Hail the heavens for our blessings! As a freelancer, we have the ability to work anywhere in the world with just our laptop and a reliable Internet connection. We have found the middle ground. #blessed as some might say. Amidst this bounty, we can't escape the King's cut. In the modern day, it's the dreaded taxes. Pay our dues we must to give back to our country and its development (hopefully). Although with the Philippine taxation system, it might be really hard to comply. And after compliance, why are we paying so much? The government heard your plea. With the TRAIN law rollout last 2017, we now have a choice to pick the 8% flat rate compared to the relatively onerous graduated income tax rates. (Assuming you have gross sales lower than 3,000,000 PHP annually). But then, is it really beneficial for us? The answer would depend on you. But to give you an idea, here are reasons why you should avail of the 8% flat rate.
File Just One Tax Return All freelancers need to file for percentage tax (3% of your gross sales) for the quarter and a separate Income Tax Return for the same quarter. If you file with the 8%, you are exempted from the percentage tax!
Not Too Much Computation When you file using the 8%, you just need to know your total sales and deduct the 250,000 PHP personal exemption. When you arrive at the figure, multiply the amount by 8%. That's it! For example, you have total gross sales of 500,000 PHP. 500,000 PHP less 250,000 PHP is equal to 250,000 PHP. Multiply that by 8%. You have a total tax due of 20,000 PHP. It's that simple.
You Might Save Taxes from It The most important reason: "would I save from it?". And this will depend on your income and expenses per year. If you have relatively low expenses attributable to your business, for sure, you will have tax savings with the 8% tax rate. For example, you have a 50,000 PHP per month salary and a projected 10,000 PHP per month business expenses. Here is how your taxes would look like: As you can see, you can save roughly 35,500 PHP in taxes, ironically, from a simpler tax scheme. That's more than 50% savings for your hard-earned money. But not everyone has the same income and expenses. You can try checking out Taxumo's tax calculator comparison for a more customized result for you.
Great! I Find It Beneficial For Me! How Do I Avail It! Take note, claiming this is not automatic. You need to update you Certificate of Registration (COR) every year to claim the 8%. To do this, just go to your RDO and get a form 1905 for updating your COR. Just go to the officer of the day. They will assist you on what to fill up. Also, bring your old COR because they will replace it with a new one. After filling out the form, you will be able to pick up the new one after a few days depending on the queue of people in your RDO. That's it! Have fun with your tax savings!