Policy and intent for compliance
- The Circular is issued to supplement Revenue Memorandum Circular No. 30-2016 and clarify the registration and tax compliance requirements of individuals under government job order/service contract arrangements.
- The Circular operationalizes tax administration rules for these individuals by prescribing the correct BIR registration pathway, bookkeeping/invoicing duties, and income tax and VAT/percentage tax compliance.
Key definitions for professionals
- “Professional” means either a Licensed Professional or a Non-Licensed Professional.
- A “Licensed Professional” refers to individuals engaged in the practice of professions or callings, who render services for a fee, such as those enumerated under Section 2.57.2 (A)(1) of Revenue Regulations (RR) No. 2-98, as amended.
- A “Non-Licensed Professional” refers to individuals who are not identified under Section 2.57.2 (A)(1) of RR No. 2-98, as amended, and are not registered with and regulated by the Professional Regulations Commission, Supreme Court, Integrated Bar of the Philippines, etc., who render services or labor-only for a fee under a contract of service.
Marginal income earner registration pathway
- The Circular applies only to individuals under a Job Order or Service Contract Agreement with the government entities enumerated in Coverage, who qualify as Marginal Income Earners.
- Individuals are Marginal Income Earners when they are professionals (Licensed or Non-Licensed) hired under a contract of service or job order and they derive gross receipts of PHP 100,000 and below in any 12-month period and/or an amount equivalent to Statutory Minimum Wage rates fixed by DOLE-Regional Tripartite Wage and Productivity Board (RTWPB)/National Wages and Productivity Commission (NWPC) from one (lone) payor, with no other source of income.
- For Marginal Income Earners, registration with the Bureau must be done using BIR Form No. 1901 to issue a Taxpayer Identification Number (TIN) specifying taxpayer type of “Professional” or “Professional – in General.”
- Registration for Marginal Income Earners requires:
- A copy of the service contract showing the income payment amount; and
- Any authorized government-issued identification (e.g., Birth Certificate, passport, driver’s license, Community Tax Certificate) showing name, address, and birthdate of the applicant.
- The Registration Officer must add the words “– Job Order” in the business name field (e.g., “Juan Dela Cruz – Job Order”).
Marginal income earner: tax and admin rules
- Marginal Income Earners are exempt from the payment of Annual Registration Fee (ARF).
- Marginal Income Earners must be registered under the Tax Type: Income Tax.
- Marginal Income Earners are exempt from the issuance of a Certificate of Registration (COR).
- Marginal Income Earners are exempt from issuance of registered receipts/invoices.
- Marginal Income Earners are exempt from the requirement to maintain Books of Accounts.
- Marginal Income Earners must file an Annual Income Tax Return using BIR Form No. 1701 and pay tax if applicable.
- Marginal Income Earners are exempt from filing Quarterly Income Tax Return (BIR Form No. 1701Q).
- Marginal Income Earners are not subject to creditable withholding tax rates.
- Marginal Income Earners are exempt from payment of business taxes (i.e., VAT or any Percentage Tax).
Above-marginal, single payor compliance
- Individuals who are professionals (Licensed or Non-Licensed) hired under a contract of service or job order and deriving gross receipts above PHP 100,000 in any 12-month period and/or receiving amounts above the Statutory Minimum Wage rates per region/area of DOLE-NWPC/RTWPB, from lone payor with no other source of income must register and comply under the Circular’s “B” rules.
- Registration requires filing with the Bureau using BIR Form No. 1901 for issuance of TIN specifying taxpayer type of “Professional” or “Professional – in General.”
- Registration documents for above-marginal, single payor individuals require:
- A copy of the service contract showing income payment amount; and
- Any authorized government-issued identification showing name, address, and birthdate.
- The Registration Officer must add the words “– Job Order” in the business name field (e.g., “Juan Dela Cruz – Job Order”).
- The Circular requires payment of Annual Registration Fee (ARF).
- Required tax types for above-marginal, single payor individuals include RF, Income Tax (IT - 1701), and VAT or Percentage Tax (with VAT or percentage tax end-dated depending on the substituted return option).
- Above-marginal, single payor individuals are exempt from the issuance of COR.
- They must obtain Approval of Authority to Print (ATP) for issuance of registered principal receipts/invoices, except where qualified under the substituted receipt rule (reflected as Section B(14) of this Circular).
- They must register and maintain Books of Accounts, except where qualified under substituted receipts.
- Income tax compliance requires filing and payment of an Annual Income Tax Return using BIR Form No. 1701.
- They are exempt from filing Quarterly Income Tax Return (BIR Form No. 1701Q), and the Registration Officer must end-date the 1701Q Form Type.
- They are exempt from attaching Financial Statements or Account Information Form to the filed income tax return.
- Withholding applies as follows:
- They are subject to creditable withholding tax rates of ten percent (10%) or fifteen percent (15%) for licensed professionals (whichever is applicable); and
- They are subject to two percent (2%) expanded withholding tax for non-licensed professionals under RR No. 2-98, as amended.
- The government payor must withhold:
- three percent (3%) percentage tax under Section 5.116(A)(1) of RR No. 2-98, as amended, or
- five percent (5%) final VAT withholding rate under Section 4.114-2 of RR No. 16-2005, as amended, or
- twelve percent (12%) VAT under Section 9.245(A) of RR No. 2-98, as amended, if the payee will avail substituted filing under RR No. 14-2003.
- Above-marginal, single payor individuals must file and pay monthly and quarterly VAT or monthly Percentage Tax Returns.
Substituted percentage/VAT filing option
- Professionals (Licensed/Non-Licensed) under contract of services/job order receiving income above the Statutory Minimum Wage rates per region/area of DOLE-NWPC/RTWPB, with only one payor for the calendar year, may opt to avail substituted filing for Percentage/VAT returns instead of filing monthly and quarterly returns, and may use substituted issuance of official receipts.
- The option is exercised pursuant to Revenue Regulations No. 14-2003 and is manifested by filing:
- Waiver of the Privilege to Claim Input Tax Credits (Annex C) (for VAT taxpayers only); and
- Notice of Availment on the Option to Pay the Tax through the Withholding Process (Annex E); and
- Notice of Availment on the Substituted Filing of Percentage Tax/VAT Return (Annex A/B).
- The waiver and notices must be copy-furnished to the withholding agent-payor and the Revenue District Offices of both the payor and payee.
- Upon receipt of the notice, the lone payor must mandatorily withhold:
- the 3% percentage tax or
- the applicable VAT rate
on income payment to the payee, and must remit to the appropriate collection agents of the Bureau.
- If the gross receipts have been subjected to withholding of 3% percentage tax or 12% VAT by the lone payor, the taxpayer-payee is no longer required to file:
- monthly percentage tax return BIR Form No. 2551M; or
- monthly VAT declarations BIR Form No. 2550M; or
- quarterly VAT returns BIR Form No. 2550Q.
- The BIR Form No. 1600, duly filed by the payor, serves as the substituted percentage tax/VAT return of the payee if BIR Form No. 2306 (Certificate of Final Tax Withheld at Source) duly executed and signed by both payer and payee is attached to the filed BIR Form No. 1600.
- The filed or stamped “Received” BIR Form No. 2306 serves the same purpose as the percentage tax/VAT return (BIR Form Nos. 2551M/2550M/2550Q) of the payee.
- If an additional client or customer comes in within the taxable year, the taxpayer-payee must immediately file a Notice of Cancellation on the Availment of the Substituted filing of Returns (Annex D).
Substituted official receipt and layoff rule
- Professionals who have had their gross receipts subjected to withholding of 3% percentage tax or the applicable final VAT rate are exempt from issuing duly registered principal receipts for payments of services rendered.
- In lieu of registered principal receipts, the issued BIR Form No. 2306 (Certificate of Final Tax Withheld at Source), for payee with just one payor, is constituted and treated as the substituted official receipt under Section 237 of the National Internal Revenue Code (NIRC), as amended.
- In case of layoff during a taxable year, a professional under contract of services/job order must inform the home Revenue District Office (RDO) by updating registration information using BIR Form No. 1905.
- In case of layoff, the professional must immediately file a Notice of Cancellation of the Availment of the Substituted filing of Returns (Annex D) within ten (10) calendar days from the effectivity of separation from service.
- If the taxpayer will not be engaged in business activities or practice of profession to facilitate end-dating of applicable tax/form types, existing closure-of-business policies and procedures must be followed.
Multiple payor or other income regime
- Professionals (Licensed/Non-Licensed) under contract of services/job order who have multiple payor and/or other source of income must comply under the Circular’s “C” rules.
- Registration requires use of BIR Form No. 1901 for issuance of TIN and Certificate of Registration (COR) specifying taxpayer type of “Professional – in Licensed” or “Professional – a Licensed” (as applicable).
- Registration documents for multiple payor/other income individuals require:
- A checklist of requirements under Annex A1 of RMC No. 137-2016; and
- A copy of the service contract showing income payment.
- Multiple payor/other income professionals must pay Annual Registration Fee (ARF).
- Required tax types include RF, Income Tax (IT - 1701/1701Q), and VAT or Percentage Tax.
- They must register and maintain Books of Accounts, obtain Approval of Authority to Print, and issue registered principal receipts/invoices.
- Income tax compliance requires filing and payment of Quarterly Income Tax Return (BIR Form No. 1701Q) and Annual Income Tax Return (BIR Form No. 1701).
- Withholding applies as follows:
- Subject to creditable withholding tax rates of 10% or 15% for licensed professionals (whichever is applicable); or
- Subject to two percent (2%) expanded withholding tax for non-licensed professionals under RR No. 2-98, as amended.
- The government payor must withhold:
- three percent (3%) percentage tax under Section 5.116(A)(1) of RR No. 2-98, as amended, and/or
- five percent (5%) final VAT withholding rate under Section 4.114-2 of RR No. 16-2005, as amended.
- Multiple payor/other income professionals must file and pay monthly and quarterly VAT or monthly Percentage Tax Returns.
- VAT taxpayers must submit, on a quarterly basis, a Summary List of Sales and a Summary List of Domestic Purchases.
Repeal, enjoinder, and relationship to issuances
- Inconsistent issuances are repealed or modified accordingly to align with the Circular’s registration and compliance rules.
- The Circular supplements Revenue Memorandum Circular No. 30-2016 dated December 08, 2016 and clarifies registration and tax compliance requirements for individuals under government job order/service contract arrangements.
- Internal revenue officers and employees must ensure wide publicity of this Circular.