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.

VAT on Digital Services Clarification Highlights

Revenue Memorandum Circular (RMC) No. 47-2025, issued on May 8, 2025, explains details about applying VAT (Value-Added Tax) to digital services. This is based on Revenue Regulations (RR) No. 3-2025, which follow Republic Act (RA) No. 12023, also called the “VAT on Digital Services” law.

The circular provides clarifications on key points, including:

1. All Non-Resident Digital Service Providers (NRDSPs) must register or update their registration, regardless of the nature of their transactions.
2. NRDSPs with purely Business-to-Business (B2B) transactions are still required to file tax returns to enable proper tracking of digital economy activity in the country.
3. NRDSPs shall register through the VAT on Digital Services (VDS) Portal upon availability. Prior to its roll-out, the Online Registration and Update System (ORUS) on the BIR official website must be used.
4. NRDSPs shall register within 120 days from the effectivity of RR No. 3-2025, or on or before June 1, 2025.
5. Required information during registration includes:
6. • Business name (including trade name)
   • Authorized representative’s name, and local representative’s TIN
   • Registered foreign address; and
   • Contact information of the NRDSP

6. Any official registration document issued from the NRDSP’s home country shall suffice for the registration.
7. NRDSPs are not required to appoint a local representative but may appoint a resident third-party service provider for administrative and tax compliance support.
8. NRDSPs with a local representative may manually register with BIR Revenue District Office (RDO) No. 39-South Quezon City.
9. The appointment of a resident third-party service provider shall not classify the NRDSP as a resident foreign corporation doing business in the Philippines.
10. Upon registration, the BIR will issue a Certificate of Registration (COR)/BIR Form 2303, which includes the TIN and details necessary for VAT returns filing.
11. NRDSPs will be subject to 12% VAT on their gross sales from digital services consumed in the Philippines.
12. Failure to register may result in penalties (under Section 13 of RR No. 3-2025) and potential suspension of operations (Section 12).
13. For cross-border B2B transactions, the Philippine business customer must withhold and remit the 12% VAT via the reverse charge mechanism.
14. In Business-to-Consumer (B2C) transactions, the NRDSP is responsible for filing VAT returns and paying VAT using the simplified pay-only regime in the VDS Portal.
15. If a DSP acts as an online marketplace and is involved in setting terms or facilitating transactions:

• • For B2B transactions, the Philippine consumer/buyer shall remit the 12% withholding tax.
  • For non-resident DSP with B2C transactions, the non-resident DSP is responsible for VAT payment.
  • For resident DSP with either B2B or B2C transactions, the resident e-marketplace DSP shall be liable for filing the VAT return and payment of the VAT due.

16. There is no invoice format required. However, invoices must include:

• • Transaction date
  • Reference Number
  • Buyer’s identity and TIN
  • Description of the transaction; and
  • The total amount, indicating VAT inclusion

**Note: If VAT is not itemized on a B2B invoice, an annotation should state that the Philippine buyer is responsible for VAT.

17. The NRDSP shall be subject to VAT after 120 days from the effectivity of the RR No. 3-2025, or starting June 2, 2025.
18. The NRDSP shall use BIR Form 2550-DS in filing the VAT returns and/or payment/remittance of the VAT for B2C transactions, which shall be available and generated in the VDS Portal.

**Note: In B2B transactions, the business consumer/buyer shall use BIR Form 1600-VT in filing and remittance of the VAT withheld.

19. NRDSPs cannot claim input VAT credits under Section 7(B) of RR No. 3-2025.
20. If VAT was paid by both NRDSP and Philippine buyer in error, no refund can be claimed by the NRDSP. Instead, overpayments can be carried over in subsequent filings by amending BIR Form 2550-DS.
21. When an NRDSP makes sales via an e-marketplace but receives payments directly from buyers, the e-marketplace is not liable for the VAT on those sales. However, any service fee charged by the e-marketplace to the Philippine buyer is subject to VAT.
22. If digital services are used to facilitate the purchase of physical goods through an online marketplace, and the marketplace charges a separate service fee, only the service fee-classified as a digital service-is subject to VAT. The sale or delivery of physical goods is not covered by RR No. 3-2025.
23. VAT applies only to digital services as specifically defined under RA No. 12023.
24. Teleconsultation platforms-where users can book appointments and hold virtual consultations between doctors and patients through websites, apps, or marketplaces-are considered digital services under the category of “online consultation through a digital platform.”
25. For online subscription services sold to educational institutions, no Certificate of Tax Exemption is required to claim VAT exemption. Institutions simply need to present accreditation or recognition from DepEd, CHED, or TESDA to avail of the exemption.
26. Digital services from NRDSPs used in registered business activities or export projects of IPA-registered entities, like export or domestic market enterprises, are VAT-exempt.
27. NRDSPs can verify if a customer is a business by:

• • Collecting the Taxpayer Identification Number (TIN)
  • Including a questionnaire or tick box on their platform where the customer indicates they are engaged in business in the Philippines
  • Optionally requesting supporting business documents like a Certificate of Registration (COR), if the system allows uploads

28. Businesses can claim input VAT using BIR Form 1600-VT. NRDSPs must follow VAT rules starting June 2, 2025, with 12% VAT applied to services from this date. Prepaid contracts are taxable for services after June 2.
29. RA No. 12023 imposes a 12% VAT on digital services used in the Philippines, regardless of the provider’s location. If a service is billed abroad but used by a Philippine subsidiary, the subsidiary must withhold and remit the VAT as a B2B transaction.

Types of Digital Services

Digital services included in the RR No. 3-2025 are platforms that have limited human intervention. These include the following:

1. Streaming Services with a Subscription. These include applications such as Netflix, Disney+, HBO Max, etc.
2. Cloud Services. Provided by platforms like Google Drive and AWS, offering accessible storage and computing solutions through the internet.
3. Online E-commerce Platforms. These include Lazada, Shopee, and Airbnb, enabling users to shop, rent accommodations, or access other services seamlessly online.
4. Digital advertising platforms. These include Facebook Ads and Google Ads, providing automated, targeted marketing services.
5. Others. These include any service delivered via the internet that operates autonomously without requiring extensive human involvement falls under the category of digital services.

Core Prerequisites of RR 3-2025

Compliance with RR 3-2025 requires a clear understanding of its key provisions. This section outlines the main standards businesses must follow. Here are the core requirements of RR 3-2025:

• Value Added Tax (VAT) Collections. A 12% VAT should be added to the service fees billed to customers.
• Value Added Tax (VAT) Registration. Any company providing digital services in the Philippines is required to register with the BIR.
• Invoice Issuance. Digital service providers are required to provide invoices or receipts with VAT clearly itemized.
• Filing and Payment of VAT. Digital service providers are obligated to regularly submit VAT returns and remit the collected VAT to the BIR.

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.