RR 03-2025: Clarifications or more questions?

As featured on PhilStar: RR 03-2025: Clarifications or more questions?

Over the past decade, online services have slowly been integrated in the daily lives of everyone, including Filipinos. Due to the global pandemic, the public, suddenly forced to remain at home, have turned to online shopping and streaming for necessities and entertainment. Thus, when Republic Act (RA) No. 12023, which imposes Value-Added Tax (VAT) on Digital Services, was signed into law in October 2024, it caused quite a stir among consumers and businesses.

The law provides that persons who, in the course of trade or business, supply or deliver digital services that are consumed in the Philippines shall be liable for VAT. It also defines digital service as any service that is supplied over the internet or any other network that used information technology where the supply of the service is essentially automated.

By January 2025, Revenue Regulations (RR) No. 03-2025, which contains the implementing rules of the law, was released, clarifying the definitions and liabilities of the parties among others.

One of the issues addressed by the RR was who shall be responsible for filing and payment of VAT. In said RR, it was provided that a resident VAT-registered Digital Service Provider (DSP) shall file the VAT return and pay the VAT due. Furthermore, if classified as an e-marketplace that has nonresident participating merchants, then it shall also be liable for electronically filing the required remittance return; and withholding and remitting the 12% VAT due on the gross sales of the nonresident participating merchant from the sale of digital services consumed in the Philippines.

As to nonresident VAT-registered DSPs, the responsibility to file and remit shifts depending on the kind of transaction. In B2B (business-to-business) transactions, the entity engaged in business, including the Government of the Philippines or any of its subdivisions, is responsible for electronically filing the required remittance return; and withholding and remitting VAT due on its purchases of digital services that are consumed in the Philippines within 10 days following the end of the month the withholding was made. In B2C (business-to-consumer) transactions, on the other hand, it is the nonresident VAT-registered DSP that is directly liable for the electronic filing of the VAT return and paying the VAT due based on its gross sales relating to the sale of digital services consumed in the Philippines within 25 days following the close of each taxable quarter. However, if the nonresident VAT-registered DSP so chooses, it may elect to pay the VAT monthly, but it is still required to file a quarterly tax return and pay VAT liabilities as provided by law.

Similar to resident DSPs, if a nonresident DSP is classified as an e-marketplace, it is also responsible for filing the VAT return and paying the VAT due based on the gross sales of its nonresident participating merchants from sales of digital services consumed in the Philippines within 25 days following the close of each taxable quarter.

Lastly, as to unregistered nonresident DSPs, in B2B transactions, the person or entity engaged in business, including the Government of the Philippines, or any of its subdivisions, shall be liable for electronically filing the required remittance return; and withholding and remitting the VAT due on its purchase of digital services consumed in the Philippines within 10 days following the end of the month the withholding was made.

However, some clarifications are necessary to better guide taxpayers and tax practitioners alike and ensure compliance. For instance, the BIR needs to reconcile some inconsistent provisions between the law and its RR. Under the law, nonresident DSPs are required to be registered for VAT based on the criteria under Sec. 236(F) of the Tax Code, as amended, i.e., the DSP exceeded the PHP3Million gross sales threshold in the past 12 months, or when it has reasonable grounds to believe that it will exceed this threshold in the next 12 months. However, in an information material released by the BIR, it states that all DSPs whether resident or nonresident are required to register.

Speaking of registration, the RR states that a nonresident DSP is not required to have a local representative, but it may appoint a resident third-party service provider to receive notices, keep records, file tax returns, and to accomplish other reporting obligations on its behalf. The nonresident DSP should notify the BIR of the appointment in writing within 30 calendar days from the date of said appointment. As clarified in the RR, for VAT purposes, such designation will not make the nonresident DSP a nonresident foreign corporation doing business in the Philippines. In case of failure to register for VAT, the nonresident DSP shall be subject to the applicable penalties, including the suspension of its business operations in the Philippines.

Another portion that needs clarification is who is responsible for the filing of the return, and the withholding and remittance of VAT in case both the nonresident DSP and the consumer or purchaser are both not VAT-registered.

Hopefully, the BIR will release further issuances to guide the taxpayers accordingly.