Philippines: Guidance clarifying VAT on digital services

The Bureau of Internal Revenue (BIR) on June 2, 2026, issued guidance clarifying the provisions of Revenue Regulations (RR) No. 3-2025 implementing Republic Act (RA) No. 12023, which imposes VAT on digital services.

The new Revenue Memorandum Circular (RMC) No. 59-2026, effective June 2, 2026, provides administrative guidance on registration, compliance, and specific transaction structures under this framework.

The main points of RMC No. 59-2026 include:

• A nonresident digital service provider (NRDSP) that supplies VAT-exempt digital services to Philippine consumers is still required to register with the BIR and file VAT returns.
• VAT-exempt digital services must be reported as VAT-exempt sales in the VAT return.
• In a cross-border cost-sharing arrangement involving a foreign digital service provider, a foreign affiliate that contracts or pays for the digital services, and a Philippine subsidiary that ultimately consumes the services, the foreign provider is generally considered the NRDSP. However, if it has no direct transaction with the Philippine subsidiary and contracts only with the foreign affiliate, it is not required to register with the BIR, unless it also supplies VAT-able digital services to other Philippine consumers. In such cost-sharing arrangements, the foreign affiliate may be treated as the NRDSP and must register with the BIR if it controls key aspects of the supply.
• Under the reverse-charge mechanism, the Philippine entity in a business-to-business (B2B) transaction is responsible for filing the VAT return, withholding the VAT, and remitting the 12% VAT on the cost of the digital service.
• NRDSPs are liable for the 12% VAT only on the portion of sales that qualifies as digital services.
• In B2B transactions, the Philippine entity must remit the withheld VAT using BIR Form No. 1600-VT within 10 days following the end of the month in which the withholding was made.
• For payments covering periods prior to the VAT on digital service providers becoming effective on June 2, 2026, the 12% VAT applies only to the remaining portion of the service period.
• VAT applies to digital services supplied to both resident and nonresident consumers located in the Philippines.
• The sale of services by a Philippine entity to a nonresident foreign corporation (NRFC) is subject to zero-rated (0%) VAT, provided payment is made in an acceptable foreign currency and is accounted for in accordance with the rules of the Bangko Sentral ng Pilipinas (BSP).
• An NRFC engaged solely in facilitating transactions between parties to a digital transaction and not operating as an e-commerce platform is subject to 12% VAT on service fees charged to Philippine clients for the use of its services.
• An e-marketplace may still be considered a digital service provider (DSP) for VAT compliance purposes, even if it does not directly receive payments for the digital services sold through its platform, provided it collects the VAT in advance. In such cases, it must file BIR Form No. 2550-DS and remit the VAT on covered business-to-consumer (B2C) transactions.
• Entitlement to treaty benefits under a tax treaty for the avoidance of double taxation does not automatically result in VAT exemption or zero-rating, as the VAT treatment of digital services is determined based on the National Internal Revenue Code.

Read a June 2026 report prepared by the KPMG member firm in the Philippines