Regulations issued by the Philippines Bureau of Internal Revenue (BIR) on 17 January 2025 impose a 12% VAT on digital services provided by resident and nonresident digital service providers (DSPs) where the services are consumed in the Philippines.
The key points in the regulations are as follows:
Micah Alvin S. Gimelo
BDO in Philippines
The key points in the regulations are as follows:
- Covered services: Digital services for purposes of the regulations are services supplied over the internet or other electronic network with the use of information technology and where the supply is essentially automated. The regulations apply to a broad range of digital services, including online search engines, online marketplaces, cloud services, digital goods (e.g., e-books, software, streaming content), e-learning platforms and online advertising. They do not cover tangible goods imported into the Philippines, which remain subject to customs duties.
- Registration requirements: Nonresident DSPs, i.e., those without a physical presence in the Philippines, must register via the BIR’s VAT on Digital Services (VDS) Portal within 60 days of the effective date of the regulations (15 days after publication in the official gazette or on the BIR website). Although nonresident DSPs are not required to appoint a local representative, they may engage third-party agents (e.g., law or accounting firms) to handle compliance obligations, such as filing returns or receiving official notices. VAT obligations for nonresident DSPs will commence 120 days after the regulations take effect.
- Invoicing: Invoicing requirements for nonresident DSPs mandate that sales documents include the transaction date, reference number, buyer’s TIN (if available), a brief description and the total VAT-inclusive amount. Electronic invoices are allowed and do not require BIR registration, provided the invoices are in English or include an English translation.
- VAT compliance: In B2B transactions, Philippine business buyers (including government entities) must withhold and remit the 12% VAT under the reverse charge mechanism within 10 days after the end of each month. Nonresident DSPs conducting B2C transactions must file quarterly VAT returns and pay tax due within 25 days after the quarter’s close, although monthly payments are permitted as an option. Nonresident DSPs classified as online marketplaces must also withhold and remit VAT on behalf of nonresident sellers using their platforms if they control key aspects of transactions, such as pricing or delivery terms.
- Penalties: Noncompliance may result in severe penalties, including business suspension, blocking of digital services in the Philippines and legal actions under the BIR’s Run After Tax Evaders (RATE) Program. Late filings or payments will incur interest, surcharges and administrative penalties.
Micah Alvin S. Gimelo
BDO in Philippines