Philippines Implements 12% VAT on Foreign Digital Services Providers

In January, the Bureau of Internal Revenue sent all its offices and employees an Implementing Regulation regarding introducing VAT on digital services provided by foreign digital service providers to Filipino consumers.

The Implementing Regulations provide information on most relevant matters, such as which transactions are subject to VAT, key definitions, including digital services and digital goods, when is 12% VAT charged and due, when foreign digital services providers must register, invoicing requirements, etc.

Key Rules for Foreign Digital Services Providers

Foreign companies that provide digital services, such as online search engines, marketplaces, and cloud services, or sell digital goods, meaning intangible goods delivered or transferred to consumers in digital forms, like e-books, music, video, e-games, and online courses, or make subscription-based supplies of content, e.g., streaming movies, must apply a 12% VAT on gross sales once their total sales exceed the annual PHP 3 million threshold.

All foreign companies required to register and have already exceeded the threshold must register or file an update with the Bureau of Internal Revenue (BIR) within 60 days from the date the regulation became effective, February 1, 2025. The registration must be completed through the VAT on Digital Services (VDS) portal. The registration process can be finished without appointing a local tax representative.

Additionally, foreign digital service providers must issue an invoice containing information such as the date of the transaction, reference number, buyer's identification, tax identification number, a brief description of the transaction, and the total amount with an indication that includes VAT.

Conclusion

Foreign companies that make supplies of digital goods and services to consumers in the Philippines should assess if their revenue from such transactions exceeds the registration threshold, review the pricing arrangements with local customers, and ensure that they comply with mandatory invoicing requirements. 

Additionally, foreign digital service providers should be aware that failure to comply with state rules and regulations can result in penalties, including suspension of business operations.

Source: The Bureau of Internal Revenue - Revenue Regulations, VATabout