Philippines VAT Guidelines for Cross-border Digital Services: What Foreign Providers Need to Know

UPDATE:

The Bureau of Internal Revenue (BIR) has extended the VAT registration deadline for non-resident digital service providers to July 1, 2025 (originally June 1), due to technical issues with the registration portal. Please ensure your business is registered by the new date to remain compliant with the Philippines’ 12% VAT requirements on digital services

On May 7, the Philippines Bureau of Internal Revenue released a memorandum to all Internal Revenue offices, its employees, and other relevant parties that clarifies and offers guidance on how to apply VAT on the cross-border supply of digital services.

Although the memorandum is intended for those working within the Philippines Tax Authority, the answers and subsequent information provided in this FAQ-based document are also valuable for foreign taxable persons subject to these rules.

The Scope of the Memorandum

The memorandum clarifies that foreign digital service providers must register or update their registration data regardless of whether they engage in B2C, B2B, or both transactions. In addition, foreign digital businesses must file a tax return to report their B2B transactions. The memorandum further elaborates on the VAT treatment for the cross-border B2B and B2C transactions.

Furthermore, the memorandum underlines that foreign digital service providers have up to 120 days starting from June 1, 2025, to register for VAT. The information required to complete the registration process includes the business entity's name and authorized representative's name, tax identification number, registered foreign address, and contact information.

Additionally, it is stated that appointing a tax representative is not mandatory for completing the registration process. However, foreign digital service providers may nominate one, such as a law or accounting firm, if they find it more suitable and efficient.

The memorandum explains how rules apply to B2B and B2C transactions and provides valuable information on how these rules apply to online marketplaces. Moreover, it includes several scenarios of these transactions, explaining how the rules apply in each situation. 

For example, if a digital service provider generates sales through an online marketplace but payments go directly to the provider's account, the marketplace is not liable for VAT since the marketplace is not in control of the payment.

Conclusion

Digital service providers providing or engaged in services such as online search engines, marketplaces, cloud services, online media and advertising, online platforms, or digital goods are all subject to 12% VAT from June 2, 2025, when the VAT liability begins. Therefore, as the date of the rules' entry into force approaches, all in-scope entities should dedicate their resources to determining their obligations.

Source: Philippines Bureau of Internal Revenue, KPMG, VATabout