This Revenue Regulation issued on January 17, 2025 prescribes policies and guidelines for the implementation of Republic Act No. 12023 titled ” An Act Amending Sections 105, 108, 109, 110, 113, 114, 115, 128, 236 and 288 and Adding New Sections 108-A and 108-B of the National Internal Revenue Code of 1997, as Amended, ” imposing the Value-Added Tax (VAT) on digital services.

Generally, VAT shall be levied, assessed, and collected, equivalent to twelve percent (12%) of the gross sales derived by a Digital Service Provider (DSP) from its sale or exchange of services in the Philippines pursuant to Section 108 if the Tax Code. The phrase “sale or exchange of services” includes the supply or delivery of digital services by DSPs in the Philippines.

Digital services provided by a nonresident DSP shall be considered performed, rendered, supplied, or delivered in the Philippines during trade or business if such digital services are consumed in the Philippines. Hence, gross sales received by a nonresident DSP from the same shall be subject to twelve percent (12%) VAT pursuant to the provisions of Section 5 (b) of these Regulations. For this purpose, digital services are considered consumed or used in the Philippines if the buyer is located in the Philippines.

The following information, among others, may be used to determine whether the digital service is consumed or used in the Philippines:

  • A. Payment information (e.g., credit card information, bank account details); or
  • B. Residence information of the buyer (e.g., home address, billing address); or
  • C. Access information (e.g., mobile country code of SIM card, Internet Protocol address); or
  • D. Any other information to establish the most reliable determination of the buyer’s location (e.g., business agreement, predominant place of consumption, language of digital content supplied).

However, if such information is contradictory, the DSPs should obtain at least two pieces of non-conflicting evidence where the service is consumed.

DSPs shall comply with the following administrative requirements:

  • A. Residents DSPs shall register with the BIR following the policies and procedures under Section 236 of the Tax Code and other existing relevant laws, rules and regulations.
  • B. Nonresident DSPs shall register with the BIR within the period prescribed under Section 236 of the Tax Code through the VAT on Digital Services (VDS) Portal and submit the prescribed information therein.

    In registering with the BIR, a nonresident DSP need not have a local representative in the Philippines. However, it may appoint a resident third-party service provider (an individual or entity, such as a law firm, accounting firm, or consultancy firm) for purposes of receiving notices, record keeping, filing tax returns and other reporting obligations. In this case, the nonresident DSP shall notify the BIR in writing of the same within thirty (30) calendar days from date of appointment. For VAT purposes, the appointment of a third-party service provider shall not classify the nonresident  DSP as a non resident foreign corporation doing business in the Philippines.

    A Certificate if Registration containing assigned Taxpayer Identification Number (TIN) and type of registration shall be issued to the registering nonresident DSP, which shall be used in all its transactions pertaining to supply or delivery of digital services consumed or used in the Philippines.

    The suspension of business operations in the Philippines and penalties under Sections 12 and 13 of these Regulations shall be imposed upon nonresident DSPs who failed to register for VAT.

DSPs shall apply the following rules in filing their tax returns and payment and remittance of VAT under there Regulations:

  • A. Resident VAT -registered DSP
    The resident VAT-registered DSP, whether or not its buyer is engaged in business, shall file the VAT return and pay the VAT due thereon following the policies and procedures under Title III of the Tax Code and other existing relevant laws, rules and regulations.

    However, if the resident VAT-registered DSP is classified as an e-marketplace with nonresident participating merchant, or seller, it shall be also be liable for: (i) electronically filing the required remittance return; and ii) withholding and remitting the twelve percent (12%) VAT due on the gross sales received by its nonresident participating merchant or seller relating to sale of digital services consumed or used in the Philippines within ten (10) days following the end of the month the withholding was made in accordance with Section 108 (A) and 114 (C) of the Tax Code.

  • Nonresident VAT-registered DSP
    • a. Business-to-business (B2B) transaction

      In a B2B transaction, the persons engaged in business, including the political Government of the Philippines or any of its political subdivisions, instrumentalities or agencies, including Government-Owned and Controlled Corporations (GOCCs), shall be liable for: (i) electronically filing the required remittance return; and (ii)withholding and remitting the twelve percent (12%) VAt due on its purchase of digital services consumed or used in the Philippines within ten (10) days following the end of the month the withholding was made in accordance with Sections 108 (B), 114 (C) and (D), and 245 (j) of the Tax Code. The withheld VAT shall be considered as input VAT or part of the cost or expense, as the case may be, on the part of the withholding buyer

    • b. Business-to-consumer (B2C) transaction

      In a B2C transaction, the nonresident VAT registered DSP shall be directly liable for: (i) electronically filing the VAT return; and ii) paying the VAT due thereon through simplified pay-only regime in the VDS Portal based on its gross sales relating to the sale of digital services consumed or used in the Philippines within twenty-five (25) days following the close of each taxable quarter, in accordance with Sections 108-B and 114 (A) of the Tax Code.

      Nonresident VAT-Registered DSPs may choose to pay the VAT due on a monthly basis if they deem so convenient. However, should they choose to file the VAT return and pay the tax due thereon on a monthly basis, they are still required to file the quarterly tax return and pay the corresponding VAT liabilities as mandated under the Tax Code.

Furthermore, if the nonresident DSP is classified as an e-marketplace, it shall also be liable for: (1) electronically filing the VAT return; and (2) paying the twelve percent (12%) VAT due thereon based on the gross sales received by its nonresident participating merchant or seller relating to sales of digital services consumed or used in the Philippines within twenty-five (25)days following the close of each taxable quarter in accordance with Section 108 (B) of the Tax Code: Provided, that it has control on the key aspects of the supply and:

    • sets, directly or indirectly, any of the terms and conditions under which the supply of digital services is made (i.e., price, payment terms, delivery conditions); or
    • ii. is involved, directly or indirectly, in the ordering or delivery of digital services, that is, having influence over the conditions of delivery, transmission of approval to supplier, and provision of order fulfillment services.

All electronic payments and remittances of Philippine taxes under these Regulations shall be in the Philippine Peso. For this purpose, VAT shall be calculated by multiplying the value of the digital services rendered in the Philippine Peso by the VAT rate of twelve percent (12%).

In the preparation of the relevant tax returns and the payment and remittance of taxes as prescribed above, DSPs and the Philippine buyers are required to determine whether  its contracting party is engaged in business. Each of the DSPs and buyers may rely on the documents and/or information (e.g., Tax Identification Number or TIN) submitted by its contracting party and shall be absolved from any tax liability, absent any fraud or negligence on the part of such relying party.

In cases where a DSP, acting in good faith and having made reasonable efforts to obtain the appropriate evidence, is unable to establish the status of its buyer, it shall be obliged to file the tax return and remit or pay the tax due, pursuant to  the prescribed rules and procedures above.

In case of late filing of tax returns and/or payment or remittance of taxes, there shall be imposed, in addition to the tax required to be paid, interest, surcharge, and penalties upon violating DSPs in accordance with the Tax Code and other existing rules and regulations.

  • C. Unregistered Nonresident DSPs
    In a B2B transaction, such persons engaged in business, including the Government of the Philippines or any of its political subdivisions, instrumentalities or agencies, including GOCCs, shall be liable for: i) electronically filing the required remittance return; and ii) withholding and remitting the twelve percent (12%) VAT due on its purchase of digital services consumed in the Philippines to the BIR within ten (10) days following the end of the month the withholding was made in accordance with Section 114 (C) of the Tax Code and Section 4.114 of Revenue Regulations (RR) No. 2-98, as amended.

DSPs shall apply the following rules in claiming input tax under these Regulations:

  • A. Resident VAT-registered DSPs
    • a. Puchase or importation of goods or properties which shall be creditable to the purchaser upon consummation of sale and on importation of goods or properties; and to the importer upon payment of the VAT prior to the release of the goods from the custody of the Bureau of Customs; and
    • b. Purchase of services, lease, or use of properties which shall be creditable to the purchaser, lessee, or licensee upon payment of the compensation, rental, royalty, or fee
  • B. Nonresident VAT-registered DSPs

    Non resident VAT-registered DSPs shall not be allowed to claim creditable input tax.

  • C. VAT-registered buyer
    Only VAT-registered buyers are entitled to claim input taxes. Non-VAT registered buyers may claim the same part of the cost. These VAT-registered buyers may claim the same part of the cost. These VAT-registered buyers can utilized the filed withholding VAT return as proof to support their claim for input VAT.

DSPs shall apply the following rules in the issuance of sales or commercial invoices under these Regulations:

  • A. Resident VAT-registered DSPs

    Resident VAT-registered DSPs shall issue sales or commercial invoices for every sale, barter, or exchange of digital services under Section 113 of the Tax Code.

  • B. Nonresident VAT-registered DSPs

    For nonresident VAT-registered DSPs supplying or delivering digital services that are consumed or used in the Philippines, the following information shall be indicated in the invoice in lieu of the requirements under Section 113 (B) paragraphs 1-4 of the Ta Code:

    • a. Date of the transaction;
    • b. Transaction reference number;
    • c. Identification of the buyer (including the TIN, if any);
    • d. Brief description of the transaction; and
    • e. The total amount within the indication that such amount includes VAT.

      Sales or commercial invoices issued by nonresident VAT-registered DSPs may be electronic and need not be registered with the BIR: Provided, however, that the contents are in the English language or include an English translation and all the required information above are present in the issued invoices. Consequently, nonresident VAT-registered DSPs are not required to secure an Authority to Print for the related invoices.

      In case the sale of digital services by a nonresident VAT-registered DSP includes some services, which are subject to VAT, and some are VAT zero-rated  or VAT-exempt, the invoice shall clearly indicate the breakdown of the sale price by its taxable, VAT-exempt, and VAT zero-rated components. The calculation of the VAT on each portion of the sale shall be shown on the invoice.

      In case a nonresident DSP is classified as an online marketplace or e-marketplace under Section 2(C)(2) of these Regulations, it shall issue the relevant sale or commercial invoice following the rules prescribed fro nonresident VAT-registered DSPs.

All persons subject to VAT under Sections 106 and 108 of the Tax Code shall maintain regular accounting records, including subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded. The requirements under this Section, however, shall not apply to nonresident VAT-registered DSPs.

The following digital service transactions shall be exempt from VAT:

  • A. Educational services, including online courses, online seminars and online trainings rendered by private educational institutions, duly accredited by the Department of Education (DepEd), the Commission on Higher Education (CHED), the Technical Education and Skills Development Authority (TESDA), and those rendered by government educational institutions;
  • B. Sale of online subscription-based services to DepEd, CHED, TESDA and educational institutions recognized by said government agencies; and
  • C. Services of bank, non-bank financial intermediaries performing quasi-banking functions, and other non-bank intermediaries that are rendered through different digital platforms. This includes Virtual Asset Service Providers (VASPs) registered and classified by BSP as Non-Bank Financial Institutions.

    Other VASPs, however, including businesses involved in the participation and provision of financial services related to issuer’s officer and/or sale of a Virtual Asset shall be subject to the provisions of the Act and these Regulations

All the parties to the B2B and B2C transactions that are within the taxing jurisdiction of the Philippines shall be subject to post-audit and examination by the BIR pursuant to the provisions of the Tax Code and its implementing revenue issuances.

For nonresident DSPs, BIR may also conduct verification from third-party sources on whether they are correctly declaring their gross sales and that of their customers for VAT purposes. The BIR shall inform the nonresident DSP of any discrepancy discovered and provide them opportunity to immediately settle it; otherwise, they shall be held liable under Sections 12 (on the Suspension or Closure of Online Business Operations) and 13 (Penalties) of these Regulations.

The Commissioner of Internal Revenue or his duly authorized representative, upon verification that any DSP fails to: (a) register its business with the BIR; and (b) comply with the provision of these Regulations, has the authority to issue a Closure or Take Down Order to close the business operations of such covered persons engaged in business in accordance with applicable rules and regulations

The Closure or Take Down Order shall include the blocking of digital services performed or rendered in the Philippines by a DSP which shall be implemented by the Department of Information and Communications Technology, through the National Telecommunications Commission. Failure to cooperate by the concerned persons shall be constructed as an intentional and overt act that shall aggravate the offense charged.

The closure of business operations under a duly approved Closure or Take Down Order shall not preclude the BIR from filing the appropriate administrative and criminal sanctions against the persons concerned if the evidence so warrants, or in the case of juridical entities, against its responsible officers, under the Run After Tax Evaders Program of the BIR.

All nonresident DSPs required to register under Section 5 of these Regulations shall register or update with the BIR within sixty (60) days from the effectivity of the Regulations through the VDS Portal and shall immediately be subject to VAT after 120 days from the effectivity of these Regulations.