Philippines – President Signs the Law on Foreign Providers of Digital Services  

After a few years of challenging negotiations, on October 2, 2024, the President of the Philippines signed a reconciled version of the Bill that introduces VAT liability for foreign providers of digital services when their customers reside in the country. 

There have been many steps forward and backward concerning amending the Tax Code and introducing provisions that will mandate foreign providers of digital services and intangible goods to register and collect local tax when they provide services to buyers residing in the country. 

One of the president’s priorities for this year regarding tax reforms was to introduce this obligation. Many reasons drove the Government to adopt this Law. One of the main factors was the necessity of finding an effective way to increase the state budget from tax revenues. 

We have been promptly informing you about developments in this regard for some time now. If you haven’t had a chance to familiarize yourself with it before, a precise and practical explanation is available here and here. 

Timeline

The law introducing the obligation for foreign providers of digital services to register for VAT in the Philippines should become effective from the day it is published in the Official Gazette, approximately 15 days after the President signs the bill. 

Law on Digital Services 

Gradual Implementation

Based on the Bill’s information, the implementation project will take some time due to the complexity and implications of introducing a new tax collection system. 

Simply put, if the gradual introduction will move in alignment with an initial idea, the following rhythm should be expected: 

• The law becomes effective within 15 days from the date the President signed the Bill 
• Drafting and publication of the Implementing Regulation and Rules should be made within 90 days from the effectivity of the Law. 
• Enforcement of the implementing provisions, the establishment of the portal for simplified registration, registry, and monitoring of “new” taxpayers should become operative within four months after “phase two.”

If everything goes according to the initial plans, without further obstacles or surprises, the system should be in place by spring next year. 

Business and Compliance Impact

It should be underscored that the law introducing the obligation for non-resident providers of digital services and intangible products doesn’t impose a “new” responsibility on the taxpayers in scope. This law clearly and directly states the obligation for taxpayers in scope to register and collect VAT every time they make these taxable supplies when they surpass the statutory threshold. 

This Law will balance the playing field between domestic businesses and foreign providers, who have “mostly escaped” tax liability due to the lack of a monitoring system. 

It shouldn’t be forgotten that the Philippines’ e-commerce market is very significant for multinational digital platforms operating globally and for small and medium-sized digital vendors. This source of state revenue will cause important changes in the related prices of these taxable services and intangible goods. 

The law introducing the obligation for foreign providers of digital services to register and collect local VAT on their supplies to customers based in the country will undoubtedly make significant changes in the business landscape. The adoption of the long-awaited law will significantly influence the country’s importance in the e-commerce sector and the amount of funds that its citizens allocate daily for online transactions. 

Non-resident providers of digital services and intangible goods will need to adapt their tax collection systems to new requirements. If they know that their turnover surpasses the threshold, they should start as soon as possible.