How can an Umbrella Company Help with Contracting in Philippines?
Most freelance workers aren’t superheroes who successfully tackle these issues all on their own. There are companies who specialise in helping workers make the most out of their contracts.
They’re called Umbrella Companies (or, contractor management companies).
Basically, an Umbrella Company acts as your full-time employer, even though you maintain your independence as a contractor. They collect and filter payments from your clients, filtering out the necessary social security and fees. You send them your timesheets, and they send you payments.
Because they act as your “employer,’ they can sponsor you and provide a single work permit for multiple contracts in the Philippines. Even better, most are experts in the Philippines and expat tax law, meaning they’ll also help you optimise your earnings in the Philippines.
Although the Umbrella Company is technically your “employer,” you’re essentially freeing yourself to work even more independently. You still dictate your contracts, your hours, your schedule. The Umbrella Company simply filters out the time-consuming admin and immigration issues, allowing you to focus on your new contract.
Can I Organise My Taxes and Work Permit Myself?
Generally, you need to have an employer sponsor in order to secure the appropriate work permit and work visa for the Philippines.
If you’re working independently, it can be difficult to find clients willing to sponsor you. Moreover, even if your client can do this, you’ll need a new sponsor each time you decide to take on a new contract. Of course, every new sponsor will mean more paperwork.
Also, are you familiar with the intricacies of the tax system in the Philippines, as well as your own country’s laws on overseas earnings? If so, good on you!
However, if you’re like the rest of us, figuring out (much less reducing) your tax liability in the Philippines and your home country can seem like full-time work in itself.
A Contractor’s Guide to Taxes in Philippines
One of the most consistently challenging aspects of contracting in the Philippines is complying with the country’s tax system. As well as paying tax in the Philippines, you might also still be eligible to pay some tax in your home country, and understanding the legislation behind this can be a challenge.
How do I calculate my taxable income in Philippines
If you’re working in the Philippines under a permanent contract, many employers will handle your tax under the PAYE (pay-as-you-earn) system. This means that they calculate and process your taxes in the Philippines for you and then send you a net wage. Your income tax, public health insurance, social security and other deductions will all be covered by this payment. This is the easiest way to handle your income tax in the Philippines, but contractors may not be offered this service because of their short stay with each employer.
Anybody who can’t pay their tax in the Philippines through PAYE is left with the prospect doing everything themselves.
Do you know much about Filipino Tax Law? Does the Philippines have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in the Philippines can range from 0 to 35 percent, and you need to be sure you are placed in the correct tax brackets.
Tax Filing as a Contractor in Philippines
|When Do You Need to Lodge Your Tax Return?||15th April|
|Tax Filing Deadline||15th April|
|Can you file it online?||Yes, https://efps.bir.gov.ph/|
How to File Taxes in Philippines as a Contractor
You are generally required to file taxes if you are a:
Resident citizen receiving income from sources within or outside the Philippines; or
Resident alien, non-resident citizen, or ‘non-resident alien engaged in trade or business’, receiving income from sources within the Philippines.
You can file taxes online, or in person.
Step 1: Enrol in eFPS
You can file your taxes online on the the Bureau of Internal Revenue’s e-Filing and Payment System here(link is external). Under the ‘login’ button, click on ‘Enroll to eFPS’.
To enrol, you are required to fill in:
Your Tax Identification Number (TIN);
Your personal details e.g. name, date of birth, address; and
Your bank account details with an Authorised Agent Bank (AAB).
Step 2: Fill in Tax Information
Upon successful enrolment, fill out the tax returns fields with the required details, and submit the information.
Step 3: Receive Confirmation
After successful online filing and submission of the tax return, a Filing Reference Number (FRN) page is generated and displayed. Record the Reference No. and click ‘Proceed to Payment’.
Step 4: Fill in eFPS Payment Form
The eFPS Payment Form is displayed with default payment information retrieved from the e-Filing service. Next to ‘eFPS mode of payment’, select your AAB. Click ‘submit’.
Step 5: Receive Confirmation
Upon successful payment, a confirmation screen will appear, stating that the eFPS has received the payment transaction.
Step 1: Fill in BIR Form 1700 ‘Annual Income Tax for Individuals Earning Purely Compensation Income (Including Non-Business/Non-Profession Related Income) and Marginal Income Earners’
Print and complete 3 copies of BIR Form 1700. This can be downloaded here(link is external).
The following documentation is required:
Certificate of Income Tax Withheld on Compensation (BIR Form 2316)
Income Tax Return previously filed and proof of payment (if filing an amended return for the same income year)
The following documentation may be required, if applicable:
Waiver of the Husband’s right to claim additional exemption
Duly approved Tax Debit Memo
Proof of Foreign Tax Credits
You may be required to fill in other forms, if you are self-employed, or you receive both business and employment (‘compensation’) income. You can access these forms on the BIR website here(link is external).
Step 2: Submit Tax Forms
Proceed to the nearest Authorised Agent Bank (AAB) where you are registered. Alternatively, proceed to the Revenue Collection Officer or Authorised City or Municipal Treasurer, located within the Revenue District Office (RDO) where you are registered. Submit your forms with the relevant attachments and payment.
A list of AABs can be found here(link is external).
A list of RDOs can be found here(link is external).
Receive your copy of the stamped and validated form from the teller of the AAB, Revenue Collection Officer, or Treasurer.
For ‘no payment’ returns, including refundable returns, proceed to the Revenue District Office (RDO) where you are registered or any BIR Tax Filing Centre. Submit your forms with the relevant attachments.
Receive your copy of the stamped and validated form from the RDO or Tax Filing Centre representative.
A list of RDOs can be found here.
Tax Figures in Philippines
|Currency||Philippine Peso (PHP)|
|Tax-free Threshold in Philippines||250,000|
|Income Tax Rates|
Non-residents, not engaged in trade or business in the Philippines, are subject to a flat tax rate of 25% on gross Philippine-sourced income.
Tax Residency in Philippines
When do you become a tax resident in Philippines
You become a tax resident in Philippines when:
When do you become a tax resident in Philippines
You become a ‘resident alien’ when you are a national of another country and you live in the Philippines with no definite intention as to length of stay, but you do not intend to stay temporarily. An expatriate working in the Philippines on a contract for an indefinite period is likely to be a ‘resident alien’.
You become a ‘non-resident alien engaged in trade or business’ if you stay for more than 180 days during any calendar year.
Expatriates contracted in the Philippines for a definite period are generally classified as ‘non-resident aliens engaged in trade or business’.
Does the 183 day rule apply in Philippines
Am I taxed on my global income in Philippines
Resident citizens are taxed on their worldwide income. Resident aliens and non-residents are taxed on their Philippines-sourced income only.
Can you set up your own Limited Company in Philippines?
|How long does it take to set up||16 days|
|How much does it cost||PHP5,615|
|Is it easy?||Starting a Business Rank: 173/190 (Source: World Bank)|
Tax Calculator in Philippines
If you are a contractor and want a calculation on your tax and net retention in the Philippines, we can supply it to you free of charge.
Using an Umbrella Company for Income Tax in Philippines
Contractors in the Philippines are faced with masses of paperwork and numerous wasted hours filing a tax return unless they find an alternative option. A Filipino umbrella company can act as your employer during your stay in the country whilst still allowing you the freedom of a contractor. The only difference is that you submit your timesheets to them; they’ll calculate and pay your taxes as you earn, and then you receive a net wage (as well as documentation for your records).
The companies are experts in Filipino taxation, and they’ll ensure that you keep the largest proportion of your earnings whilst complying with local laws. They can deal with any issues with the Filipino tax office or tax department directly including processing your tax refund if you are eligible.
How We Can Help You with Tax in Philippines
We work with numerous umbrella companies in the Philippines, many of whom are experts in tax and immigration laws. If you have any questions about tax in the Philippines, we’ll get the answers from them directly so you can rest assured you’ll be getting accurate information. We have comprehensive knowledge of the different services they provide, and can help you find the right company to handle your income tax. We help oil and gas workers, software developers, IT project managers, testers, business analysts and telecommunications contractors get tax efficient payments and sponsorship for their Filipino work permit.
Our advice is 100 percent free, and comes with no obligations. You will be paying taxes in the Philippines but without the overhead of directly dealing with the Filipino tax authorities. Get in touch with us today for some reliable advice on tax in the Philippines!
A Contractor’s Guide to Work Permits in Philippines
Immigration is one of the primary concerns for any contractor hoping to start working in the Philippines. Permanent employees will find it easy to get their Filipino work permit because they’ll receive “sponsorship” for their entire stay from their prospective employer.
The Filipino work permit, known more commonly as the 9(g) working visa, is dependent on this sponsorship because it confirms that you’ll be earning money during your stay in the country. Contracting in the Philippines is more difficult because the work permit is tied to one employer, so you have to change it to suit each new contract. Thankfully, umbrella companies provide a convenient and effective solution to this issue.
How Does an Umbrella Company Work?
Most people want to do their work, earn their money and enjoy their spare time without taking on loads of admin in a new country. That is why an umbrella company can help.
When you’re working through an Umbrella Company, you’ll essentially be outsourcing the admin and tax issues to specialists.
While the umbrella company will charge a fee, you’ll likely end up saving more money in the long run: you’ll be able to focus on your work, expertly reduce your tax liability, and comply with all laws and regulations in the Philippines (which means avoiding fees, fines, or even worse penalties).
How Can We Help You?
There’s a huge variety of Umbrella Companies with different specialities and advantages in the Philippines. How do you find the right one for your circumstances?
We work closely with Umbrella Companies all throughout the Philippines and match contractors with the right company for them. If you’ve already secured a contract in the Philippines, we can help you find your best match (for free). Or, we can simply give you feedback on your situation (for free).