How to set up as an independent contractor in the Philippines

If you're thinking of becoming an independent contractor in the Philippines, then congratulations: you're about to embark on an adventure as diverse and exciting as the coral reefs of Boracay.

Whether you’re looking to set up shop among the chaotic excitement of Manila, the green tranquility of Batanes, or the dreamlike white-sand beaches of El Nido, these wondrous islands are an ideal locale for mixing work and lifestyle.

Before you can fully embark on your self-employment journey, though, you’ll need to know how to:

• Register your business in the Philippines

• Avoid misclassification as an employee

• Create compliant contracts that protect you

• Invoice and collect payments from around the world

In this article, we’ll cover all these topics and help you navigate your tax responsibilities as a self-employed worker. We’ll also discuss some of the other risks and liabilities you should be aware of so that you have the best chance of success while working in the Philippines.

What is an independent contractor according to Philippine law?

Independent contractors are workers who provide paid services (or products) to another party. However, they are classified differently from employees and are usually not entitled to the same benefits, such as paid leave, sick days, and minimum wage. On the flip side, contractors have more freedom and flexibility in the way they work.

See also: Why businesses hire contractors vs. international employees

In the Labor Code of the Philippines, there is no specific section dedicated to independent contractors. However, based on guidelines within the code, you are generally considered to be a contractor if you:

• Determine your own work schedule and working hours

• Perform work for other companies

• Set your own rates and scope of work

• Provide your own tools or equipment

• Are not integrated into the company and its operations (i.e., you don’t have an internal email address)

• Are able to delegate or subcontract work

• Work without direction or supervision

When you work with clients, it’s important to be correctly classified to avoid penalties and fines, and to ensure that you are paying the right taxes.

As an independent contractor in the Philippines, you should be careful to avoid prohibited work arrangements and follow local labor laws.

Business registration in the Philippines

Before you can begin working as an independent contractor in the Philippines, you’ll first need to choose a formal structure for your business. Two of the most popular models for sole owners include:

• Sole proprietorship: A common, simple structure that is ideal for independent, individual contractors. You have full control of the enterprise, although there is no legal separation between you (the owner) and the business; you are personally responsible for all its debts and liabilities.

• One Person Corporation (OPC): A formal legal entity introduced in May 2019. It is legally separate from you, the individual. All income and losses are attributed to the company as opposed to you personally (i.e., you are only liable for the capital you invest in the company). The tax and legal responsibilities of an OPC are far more demanding and complex than those of a sole proprietorship; you also need to register with the Securities and Exchange Commission (SEC).

If you are working with additional partners (natural or legal), you can also incorporate different types of companies or enter into a partnership. If you’re unsure which structure is most suitable for your business, it’s a good idea to speak with a registered solicitor or accountant.

How to register as a sole proprietor in the Philippines

A sole proprietorship is the simplest business setup for an independent contractor in the Philippines. It offers freedom and flexibility, but it also comes with a lot of risk for you as the owner because there’s no legal distinction between you and your business.

If you do opt for the sole proprietor structure, you need to complete several steps:

1. Register your business with the Department of Trade and Industry (DTI) at your nearest DTI office. You must also register your business name through the Business Name Registration Service (BNRS). You can do this online or complete and submit the form when you attend the DTI office.

2. Secure a business permit from your local government unit (LGU). Depending on where you are based, this is usually a mayor’s office or a barangay office. The requirements for obtaining this permit vary depending on your location.

3. If you don’t already have one, acquire a tax ID number (TIN) from the Bureau of Internal Revenue (BIR). To do this, you need to complete BIR form 1901.

4. Register with the Social Security System (SSS) (if you haven’t already done so). To do this, fill out SS Form RS-1 and submit it to your local Social Security office.

Depending on your business activity, you may also be required to register with your relevant regulatory authority.

How to register as an OPC in the Philippines

An OPC offers you complete control of the business and protects limited liability, but the structure does come with complex administrative requirements and different tax regulations.

If you opt for the OPC structure, you need to take the following steps:

1. Register your business name through the Securities and Exchange Commission (SEC). Your name must include the suffix “OPC.”

2. Appoint administrative staff within 15 days from the date of incorporation. You must appoint a corporate secretary and a treasurer, both of whom must be Filipino citizens. You must also appoint a nominee and alternate nominee who will take over the corporation in the event that you are unable to continue managing or operating the business.

3. Fill out the Electronic Simplified Processing of Application for Registration of Company (eSPARC) form. You can do this through the SEC portal by selecting the Regular Processing option.

4. Upload authenticated documents as prompted by an email from the SEC. Once these forms are approved, pay the registration fee.

How can I work remotely while living in the Philippines?

A digital nomad is someone who works remotely while traveling and living in different locations.

In June 2023, the Philippines launched its digital nomad visa. This visa allows remote freelancers, contractors, and employees to enjoy an extended stay of 12 months in the Philippines, with the possibility of a 12-month extension.

You need the following to be eligible for the digital nomad visa:

• A valid passport

• Proof of remote work

• Documentation proving that you surpass the minimum income threshold

• Evidence of a background check

• International health insurance coverage

When working as a remote worker in the Philippines, you’re able to work freely for any client while enjoying the Philippine lifestyle. Digital nomads are also exempt from paying local taxes on any income they earn outside the Philippines, meaning you only need to comply with the tax regulations of your country of citizenship.

How do I get paid as an independent contractor in the Philippines?

As an independent contractor, it’s down to you to handle your invoices and payment collection. Unfortunately, this means billing each client individually and collecting payment through their preferred payment method — which can be inefficient and time-consuming.

Some of the most common ways to get paid while working in the Philippines include:

• Bank transfers

• Direct deposits

• Paper checks

• Money orders

• Virtual wallets

• Digital transfer services like PayPal and Wise

These methods all have their own pros and cons. For instance, bank and digital transfers can be pretty quick but often come with hefty service fees. And if you have clients in other countries besides the Philippines, the payment collection process can be even more complicated.

Alternatively, you can use a trusted solution like Remote. Our Freelancer Hub is a simple, secure, and reliable way to get paid quickly in Philippine pesos — and with no hidden fees. Sign up for free to start managing your clients, organizing your contracts, and getting paid.

Independent contractor taxes in the Philippines

As an independent contractor, you’re responsible for filing and paying your own taxes.

The good news is that, as a sole proprietor in the Philippines, you pay personal income tax on your business profits (using your personal tax number). This means that you do not have to fill out a separate tax return.

Like most countries, the Philippines has a progressive income tax rate system. Depending on how much you earn, you pay a set flat amount plus anywhere between 0% and 35% on the excess. If your gross income is below the VAT threshold of ₱3 million (the equivalent of around $51,000 USD), you must also pay an additional business tax of 3%.

You must file your tax return (BIR form 1701) by April 15 each year.

Note that if your gross income is above ₱250,000 (around $4,200 USD) but below the VAT threshold, you can instead choose to be taxed at the flat rate of 8% (using BIR form 1701A). This can have potential ramifications, so it’s a good idea to speak to a competent tax professional before you choose a regime.

You must also make monthly social insurance contributions to the SSS. Currently, these contributions are around 14% of your income, up to a maximum of ₱20,000 (around $340 USD) per month. Contributions to PhilHealth — the Philippine health insurance system — are optional.

You can learn more about taxes in the Philippines on the BIR website.

VAT information for independent contractors in the Philippines

If your gross annual income exceeds ₱3 million, you must register for — and charge your clients — VAT. These payments are due each quarter using BIR Form 2550Q. On the flip side, you can claim back VAT on your business expenses, if applicable.

The standard VAT rate in the Philippines is 12%, although some goods and services are charged at a higher rate of 18% and a lower rate of 0%.

Liability considerations for independent contractors in the Philippines

As a sole proprietor, you are personally liable for finance and tax debts, which means your private assets can be forcibly used to settle your business debts. Many independent contractors purchase liability insurance to help mitigate this risk.

It’s also important to cover yourself when drafting and signing agreements with clients. Our legal experts can provide you with fully compliant contract templates, for both Philippine and international clients.

Accounting requirements for independent contractors in the Philippines

As a sole proprietor, you do not need to publish financial statements or accounts. However, you should still keep organized, accurate records of all your income and expenditures (including client invoices, purchase orders, bank statements, and receipts). This helps you correctly file your taxes, gives you a stronger picture of your financial situation, and generally makes your life easier if you are audited by the tax authorities.

You can manage these records yourself using an accounting or bookkeeping tool or hire a professional bookkeeper or accountant.

The dangers of contractor misclassification in the Philippines

As we’ve mentioned, independent contractors are classified differently from employees in the Philippines. Many of the protections and benefits employees enjoy do not typically apply to contractors.

As a result, companies may deliberately misclassify you to circumvent their legal obligations. At other times, it may happen accidentally. Whether intentional or not, misclassification can result in penalties and fines for both you and your client.

As an independent contractor, you can work with your clients to ensure this doesn’t happen. Discuss your role and responsibilities with them, and review the working arrangement regularly.

If your working relationship changes over time and you become more integrated into a client’s company, you can ask to be converted into an employee.

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

Download

How do I ask the company I’m working with to convert me to an employee in the Philippines?

Open a dialogue with your client and carefully discuss the risks and benefits of moving to an employer-employee relationship. In particular, be clear about how it can benefit both parties — not just you.

You can even suggest the help of a third-party solution, such as Remote, to ease the transition. Our global employment services help both parties stay compliant by taking care of key HR functions (like payroll management and benefits administration), in line with Philippine law.

How to become a freelancer in the Philippines

Freelancers are similar to independent contractors in that they control their hours, work for organizations temporarily, and don’t receive the benefits that full-time employees receive. The main difference between them is that freelancers typically work with companies on short-term projects, while contractors take on larger projects for longer-term clients.

Here are the steps to become a freelancer in the Philippines:

1. Get a digital nomad visa

2. Find clients (the Remote job board is a great option)

3. Know your freelance tax obligations

In the Philippines, freelancers can use a graduated income tax rate or choose a set rate of 8% on income that exceeds ₱250,000. Like independent contractors, they file their income tax returns with the Bureau of Internal Revenue.

4 ways Remote makes life easier for contractors and their clients

As you can see, there’s a lot to take on board when setting up as an independent contractor. Remote can help you with many of these challenges, allowing you to focus on growing your business and delivering to your clients. Here’s how:

1. International payments in countries around the world

Navigating all of your clients’ different invoicing, approval, and payment systems can be complicated and time-consuming. And manual methods of invoicing and collecting payments can increase the risk of fees, errors, and delays.

Remote gives you access to a highly secure, streamlined dashboard that makes invoice management and international payments cost-effective and efficient. You can use our platform to get paid in Philippine pesos (or other currencies), without any hidden fees.

2. Localized in-app contracts and advice

When you draft agreements and contracts for your clients, you run the risk of non-compliance with local labor laws — especially when working with international clients. Remote offers localized contracts tailored to Philippine laws, ensuring that you stay compliant. Our legal experts can also provide guidance on complex issues, such as local classification and intellectual property protections.

3. Invoicing automation

With Remote, you no longer need to rely on spreadsheets and other manual tools to invoice for payments; we remove many of the inaccuracies and delays caused by archaic processes and manual management. Our platform lets you create invoices, submit them for approval, and subsequently get paid in your local currency without needing to switch to any other tool or software.

4. Tax management

Tax management is notoriously complex work. Remote helps you quickly and efficiently deal with tax management by compiling data about your income based on your invoices and payments received.

Setting up as an independent contractor in the Philippines

Having the freedom and flexibility to work on your own terms is liberating. But your administrative responsibilities can distract from what you really want to be doing: helping your clients, delivering great work, and collecting invoices.

By using a stable, trusted platform like Remote, you can manage these obligations quickly and efficiently, allowing you to focus on your business goals. Specifically, we can help you:

• Avoid intermediary fees and delays with international client payments

• Draft compliant contracts for Philippine and foreign clients

• Enhance your invoice management and avoid manual processes

• Comply with local labor laws regarding work practices

Our platform and Freelancer Hub makes it quick, simple, and seamless to get started as an independent contractor in the Philippines (or anywhere else!).

Get started with Remote to learn more about how our expertise can save you time and resources today.