Gig workers have tax obligations too
Credit to Author: The Manila Times| Date: Mon, 01 Apr 2019 16:40:27 +0000
I met up with a group of friends recently to catch up and shoot the breeze. At that gathering, the companion of my friend talked about how happy he is with his current work arrangement as a freelancer. He can manage his own time and he only pays 15 percent tax on his professional fees.
As a tax practitioner, I instinctively asked him if he files his income tax return while claiming the 15 percent tax withheld from him. He said, no. His understanding is that the 15 percent tax is the only tax applicable to him. So, I conducted a mini tax briefing to tell him that as a Filipino citizen, he is still subject to a regular progressive income tax rate of 0 to 35 percent and the applicable tax rate depends on his income level.
I reminded him that he needs to file his income tax return on or before April 15 to report his income subject to the progressive tax rate of 0 to 35 percent and claim the 15 percent tax withheld by his client as a tax credit from his total income tax due. For freelancers, the income tax payments (quarterly and annual reporting) are on top of other requirements such as registration with local government and payment of percentage tax at 3 percent or value-added tax of 12 percent, as the case may be. These are just some of the tax obligations freelancers have to remember to stay compliant.
Deloitte’s annual survey on human capital trends indicates a growing interest among workers and organizations to participate in the gig economy or a social enterprise. A gig economy thrives on the use of social network and data analytics to measure trends and to set up business strategies, hiring freelance, gig/contingent workers and crowds. It is no longer based on regular employment and it doesn’t follow structural hierarchies but rather thrives on social networks and agile teams that are constantly changing and moving.
Some of the challenges organizations face in the gig economy is the lack of a shared culture and the difficulty of tracking workers. Gig workers are not in the HR database but rather in the contractor’s database. As such, they are not covered by performance appraisals and standard career progressions. There is also the legal aspect of hiring these gig workers that must be considered. For example, the way contracts and actual work are structured may pose the risk of these gig workers being considered regular employees with statutory entitlements under the labor code, such as participation in social security, retirement benefits, etc.
In the local setting, we are seeing more and more Filipinos working from home for foreign companies that function as contractors. In these arrangements, the payment for services rendered usually go from the contractor’s foreign bank account directly to the freelancer’s Philippine bank account. In some instances, foreign companies hire individuals situated in the Philippines via a holding company somewhere in the Asia Pacific (APAC) region and then require these individuals to travel around the region. These employment or travel arrangements could trigger tax filing requirements in other APAC countries. Hence, these Filipino employees or freelancers have more complex tax arrangements to consider, such as double taxation, tax treaty relief, foreign tax credit claims, or potential permanent establishment issues of foreign companies. Keeping track of these employees and gig workers around the globe is another challenge faced by organizations.
Since gig workers do not have the typical employer-employee relationship with their contractors, they have no social security contributions, retirement payments and leave benefits. They are also responsible for their own tax compliance requirements. As such, gig workers should consider these costs when they estimate their professional fees. They should also make plans for retirement, for investment and for insurance to cover the benefits they don’t receive from their clients.
Lastly, gig workers, just like the rest of us, may want to one day buy their own house or apartment or maybe a car. In those instances, they will need financing from banks. An income tax return is needed as proof of their income capacity.
I didn’t expect to conduct a mini tax seminar during my dinner out with friends, but I don’t regret the conversation, and I hope my friend’s companion benefited from it. With April 15 fast approaching, I hope all gig workers will remember to file their income tax returns before they “unplug” for Holy Week or for their summer vacations.
The author is a Senior Manager with the Tax & Corporate Services division of Navarro Amper & Co., the local member firm of Deloitte Southeast Asia Ltd. – a member of Deloitte Touche Tohmatsu Limited – comprising Deloitte practices operating in Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.
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