18 {{ upvoteCount | shortNum }}
18 {{ upvoteCount | shortNum }}

Filipino freelancers - how do you pay taxes? + VAT question

by Bence Ur
12 replies
Hi,

how do the Filipino freelancers pay their taxes?

I have a corporation in the EU, it has limited liability (similar to the LLC in the US).

I would like to hire a Filipino worker from the Philippines, for full time (8 hours a day, 40 hours a week).

She is a Filipino citizen, she will work from home using her own computer, she lives in the Philippines during the whole year, and my corporation doesn't do any business in the Philippines.

So exactly how can I hire and pay her? You see I need valid invoices from her (because her salary is deductible expense in my business). I guess she cannot issue valid invoices as a private citizen (sure technically she can create an invoice using Paypal, but I guess that wouldn't be a valid invoice).

I found this blog post: Taxes for Pinoy Freelancers: BIR Requirements and Registration

So is it true that my Filipino worker must register herself as a professional, or in other words as a self-employed tax payer in the Philippines? And after that she can issue valid invoices for me?

If you are a Filipino freelancer, please tell me whether the above information in the linked blog post are correct or not!

Or if you have a corporation and you employ a Filipino worker for full time, please tell me about the process, for example do you have a contract?

And what about the VAT (Value Added Tax)? When I pay my worker, and she issues an invoice to me, is there a 12% VAT on top her monthly salary? This tax guide says that: http://thefreelancepinoy.com/wp-content/taxguide.pdf

Everyone say here in this forum for example that I pay X amount of dollars per month to my Filipino worker. Yeah, but what about the VAT?
#filipino #freelancers #pay #question #taxes #vat
  • Profile picture of the author Istvan Horvath
    I don't know about the Filipino taxes... but I am quite sure you (your company) does NOT pay VAT on salaries. Nobody pays VAT - which is a "sales tax" type of tax - on salaries. If you are an employer, you may or may not be obliged by the law to deduct (at the source) income tax from the employee's salary.

    Seemingly, you don't understand the difference between an employee and a freelance service provider.

    If a service provider (Filipino or not) gives you an INVOICE - then you are NOT paying salaries: you pay a service fee for the services rendered and in that case (depending on your residence, location and many other circumstances) you pay VAT or similar sales taxes... but all that is calculated on the service provider's end!

    E.g. if I send you an invoice I will add 13% HST (Harmonized Sales Tax) because that's the "VAT" in the province of Ontario - and you don't have a choice to pay it or not. You just pay it and that's it.
    If I was at my earlier residence in the province of Manitoba, I would add to my invoice a 12% (= 5% GST [Goods and Services Tax] + 7% PST [Provincial Sales Tax] = 12%) tax. Again, it's not your choice whether to pay it or not...

    Maybe you should consult with a local (EU/Hungarian) tax professional before posting in a public forum...
    Signature

    {{ DiscussionBoard.errors[5309474].message }}
  • Profile picture of the author Bence Ur
    Ok, I wasn't clear enough. I know the difference between an employee and a freelance service provider.

    I already consulted with my local tax advisor. My problem is that we don't know the tax laws and possibilities in the Philippines.

    My tax advisor said that the best method would be if my worker could issue invoices for me. So yes, technically she won't be my employee. And a private citizen cannot issue valid invoices.

    my problem is that I cannot pay her if I am a registered corporation, and she is a Filipino citizen. Because we must either sign a contract, or she must issue a valid invoice for my corporation. Do you understand my problem?

    So this is my question: if you have a corporation and you want to employ a Filipino worker, how do you do that? Do you sign a contract? Or is it better if the Filipino worker register himself as a professional (self-employed) tax payer, and he issues an invoce for you each month?

    When your worker is a registered professional or self-employed tax payer, I think you must pay the VAT, which is 12% as I heard.
    {{ DiscussionBoard.errors[5309539].message }}
  • Profile picture of the author Bence Ur
    Ok let me ask my question in a different way.

    What kind of contract should I sign with my Filipino worker? My worker is a private citizen (not a registered professional in the Philippines), then do I have to pay any taxes for the Philippines government (for example, VAT or social security taxes)?

    Does it work if my corporation and the Filipino private citizen sign a contract, and I just pay him without any invoice? Or do I need invoices from him?

    I am confused, because my corporation is a legal entity, but my worker is an individual without any business.

    So please if you have a corporation and you employ a full time Filipino worker, tell me how to do it!
    {{ DiscussionBoard.errors[5309987].message }}
    • Profile picture of the author Chris Thompson
      It's not your problem how your freelance virtual employee treats his or her income for taxes. You just send payment. Don't make it any more complicated than it needs to be.

      Pay using PayPal, and have them send you an invoice if you require it. There is nothing requiring you to make sure they handle their taxes properly. This is way more simple than you're making it.
      {{ DiscussionBoard.errors[6100322].message }}
  • Profile picture of the author fetamy
    Paying our taxes has its benefits. Not only does it add to the coffers for the [personal] use of some of our public officials but it also gives you an annual Income Tax Return (ITR) form, a piece of paper that shows your proof of income and what most financial institutions requested when you apply for loan, credit card or even for a mobile postpaid number. If you’re employed, your taxes are automatically deducted every payday and filed by your employer so you just simply get a BIR Form 1700 which shows how much was deducted from your salary and added to the coffers of the Republic of the Philippines.
    Signature
    VAT training course | payroll training seminars
    {{ DiscussionBoard.errors[7117715].message }}
  • Profile picture of the author WeavingThoughts
    Why should somebody else's returns be your headache?
    Signature
    {{ DiscussionBoard.errors[7117724].message }}
  • Profile picture of the author ilynreal
    I am a filipino. just pay her. Its her responsibiloty to pay her taxes.Just give her a fix salary that you and her agreed.
    {{ DiscussionBoard.errors[7118307].message }}
  • Profile picture of the author jazzygelable
    Originally Posted by Bence Ur View Post

    Hi,

    how do the Filipino freelancers pay their taxes?

    I have a corporation in the EU, it has limited liability (similar to the LLC in the US).

    I would like to hire a Filipino worker from the Philippines, for full time (8 hours a day, 40 hours a week).

    She is a Filipino citizen, she will work from home using her own computer, she lives in the Philippines during the whole year, and my corporation doesn't do any business in the Philippines.

    So exactly how can I hire and pay her? You see I need valid invoices from her (because her salary is deductible expense in my business). I guess she cannot issue valid invoices as a private citizen (sure technically she can create an invoice using Paypal, but I guess that wouldn't be a valid invoice).

    I found this blog post: Taxes for Pinoy Freelancers: BIR Requirements and Registration

    So is it true that my Filipino worker must register herself as a professional, or in other words as a self-employed tax payer in the Philippines? And after that she can issue valid invoices for me?

    If you are a Filipino freelancer, please tell me whether the above information in the linked blog post are correct or not!

    Or if you have a corporation and you employ a Filipino worker for full time, please tell me about the process, for example do you have a contract?

    And what about the VAT (Value Added Tax)? When I pay my worker, and she issues an invoice to me, is there a 12% VAT on top her monthly salary? This tax guide says that: http://thefreelancepinoy.com/wp-content/taxguide.pdf

    Everyone say here in this forum for example that I pay X amount of dollars per month to my Filipino worker. Yeah, but what about the VAT?
    Im a Filipina and sadly, not all freelancers file their taxes accordingly but that's another issue. If you want to get an invoice, you can ask the contractor to setup and apply for a sole proprietorship business. I know a lot of web designers, photographers and part-time makeup artists who do that because their clients require an invoice for tax deductions. Applying for such is easy but that will incur some fees which you should talk about with the contractor.

    As for VAT, sole proprietorships are asked to pay only 3% of their gross sales in a month. But not all sole proprietorship businesses qualify for that, once you reach an amount (P2million annually... I think) you'll be required to pay higher. Btw, we call those small businesses 'Non-Vat'.

    I work part time as an accountant for corporations so I don't know the exact figures for sole proprietorships. Im sure though that if you want an invoice, one option is to ask the contractor to apply for a sole proprietorship. The other option I see is that you can coordinate with a headhunter or an outsourcing company. They'll surely have an invoice ready for you.
    {{ DiscussionBoard.errors[7118548].message }}
    • Profile picture of the author Remotus Staffing
      Originally Posted by jazzygelable View Post

      Im a Filipina and sadly, not all freelancers file their taxes accordingly but that's another issue. If you want to get an invoice, you can ask the contractor to setup and apply for a sole proprietorship business. I know a lot of web designers, photographers and part-time makeup artists who do that because their clients require an invoice for tax deductions. Applying for such is easy but that will incur some fees which you should talk about with the contractor.

      As for VAT, sole proprietorships are asked to pay only 3% of their gross sales in a month. But not all sole proprietorship businesses qualify for that, once you reach an amount (P2million annually... I think) you'll be required to pay higher. Btw, we call those small businesses 'Non-Vat'.

      I work part time as an accountant for corporations so I don't know the exact figures for sole proprietorships. Im sure though that if you want an invoice, one option is to ask the contractor to apply for a sole proprietorship. The other option I see is that you can coordinate with a headhunter or an outsourcing company. They'll surely have an invoice ready for you.

      No need to have a sole proprietorship/company, just as doctors, architects and some CPA's who offer their individual services. They just have to register to their local respective BIR branch using their registered names as an Individual Tax Payer.
      {{ DiscussionBoard.errors[7795951].message }}
  • Profile picture of the author johnpaulgrant
    Good question. I salute you for this inquiry. Most clients don't really mind if their VA is living as a responsible Filipino citizen by paying taxes. Usual arrangement goes like this: the VA works and the client pays, that's all. So it's great you are addressing this concern.

    First off, you can always pay your VA via paypal or xoom. These are two of the most common ways to pay Filipino VAs.

    Second, with regards to the taxes, you will just need your VA to pay his/her taxes himself/herself. All you need to do is have her papers scanned and sent to you regularly so you can see if he/she is consistently paying taxes.

    Third, make sure that you make just compensation to your VA. There is a big possibility that the VA will just keep the allotment for the tax because his/her compensation is not good enough.
    Signature

    I am an expert in outsourcing to The Philippines and have been working with Filipino virtual assistants for more than 5 years. I am the co-founder of RemoteWorkMate (VA management service) and RemoteStaffRecruit (VA recruitment service) Check out my blog >>>LifeStyleBusinessDesign<<<!

    {{ DiscussionBoard.errors[7126551].message }}
    • Profile picture of the author Remotus Staffing
      I am Filipino, and I thrive on my Income from services I offer online namely data encoding, SEO projects, virtual assistance and etc. I went to consult with my Bureau of Internal Revenue branch in the past, and they told me that there aren't really tax laws in the Philippines that covers Freelance workers like me yet.

      However, conscience and my desire to take care of my reputation led me to paying my taxes as a Professional. But as a registered Individual tax payer, like doctors, CPA, architect and etc. I am able to issue valid receipts. We are only required to issue receipts to local transactions. But if our international clients requests for it then we should issue OR/SI.

      Freelancers in the Philippines are exempted from paying the 12% value added tax if our customers dollar paying or from abroad. But only when we’re transacting with local/Philippine-based clients that we are required to pay VAT.

      Many of Filipino online workers aren't registered professionals and I don't blame them. Somehow we know where some or majority of our taxes go (someone's pocket/corruption) and the inconvenience of trying to do things in a proper way. Processes in the Philippines really takes a good chunk of our precious time & money every month, quarterly and yearly for returns. So rather than paying the annual fees and all other miscellaneous fees (specially for those without continuous source of income) they find that the whole process is not worth it. That is if they have no plans of applying for loans or doing transactions that involves an ITR.

      If you want to be sure if your VA's are Registered Tax paying individuals, you can ask a scanned copy of their "Certificate of Registration" BIR form 2303.

      Just make sure that what you are paying them is worth having their monthly/weekly/project based paychecks taxed by 5%-32%.
      {{ DiscussionBoard.errors[7795897].message }}
  • Profile picture of the author WallyKyle50
    Originally Posted by Bence Ur View Post

    Hi,

    how do the Filipino freelancers pay their taxes?

    I have a corporation in the EU, it has limited liability (similar to the LLC in the US).

    I would like to hire a Filipino worker from the Philippines, for full time (8 hours a day, 40 hours a week).

    She is a Filipino citizen, she will work from home using her own computer, she lives in the Philippines during the whole year, and my corporation doesn't do any business in the Philippines.

    So exactly how can I hire and pay her? You see I need valid invoices from her (because her salary is deductible expense in my business). I guess she cannot issue valid invoices as a private citizen (sure technically she can create an invoice using Paypal, but I guess that wouldn't be a valid invoice).

    I found this blog post: Taxes for Pinoy Freelancers: BIR Requirements and Registration

    So is it true that my Filipino worker must register herself as a professional, or in other words as a self-employed tax payer in the Philippines? And after that she can issue valid invoices for me?

    If you are a Filipino freelancer, please tell me whether the above information in the linked blog post are correct or not!

    Or if you have a corporation and you employ a Filipino worker for full time, please tell me about the process, for example do you have a contract?

    And what about the VAT (Value Added Tax)? When I pay my worker, and she issues an invoice to me, is there a 12% VAT on top her monthly salary? This tax guide says that: http://thefreelancepinoy.com/wp-content/taxguide.pdf

    Everyone say here in this forum for example that I pay X amount of dollars per month to my Filipino worker. Yeah, but what about the VAT?
    You have a kind and caring spirit...which you are wasting on a responsible(hopefully) business person. This is her deal not yours.
    {{ DiscussionBoard.errors[7795963].message }}

Trending Topics