Philippines – Senate Approves the Bill for Introduction of the VAT for Foreign Digital Service Providers 

The Senate, the second legislative body of the Philippines parliament, has adopted Senate Bill No. 2528, which introduces the VAT liability for Foreign Digital Service providers when they make a taxable supply of digital goods and services to customers residing there. 

As we have previously mentioned and explained in detail, the Government has been trying for some time now to implement the regulatory framework that will permit local tax authorities to collect VAT from foreign providers of digital services. 

For the Philippine Government, a key objective in implementing this legislation is to establish equality between domestic and foreign providers of digital services to customers based in the country. The current regulatory framework allows foreign providers to have fewer tax compliance burdens on their activities, potentially leading to more profits and a perception of ‘shady’ behavior. 

The House of Representatives adopted the House Bill on the third and final reading, which lays the foundation for the introduction of this sort of liability for FDPs. Now, the Senate has also finalized this. 

The Senate adopted the above mentioned bill unanimously on the third and final reading, which is a very important and mandatory step towards enacting it. 

The next crucial step, which should be concluded in a timely manner, is the review of the Bill by the Congress Committee. Following this, the Bill will be transmitted to the President, marking a significant milestone in its potential enactment. 

Timeline 

When the BIll becomes a Law, the tax authority will have a few months to prepare the necessary technical specifications and documentation, establishing the environment for the simplified registration of Foreign Digital Service Providers and accession to the tools that will make the reporting operations less burdensome. 

New Regulatory Framework 

When the bill becomes law, the country’s regulatory landscape of the digital economy will be significantly reshaped. The vast majority of the foreign providers of digital services and products will become VAT liable when the place of the supply is within the country. 

Foreign Digital Service Providers’ scope capture between other: 

• Digital Marketplaces;
• Subscription-based Platforms;
• Foreign Digital Service Providers operating independently.

Those who fall under the scope of future measures will be obliged to charge, collect, and remit VAT to tax authorities. 

The Senate made an important step towards adopting the law that introduces VAT liabilities for foreign providers of digital services to customers based in the Philippines. If everything goes as planned this year, the FDPs will most probably be obliged to register and collect VAT for their supplies made to local customers.