philippine self employed individuals — small businesses, freelancers and professionals. You can now concentrate on starting and building your business. This is the time to REFOCUS on what matters. Refocus on your passion!


 

We know that the reason that you started this business is that you want to make a difference. You long for time to use words or photographs to tell a story. You wanted to see the smiles as your customers run their fingers on that dress that you so painstakingly created. Hearing the conversations of people after a workshop session that they are now inspired to take action makes your heart skip a beat. Seeing an email of gratitude from a US client for great VA work done makes you feel that you can conquer the world. Giving business or life coaching advice to hundreds of people on stage or even through a one on one session makes you elated. All of these things make you remember that it was passion and a sense of purpose that made you decide to start your own business or pursue this profession. This is how we feel. This is how we all should feel about our business.

So join the tribe and worry less about taxes! Pursue your passion. Leave all the taxation worries and sign up for Taxumo (http://taxumo.com). It’s should all be about YOU this 2017!

P.S. Thank you to all of our mentors (Ms. Diane, Sir Manny, Prim, Phil, Gabe, Paul, Edmond, Jojy, Jojo, Jay) and to all of those who helped us make this happen! We love you all! #TeamTaxumo