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President Ferdinand Marcos Jr. (center) signed a new law requiring foreign-based digital services providers to pay a 12% value-added tax on revenues generated in the Philippines. Photo couetesy of the Presidential Communications Office/Philippines |
This significant tax measure is implemented through Revenue Regulations (RR) No. 3-2025, issued on January 17, 2025, and further clarified by Revenue Memorandum Circular (RMC) No. 47-2025, issued on May 8, 2025.
This move aims to level the playing field between local and foreign digital service providers in the expanding digital economy.
The new VAT obligation applies to both resident and non-resident digital service providers (NRDSPs) supplying services over the internet or other electronic networks where the service is essentially automated and involves minimal human intervention. Covered services include, but are not limited to, subscription-based streaming platforms, online marketplaces, cloud services, and digital advertising.
For non-resident providers, this means they must register with the BIR through the VAT on Digital Services (VDS) Portal by June 1, 2025, to comply with the upcoming VAT collection.
BIR Commissioner Romeo D. Lumagui Jr. has previously supported the underlying law, Republic Act No. 12023, which enables this VAT imposition. He stated, "This is not a new tax. RA No. 12023 only ensures that the VAT being paid by local digital businesses, will also be paid by foreign digital businesses." Commissioner Lumagui emphasized that the law promotes fair competition among businesses profiting from consumers in the Philippines, fostering a level playing field.
For Business-to-Consumer (B2C) transactions, non-resident DSPs will be directly liable for remitting the VAT. For Business-to-Business (B2B) transactions, the Philippine business entity purchasing the digital service will be responsible for withholding and remitting the 12% VAT to the BIR. The RMC No. 47-2025 provides further clarifications on invoicing requirements, the filing of VAT returns, and the treatment of advanced payments for existing contracts.
This new VAT regime introduces crucial registration and reporting obligations for NRDSPs and local businesses alike. The BIR has established the VDS Portal as the primary platform for NRDSPs to register, file VAT returns, and remit VAT. Non-compliance by the June 1, 2025, registration deadline for NRDSPs may incur penalties.
The government anticipates that this measure will significantly boost revenue collection from the digital sector and ensure that digital services contribute their fair share to the nation's growth.
