Philippines - Bill Imposing VAT on Foreign Digital Service Providers Approved

The Philippines government has been working for several years on introducing VAT on taxable sales of digital products and services from foreign businesses to Philippine consumers. It was a long way from the initial intention to reach the point that both the Senate and the House of Representatives approved the final version of the legislature on VAT on digital services.

In June 2024, following the approval of the Senate and House of Representatives, the Bicameral Conference Committee approved the Bill imposing VAT on foreign digital service providers. The following steps in this lengthy process involve the President of the Philippines signing the Bill into law, which will then be implemented. 

Impact on Foreign Digital Services Providers

The passed legislation proposes a 12% VAT on digital services provided by foreign digital service providers such as Netflix, Disney, and HBO. Digital services encompass any service delivered via the Internet or other electronic networks utilizing information technology, where the transaction is primarily automated. These services include, but are not limited to:

• Online search engines,

• Online marketplaces or e-marketplaces,

• Cloud services,

• Online media and advertising,

• Online platforms,

• Digital goods.

Under the new legislation, foreign digital service providers must charge and collect VAT on services provided to individual consumers (B2C transactions). For services provided to businesses (B2B transactions), the business customers would be responsible for self-assessing and paying the applicable VAT.

Furthermore, foreign digital service providers must register for VAT purposes if their gross sales for the past 12 months have exceeded P 3 million or if there are reasonable grounds to believe that their gross sales for the next 12 months will exceed P 3 million.

Conclusion

With a population exceeding 110 million, the Philippines offers substantial growth potential for global digital services providers. The approval of the VAT Bill on foreign digital service providers marks a significant step in the Philippines' efforts to regulate and tax digital services. After years of legislative work, the bill is now on the verge of becoming law, pending the President's signature. 

Foreign digital service providers targeting the Philippine market must prepare to comply with the new VAT regulations. 

Source: House of Representatives - House Bill No. 4122, Senate of the Philippines - Bill No. 2528,