The reconciled version of the Republic Act. No.12023, signed by the President last October in a taxative line, indicated the timeframe under which the regulations, rules, and policies should be issued to support the implementation of the mentioned Act that introduced the Philippines VAT on digital services providers by non-resident service providers.
The Department of Finance issued Revenue Regulation No. 003-2025 (implementing Act) on January 16, 2025, which sets the policies and guidelines on how the Philippines digital services tax framework will be established and how it will function for domestic and foreign providers of digital services and digital goods.
It shouldn’t be forgotten that the idea of introducing a specifically designed tax framework for foreign providers of digital services and goods has a long history. It took several years to arrive at this point where the Department of Finance and Bureau of Internal Revenue (BIR) are making the last steps for establishing the specifically designed, simplified tax reporting system for non-resident VAT compliance Philippines.
Timeline
The implementing Revenue Regulation came into force on February 1, 2025.
New framework
Taxable persons under the new Rules
The Revenue Regulation additionally clarifies that under the governing rules of the Philippines Digital Services Tax 2025, the taxable persons obliged to operate in compliance with the new rules are domestic and foreign digital service providers. The requirements also cover natural or legal taxable persons.
Under the scope of the new rules for the cross-border supply of digital services, we can see the inclusion of both direct and indirect digital service providers. There are additional reporting requirements for digital platform operators when they facilitate the supply of digital services or goods to customers in the Philippines.
Scope of Transactions
The implementing Decree (Revenue Regulation) follows the base traced previously by the Republic Act no.12023 concerning the scope of the transactions under the digital services tax regime. The implementing act clearly distinguishes the provision of digital services from the supply of digital goods.
The transparent explanatory voice of the Act indicates what should be treated as a digital service or digital goods supplied by nonresident providers.
When the following types of transactions are deemed to be made or used in the country, the 12%VAT on e-services should be levied by responsible suppliers.
Digital services
The implementing Act defines digital services very broadly, indicating that digital services are any type of service supplied over the internet using information technology and where the supply of the services is essentially automated. It should include at least the following types of services:
- Online search engine;
- Online marketplace;
- Cloud services;
- Online platform;
- Digital goods;
- Cloud Services;
- Storage and web hosting services;
- E-commerce platforms and payment processing.
Digital goods
The implementing Act shed additional light on the concept of digital goods to ease understanding and related compliance challenges. Under the definition of digital goods, the wording of the Act covers intangible goods that are delivered or transferred in digital form, including sounds, images, and data.
The scope of digital goods should cover at least the following:
- Digital content(downloads of e-books, music, videos, software, apps);
- Subscription-based content purchases(streaming services, news, online gaming);
- Supplies of software services and applications;
- Virtual assets;
- Licensing of content.
Registration Requirements
The Revenue Regulation indicates that the non-resident digital service providers and digital platform operators, should follow the specifically designed rules under the BIR VAT registration for foreign businesses.
It is indicated that the BIR will establish a simplified registration for non-resident providers of digital services. The implementing Act states that the VAT on Digital Services (VSD) portal should make this happen. As the Act preliminary mentions, the simplified registration for all taxable persons under the scope should be made until April 1, 2025.
At the moment, there are still no clear indications when the VDS portal will be ready for use. However, there are some clues that the simplified registration of the non-resident digital service providers could be processed through the BIR Online Registration and Update System (ORUS) portal.
It remains to be seen whether BIR will issue some guidelines on the registration procedure in the following weeks.
Taxability Rules
As mentioned previously, the digital services providers are obliged to levy a 12% VAT on their supplies of digital services when the place of supply is within the country. For these types of services, the place of supply is within the Philippines when the service is used or consumed in the country.
Determining whether the digital service is delivered or used in the country is more challenging than for “traditional” types of services. This is why specific parameters are used to determine the recipient’s location.
The following information could be used to determine whether the digital service is delivered or used in the Philippines:
- Payment information;
- Location of the purchaser;
- Access information for the purchase (IP address, SIM card code);
- Other types of information that could directly/indirectly determine the location of the recipient.
Reporting Rules
There is a custom-made reporting regime concerning the rules for cross-border digital service taxation Philippines. The BIR announced that alongside the simplified registration for non-resident digital services providers, there will also be in place the simplified procedure for submission and payment of VAT.
Non-resident digital service providers are obliged to charge, collect and remit the 12% VAT on B2C transactions when the place of supply is defined to be in the country. Considering the B2B transactions, where the buyer is a resident taxable person, the withholding and remitting VAT reporting comes instead.
Philippines VAT rules for online platforms are tailored similarly to those of other countries that have adopted simplified reporting rules for digital platforms that are intermediate in providing digital services/goods. The E-marketplace VAT obligations Philippines tax provisions state that the non-resident e-marketplace operator that facilitates the supply of digital services by non-resident suppliers is obliged to electronically submit a VAT return and remit 12% on these supplies.
Cross-border digital tax compliance
The e-commerce and digital services sector in the Philippines is plummeting. The level of growth and the accompanying turnover in this sector is witnessed yearly. The government has noticed that the legislative tax framework needs some adjustments to be more effective.
Introducing the simplified cross-border digital tax compliance framework will undoubtedly decrease the VAT gap derived from non-collected VAT from digital service providers, mainly foreign ones. The foreign providers of digital services should already start by carefully preparing their compliance system to avoid any penalties for late registration or fillings.
Introducing a registration and reporting VAT regime for non-resident digital service providers is a long-awaited decision by many interested domestic stakeholders. The government sees great potential in establishing a tailor-made simplified reporting system for digital suppliers and e-marketplaces. The new tax framework will contribute to the increase of VAT-related revenues from foreign businesses.
New rules should equal the playing field between foreign and domestic digital service providers. Many non-resident digital service providers aren’t registered or adequately reporting VAT due to the lack of a simplified registration and reporting system.
Aleksandar Delic
1stopVAT Indirect Tax Manager – E-Commerce