Freelancers and self-employed individuals must register with the BIR, keep books, and issue receipts. If annual gross sales or receipts do not exceed 3,000,000 pesos, you may elect the 8% flat income tax on gross receipts in excess of 250,000 pesos, in lieu of the graduated income tax and the percentage tax. Otherwise the graduated rates apply plus the 3% percentage tax, and once you exceed 3,000,000 pesos you become liable for VAT.
Working for yourself does not put you outside the tax system. Freelancers, online sellers, consultants, and professionals are self-employed individuals in the eyes of the Bureau of Internal Revenue, with an obligation to register, keep records, issue receipts, and file returns. This guide explains the obligations and the one choice that matters most: the 8% option.
You Must Register First
Registration is not optional. A self-employed individual registers with the Revenue District Office having jurisdiction over the place of business or residence, using BIR Form 1901. If you already have a TIN from a previous job, you update that registration — having more than one TIN is prohibited. You will then receive a Certificate of Registration that states exactly which returns you must file. You must also register your books of accounts and be able to issue valid receipts or invoices to clients.
The Big Choice: 8% Flat Tax or Graduated Rates
This is where most freelancers save or lose money. If your annual gross sales or receipts do not exceed ₱3,000,000, you may elect:
- The 8% flat income tax on gross sales or receipts in excess of ₱250,000, which is in lieu of both the graduated income tax and the percentage tax; or
- The graduated income tax rates on your net income (gross income less allowable deductions), plus the percentage tax.
The 8% option is simple and usually favours those with few deductible expenses — a writer or consultant with little overhead. The graduated route can win where expenses are heavy, because you are taxed on net rather than gross. The election is made in the manner and within the period the BIR prescribes, and it is not something to change on a whim mid-year.
The Percentage Tax Is Back to 3%
Worth flagging, because a lot of outdated advice circulates: the percentage tax under Section 116 of the Tax Code is 3% of gross quarterly sales or receipts. It was temporarily reduced to 1% by the CREATE law, but only for the period July 1, 2020 to June 30, 2023. It has since reverted to 3%. If you are on the graduated route and still computing 1%, you are underpaying.
The Returns You Must File
Filing is quarterly and annual, not just once a year. Self-employed individuals file quarterly income tax returns and an annual income tax return. If you did not elect the 8% option, you also file the quarterly percentage tax return. A crucial point that catches many freelancers: if you have no income for a period, you still file a return. Failing to file at all — rather than failing to pay — is what generates compromise penalties and an open case in the BIR system.
Crossing the ₱3,000,000 Line
The ₱3,000,000 threshold is the boundary of the simplified world. Once your gross sales or receipts exceed ₱3,000,000 in a year, you must register as a VAT taxpayer, charge VAT, and comply with VAT invoicing and filing. The 8% option is no longer available to you. Freelancers whose income is growing should watch this line deliberately rather than discover it after the fact.
Practical Advice
Keep your books current rather than reconstructing them in April, issue receipts as you go, and keep your withholding tax certificates from clients — those creditable withholding taxes reduce what you owe. If you are a professional whose clients withhold tax, reconcile those certificates against your returns. And if you registered years ago and stopped filing because you had no income, deal with it now: dormant unfiled returns quietly accumulate penalties until they surface in a clearance or a loan application.
Frequently Asked Questions
What is the 8% tax option for freelancers? If your annual gross sales or receipts do not exceed 3,000,000 pesos, you may elect an 8% flat income tax on gross sales or receipts in excess of 250,000 pesos, in lieu of both the graduated income tax and the percentage tax. It usually favours those with few deductible expenses.
What is the percentage tax rate now? The percentage tax under Section 116 is 3% of gross quarterly sales or receipts. It was temporarily reduced to 1% under the CREATE law only from July 1, 2020 to June 30, 2023, and has since reverted to 3%.
When do I have to register for VAT? Once your gross sales or receipts exceed 3,000,000 pesos in a year, you must register as a VAT taxpayer and comply with VAT invoicing and filing rules. The 8% option is then no longer available.
Do I still file a return if I earned nothing? Yes. Registered self-employed taxpayers must file their returns even for periods with no income. Failing to file, rather than failing to pay, is what generates compromise penalties and an open case with the BIR.
This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.
If you are registering as a freelancer, choosing between the 8% and graduated routes, or fixing years of unfiled returns, our firm can help. You may reach us via Viber or WhatsApp, call us at 0995 433 5550, or send an email to vivasnobles@gmail.com. We look forward to hearing from you.