• Photo from Presidential Communications Office 

The Philippines has formally extended its 12% Value-Added Tax (VAT) to include non-resident digital service providers, representing a major move toward modernizing the country’s tax framework. On October 2, 2024, President Ferdinand Marcos Jr. signed Republic Act (RA) 12023 into law, mandating foreign digital companies to collect and remit VAT on services delivered to Filipino consumers, regardless of whether they maintain a physical presence in the country.

• Why the Philippines is Imposing Taxes on Overseas Digital Services 

As the digital economy continues to expand rapidly, the Philippine government seeks to promote equitable taxation by extending VAT to digital transactions, placing foreign digital services on the same footing as local businesses. This initiative brings the country in line with international tax standards, following examples set by Australia, the EU, Canada, and Singapore, all of which have adopted comparable digital tax policies. 

The newly enacted law is projected to raise P105 billion in revenue over the next five years. The Department of Finance anticipates VAT collections of P7.25 billion by 2025, based on an estimated 50% compliance rate. 

• Who Will Be Impacted by the New Digital VAT Law? 

Republic Act (RA) 12023 targets non-resident digital service providers offering a range of online services to Filipino consumers. Platforms such as Netflix, Amazon, Shein, and Disney+, among others, fall under its scope. The law encompasses a broad array of digital services, including: 

• Streaming services (films, TV shows, music, and games) 

• Online marketplaces (e-commerce platforms selling both digital and physical products) 

• Cloud computing and data storage solutions 

• Digital advertising platforms 

• Software and mobile app sales 

• E-books, online subscriptions, and other digital content 

• VAT Requirements for Foreign Digital Service Providers 

Under the new law, foreign companies earning over P3 million annually from Philippine-based consumers are required to: 

• Register with the Bureau of Internal Revenue (BIR) 

• Designate a local representative to manage tax responsibilities 

• Remit 12% VAT on gross revenues from digital services 

Non-compliance may lead to the temporary suspension of their operations within the Philippines. 

• Exemptions: Which Digital Services Are Not Subject to Tax? 

The law provides VAT exemptions for specific digital services, including: 

• Educational services delivered by institutions accredited by: 

• Department of Education (DepEd) 

• Commission on Higher Education (CHED) 

• Technical Education and Skills Development Authority (TESDA) 

• Subscription-based services provided to DepEd, CHED, and TESDA-accredited institutions 

• Digital financial services, such as online banking and electronic payment platforms 

• How Will the Philippines Implement and Enforce the Digital VAT? 

To facilitate a smooth implementation, the government will roll out the law in phases: 

• Within 90 days – The Bureau of Internal Revenue (BIR) will issue the Implementing Rules and Regulations (IRR). 

• 120-day transition period – The BIR will establish the necessary tax infrastructure to enforce the law. 

Additionally, 5% of the tax revenue collected under RA 12023 will be dedicated to supporting the local creative industry, benefiting Filipino artists, musicians, and filmmakers. 

The 12% VAT on foreign digital services represents a vital step toward creating a level playing field for local businesses and ensuring the Philippines collects tax revenue from the rapidly growing digital sector. Non-resident digital service providers should prepare for compliance by registering with the BIR and familiarizing themselves with their responsibilities under the new law. 

With similar measures already adopted globally, this move aligns the Philippines with the worldwide trend of taxing digital platforms to secure fair contributions to national economies. 

• SOURCE:  

https://www.globalvatcompliance.com/globalvatnews/philippines-vat-digital-service-providers/

https://www.gov.ph