From an employee to a self-employed by: Rochier T.

Yao
After many years of perseverance to finish college, pass the board examination and pursue the career of choice, most
young professionals end up as employees in a company. Being an employee is the most common path of practicing ones
profession and earning money to satisfy ones basic needs. As an employee, though, you are required to report to office
usually at eight in the morning and youre very lucky if you could leave the office at exactly five in the afternoon. You
take directions from your boss and you get a fixed salary.
More often than not, at some point, it will come to ones mind: Why not be your own boss at the same time practice your
profession or start a business? Why not be a consultant instead of an employee in the company?
For many, being a sole practitioner/proprietor is equated to a bigger pay check and being able to set own working hours
and schedules as well as conduct every phase of the business as deemed appropriate. Most employees also envy the
privilege of individuals in business to deduct expenses for income tax purposes and, therefore, be subject to a lower tax.
An employee is only entitled to the personal exemption of P50,000 and an additional exemption of P25,000 for every
qualified dependent, if any.
But is a shift from an employee to a sole practitioner/proprietor as easy as 1-2-3?
As an employee, your life is quite simpler. The employer takes charge of updating your BIR registration as a new
employee or for other updates. The employer is also responsible to withhold tax on salary and remit the same to the BIR.
In most cases, employees are qualified for substituted filing, hence are no longer required to file an annual income tax
return.
On the other hand, to operate a professional business as a sole practitioner, individuals must initially secure the business
licenses, permits or certificates with certain agencies. To register with the BIR, the professional must first enlist the
business name with the Department of Trade and Industry (DTI), and with the local government unit where the business is
located, file an update of registration with the BIR from an employee to a sole practitioner/proprietor. The BIR will then
issue a Certificate of Registration indicating the type of taxes to file and pay (e.g. income tax, percentage tax or valueadded tax, etc.).
Thereafter, as a sole practitioner, one will also be required to issue an official receipt and maintain records to support
expenses and input VAT. Books of accounts are needed, and an independent CPA may even be required to examine and
audit books of accounts if the quarterly receipts exceed P150, 000. One might be also be held liable as a withholding agent
on the income payments made.
There are monthly and quarterly returns that have to be filed in addition to the annual tax returns with the BIR.
As a sole practitioner, the person will be liable to income tax at the same graduated rates of 5-32% on the taxable income.
Taxable income shall be the excess of gross receipts over the cost incurred in rendering service and other related general
and administrative expenses. In lieu of the itemized deductions, the taxpayer can avail of an optional standard deduction
of 40% of gross receipts to arrive at taxable income.
It should be noted that professional fees are subject to the expanded withholding tax of 10% (15% if the annual gross
receipt of the professional exceeds P720,000). The tax withheld, as evidenced by the certificate of creditable income tax
withheld (BIR Form 2307) shall be used as a deduction on the income tax due of the professional.
In addition to income tax, a professional shall pay 3% percentage tax on gross receipts or 12% VAT if the annual gross
receipts exceed P1,919,500 or if the professional opted for VAT registration.
One is also required to annually renew the registration with the BIR and pay the corresponding local business tax with the
local government unit.
These compliance requirements are bound by interest, surcharges and penalties for every failure, omission or late
compliance, notwithstanding how good or bad your business is doing Entrepreneurial initiatives are always encouraged.
However, an entrepreneur should be well aware of his responsibilities especially to the regulatory agencies which are not
as simple as those of an employee.
It is worth mentioning that the Commissioner of Internal Revenue has mentioned on several interviews that the BIR will
be giving special attention to professionals. These are the compromises in exchange for the upsides associated with this
career path.

What Taxes Should I Pay in the Philippines (Self-employed)Feb 8, 2011 by Victorino Abrugar at Tax Tips, Taxation
What taxes should you pay in the Philippines? What taxes should self-employed individuals pay in the Philippines? Selfemployed 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.
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.
Note:
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.
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.
Note:
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.