Philippines – Steps Towards Introduction of the VAT Liability for Non-Resident Digital Providers

The Bicameral Conference Committee approved the final version of the legislative bill seeking to impose a VAT liability on foreign providers of digital services. The final version is a reconciled version of the bills previously adopted by the respective legislative chambers, the Senate and the House of Representatives. 

As we indicated in our previous post, this legislative step was necessary to implement the ACT. 

Framework and Timeline

• Once the president signs the bill, the law takes effect 15 days after publication in the Official Journal.
• The Department of Finance, in collaboration with other respective Revenue Authorities, shall prepare the necessary implementing regulations and rules that covered taxable persons should follow. The Bill gives the respective authorities 90 days to prepare implementing rules. 
• Once the mandatory rules have been prepared and published, the bill gives 120 days to non-resident digital service providers to adhere to the required requirements. 

Reconciled Bill and Requirements 

The final version of the bill clarifies some segments that were unclear before. It clearly defines the scope of the new framework and how taxable persons under the effectivity umbrella should act once the law is enacted.

The ACT introduces the VAT liability for non-resident digital providers operating independently or through a marketplace from one side and from the other to the digital marketplace operator who facilitates the supply.

The Revenue Authority will develop a simplified registration procedure for foreign providers of digital services, which will streamline the registration process and decrease the possibility of fraud. 

The enactment of the ACT that introduces the VAT liability of foreign providers of digital services should be followed carefully by the taxable persons under the scope of new requirements.

As we can see, the legislative procedure is moving towards enacting the bill. Yes, it is going slowly, but changes of this size (from a revenue perspective) often take time. Nonetheless, businesses should start thinking about their operations in the Philippines and start preparing to some extent for when the bill will most probably become effective.