“Philippines Enforces 12% VAT on Foreign Digital Services: What You Need to Know”
The Philippine government has enacted a significant policy change affecting foreign digital service providers. Republic Act No. 12023, signed into law on October 2, 2024, imposes a 12% Value-Added Tax (VAT) on digital services consumed within the Philippines, regardless of the provider’s physical presence in the country.
Who Is Affected?
The new VAT applies to non-resident digital service providers offering various online services to Filipino consumers. Affected platforms include:
- Streaming services (e.g., Netflix, Disney+)
- Online marketplaces (e.g., Amazon, Shein)
- Cloud computing and storage services
- Digital advertising services
- Software and app purchases
- E-books, online subscriptions, and digital content sales
These services will now be subject to a 12% VAT when used or consumed in the Philippines.
Implementation Timeline
- January 17, 2025: The Bureau of Internal Revenue (BIR) issued Revenue Regulation No. 3-2025, detailing the application of the VAT on digital services.
- June 1, 2025: The 12% VAT becomes effective for foreign digital service providers.
- June 1, 2025: Foreign digital service providers must complete their online registration with the BIR.
Compliance Requirements
Non-resident digital service providers earning more than ₱3 million annually from Philippine consumers must:
- Register with the BIR
- Appoint a local representative to handle tax obligations
- Remit 12% VAT on gross receipts from digital transactions
Failure to comply could result in temporary suspension of operations in the Philippines.
Exemptions
Certain services remain exempt from VAT under the law. These include:
- Educational services provided by institutions accredited by the Department of Education (DepEd), Commission on Higher Education (CHED), and Technical Education and Skills Development Authority (TESDA)
- Subscription-based services offered to DepEd, CHED, and TESDA institutions
- Digital financial services, such as online banking and e-payment platforms
Economic Impact
The new VAT law is expected to generate ₱105 billion in revenue over the next five years, with the Department of Finance estimating ₱7.25 billion in VAT collections by 2025 assuming a 50% compliance rate.
Enforcement and Oversight
The Philippine government has established a simplified automated VAT registration system for nonresident digital service providers to ensure compliance.
