In case you missed it, digital services in the Philippines are now subject to 12% Value Added Tax (VAT) by the Bureau of Internal Revenue (BIR).

If you’re a digital service provider selling software, subscriptions, ads, or even physical goods via an online marketplace, you’ll need to comply.

Got questions about this new requirement and the relevant law mandating the additional tax?

Let’s go through the most frequently asked questions, starting with:

1. What exactly is the VAT on digital services?

Republic Act No. 12023 introduces a 12% VAT on digital services within the Philippines. This new law affects both local and foreign digital service providers (DSP).

The law defines “digital service” broadly to include:

• Subscription-based platforms such as HBO Max, Netflix, Spotify, Apple Music
• E-marketplaces and platforms like Lazada and Shopee
• Cloud services including Google Drive and Amazon Web Services
• Digital advertising through channels like Facebook Ads and Google Ads
• Other services delivered automatically via the internet

However, there are exceptions to the new tax on digital services, such as:

• Educational services delivered by the Department of Education, Commission on Higher Education, as well as institutions accredited by the Technical Education and Skills Development Authority.
• Subscription fees paid to educational and government institutions (e.g. online access to libraries, learning materials)
• Certain financial services already exempt from VAT according to the Tax Code (e.g., loan services, foreign currency exchange, credit card issuing)
• In-house use of software/platform for a business (not sold publicly)

2. Since when did the new VAT on digital services come into effect?

The VAT on digital services became effective on October 2, 2024. The BIR released Revenue Regulations (RR) No. 3‑2025  on January 17, 2025 to provide implementing rules and guidelines.

Since then, BIR also released additional memorandum circulars to further clarify how the new law will be enforced:

• RR No. 014-2025 amends RR No. 3-2025 to give foreign DSPs until June 1, 2025 to register with the BIR. VAT collection begins on June 2, 2025.
• Revenue Memorandum Circular 047-2025, provides clarifications on several provisions of RR No. 3-2025.

3. Who is responsible for collecting and remitting the VAT?

Depending on the specific circumstance, here’s how to know who is liable to pay for the 12% VAT:

• Resident DSPs providing digital services to local consumers in the Philippines are taxed like any VAT-registered local business. The customer buying the digital service pays the seller a contract price inclusive of VAT.
• Non-Resident DSPs with B2C sales to local consumers must register, collect VAT, and remit via BIR returns.
• Online marketplaces acting as facilitators—controlling billing, delivery, sales terms—are considered suppliers and responsible for collecting VAT on B2C transactions.
• In B2B transactions involving a VAT-registered local business procuring digital services from abroad, the local business is responsible for handling VAT payment to BIR via the reverse-charge mechanism.

4. Which non-resident DSPs must register with BIR?

Any non-resident DSP with gross sales to Filipino consumers over ₱3 million in the past 12 months—or reasonably expected to exceed that—must register.

In addition, non-resident DSPs with purely B2B transactions are required to file their tax returns to the BIR using Form No. 2550-DS. Here are BIR’s guidelines for complying with this requirement.

5. How should non-resident DSPs register with BIR?

Registration will be facilitated through the BIR’s new VAT on Digital Services (VDS) portal.

Pending the completion of this platform, registration can be done via the Online Registration and Update System (ORUS).

As of writing, ORUS is undergoing maintenance.

The following information is required during registration:

• Name of business entity, including trade name
• Name of the authorized representative, and Taxpayer Identification Number (TIN) in case of local authorized representative, responsible for tax administration, if any
• Registered foreign address; and contact information of the NRDSP (e.g., Contact number, email address)
• For documentary requirements: any official registration document issued by an authorized government regulatory body in the country where the foreign DSP was incorporated or organized.

6. Are there specific invoicing requirements for non-resident DSPs?

While there’s no prescribed form or template for the invoice, the following information must be stated:

• Date of transaction
• Transaction reference number
• Identification of the consumer (for B2B transactions, TIN must be included)
• Brief description of the transaction
• Total amount of transaction which is inclusive of VAT

Take note: In B2B transactions, if the non-resident DSP is unable to include the specific VAT amount in the invoice, there must be a footnote/annotation expressly stating that the Philippine business procuring the service is responsible for accounting and remitting the 12% VAT.

7. Can non-resident DSPs claim input VAT credits?

Non-resident DSPs cannot claim creditable input tax.

8. How can non-resident DSPs verify if the buyer is engaged in business for VAT purposes?

Non-resident DSPs can verify if the buyer is engaged in business by:

• Getting information on the buyer’s TIN
• Providing a questionnaire or a tick box in their site or platform, where customers can confirm whether or not they’re engaged in business in the Philippines
• Requesting business registration documents, such as a BIR Certificate of Registration.

9. When non-resident DSPs provide digital services to registered business enterprises under an investment promotion agency (IPA) like PEZA/BOI or registered export enterprises under sections 106 and 108 of the Tax Code, is VAT still applicable?

Generally speaking, no. According to BIR Memorandum Circular No. 47-2025, there’s VAT exemption if the digital services rendered by the foreign DSP are directly attributable to:

• Registered business activity/project of the IPA-registered business entity
• Export activity of the registered export enterprise

10. When physical goods are purchased through an online marketplace, and there is a separate fee for the use of the online marketplace, how is VAT applied?

According to RR No. 2025, the separate fee for the use of an online marketplace/platform is subject to VAT since this is classified as a digital service.

However, the Digital Services Act doesn’t cover VAT for supply and delivery of physical goods per se — which are already subject to existing customs, duties, and other taxes by the Bureau of Customs.

11. Do non-resident DSPs need to have a local representative in the Philippines to register with the BIR?

The BIR doesn’t require a local representative. Non-resident DSPs may appoint a third-party service provider (examples: a natural person or a juridical entity, such as an accounting firm or law firm).

For VAT purposes, appointing a third-party representative will not classify the non-resident DSP as a resident foreign corporation in the Philippines.

Got more questions on the new VAT on digital services?

If you have more questions about complying with the new law, don’t hesitate to reach out to our team at Loft.

We help local and foreign businesses sort out their registration requirements here in the Philippines.

Want to make business registration and compliance hassle-free? Get in touch with us below.

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