28 April 2025
In January 2025, the Philippine government introduced Revenue Regulations (RR) No. 3-2025 to implement changes under Republic Act No. 12023. These new rules apply the 12% Value-Added Tax (VAT) to digital services provided by both resident and non-resident digital service providers (DSPs). This move reflects global trends as countries seek to ensure fair taxation in the digital economy. This article simplifies the regulations, provides real-world examples, and highlights key compliance steps for businesses and consumers alike.
What Are Digital Services?
Digital services include any service delivered online, such as:
- Streaming movies (e.g., Netflix, Disney+),
- Online education (e.g., Coursera, Udemy),
- Software subscriptions (e.g., Microsoft 365, Adobe Creative Cloud),
- Online marketplaces (e.g., Amazon, Shopee).
Consistent with Section 105 of the Tax Code, if a buyer in the Philippines consumes or uses these services, VAT now applies — even if the provider is based abroad (RR 3-2025, Sec. 2).
When is VAT Imposed?
VAT is imposed if the digital service is consumed in the Philippines. Consumption may be determined by checking:
- Payment information (e.g., Philippine credit cards),
- Buyer’s residence (e.g., billing addresses),
- Access information (e.g., Philippine IP addresses or mobile SIM country codes),
- Language and content settings (RR 3-2025, Sec. 2).
Example:
If a Filipino customer subscribes to Netflix using a Philippine credit card and billing address, VAT must be charged — even though Netflix is based abroad.
If there’s conflicting information, DSPs must collect two consistent proofs of Philippine use.
Who Needs to Register?
Both resident and non-resident DSPs must register with the Bureau of Internal Revenue (BIR). Resident DSPs register like any local business, while Non-resident DSPs may use the new VAT on Digital Services (VDS) Portal (RR 3-2025, Sec. 5). Interestingly, non-resident DSPs do not need a Philippine office — but they may appoint a resident service provider (e.g., law firm, accounting firm) to handle tax matters.
Example:
Spotify (based in Sweden) does not need a Manila office but must register online via the VDS Portal.
Filing and Paying VAT: Two Scenarios
There are different procedures depending on the type of transaction:
- Business-to-Business (B2B) Transactions
- The buyer (business) must withhold 12% VAT from the payment and remit it to the BIR.
- The withheld VAT counts as the buyer’s input VAT, which they can use to reduce their own tax (RR 3-2025, Sec. 7.B.a).
Example:
A Filipino IT company buying cloud storage from Amazon Web Services must withhold 12% of the payment, remit it to the BIR, and report it in their VAT filings.
- Business-to-Consumer (B2C) Transactions
- The non-resident DSP directly files VAT returns and pays VAT quarterly through the VDS Portal.
- They can also choose monthly payments for convenience, but must still file a quarterly summary (RR 3-2025, Sec. 7.B.b).
Example:
If an individual subscribes to Canva Pro from Australia, Canva must charge 12% VAT and pay it to the Philippine BIR quarterly.
E-Marketplaces: Special Rules
If a DSP acts as an e-marketplace (platforms connecting buyers and sellers), special obligations apply. The marketplace is responsible for withholding, filing, and paying VAT on behalf of the non-resident sellers (RR 3-2025, Sec. 7.B.b).
Example:
If Shopee Philippines hosts a Korean seller offering downloadable games, Shopee must handle the VAT duties for that seller.
An e-marketplace is considered responsible if it controls any part of the sale, such as setting terms, pricing, or delivery conditions.
Invoice and Documentation Requirements
- Resident DSPs must issue a standard BIR-compliant invoice (RR 3-2025, Sec. 10.A).
- Non-resident DSPs can issue electronic invoices without BIR approval, as long as they include:
- Date,
- Transaction reference,
- Buyer’s name (and TIN, if available),
- Description of service,
- Total price (with a note that it includes VAT).
Example:
Netflix Philippines must issue an invoice showing the monthly fee (e.g., PHP 549) with a statement that VAT is included.
Special VAT Exemptions
Some digital services are exempt from VAT:
- Accredited online education services (e.g., online university courses accredited by CHED),
- Government purchases of subscription services,
- Certain financial services via digital platforms, especially Virtual Asset Service Providers (VASPs) registered with the Bangko Sentral ng Pilipinas (BSP) (RR 3-2025, Sec. 15).
Example:
An online seminar from an accredited university would be VAT-exempt.
However, a coding bootcamp from a private, non-accredited provider would still be VATable.
Compliance, Penalties, and Enforcement
If a DSP fails to register, file, or pay VAT:
- The BIR can impose interest, penalties, and surcharges (RR 3-2025, Sec. 9).
- Non-compliant platforms can face Closure or Takedown Orders, effectively blocking access to their services in the Philippines (RR 3-2025, Sec. 17).
Enforcement cooperation involves agencies like the Department of Information and Communications Technology (DICT) and the National Telecommunications Commission (NTC).
Example:
If a streaming platform ignores its registration duty, the BIR can coordinate with NTC to block access to that service in the Philippines.
Deadlines
Non-resident DSPs must Register within 60 days of the regulations’ effectivity, and Start paying VAT after 120 days (RR 3-2025, Sec. 18).
Revenue Regulations No. 3-2025 marks a major milestone in implementing and adapting Philippine tax policy to the digital era. By ensuring that digital services consumed by Filipinos contribute to public revenues, the government aims to create a fairer and more sustainable tax base. For businesses, understanding these rules and promptly complying is essential — not only to avoid penalties but also to ensure continued access to the growing Philippine digital market.
References
Bureau of Internal Revenue (BIR), Revenue Regulations No. 3-2025, January 17, 2025.
