If you are a skilled worker living in the Philippines, you may want to know if it is possible to work for a US company as an independent contractor. Those who have developed marketable skills as an employee could find a new way to offer services outside the country. This option becomes even more attractive now for a contractor in the Philippines, as US firms are looking to hire remote workers based on talent rather than location.
If this is something that you are considering, then there is some planning to do to make sure you are ready when a job or project arises. Aside from going through the recruitment and hiring process, you will also have to set up a few things. These include contracting, invoicing and payment methods with your new US client.
This may not be simple since the company will want to confirm project completion and delivery. Also, as a contractor you will want to make sure to get paid in full, all occurring across international borders. You will have several options for setting this up, and as you prepare there are several contractor regulations to fulfil as well.
Direct Invoice
Of course, you can just create an invoice and send it to the client. This could either be for incremental hourly work or for the completion of project stages. This method does bring some risk for the contractor. The client may delay or even refuse payment, and you would have little recourse. The client may also be hesitant if this is a new relationship. In most cases, they will also want to have some way of assuring work quality and completion.
Modes of Payment
The other challenge with direct invoicing is the actual payment mode and there are two choices,
- Either bank transfer or
- One of the many electronic money transfer platforms.
Each of these carries some type of fee and varying levels of security. The US client may also be limited in how they can remit payment. Either way, this needs to be spelt out in the initial contract, as well as the currency used for payment.
Payment and Invoice (P&I) Method
Another way of setting up payment is through a P&I service, that creates the contract, invoices and payment method for you, and acts as a third party for the financial parts of the transaction. This allows you to avoid the pitfalls of direct invoicing and does give some oversight for project delivery and payment.
Due to the mutual benefit of using a P&I service, it may be possible to pass on the fee to the client within the contract terms. This can be an ideal option for new contractor/client relationships, that still preserves some autonomy for the parties.
Umbrella Company
A more complete solution is to use an umbrella company that is already set up in the Philippines, which can act as a third-party intermediary between you and the client. The umbrella company offers a layer of security for both the contractor and client. They are responsible for handling invoicing, payment and confirmation of contractor deliverables. They will also withhold taxes and social contributions for the contractor relieving you of those administrative tasks.
Staying Compliant While Working as a Contractor
As contracting grows in popularity, so does government interest in regulating and registering independent workers. You are essentially self-employed and must comply with any rules for contractors and freelancers in the Philippines. Your client will be equally interested to confirm that you are compliant. This is so that they don’t have the risk of being stuck with employer-related obligations. These include tax withholding or other contributions due to employees.
Contractor Laws and Regulations
The primary contractor laws in the Philippines only apply where a worker has been engaged through an agency, and possibly an umbrella company. These laws will apply to the client/agency to ensure worker protection but may be more than a foreign company bargained for when recruiting a contractor. If you are working directly and independently with a foreign company, those rules will not apply.
Freelancer Registration and Tax in the Philippines
As a contractor or freelancer working in the Philippines, you still have to register with the Bureau of Internal Revenue for tax filing and payment, just like any business. You will have regular reporting requirements. However, you can also take advantage of tax deductions that may not apply to employees. In addition to income tax, you will also pay either a percentage tax or VAT on gross receipts. This typically depends on revenue levels.
You can use the tax ID number you may have had previously as an employee. You, however, have to register the number as self-employed in this case. Likewise, registration is required to participate voluntarily in social security and national health insurance, and a mayor’s business permit/business tax is also required in your municipality.
How Contractor Taxation Helps Contractors in the Philippines
As a contractor, you can avoid any payment, compliance and tax problems by using either a P&I service or umbrella company, that will assist you in getting set up and assuring your client that all is in order locally before work begins. Given all the requirements, this can be of real benefit for a contractor, especially those who are just starting.
There is also the advantage of having a third party involved in oversight of the contracting and payment process. This minimises the potential for any disputes between you and your client.
Contractor Taxation has partnered with fully vetted and experienced P&I providers and umbrella companies who will know exactly how to fulfil the local requirements in the Philippines. By engaging with Contractor Taxation early in the process, you can also give your client the confidence that hiring you will be hassle-free and you can get to work right away. Please contact us to learn about the best option for you to work as a contractor from the Philippines.
