For many Filipino freelancers, the first encounter with taxes often arrives not through a BIR form, but through confusion.
One day, a client pays you less than your invoice and casually explains, “We deducted withholding tax.”

The next question is always the same: How does this work?

And eventually: How does this affect my income tax return (ITR)?

The truth is simple: withholding tax is one of the most misunderstood parts of freelancer taxation in the Philippines. Yet it is also one of the most important—because getting it right affects everything from your annual filing to your visa applications, bank records, and financial credibility.

Below is a clear, practical, and freelancer-focused explanation of how to compute withholding tax, why it exists, and how it impacts your ITR.

What Exactly Is Withholding Tax for Freelancers?

If you’re self-employed—whether you’re a creative, VA, consultant, IT professional, coach, or independent contractor—your clients may be required to withhold a small portion of your income. This is called Creditable Withholding Tax (CWT).

The BIR’s logic is straightforward:
Instead of you paying all your taxes at the end of the year, a portion is “withheld” in advance, like installments toward your future tax due.

This is NOT an additional payment.
It is simply advance tax credit, which you will claim later when you file your annual income tax return.

You never lose the money — but you do need to know how to compute it.

Why Some Clients Withhold and Some Don’t

Here’s the part that confuses freelancers most:

• Local companies in the Philippines are required to withhold.
• Foreign clients generally do not withhold.
• Individuals (non-business) are not required to withhold.

This is why you sometimes get the full amount, and sometimes less.

If a client withholds, they must give you BIR Form 2307 — your official proof that tax was deducted.
You will need this form during your ITR filing.

How to Compute Withholding Tax as a Freelancer

The most common withholding tax rates for professional fees are:

• 10% – if you are registered and the client requires your OR
• 15% – if you are not registered or did not submit your COR / OR

Let’s compute using a simple example.

Example:

Your invoice: ₱20,000
Applicable withholding tax rate: 10%

Withholding Tax = Invoice Amount × Rate
₱20,000 × 10% = ₱2,000

Your client will pay you:

₱20,000 – ₱2,000 = ₱18,000

And at the end of the year, that ₱2,000 becomes a tax credit in your income tax return.

How Withholding Tax Affects Your Annual Income Tax Return (ITR)

This is where withholding tax becomes extremely important.

When you file your ITR (Form 1701 or 1701A), the BIR will compute your total tax due for the year. Then, they will subtract all the withholding taxes shown in your Form 2307.

Tax Due – Withholding Tax = Amount You Still Owe (or Refund)

If enough tax was withheld throughout the year, you may end up paying less — or sometimes nothing at all.

This is why missing 2307 forms, incorrect computations, or unreported income can lead to:

• higher tax dues
• penalties
• rejected visa applications
• mismatched records with BIR

Accurate withholding tax tracking is not just compliance — it protects you.

Freelancers Need Proper Withholding Tax Management

Whether you earn in pesos or dollars, whether your clients are local companies or international brands, withholding tax has a direct impact on your income tax return and your overall financial standing. One error — a missing 2307, a wrong computation, or unfiled document — can lead to penalties, mismatched BIR records, or problems with visa and loan applications.

This is exactly why freelancers need structured, accurate, and reliable tax handling.

At Tax Assist PH, we specialize in helping Filipino freelancers navigate withholding tax, maintain clean records, and file a correct and compliant ITR. If you want peace of mind and a tax process that actually works for your freelance career, talking to a professional team is the most practical next step.