VAT on Digital Services in the Philippines: What RA 12023 Requires

The Philippines now imposes value-added tax on digital services supplied by resident and nonresident providers. Under Revenue Regulations No. 3-2025, which implements Republic Act No. 12023, VAT is levied at twelve percent (12%) on the gross sales derived by a digital service provider (DSP) from its sale or exchange of services in the Philippines. A digital service is considered consumed or used in the Philippines if the buyer is located in the Philippines — so foreign providers selling to Philippine customers are covered.

What counts as a digital service

Under RR No. 3-2025, digital services refer to any service supplied over the internet or other electronic network using information technology, where the supply is essentially automated.

The regulations list examples including online search engines, online marketplaces or e-marketplaces, cloud services, online media and advertising, online platforms, and digital goods. Digital goods are intangible goods delivered in digital form — sounds, images, data, facts, or combinations of these — such as downloaded music, videos, software, applications, e-books, digital media, e-games, and online courses.

The list also covers subscription-based content, software services and maintenance, digital data storage, e-learning platforms, online consultations through a digital platform, payment processing, and virtual assets.

Who is covered — and who must register

The rules cover persons, whether individual or juridical, resident or nonresident, who in the course of trade or business supply or deliver digital services in the Philippines.

A nonresident DSP is a supplier with no physical presence in the Philippines. A resident DSP is any DSP not classified as nonresident.

On registration, RR No. 3-2025 provides:

• Resident DSPs register with the BIR following existing policies and procedures under the Tax Code and other relevant rules.
• Nonresident DSPs register with the BIR through the VAT on Digital Services (VDS) Portal and submit the prescribed information there.

A nonresident DSP need not have a local representative. It may appoint a resident third-party service provider — such as a law firm, accounting firm, or consultancy — for notices, record keeping, and filings, and must notify the BIR in writing within thirty (30) calendar days from the appointment. For VAT purposes, that appointment does not classify the nonresident DSP as a nonresident foreign corporation doing business in the Philippines.

How the VAT is paid: B2B and B2C rules

The regulations distinguish two transactions.

In a business-to-business (B2B) transaction, the Philippine buyer engaged in business — including government offices, political subdivisions, instrumentalities, agencies, and GOCCs — withholds and remits the 12% VAT on its purchase of digital services consumed in the Philippines, within ten (10) days following the end of the month the withholding was made.

In a business-to-consumer (B2C) transaction, the nonresident VAT-registered DSP is directly liable to file the VAT return and pay the tax through a simplified pay-only regime in the VDS Portal, within twenty-five (25) days following the close of each taxable quarter. Monthly payment is allowed, but the quarterly return must still be filed.

If the nonresident DSP is classified as an e-marketplace, it is also liable for the VAT on gross sales received by its nonresident participating merchants or sellers, provided it controls the key aspects of the supply — such as setting the terms and conditions of the supply, or being involved in the ordering or delivery of the digital services.

Tax-exempt digital services

RR No. 3-2025 exempts certain transactions, including:

• Educational services such as online courses, seminars, and trainings rendered by private institutions duly accredited by DepEd, CHED, or TESDA, and those rendered by government educational institutions.
• Online subscription-based services sold to DepEd, CHED, TESDA, and educational institutions recognized by those agencies.
• Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank intermediaries rendered through digital platforms, including Virtual Asset Service Providers registered and classified by the Bangko Sentral ng Pilipinas. Other VASPs — including businesses involved in the participation and provision of financial services related to an issuer's offer or sale of a virtual asset — remain subject to VAT.

What happens if a provider does not register

Nonresident DSPs that fail to register for VAT face suspension of business operations and penalties. The Commissioner of Internal Revenue may issue a Closure or Take Down Order, implemented with the Department of Information and Communications Technology through the National Telecommunications Commission, blocking digital services performed or rendered in the Philippines.

Late filing or payment of taxes also carries interest, surcharge, and penalties under the Tax Code and existing rules.

Frequently asked questions

Does VAT on digital services apply to foreign companies with no office in the Philippines? Yes. A nonresident DSP with no physical presence in the Philippines is covered if it supplies digital services consumed in the Philippines, and it registers through the VDS Portal.

How much is the VAT on digital services? Twelve percent (12%) of gross sales from the sale or exchange of digital services in the Philippines.

Who pays the VAT — the provider or the buyer? In B2C transactions, the nonresident DSP pays. In B2B transactions, the Philippine business buyer withholds and remits the VAT.

Practical takeaways

• VAT on digital services is 12% of gross sales, and applies where the buyer is located in the Philippines.
• Nonresident DSPs register through the BIR's VDS Portal; a local representative is not required, but a third-party service provider may be appointed.
• B2B buyers withhold and remit within ten days after month-end; nonresident DSPs in B2C transactions pay quarterly within twenty-five days after the quarter closes.
• Accredited educational services and covered financial intermediary services are exempt.
• Failure to register can lead to a Closure or Take Down Order and penalties.

Primary sources

The rules discussed above are drawn from the following issuances, embedded here in full for your reference.

RMC No. 06-2003 — Clarifies certain issues relative to the services rendered by individual professional practitioners, general professional partnerships, entertainers and professional athletes who are subject to the Value-Added Tax or Percentage Tax beginning January 1, 2003 Digest | Full Text | Annex AOpen in Law LibraryDownload PDF

INFINITY8NETWORKS DIGITAL SERVICES OPC and INFINITY8NETWORKSOpen in Law LibraryDownload PDF

RR No. 3-2025 — Prescribing policies and guidelines for the implementation of Republic Act No. 12023 entitled "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 on Digital Services. (Date Posted: January 17, 2025)Open in Law LibraryDownload PDF

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.