The digital economy in the Philippines has seen remarkable growth, particularly during the pandemic when nearly all services and transactions shifted online. Even after the pandemic, this upward trend continues as Filipinos increasingly prefer the convenience offered by digital platforms, driving sustained demand for foreign Digital Services Providers.
Tax on Digital Services Providers
With the rapid growth of Philippine digital economy, President Ferdinand Marcos Jr. signed into law Republic Act (“RA”) No. 12023 on 02 October 2024, which amended certain provisions of the National Internal Revenue Code (“Tax Code”). The law aims to ensure that all entities that benefit from Philippine consumers contribute equitably to the national tax system. In fact, other southeast Asian countries like Singapore, Malaysia, and Indonesia have been imposing VAT on digital service providers since 2020, while Thailand started imposing the same in 2021.
Through Section 3 of R.A No. 12023, digital service providers (“DSP”), whether resident or nonresident, are now liable for value-added tax (“VAT”) on digital services consumed in the Philippines. Hence, the gross sales derived by a DSP from its sale and exchange of services in the Philippines are subject to twelve percent (12%) VAT. For nonresident DSP, its gross sales from digital services consumed in the Philippines, are subject to twelve percent (12%) VAT. Such nonresident DSPs shall be subject to VAT after one hundred twenty (120) days from effectivity of the RR No. 003-2025, the implementing rules and regulations of R.A No. 12023, or on 02 June 2025.
Registration of Nonresident DSP
The law further mandates DSPs to register with the BIR. Section 5(B) of RR No. 003-2025 states that nonresident digital service providers shall register with the BIR through VAT on Digital Services (“VDS”) Portal. This was amended by Section 2 of RR No. 014-2025, which now gives nonresident DSPs the option to register through Online Registration and Update System (“ORUS”).
Section 5 of R.A No. 12023 provides that a nonresident DSP need not have a local representative in the Philippines. However, it may appoint a resident third-party service provider such as a law firm, accounting firm, or consultancy firm, for purposes of receiving notices, record keeping, filing of tax returns, and other reporting obligations. Should the nonresident DSP decide to appoint a resident third-party service provider, it shall notify the BIR within thirty (30) calendar days from date of appointment.
Non-Compliance of Nonresident DSP
RR No. 014-2025 extended the period of registration from 01 April 2025 to 01 June 2025 for nonresident digital service providers through the VDS Portal or ORUS.
With this in mind, should the nonresident DSP fail to register with the BIR or comply with the provisions of these laws, the Commissioner of Internal Revenue has the authority to issue a Closure or Take Down Order which shall include blocking of digital services performed in the Philippines. Further, the Closure or Take Down Order will not prevent the BIR from filing the appropriate administrative, civil, and criminal sanctions against the persons concerned or in case of juridical entities, its responsible officers, under the Run After Tax Evaders Program.
Any violation of the provisions of RR No. 003-2025 shall be subject to the imposition of penalties and institution of appropriate criminal, civil, and administrative charges against erring DSPs and their responsible offices under the Tax Code, existing laws, rules, and regulations.
How Can Our Firm Help
We are dedicated to ensuring compliance with both local and international tax laws. Our experienced legal team can assist you with every step of the registration process, including preparation, evaluation, and submission of the necessary documents to the tax authorities.
Further, our legal team can provide continuing guidance to help ensure compliance and conduct thorough tax due diligence in accordance with all applicable tax laws.
