In more detail

The final version of the legislative bill, as approved by the Bicameral Conference Committee, contains the following salient provisions:

• Digital services rendered in the course of trade or business are now expressly covered by the enumeration of transactions subject to VAT.
• Digital services delivered by non-resident DSPs are considered performed or rendered in the Philippines if the digital service is consumed in the Philippines.
• "Digital service" is defined as "any service that is supplied over the Internet or other electronic network with the use of information technology and where the supply of the service is essentially automated.” This specifically includes any of the following:

1. Online search engines.
2. Online marketplace or e-marketplace.
3. Cloud service.
4. Online media and advertising.
5. Online platform.
6. Digital goods.

• "DSP" is then defined as a resident or non-resident supplier of digital services to a consumer who uses digital services subject to VAT in the Philippines.
• Specifically, "non-resident DSP" is defined as a DSP that has no physical presence in the Philippines.
• Persons engaged in the sale of digital goods or services shall be required to be VAT-registered:

1. If their gross sales for the past 12 months, other than VAT-exempts sales, have exceeded the VAT threshold (currently PHP 3 million); or (b) if there are reasonable grounds to believe that their gross sales, other than VAT-exempt sales, will exceed the VAT threshold. The Bureau of Internal Revenue (BIR) shall establish a simplified automated registration system for non- resident DSPs.

• As a general rule, a DSP, whether resident or non-resident, shall be liable for assessing, collecting, and remitting VAT on the digital services consumed in the Philippines if the customer is non-VAT registered (i.e., business-to-consumer transaction). Thus, the VAT-registered non-resident DSP is liable for the remittance of VAT to the BIR.    
• However, if the customer is VAT-registered (i.e., business-to-business transaction), the customer will instead be required to withhold and remit to the BIR the VAT due on the digital services consumed in the Philippines from non-resident DSPs, under the “reverse-charge mechanism” in the bill.
• If the DSP is an online marketplace or e-marketplace, it shall be liable to remit to the BIR the VAT on the transactions of non-resident sellers that go through its platform, provided that the DSP controls key aspects of the supply and performs either of the following:

1. Sets, either directly or indirectly, any of the terms and conditions under which the supply of goods is made.
2. Involved in the ordering or delivery of goods, whether directly or indirectly.

• Online courses, online seminars and online trainings rendered by private educational institutions duly accredited by the DEPED, CHED and TESDA, and those rendered by government educational institutions, as well as the sale of online subscription-based services to DEPED, CHED, TESDA and educational institutions recognized by these government agencies, shall be included in the enumeration of VAT-exempt transactions under the Philippine Tax Code.
• Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries, including those rendered through the different digital platforms, will also be exempt from VAT.
• However, non-resident DSPs shall not be allowed to claim creditable input tax.
• A VAT-registered non-resident DSP shall be required to issue a digital sales or commercial invoice for every sale of digital service. The invoice shall indicate the following information:

1. Date of the transaction.
2. Transaction reference number.
3. Identification of the consumer.
4. Brief description of the transaction.
5. Total amount, with the indication that such amount includes the VAT.
6. Breakdown of the sale price by its taxable, VAT-exempt and VAT zero-rated components, and the calculation of VAT on each portion of the sale.

• VAT-registered non-resident DSPs shall be exempt from the requirement of maintaining subsidiary sales and purchases journals under the Philippine Tax Code.
• Payments for services to non-resident suppliers who are not VAT-registered shall be subject to 12% withholding VAT at the time of payment.
• The Commissioner of Internal Revenue may suspend the business operations of non-resident DSPs in the Philippines by blocking the digital services performed or rendered in the Philippines. This will be implemented through the Philippine Department of Information and Communications Technology (DICT) and the National Telecommunications Commission (NTC).
• The Secretary of Finance may require the withholding of percentage taxes imposed under the Philippine Tax Code. In the context of the forthcoming law, this implies that digital services that are not subject to VAT may still be subjected to the applicable percentage tax under the current provisions of the Tax Code through a subsequent revenue regulation.
• Five percent of the incremental revenue from the imposition of VAT on DSPs shall be allocated to and used exclusively for the development of creative industries, as defined under Republic Act No. 11904 (The Philippine Creative Industries Development Act), for the first five years of the effectivity of the law.
• Any communication, notice or summons to a non-resident DSP can be made via electronic mail messaging.

Next steps

Once signed by the president, the law shall take effect 15 days after its publication in the Official Gazette or in a newspaper of general circulation.

Thereafter, the Department of Finance, upon recommendation of the BIR and in coordination with the DICT and the NTC, and upon consultation with the stakeholders, shall issue the implementing rules and regulations (IRR) of the law not later than 90 days from the effectivity of the law.

Non-resident DSPs shall be subject to VAT after 120 days from the effectivity of the IRR.

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