Gorriceta Africa Cauton & Saavedra | View firm profile
By: Atty. Karlene Erika Liao
February 18, 2025 – On October 2, 2024, President Ferdinand R. Marcos, Jr. signed into law Republic Act No. 12023 or the Value-Added Tax (VAT) on Digital Services Act (the “Act”), which aims to ensure equitable tax treatment of all digital businesses providing services in the Philippines and generate much-needed additional revenue to aid national development. The Act also aims to level the playing field between local and foreign digital service providers (DPS) by, among others, imposing 12% VAT on all digital services consumed in the Philippines.
The Act mandates the issuance of implementing rules within 90 days from its effectivity. Thus, on January 17, 2025, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) No. 03-2025 , prescribing policies and guidelines in the implementation of the Act.
RR No. 03-2025 reiterates that Digital Service Providers (DSPs), both residents and non-residents, who directly deliver or supply digital services such as online marketplace/e-market and online media and advertising to a buyer in the Philippines; and/or who act as an online marketplace/e-marketplace on the transactions of non-resident sellers through the former’s platform (whether it is business-to-business or business-to-consumer transactions) are subject to 12% VAT on their gross sales derived from the digital services consumed in the Philippines.
While there is no significant departure from the current VAT regulations affecting resident DSPs, the same cannot be said for non-resident DSPs. RR No. 03-2025 contains quite a discussion on the compliance obligations of non-resident DSPs, who: (i) have until April 02, 2025 (or 60 calendar days from effectivity or February 01, 2025) to register via the VAT on Digital Services (VDS) Portal; and (ii) shall be held liable to VAT starting June 01, 2025 (or 120 calendar days from effectivity or February 01, 2025). Non-resident DSPs are not required to have a local representatives in the Philippines, but they may opt to appoint a resident third-party service provider, subject to notification requirement to the BIR within the prescribed period. But of course, it will be more prudent for non-resident DSPs to have a resident third party service provider since it will be easier to comply with the regulatory requirements, including receiving any notices and filing of tax returns and other reporting obligations. In any case, having a resident third party service provider in the Philippines will not make the non-resident DSP a non-resident foreign corporation doing business in the Philippines.
RR No. 03-2025 also dissected the rules under the reverse charge mechanism wherein persons engaged in business in the Philippines who avail of the digital services rendered by non-resident DSPs are required to withhold the VAT and remit the same to the BIR. Similarly, VAT-registered DSPs (regardless if resident or non-resident) classified as e-marketplace are also required to withhold and remit the 12% VAT on the gross sales received by their non-resident participating merchants/sellers. This reverse charge mechanism is strikingly similar with the withholding tax system already in place. However, what’s so special about this new mechanism introduced by the Act is that it only applies to VAT-registered taxpayers and does not cover non-VAT registered taxpayers who have purchases from non-resident DSPs. Definitely, a circular to further clarify the similarity/difference between these mechanisms is needed from the BIR.
RR No. 03-2025 also grants the BIR the power to issue a Closure or Take Down Order, which would authorize the physical closure of the business / operations, as well as the blocking of digital services in case a DSP fails to (a) register its business with the BIR or (b) comply with its provisions. This does not preclude the BIR form filing administrative and criminal sanctions under the its Run After Tax Evaders (RATE) Program.
Just like with any other new legislations and compliance requirements, both taxpayers and the BIR will surely encounter challenges and hiccups as they try to comply with (in the case of taxpayers) or implement (in the case of the BIR) the regulation. This may include technical issues in the actual use of the VDS Portal (not available as of writing) which is expected to be made available to the public anytime soon taking into account the April 02 deadline for registration set by the BIR. Moreso, taking into account that the covered persons required to register are not residing in the Philippines, a step-by-step guide for the registration via the Portal will be very crucial to ensure the proper implementation of this directive.
Keeping in mind that the objective of the Act is to ensure equitable tax treatment of all digital businesses in the Philippines and to generate additional revenues, our legislators and BIR must always ensure to strike a balance between the objective of the law and its effect on taxpayers.
Source: https://gorricetalaw.com/now-loading-vat-on-digital-services/