Philippines: Application of VAT on digital services

Digital services will be taxed at a 12% rate when used or consumed in the Philippines.

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January 23, 2025

The Bureau of Internal Revenue (BIR) on January 17, 2025, published Revenue Regulation No. 03-2025 detailing the application of the value added tax (VAT) on digital services, as enacted by Republic Act No. 12023, and outlining the obligations of digital service providers (DSPs).

“Digital services” are defined as any service delivered over the internet or other electronic networks using information technology, essentially automated in supply. These services, including online search engines, access to online marketplaces, cloud services, online media and advertising, online platforms, and digital goods, will be taxed at a 12% rate when used or consumed in the Philippines.

Place of supply rules

The VAT on digital services applies in the Philippines when these services are deemed used or consumed in the country. The regulation determines this based on several criteria associated with the service consumer: the payment method, communication method, billing address, and other information to establish the buyer's location.

Registration

Nonresident DSPs must register with the BIR within 60 days from the regulation's effective date, and will be subject to VAT 120 days after the regulation takes effect. They do not need to appoint a local representative for this, although they can choose to do so for receiving notices and filing tax returns. This registration does not mean the DSP is considered a nonresident corporation doing business in the Philippines.

VAT declaration and payment

Local DSPs must comply with regular VAT obligations when directly supplying digital services. However, if they act as electronic marketplaces, they also have to withhold, declare, and pay the VAT applicable to transactions carried out by nonresident suppliers on their platform within 10 days after the month's end in which the withholding was made. Nonresident VAT-registered DSPs making business-to-consumer (B2C) sales of digital services to local consumers in the Philippines must file the VAT return electronically and pay the VAT due to the BIR within 25 days after each taxable quarter ends. They can also opt to declare and pay the VAT monthly, but still need to file a quarterly return to declare that period's transactions.

If a nonresident DSP acts as an electronic marketplace and sets the terms and conditions for the supply of digital services, they are also responsible for declaring and paying the VAT applicable to transactions carried out by suppliers using their platform. This VAT must be paid to the BIR within 25 days following each taxable quarter's end. In business-to-business (B2B) transactions when nonresident DSPs supply digital services to local businesses in the Philippines, the local business is responsible for the VAT declaration and payment to the BIR.

Invoicing

Local DSPs must comply with local invoicing requirements. For nonresident DSPs, compliant invoices must be in English or include an English translation, have a transaction date, reference number, buyer identification (including the taxpayer identification number, if applicable), a brief transaction description, and the total amount indicating that it includes the VAT. These invoices do not need to be registered with the BIR.

Failure to comply

Violations of any provisions of these regulations will result in penalties and the imposition of appropriate criminal, civil, and administrative charges against erring DSPs and their responsible officers. The BIR can also suspend the business operations of any DSPs that fail to register their business with the BIR or comply with these regulations.

Read a February 2025 report prepared by the KPMG member firm in the Philippines


For further information, contact a KPMG tax professional:

Leandro Ben Robediso | lrobediso@kpmg.com

Julius Patrick Acosta | jcacosta@kpmg.com

Philippe Stephanny | philippestephanny@kpmg.com

Ramon Frias | ramonfrias@kpmg.com

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