Implementing Rules for VAT on Digital Services in the Philippines
The Bureau of Internal Revenue (BIR) issued an advisory on January 17, 2025, announcing Revenue Regulations (RR) No. 3-2025, prescribed by the Philippine Secretary of Finance to outline the implementation guidelines for the VAT on Digital Services Law.
According to the Regulation, the VAT on Digital Services Law applies to digital services in the Philippines but excludes physical goods from abroad, which are treated as imports subject to existing tax and customs laws.
The regulation also verified that business-to-business (B2B) or digital services delivered to businesses in the Philippines, including the government and its entities, and business-to-consumer (B2C) classified as digital services supplied to individuals not engaged in business in the Philippines will be covered.
Digital Services Consumption in the Philippines
Nonresident DSPs will be regarded as offering digital services in the Philippines for trade or business purposes if the services are utilized within the country. This applies when the purchaser of the services is based in the Philippines.
According to the Regulations, the following details can help verify if a digital service is used in the Philippines:
a. Financial data such as credit card or bank account details.
b. Residence information, including home or billing addresses.
c. Access data like a mobile country code from a SIM card or an IP address.
d. Any other reliable indicators of the buyer’s location, such as business agreements, primary location of use, or the language of the provided digital content.
Additionally, the total revenue or provision of digital services by nonresident DSPs through B2B and B2C transactions is expressed in Philippine pesos.
If payment is in foreign currency, the DSP must convert it to Philippine pesos using either:
a. BAP’s daily or monthly average exchange rates, or
b. Other reliable rates (e.g., BSP, Bloomberg) if BAP rates are impractical, with reasons stated in the VDS Portal and supporting documents available for BIR verification.
Submission of Tax Returns and VAT Payment/Remittance by Foreign DSPs
Note that the tax compliance obligations will vary based on whether the transaction is B2B or B2C.
B2B Transactions. Philippine business customers, including the government, must file a remittance return, withhold, and remit the 12% VAT on digital services consumed in the Philippines within 10 days after the month’s end. The withheld VAT is treated as input VAT or part of the cost/expense. DSPs and buyers can rely on submitted documents (e.g., TIN) to determine the buyer’s business status, barring fraud or negligence. If the DSP, despite reasonable efforts, cannot verify the buyer’s status, the transaction is presumed B2C.
B2C Transactions. Nonresident VAT-registered DSPs must file and pay VAT on gross sales in the Philippines within 25 days per period, with optional monthly payments but required quarterly filings. E-marketplaces are liable for VAT if they control supply terms or are involved in delivery.
Furthermore, all payments must be made in Philippine peso and Nonresident VAT-registered DSPs cannot claim creditable input tax.
As for the invoice issuance, Nonresident VAT-registered DSPs must issue sales invoices for digital services in the Philippines, detailing the date, reference number, buyer info (including TIN if available), transaction description, total amount (VAT included), and, if applicable, a breakdown of taxable, VAT-exempt, and zero-rated components. Invoices can be electronic, unregistered with the BIR, but must be in English or include a translation. E-marketplace DSPs are also required to issue these invoices.
Violations will result in penalties and legal charges under the Tax Code and applicable laws.
