Special InTAX: January 2025 Issue 1 | Volume 2

Department of Finance

The Department of Finance issued Revenue Regulations (RR) No. 03-2025 dated 16 January 2025, implementing of Republic Act (RA) No. 12023 imposing the Value-Added Tax (VAT) on digital services.

Below are the salient points of RR No. 3-2025.

Coverage

RA No. 12023 covers persons who, in the course of trade or business, supply or deliver digital services in the Philippines. The law does not cover the importation of goods subject to customs duties, taxes, and other charges under applicable laws, rules, and regulations.

The law covers both B2B and B2C transactions:

B2B transactions	B2C transactions
Supply or delivery of digital services to natural or juridical person engaged in business located in the Philippines	Supply or delivery of digital services not engaged in business located in the Philippines

 

Definition of “gross sales of nonresident DSPs”

This refers to the total sales of digital services by nonresident DSPs through B2B and B2C transactions in Philippine Peso (PHP). In case the service payment is in foreign currency, the DSP shall convert the payment into PHP currency as follows:

(ii)           The spot rate of exchange on a daily basis or a monthly basis using the average exchange rate during the month based on the Banker’s Association of the Philippines (BAP) published rates; or

(iii)          The daily spot rate or the monthly average rate based on other available exchange rates (e.g., Bangko Sentral ng Pilipinas, Bloomberg, Reuters exchange rates, etc.) shall be used subject to the following conditions:

(i)         A taxpayer electing to use forex rates other than BAP published rates shall state the reason in the VAT on Digital Services (VDS) Portal for using a source of the forex rate other than BAP published rates, and allow the Bureau of Internal Revenue (“BIR”) to have an access on the day-to-day or monthly average forex rates for verification and validation.

(ii)        The source of the forex rates used in converting foreign currency-denominated transactions must be available for submission, together with other supporting documents during BIR verification and validation.

The election of the basis of conversion of the forex rate is irrevocable and must be used consistently in reporting for tax purposes for at least one taxable year.

Taxability of gross sales of DSPs

Generally, VAT shall be levied, assessed, and collected, equivalent to 12% of the gross sales derived by a DSP from its sale or exchange of services in the Philippines pursuant Section 108 of the National Internal Revenue Code of 1997, as amended (Tax Code).

Digital services are considered consumed or used in the Philippines if the buyer is located in the Philippines.

The following information, among others, may be used to determine whether the digital service is consumed or used in the Philippines:

a.          Payment information (e.g., credit card information, bank account details); or

b.          Residence information of the buyer (e.g., home address, billing address); or

c.          Access information (e.g., mobile country code of SIM card, Internet Protocol address); or

d.          Any other information to establish the most reliable determination of the buyer's location (e.g., business agreement, predominant place of consumption, language of digital content supplied).

However, if such information is contradictory, the DSPs should obtain at least two pieces of non-conflicting evidence of where the service is consumed.

 

Registration Requirement for DSPs

Resident DSPs

Nonresident DSPs

Register with the BIR following the policies and procedures under Sec 236 of the Tax Code.

Register with the BIR within the period prescribed under Sec 236 of the Tax Code through VDS Portal and submit the prescribed information. A nonresident DSP: -        Need not have a local representative in the Philippines; -        May appoint a resident third-party service provider – for purposes of receiving notices, record keeping, filing of tax returns and other reporting obligations; -        Shall notify the BIR in writing the same within thirty (30) calendar days from date of appointment; and -        For VAT purposes, appointment of a third-party service provider shall not classify the nonresident DSP as a nonresident foreign corporation doing business in the Philippines. •       A Certificate of Registration containing the assigned Taxpayer Identification Number (TIN) and type of registration shall be issued to the registering nonresident DSP, which shall be used in all its transactions pertaining to the supply or delivery of digital services consumed or used in the Philippines.

In case of failure to register, the Commissioner of Internal Revenue (CIR) will have the power to block the digital services of a digital service provider with the assistance of the Department of Information and Communications Technology (DICT), through the National Telecommunications Commission (NTC) pursuant to Section 12 of RR No. 3-2025.

 

Requirements on filing of tax returns and payment and remittance of VAT

A.         Resident VAT-registered DSP

General Rule	Classified as an e-marketplace with nonresident participating merchant or seller
The resident VAT-registered DSP shall file the VAT return and pay the VAT due thereon following the policies and procedures.	The resident VAT-registered DSP shall be liable for:   Electronically filing the required remittance return; and Withholding and remitting the twelve 12% VAT due on the gross sales received by its nonresident participating merchant or seller relating to sale of digital services consumed or used in the PH within 10 days following the end of the month the withholding was made.

 

B.         Nonresident VAT-registered DSP

B2B transaction	B2C transaction	Classified as an e-marketplace
The B2B customer shall be liable for:   •       Electronically filing the required remittance return; and •       Withholding and remitting the 12% VAT due on its purchase of digital services consmed or used in the Philippines within 10 days following the end of the month the withholding was made.	The nonresident VAT-registered DSP shall be directly liable for:   •       Electronically filing the VAT return; •       Paying the VAT due through simplified pay-only regime in the VDS Portal based on its gross sales relating to the sale of digital services consumed or used in the PH within 25 days following the close of each taxable quarter	The nonresident VAT-registered DSP shall be liable for:   •       Electronically filing the VAT return; •       Paying the 12% VAT due based on its gross sales received by its nonresident participating merchant or seller relating to the sale of digital services consumed or used in the PH within 25 days following the close of each taxable quarter (VAT deadline)   The above obligations apply if the nonresident DSP has control on the key aspects of the supply and:   sets, directly or indirectly, any of the terms and conditions under which the supply of digital is involved directly or indirectly, in the ordering or delivery of digital services, that is, having influence over the conditions of delivery, transmission of approval to supplier, and provision of order fulfillment services.

All electronic payments and remittances shall be in PHP. VAT shall be calculated by multiplying the value of the digital services rendered in PHP by the VAT rate of 12%.

DSPs and Philippine buyers are required to determine whether or not its contracting party is engaged in business. Each of the DSPs and buyers may rely on the documents and/or information submitted by its contracting party and shall be absolved from any tax liability, absent any fraud or negligence on the part of such relying party.

In case a DSP, acting in good faith and having made reasonable efforts, is unable to establish the status of its buyer, it shall be presumed that its buyer is not engaged in business.

C.         Unregistered Nonresident DSPs

In a B2B transaction, such persons engaged in business, including the Government of the Philippines or any of its political subdivisions, instrumentalities or agencies, including GOCCs, shall be liable for:

i.         Electronically filing the required remittance return; and

ii.        Withholding and remitting the 12% VAT due on its purchase of digital services consumed in the Philippines to the BIR within ten (10) days following the end of the month the withholding was made in accordance with Section 114 (C) of the Tax Code and Section 4.114 of RR No. 2-98, as amended.

 

Proper Claiming of Input Tax

Resident VAT-registered DSPs	Nonresident VAT-registered DSPs	VAT-registered buyer
Purchase or importation of goods or properties which shall be creditable to the purchaser upon consummation of sale and on importation of goods or properties; and to the importer upon payment of the VAT prior to the release of the goods from the custody of the Bureau of Customs; and Purchase of services, lease, or use of properties which shall be creditable to the purchaser, lessee, or licensee upon payment of the compensation rental, royalty, or fee.	Nonresident VAT-registered DSPs shall not be allowed to claim creditable input tax.	Only VAT-registered buyers are entitled to claim input taxes. Non-VAT registered buyers may claim the same as part of the cost. These VAT-registered buyers can utilize the filed withholding VAT return as proof to support their claim for input VAT.

 

Issuance of invoice

Resident VAT-registered DSPs

Nonresident VAT-registered DSPs

Resident VAT-registered DSPs shall issue sales or commercial invoices for every sale, barter, or exchange of digital services under Section 113 of the Tax Code.

VAT-registered nonresident DSPs shall be required to issue a digital sales or commercial invoice, which must contain the following information:   a.     Date of the transaction; b.     Transaction reference number; c.     Identification of the consumer; d.     Brief description of the transaction; e.     The total amount with the indication that such amount includes VAT; and f.       If applicable, the break-down of the sale price between its taxable, exempt, zero-rated, and components subject to VAT with the calculation of the VAT on each portion of the sale shown on the invoice.

 

Accounting Records

Resident VAT-registered DSPs	Nonresident VAT-registered DSPs
All persons subject to VAT under Sections 106 and 108 of the Tax Code shall maintain regular accounting records, including subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded.	Nonresident VAT-registered DSPs shall not be required to maintain regular accounting records and subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded.

 

Conduct of Post Audit and Verification by the BIR

All the parties to the B2B and B2C transactions that are within the taxing jurisdiction of the Philippines

Nonresident VAT-registered DSPs

•       Shall be subject to post-audit and examination by the BIR pursuant to the provisions of the Tax Code and its implementing revenue issuances.

•       BIR may also conduct verification from third-party sources on whether they are correctly declaring their gross sales and that of their customers for VAT purposes. •       The BIR shall inform the nonresident DSP of any discrepancy discovered and provide them opportunity to immediately settle it; otherwise, they shall be held liable under Sections 12 (on the Suspension or Closure of Online Business Operations) and 13 (Penalties) of RR No. 3-2025.

On VAT-exempt digital services

•       Digital educational services will only be VAT-exempt if rendered by duly accredited private educational institutions and government educational institutions;

•       Sale of online subscription-based services to DepEd, CHED, TESDA and educational institutions recognized by said government agencies; and

•       Services rendered through digital platforms by banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries will also be VAT-exempt. This includes Virtual Asset Service Providers (VASPs) registered and classified by BSP as Non-Bank Financial Institutions.

 

 Effectivity of the law and RR No. 3-2025

• The law took effect on 18 October 2024, which is 15 days from its publication in the Official Gazette on 03 October 2024.
• RR No. 3-2025 will take effect 15 days following its publication in the BIR’s official website.

All nonresident DSPs required to register shall register or update with the BIR within 60 days from the effectivity of RR No. 3-2025 through the VDS Portal and shall be immediately subject to VAT after 120 days from the effectivity of the RR.

(RGM & Co. Note:  The RR was published in the BIR’s official website on 17 January 2025. Thus:

• Effectivity of RR: 01 February 2025
• Nonresident DSPs must Register/Update by: 02 April 2025
• Nonresident DSPs are immediately subject to VAT by: 01 June 2025)

Here is the link to the full text of the issuance: RR No. 03-2025.