To Register as an Independent Professional or a Sole Proprietor?

Instead of having a regular office job, many individuals have discovered the option to practice freelancing. It has become a viable option for people because it comes with many advantages compared to other jobs, such as higher income, no commuting expenses, saving time from being on the road, and many more.

However, self-employed individuals seem to have worries because they are uncertain if they they are earning their income legally. With no human resources department to turn to, filing the proper taxes is rather tricky. Are you one of these individuals? Are you complying with the tax requirements? Have you submitted all requirements for your business registration? Are you still confused? Learn more about this issue here:

Tax Code Stipulations

According to the tax services in Manila, freelancers or self-employed individuals are mandated to register their operations and pay the correct tax dues. According to the the Tax Code – Section 236 (j):

  • Any person, natural or juridical, should make/render/file a return/statement or other documents that are necessary and required by the Internal Revenue Code.
  • You need a TIN or Taxpayer Identification Number which you can obtain with BIR or Bureau of Internal Revenue. A TIN is necessary so you can be properly identified for tax purposes. A TIN as well will be indicated on returns, statements, or documents that the individual files with the BIR.

Sole Proprietor

In the Philippines, businesses can be classified as sole proprietorships, partnerships, or corporations. A solo entrepreneur, choose sole proprietorship as a type of structure since one individual or proprietor usually own the business. An example of a sole proprietorship would be small home-based businesses selling stuff online where the owner has the authority and control over the entire business. 

If you want to register as a sole proprietor, you will own all the assets of your business. According to tax and accounting services in the Philippines, you will also be responsible for all the liabilities your business will incur. You get to enjoy all the profit for yourself. However, you will also have to endure all the losses of the business alone. And it can be tricky cause lenders can go after your personal property to settle any arrears.  

Regarding taxes, the owner (proprietor) and his or her business (proprietorship) are considered one taxpayer which also means, there will only be one TIN. The proprietor should register with DTI or the Department of Trade and Industry and properly apply for the trade name.

If you choose to register as a sole proprietor, you should also do the following:

  • Get a business permit from the office of the mayor
  • Register with the following agencies:
  • SSS (Social Security System)
  • PhilHealth
  • Pag-Ibig Fund
  • other required government agencies 

Independent Professional

Are you a freelancer that provides services to clients? If you’re working from home, your income is still taxable. Hence, you should register yourself as an independent professional. Doing so doesn’t require you to register with DTI. Instead, your full name will be used as your trade name and the same will also be used in referring to your services, including any official receipts. 

What you need to do:

  • Pay professional tax with the Office of the Mayor
  • Register with the following agencies:
  • BIR (Bureau of Internal Revenue)
  • SSS (Social Security System)
  • PhilHealth
  • Pag-Ibig Fund

With regards to taxes, you don’t need to file for an income tax return if your income is subject to final withholding tax and if it is derived from interest on bank deposits. There are circumstances where your gross income will exceed your total personal income. Additional exemptions will be required in filing your income tax return using the BIR Form 1701 or 1701Q. If this is confusing, secure help from tax and auditing services in the Philippines.

Why You Should Register

When you’re earning income, whether it’s through a small business or via free-lancing, you must register with the BIR. Below are the benefits of registration:

  • It will be easier for you to apply for and get loans from different financial institutions like lending companies, banks, SSS, etc.
  • It will be easier to apply for a credit card since your annual income tax return will serve as evidence of your earnings.
  • Your credibility will increase through your registration with the BIR and the official receipts that are under your name.
  • You will earn more in the long run since you will avoid getting penalties by paying your taxes on time.
  • You can’t evade tax.

Registering your business can be challenging to do but with the benefits you can get when you register, it is important that you register and comply with the regulations and law and ensure your professionality. 

Do remember though that there are many firms out there that offer services that you need. If you’re looking for accounting services in Pasig, our team can help. Apart from accounting, bookkeeping, and tax services, we also guide you throughout the whole process of your business registration.