The Philippines is a popular destination for travellers in Southeast Asia, including those that would like to work inside the country. The Philippines is a developing country, so contractors may have a difficult time working for local clients if Filipinos could fill the role. But for specialists or consultants, there can be both short and long term opportunities, especially with multinational corporate branches.
This guide will outline the options for getting paid, immigration rules and tax rates and filing while contracting in the Philippines.
What visa do I need to be a contractor in the Philippines?
The government of the Philippines enforces its immigration rules for foreigners who are drawn to live and also work in the Philippines. This is because tourist visas can be extended almost indefinitely and retirement visas are available to those age 35 and older. Both of these are easily misused for work purposes.
There is no freelancer visa per se, and without a Filipino business sponsor, the only route would be to start a valid business. Contractors that want to stay in compliance are best off working through an umbrella company that can sponsor the visa.
How do I get paid as a contractor in the Philippines?
Work as a self-employed freelancer
Because of the visa rules, this is not the best way to organize contracting in the Philippines. If you are working for a Filipino client, then they could sponsor your visa as an employee. However, you would have to show that the job couldn’t be filled by a local for visa approval.
Set up your own limited company
Contractors with a commitment to the Philippines may want to go through the process of setting up their own limited company. Because of the bureaucracy and many requirements, this will take longer and cost more than in many countries.
Work with an umbrella company in the Philippines
Working with an umbrella company is by far the simplest way to get paid in the Philippines. Whether you are working with Filipino clients or companies abroad, the umbrella company becomes an intermediary that facilitates the contract. They handle your payments, withhold taxes and can sponsor your visa.
How do taxes work for contractors in the Philippines?
Anyone earning income in the Philippines has to register and file taxes each year. The registration documentation includes:
- Occupational tax receipt
- Book of Accounts
- Certificate of Registration
Tax rates are 0-35% depending on income level, with the first PHP 250,000 tax-free. Self-employed pay a flat 8% on gross receipts (no expenses deductions), or the normal rates plus VAT.
Tax residency in the Philippines has several implications for foreign contractors. In general, residents pay tax on worldwide income, but in most cases, foreigners would be exempted from that requirement. Anyone who stays longer than 180 days in the country, and engages in business activity is considered a ‘nonresident alien engaged in trade or business’ (NRAETB). They would be eligible for a tax certificate that allows them to only pay tax on Philippines-sourced income at normal rates. Those who are not considered NRAETB (less than 180 days) will pay a flat 25% tax on income.
How to file taxes in the Philippines
You are generally required to file taxes if you are a:
- Resident citizen receiving income from sources within or outside the Philippines; or
- a resident alien, non-resident citizen, or ‘non-resident alien engaged in trade or business’ (NRAETB), 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 Bureau of Internal Revenue’s e-Filing and Payment System. Under the ‘login’ button, click on ‘Enroll to eFPS’.
To enrol, you are required to fill in:
- Firstly, your Tax Identification Number (TIN);
- Secondly, your personal details e.g. name, date of birth, address; and
- And finally, 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 the 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
A confirmation screen will appear upon successful payment and this means 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.
The following documentation is required:
- Firstly, a certificate of Income Tax Withheld on Compensation (BIR Form 2316)
- Along with an income tax return previously filed and proof of payment (if filing an amended return for the same income year)
In addition, 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.
- Step 2: Submit Tax Forms With Payment
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.
Receive your copy of the stamped and validated form from the teller of the AAB, Revenue Collection Officer, or Treasurer.
What are the social security contributions in the Philippines?
The maximum annual contribution to social security for a foreign national is PHP 28,200. The employer would pay the larger share for employees, and independent contractors pay both employer and employee shares.
Can I work remotely for a company in the Philippines from my home country?
While many digital nomads might want to work in the Philippines for companies abroad, some may wish to stay at home during the pandemic. In that case, you could work for a Filipino client remotely and get paid in your own country. This is a simple business purchase of services for the Filipino client, and there are no compliance concerns. You, on the other hand, would take care of taxes and contributions in your own country.
How do I stay compliant while contracting in the Philippines?
As a foreign contractor, you will be concerned about compliance with Philippines law and regulations, as you are working and living within its borders. Your primary compliance risks are:
- Firstly, meeting tax and social contribution requirements
- Secondly, business registration for limited companies
- And finally, work permit validity and sponsorship
That is a lot to overcome, especially for new nomads contracting in the Philippines, and you might need the help of an umbrella company to take over many of these tasks. Contractor Taxation has licensed, verified umbrella companies in the Philippines who are ready to assist you with setting up your contract and making sure that your payments are secure. Here are some of the benefits of using an umbrella company:
- Handles all client payments, tax withholding and any social contributions
- Issues you a payslip each month, to a Filipino or foreign account
- Can sponsor work permits
- Helps set up the Filipino contract with the client
- Moderates any disputes with your client
- Advises on access to totalization and double taxation treaties
Unless you are prepared to handle all of this on your own, you may find that an umbrella company is a valuable partner as you embark on contracting in the Philippines. Please contact Contractor Taxation with your questions about how an umbrella company can work for you.